Brunel International2015usa.pan-european-days.com/wp-content/uploads/2013/08/... · 2015. 12. 2. · Brunel will rollout a new IT system, which should change the culture of the German

Brunel International August 2014

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Brunel International Biting the bullet

Company results 15 August 2014

We maintain our HOLD rating on Brunel, as uncertainties in the short term will prevent a re-rating, in our view. Concerns related to capex reductions in Energy, geopolitical risks in general, the IT roll-out in Germany and investments in growth in the Netherlands will first have to fade before we see room for further upside. We believe downside risk is also limited, following recent share price weakness. In the longer term, we believe Brunel offers attractive upside, as it is making the necessary investments in growth, while we continue to believe an exit with a bang is likely in two to three years.

Brunel reported a 13% miss on 2Q EBIT, posting €14.5m versus Reuters consensus of €16.7m. All divisions came in below our expectations. The Netherlands did well on revenues, but the gross margin disappointed and leverage was impacted by significant investments in the sales force. Germany was light on revenues and behind plan on strengthening the sales force, and Energy was impacted by capex cuts. The Project business, however, was stronger than anticipated. Despite this, the outlook for 2014 was maintained at 5-10% growth YoY for both revenues and EBIT, and this seems rather secure but without any upside.

The Netherlands continues to show strength in revenues and is fully focused on growth. Revenue growth in 2Q was 10%, and management has increased its sales force by 20% in 1H. This impacts operational leverage in the short term, but also offers upside for 2015 if the new sales people become fully productive. The 2Q gross margin disappointed due to mix and a larger number of independent contractors. We remain cautious in our projections; however, in case the Dutch recovery continues, we see upside to our new estimates.

Germany is going through a transition. Revenue growth was 0% YoY in 2Q, and growth in the number of account managers is behind plan, as we feared. However, this is due to higher attrition, which relates to the upcoming changes to the organisation. Brunel will roll out a new IT system, which should change the culture of the German organisation and lead it to become more commercial and more efficient. However, Brunel experienced resistance, resulting in higher attrition. Note that this roll-out also took place in the Netherlands in 2013 and yielded strong returns. As such, we acknowledge this transition is needed in order to bring double-digit growth again, but it is not without short-term risks. We also stress the much higher productivity of the Netherlands versus Germany, which offers upside in margins.

Energy is impacted by capex cuts and geopolitical uncertainties, which remain the key risk to our investment case. This is likely to be temporary, but visibility is low for now.

The valuation has become appealing after a 33% sell-off since 3 April, but we do not believe a re-rating will be triggered, given the risks and lack of visibility in the short term. Brunel is trading at a cash-adjusted 2015F PER of 13.6x and 2015F EV/EBITDA of 8.9x.

Forecasts and ratios

Year end Dec (€m) 2012 2013 2014F 2015F 2016F

Revenues 1,237 1,283 1,356 1,360 1,537 Normalised EBITDA 79 82 83 87 108 Normalised net profit 49 53 54 57 72 Normalised EPS (€) 1.03 1.10 1.10 1.15 1.45 Normalised PER (x) 17.0 15.9 16.0 15.2 12.1 EV/normalised EBITDA (x) 9.6 9.4 9.3 8.9 7.2 Dividend yield (%) 5.7 6.3 3.6 4.0 4.0

Source: Company data, ING estimates

Marc Zwartsenburg, CEFA Amsterdam +31 20 563 8721 [email protected]

Hold (maintained)

Price (14/08/14)

€17.50

Target price (12-mth)

€19.00 (previously €23.00)

Forecast total return 12.1%

Industrial Goods & Services Netherlands Bloomberg: BRNL NA Reuters: BRUN.AS

Share data

Avg daily volume (3-mth) 50,201 Free float (%) 34.3 Market cap (€m) 864.5 Net debt (1F, €m) (92) Enterprise value (1F, €m) 774 Dividend yield (1F, %) 3.6


Share price performance

5

10

15

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25

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8/09 8/10 8/11 8/12 8/13 8/14

