Edison Investment Research Limited
London, UK, 19 November 2020
Stern Groep (STRN): Lower profitability in Q3
Stern reported a 5% reduction in revenues in its Q3 trading update. Profitability lagged, especially because of COVID-19 related effects in workshop utilisation and car repair. Stern did not use the Dutch government support package NOW2 in Q3, but is considering making use of NOW3, which could have an impact on the performance for the rest of the year. We have made small downward changes to our FY20 estimates on the back of the Q3 results, but maintain our 2021 estimates as we continue to expect a recovery post COVID-19. At an FY21e P/E of 9.4x that implies a 27% discount to peers, Stern still looks undervalued
Despite the weaker Q320 and lower FY20e estimates, we still believe that Stern's profitability could recover towards 1.3% EBIT margins in FY21e as COVID-19 effects become less pronounced and the 2020 investments in restructuring and the online repositioning of One Stern bear fruit. Trading at a P/E multiple of 9.4x on our unchanged FY21 estimates compared to the peer group average of 12.8x, the stock continues to look undervalued. On top of this, Stern has a participation in car insurer Bovemij that has a market value of €3.17 per Stern share.
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