Special Situations: Italia Independent
BUY
IIG IM: Eur 31.45 - 4/5-year target: Eur 90 www.italiaindependentgroup.com<http://www.italiaindependentgroup.com>
August 20, 2013
Italia Independent is a fast growing small cap stock with great ambitions. The company under its present form was founded in 2008 by Lapo Elkann as a lifestyle brand firm focusing on eyewear. From the company's website:
"The mission and philosophy of Italia Independent are largely described by its name. Italy is not only the place where the company is based and operates, but it's also the main inspiring place and the moving force of the brand. I-I is a brand that aims to reload Made in Italy and create "Made in Italy 2.0". This claim and this philosophy are by no means the denial of over more than twenty years' work by those who built up "Made in Italy". I-I wants to update Made in Italy, giving it a new force. Stereotypes need to be left behind and tuned into the fast-moving global world. A reloading is needed: reshaping concepts with the aim of acquiring updated information. Adding innovation to tradition. Quality is no longer enough. Quality is no longer sufficient for the independent individual. Today a product or brand is perceived as new only if its materials and functionalities are innovative, without however jeopardizing its true Italian roots. Italia Independent believes that creativity today lies in remixing different experiences and styles. The association of materials from different origins and the fusion of tradition with innovation are the project's philosophy and values. We strongly believe that our brand, although focused on eyewear, should be 360-degree effective from clothing to home decor, from glasses to cars, and this is what we do."
Lapo Elkann is the grandson of Gianni Agnelli, and brother of John Elkann, the current chairman of Fiat and Exor. While being manager of brand promotion at Fiat, Lapo was given credit for the reinvention of the Fiat 500.
Italia Independent was IPOed in June 2013 at Eur 28/sh. The shares rose to Eur 40 by the end of 2013 and have been correcting since then to the present level probably on lack of interest and liquidity post IPO. The current market cap is Eur 70m. The shares are illiquid and Lapo Elkann owns 52%. An investment in Italia Independent should be viewed as a long term venture capital-like investment.
As a start-up in a highly competitive market, we are impressed that the company broke even soon after it was started, and already exhibits substantial profitability. The company could approach Luxotica's ebitda margins by 2016 and exceed those of Safilo, the two world leaders in eyewear. At 1x ev/sales (2016), and given a more than 20% annual growth expected over the next 2-3 years, the shares appear undervalued and are a call option on Lapo Elkann's succeeding in making Italia Independent a major lifestyle brand. Assuming that revenues reach Eur 100m (a modest figure compared to 11bn for Luxotica and more than 1bn for Safilo) in 4-5 years with 10% net margins, we believe the company could reach a market value in excess of Eur 200m, or about 3x the current value.
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