PriceAEX All Share (rebased)

Source: ING

EQUITY RESEARCH

research.ing.com SEE THE DISCLOSURES APPENDIX FOR IMPORTANT DISCLOSURES & ANALYST CERTIFICATION


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Brunel Netherlands The Dutch recovery is gaining strength. Despite the more difficult comps, Brunel continued its double-digit revenue growth rate in 2Q. Also, the trend in the number of indirect employees (secondees) has seen quite an acceleration through the quarter. To accelerate growth further, Brunel has made significant investments in growth by adding, on a net basis, 20% more sales people, while trimming the back office further. In general, it takes six to nine months for new sales people to become fully productive. As such, this is an investment for growth in 2015. Assuming only 10% productivity in 3Q and 50% in 4Q, we still believe Brunel can maintain its double-digit growth rate in 2H14F, despite the tough comps.

Fig 1 The Netherlands: Indirect headcount development (secondees)

1,650

1,700

1,750

1,800

1,850

1,900

1,950

2,000

2,050

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013 2014

Source: Company data

Double-digit growth is what Brunel needs for 2015 in order to show operational leverage, as the gross margin is impacted negatively by mix due to the Finance segment growing fast while engineering is not showing growth. At the same time, Brunel also uses more independent contractors in order to supply the right skill set and to remain flexible themselves, given the more short-term contract within finance. Also, SG&A is increasing strongly due to investments, and this also increases pressure for double-digit revenue growth. Currently, we remain rather cautious in our revenue growth forecasts and pencil in 10% revenue growth for 2015F.

Fig 2 P&L breakdown (€m)

1Q13 2Q13 3Q13 4Q13 FY13 1Q14 2Q14 3Q14F 4Q14F FY14F FY15F FY16F

Brunel Netherlands Sales 38.6 38.5 39.1 43.9 160.1 44.3 42.4 43.8 48.9 179.3 197.2 217.0 Sales growth (%) -9.5 -3.8 1.0 8.1 -1.1 14.9 10.1 12.0 11.4 12.0 10.0 10.0 Gross profit 11.8 10.8 12.2 14.3 49.2 13.6 11.3 12.9 15.6 53.4 59.2 67.3 Gross margin (%) 30.7 28.1 31.2 32.6 30.7 30.7 26.7 29.5 31.9 29.8 30.0 31.0 EBIT 3.5 2.3 3.6 5.7 15.1 4.1 1.5 3.0 5.6 14.2 17.2 23.8 EBIT margin (%) 9.1 5.9 9.2 13.0 9.4 9.3 3.5 6.8 11.5 7.9 8.7 11.0


Brunel Germany In Germany, revenue growth slowed slightly in 2Q, with revenue growth coming in flat YoY on a same-day basis versus +4% in 1Q. Brunel expects to maintain this trend in 2H, given easy comps.

Recovery gains strength and Brunel adds 20% more sales people


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Fig 3 Germany: Indirect headcount development (secondees)

1,720

1,800

1,880

1,960

2,040

2,120

2,200

2,280

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013 2014

Source: Company data

Growth in the number of account managers, however, is behind plan, as we feared. This is not related to the hiring speed, but driven by higher attrition. This latter is triggered by the upcoming IT roll-out, which faced some resistance, especially among the more experienced or conservative account managers. The roll-out of the new software will result in better management information and fewer back office functions due to automation and improve the company’s commercial focus. Note that this roll-out was implemented in early-mid 2013 in the Netherlands and yielded good results in terms of growth and efficiencies. It does, however, imply more control on KPIs and more doing it yourself in terms of data entries. This will result in a new mind set and culture within the German organisation. Management, however, believes this is detrimental for the future growth and success of the German organisation. CEO Van Barneveld stated that growth is purely restrained by the organisation at the moment and not by the market. The official launch is due on 1 September and, as always, this does imply a risk in the short term, but also offers upside to growth and margins in the longer term. Note that the efficiency of the Dutch organisation is much higher versus Germany, as the Netherlands carries 0.5 back office FTE per account manager, while in Germany this is roughly 1 on 1.

