Salvatore Ferragamo SpA (SFER.MI) — Tax Benefit from Patent Box
Regime Drives Significant EPS Upgrade, TP Raised to €26.5 –
Reiterate Buy
Western Europe | Apparel, Accessories & Luxury Goods, Luxury Goods |
Buy
FY16-18E EPS raised by 14%/8%/7% to reflect adoption of favourable patent
box tax regime, TP raised to €26.5 — Last week Ferragamo announced the
conclusion of a renewable 5-year agreement for the “Patent Box” regime with
Italian tax authorities. A portion of the income generated from the direct and
indirect use of intangibles will be exempt from Italy’s ~31% corporate tax rate:
30% for FY15 (paid altogether with the FY16 tax reduction), 40% for FY16E and
50% for FY17-19E. We update our model accordingly and raise our FY16-18E
EPS by 14%, 8% and 7%, respectively. Based on our revised estimates and
sector multiple expansion since our last update, we update our valuation built on
a weighted average of: 1) DCF (50% weight, TP €23.2); and 2) sector peer
multiple (50% weight, TP €29.8). This points to a fair value of €26.5, the basis of
our new target price (raised from €23.0).