Interesting update from BNP Paribas professional publishing research division turned up in our inbox yesterday…
They appear to be advising us to dump our (imaginary) Reed Stock and buy (even more imaginary …here at HOB) Wolters Kluwer Stock.
This is what they write in their update:
Bonjour,
please find enclosed an update on Wolters Kluwer following further contact with the company.
We highlight that
Additional cost savings from Springboard
Wolters Kluwer has increased its cost savings guidance for the Springboard’ programme from a previous range of run-rate savings of EUR50m-75m to EUR120m in 2011. We believe this reflects both a conservative financial communication as well as the expansion of the scope of certain offshoring and IT rationalisation projects.
More active approach to Health assets
Management also announced that it would divest or discontinue certain assets within the perennially underperforming Health division. We estimate the revenue loss at around 10-15% of Health revenues. This more aggressive attitude toward managing the Health portfolio is a step forward, in our view.
Sales warning offset by forex and acquisitions
On the other hand, we have cut our organic revenue forecast for FY08-09 to 1% from 3% previously as transactional revenues in CFS and destocking in Health textbooks are putting more pressure on growth than previously expected. This slowdown in growth is offset by movements in the EUR/USD and the impact of the latest acquisitions.
Trading buy opportunity
We are 3% below consensus for FY09e and remain Neutral on the stock.
However, we see a trading buy opportunity, assuming the share price has already captured the deterioration in organic revenue growth but has not yet captured the benefit of the additional cost savings announced yesterday or the positive effect of the reshuffling of the Health portfolio. We estimate that Wolters Kluwer offers a FY08e FCF yield of 10% and trades at
a FY08e P/E of 10.1x, broadly in line with its peer group but at a discount to Reed Elsevier’s 7% FY08e FCF yield.
We would switch out of Reed Elsevier into Wolters Kluwer.