Revenue growth for 2H14F and FY15F and beyond is difficult to estimate, given the short-term uncertainty of the impact of the IT roll-out and the softness seen in the German economy. We forecast a rather stable growth trend also in 2H14F and then a cautious acceleration into 2015F, which is more geared to 2H15F. In case the IT roll-out is a success, we see upside to our 2015F growth estimate of 7.5%.



Brunel Germany Sales 49.4 49.3 53.3 49.6 201.5 51.4 48.8 52.2 52.1 204.5 219.9 247.3 Sales growth (%) 12.3 13.3 9.4 4.4 9.7 4.0 -1.0 -2.0 5.0 1.5 7.5 12.5 Gross profit 17.9 17.0 20.6 17.7 73.2 18.9 16.1 19.8 18.8 73.6 79.2 89.0 Gross margin (%) 36.2 34.5 38.6 35.7 36.3 36.8 33.0 38.0 36.1 36.0 36.0 36.0 EBIT 6.8 5.6 8.6 6.9 27.9 7.0 4.2 7.7 6.3 25.1 27.5 33.3 EBIT adjusted 6.8 5.6 8.6 8.0 29.0 7.0 4.2 0.0 0.0 25.1 27.5 33.3 EBIT margin (%) 13.8 11.4 16.1 13.9 13.8 13.6 8.6 14.7 12.0 12.3 12.5 13.5 EBIT margin adjusted (%) 13.8 11.4 16.1 16.1 14.4 13.6 8.6 0.0 0.0 12.3 12.5 13.5


Successful IT roll-out on 1 September is key for future growth


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Brunel Oil & Gas Energy Although revenue growth remained robust in 1H at a constant currency rate of +22%, the Americas was impacted by capex reductions and was flat in 1H. Constant currency growth was +28% in 1Q and +18% in 2Q, and guidance for 2H14 is around flattish HoH, which implies a slight decline YoY. Geopolitical concerns and capex reductions impacted growth in Energy. In addition, Brunel also stopped its operations in Libya, Kurdistan and Nigeria, which in total represent <3% of revenues, but were loss-making businesses. Currently, the Americas are hit hardest, with project being cancelled at relatively short notice, while South East Asia continued to perform well. On the one hand, the projects in the Americas are easier to be halted (more in the early phase of project) and also South East Asia is more successful in replacing the projects with other type of work (more engineering business). The risk is that the project cancellations start spreading also to regions where projects are maturing. CEO Van Barneveld believes that capex for the sector will ramp-up again in 2H15F.

The developments around Russia are not yet directly impacting revenues yet, but it does imply that growth has left that region. Direct exposure is found through the Zachalin project (Exxon), which generates c.US$31m revenues at a gross margin of 11-12%.

Projects The projects business came in ahead of expectations in 2Q, and guidance for the full year was raised from €135-140m revenues to c.€150-155m, implying c.€30m revenue per quarter for 2H14. For next year, the guided €50m seems also relatively secure, with potential for some upside in case of project overruns.



Brunel Oil & Gas Sales 200.7 210.1 244.2 239.4 894.3 238.2 242.6 231.8 232.3 945.0 914.6 1042.8 Sales growth (%) 4.0 -0.9 7.8 3.8 4.1 18.7 15.5 -5.1 -3.0 5.7 -3.2 14.0 Gross profit 20.9 22.8 28.2 30.1 101.9 28.0 28.7 28.2 30.5 115.3 114.5 128.8 Gross margin (%) 10.4 10.9 11.5 12.6 11.4 11.8 11.8 12.2 13.1 12.2 12.5 12.4 EBIT 7.0 7.1 12.9 12.9 39.9 12.3 12.0 11.1 13.0 48.3 47.0 55.8 EBIT adjusted 7.0 7.8 13.6 12.9 40.6 12.3 12.0 11.1 13.0 48.3 47.0 55.8 EBIT margin (%) 3.5 3.4 5.3 5.4 4.5 5.2 4.9 4.8 5.6 5.1 5.1 5.4 EBIT margin adjusted (%) 3.5 3.7 5.6 5.4 4.5 5.2 4.9 4.8 5.6 5.1 5.1 5.4


