TheChek News Flow

The prospect of a possible sale of Nokia's mapping asset (HERE) - widely speculated

now at $4bn (Bloomberg 19/5/15) or 2.9x '16E revenue clearly underscores the

strategic value in mapping assets including TomTom. In this note we assess what the

scenarios are for the industry and what the differences are between TomTom and HERE

to derive a value of TomTom. We recognised at the end of 2014 that M&A would be a

driver in mapping in 2015, and this formed part of the reason for us upgrading at the

time from Sell to Neutral. Our analysis now suggests on a sum of the parts basis a

TomTom value of €10.2/share and we remain Neutral.

We see a number of positives in TomTom in addition to the value perceived in mapping

including: 1) Strong automotive bookings driving revenue beyond 2015; 2) According

to our analysis, every 2% increase of content & services as % of sales has a positive

impact of 119bps on gross margin and we expect product mix to improve going

forward; and 3) If Nokia HERE is being acquired by a car manufacturer consortium,

TomTom will become the last independent map data provider.

We increase our automotive revenue forecast by 20%/44%, respectively, in '16E/'17E

on the back of strong order bookings, increasing our gross profit by 5%/11% in

'16E/'17E.

As is generally the case, management teams of acquiring companies tend to have a

more optimistic view of the strategic longer-term value than our fundamental view of

the value of the cash flow inherent in companies (evidenced in both CSR/Transmode

acquisitions) – arguably reflective of the low cost of financing currently. We believe

TomTom – driven up by M&A in the sector - is the same, and there is an increasing

disconnect between our fair value and others' view of its strategic value. This makes

valuing the entity difficult (the stock is implying c.11% EBIT margins vs 7% '15E). In this

note we revisit this, but we remain Neutral.