Estimates lowered We lower our estimates on the back of the 2Q14 results. The miss on 2Q and weaker market conditions in Energy, combined with less operational leverage, have lead us to become more cautious for 2015F, for which we now estimate limited earnings growth. We see some upside from the investments made in the Netherlands and the IT roll-out in Germany, but we find it too early to make that call. In the longer term, we see a return to double-digit revenue growth possible, which explains the accelerating momentum we built in for 2016F.

EPS 2014-16F estimates lowered by 6%, 14% and 10%, respectively

Energy impacted by capex cuts and geopolitical concerns


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Fig 6 INGF versus consensus (€m)

ING old ING new %ch Consensus INGF versus consensus (%)

2014F revenues 1,422 1,356 -5 1,418 -4 2015F revenues 1,505 1,360 -10 1,528 -11 2016F revenues 1,694 1,537 -9 1,663 -8

2014F EBIT 82.1 76.9 -6 85.3 -10 2015F EBIT 93.6 80.6 -14 99.1 -19 2016F EBIT 113.6 101.8 -10 114.0 -11

2014F EPS (€) 1.17 1.10 -6 1.21 -9 2015F EPS (€) 1.34 1.15 -14 1.40 -18 2016F EPS (€) 1.61 1.45 -10 1.59 -9

Source: Bloomberg, ING estimates

Valuation After a 33% sell-off since the recent high on 3 April 2014, we believe expectations are trimmed to more rational levels. We expect, even post 2Q reporting, that expectations might offer some upside again over the medium term. However, visibility remains low, while there are some concerns, ie, the IT roll-out in Germany, investments in the Netherlands and capex cuts in Energy, which are likely to prevent a re-rating in the short term.

Trading at a cash-adjusted 2015F PER of 13.6x and a 2015F EV/EBITDA of 8.9x, the stock is currently trading below its mid-cycle PER multiple of 15.7x. As such, the valuation is becoming more appealing, but it is not there yet, and therefore we stay on the side lines for now.

Fig 7 Brunel: 12m forward PER (x)

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1/95 1/97 1/99 1/01 1/03 1/05 1/07 1/09 1/11 1/13

Brunel - PER 12m Brunel average

Average: 15.7x

Source: Thomson Reuters

Risks to our investment case The key downside risk for the more cyclical operations in the Netherlands and Germany is an economic slowdown. Furthermore there is project risk in Germany related to the IT roll-out. There are project risks in Oil & Gas, such as a delay or cancellations of large projects. The Energy business could be negatively impacted by currency swings, mainly in the US dollar and Australian dollar although exposure is limited on a profit level. Upside risk comes from investments in the Netherlands, Germany boosting sales growth and an increase in capex in Energy.

After the recent 33% sell-off, the shares are trading at a 2015F PER of 13.6x

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Brunel International A

ugust 2014

Fig 8 Peer group valuation comparison

Free fl Price Target Up/ Mcap Mcap (lc) price down Adj EPS (€) PER (x) Cash-adjusted PER (x) EV/EBITDA (x) EV/sales (x) Rec (€bn) (€bn) 14/08/14 (lc) side FY14F FY15F FY16F FY14F FY15F FY16F FY14F FY15F FY16F FY14F FY15F FY16F FY14F FY15F FY16F

Adecco (CHF)** ^ NR 9.8 7.0 66.00 n/a n/a 3.87 4.51 5.12 14.2 12.2 10.7 14.2 12.2 10.7 9.7 8.0 6.9 0.53 0.48 0.43 Randstad (€) Buy 5.8 3.9 33.94 50.00 47 2.63 3.30 3.94 13.0 10.4 9.0 12.9 9.7 6.9 8.4 6.3 5.0 0.37 0.32 0.27 Hays (p)* ^ NR 2.2 2.2 124.80 n/a n/a 6.10 7.40 9.60 21.8 18.7 14.8 21.8 18.7 14.8 11.9 10.5 8.6 0.49 0.46 0.40 Michael Page (p)^ NR 1.7 1.7 440.40 n/a n/a 17.40 23.30 30.90 25.5 19.0 14.3 23.7 17.3 12.5 12.7 9.9 7.9 1.23 1.09 0.92 USG People (€) Buy 0.7 0.6 8.99 14.50 61 0.75 1.02 1.29 12.0 8.8 7.0 12.0 8.8 7.0 9.6 6.9 5.2 0.42 0.38 0.33 Brunel (€) Hold 0.9 0.3 17.50 19.00 9 1.17 1.34 1.61 16.0 15.2 12.1 13.3 11.4 9.4 9.3 8.9 7.2 0.54 0.52 0.46

Average 17.1 14.0 11.3 16.3 13.0 10.2 10.3 8.4 6.8 0.60 0.54 0.47 Generalists 13.6 11.3 9.9 13.6 10.9 8.8 9.0 7.2 6.0 0.45 0.40 0.35 Specialists 21.1 17.6 13.7 19.6 15.8 12.2 11.3 9.8 7.9 0.76 0.69 0.59

Relative valuation versus peers (%) Adecco^ -17 -13 -5 -13 -6 5 -5 -4 2 -11 -11 -9 Randstad -24 -26 -21 -21 -26 -32 -18 -25 -26 -38 -41 -42 Hays^ 28 33 31 33 43 45 16 25 27 -18 -15 -14 Michael Page^ 49 35 27 45 33 22 23 17 17 106 102 96 USG People -30 -37 -38 -27 -32 -32 -7 -18 -24 -29 -31 -30 Brunel -6 8 7 -18 -12 -8 -9 6 5 -9 -5 -2

Randstad vs Adecco -9 -15 -16 -9 -21 -35 -14 -21 -27 -30 -34 -37 Specialist vs Generalist 55 56 39 45 45 39 25 36 32 67 72 70

Based on Bloomberg consensus Adecco 3.87 4.51 5.12 14.2 12.2 10.7 14.2 12.2 10.7 9.7 8.0 6.9 0.53 0.48 0.43 Randstad 2.60 3.11 3.57 13.2 11.1 9.7 13.2 11.1 9.1 9.1 7.1 5.9 0.41 0.36 0.32 Hays 6.10 7.40 9.60 21.8 18.7 14.8 21.8 18.7 14.8 11.9 10.5 8.6 0.49 0.46 0.40 Michael Page 17.40 23.30 30.90 25.5 19.0 14.3 23.7 17.3 12.5 12.7 9.9 7.9 1.23 1.09 0.92 USG People 0.75 1.01 1.20 12.1 9.1 7.6 12.1 9.1 7.6 9.1 6.9 5.4 0.42 0.37 0.33 Brunel 1.21 1.40 1.59 14.6 12.7 11.1 13.0 10.9 9.4 8.4 7.2 6.1 0.55 0.49 0.44

Average 16.9 13.8 11.4 16.3 13.2 10.7 10.1 8.3 6.8 0.60 0.54 0.47 Generalists 13.2 10.8 9.3 13.2 10.8 9.1 9.3 7.3 6.1 0.45 0.40 0.36 Specialists 20.6 16.8 13.4 19.5 15.6 12.2 11.0 9.2 7.5 0.76 0.65 0.59

Key ratios Number of ratings (x) Performance Dividend yield (%) Conversion ratio (%) ROACE (%) NOFCF/EV (%) Buy Hold Sell -1M -3M -1Y YTD FY14F FY15F FY16F FY14F FY15F FY16F FY14F FY15F FY16F FY14F FY15F FY16F

Adecco (CHF)** ^ 15 11 2 -3 -8 10 -3 3.3 3.8 4.2 n/a n/a n/a n/a n/a n/a n/a n/a n/a Randstad (€) 14 9 4 -8 -15 -6 -27 3.4 3.4 4.3 22.4 25.8 27.6 14.2 17.9 20.2 7.8 10.2 12.1 Hays (p)* ^ 17 6 1 3 -13 21 -3 2.1 2.3 2.8 n/a n/a n/a n/a n/a n/a n/a n/a n/a Michael Page (p)^ 13 10 1 1 -2 -3 -9 2.5 2.8 3.2 n/a n/a n/a n/a n/a n/a n/a n/a n/a USG People (€) 10 1 1 -13 -17 58 -6 2.5 3.5 4.6 18.5 23.1 27.0 12.9 17.9 21.8 3.5 8.2 10.9 Brunel (€) 6 5 0 -13 -22 -5 -20 3.6 3.6 4.0 30.9 31.0 34.9 27.6 27.5 31.3 0.1 6.4 3.8 Average -6 -13 12 -11 2.9 3.2 3.8 23.9 26.6 29.8 18.2 21.1 24.4 3.8 8.3 8.9

*Hays EPS based on FY, valuation on CY; **Adecco EPS fully diluted and price in CHF; estimates in EUR; ^based on Bloomberg consensus Source: Bloomberg, ING estimates


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P&L breakdown Fig 9 P&L breakdown (€m)

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14F FY15F FY16F

Revenues Netherlands 74 92 117 138 154 139 133 156 162 160 179 197 217 Germany 59 74 104 129 136 106 111 152 184 202 205 220 247 Oil & Gas 160 201 255 287 394 473 454 642 853 894 945 915 1,043 Other 20 24 26 25 30 20 23 29 33 27 27 29 30 Total 313 391 502 580 714 738 721 980 1,232 1,283 1,356 1,360 1,537

Organic revenue growth (INGF, %) Netherlands 20 24 28 18 12 -10 -5 18 4 -1 12 10 10 Germany 31 25 40 21 22 -3 5 38 21 11 2 8 13 Oil & Gas 34 26 27 13 37 20 -4 41 33 4 6 -3 14 Other n/a n/a n/a 11 20 -33 15 0 14 -18 0 5 5 Total 28 24 28 16 28 3 -2 36 26 4 6 0 13

Gross margin (%) Netherlands 32.3 34.2 38.7 40.2 39.5 36.4 34.7 33.7 33.3 30.7 29.8 30.0 31.0 Germany 35.8 34.2 34.2 32.3 36.1 34.3 38.2 38.9 37.9 36.3 36.0 36.0 36.0 Oil & Gas 11.1 12.4 11.3 10.9 12.5 12.8 12.9 11.6 10.7 11.4 12.2 12.5 12.4 Other 26.5 28.6 28.1 30.2 26.2 20.7 21.7 9.9 21.0 23.4 23.5 23.5 23.5 Total 21.8 22.6 23.1 23.5 23.4 20.6 21.1 19.5 18.1 18.0 18.3 19.1 19.0

Adjusted EBIT Netherlands 1.0 7.2 16.8 27.6 26.6 15.4 12.2 17.9 19.5 15.1 14.2 17.2 23.8 Germany 5.2 7.5 9.9 11.5 16.4 1.4 8.2 21.6 23.9 27.9 25.1 27.5 33.3 Oil & Gas 5.8 10.5 10.1 11.7 19.8 29.7 20.0 30.1 42.1 39.9 48.3 47.0 55.8 Other (0.3) 0.2 0.7 1.6 0.8 (0.3) (0.7) 0.1 (0.5) (0.8) (0.8) (0.5) (0.2) Overhead (0.8) (1.8) (2.2) (1.1) (1.5) (1.2) (2.4) (5.5) (8.1) (9.8) (10.0) (10.5) (11.0) Total 10.7 23.7 36.1 51.2 62.1 45.1 37.3 64.1 77.0 72.3 76.9 80.6 101.8

Adjusted EBITA margin (%) Netherlands 1.3 7.8 14.3 20.0 17.3 11.1 9.2 11.5 12.0 9.4 7.9 8.7 11.0 Germany 8.8 10.1 9.6 8.9 12.1 1.3 7.4 14.2 13.0 13.8 12.3 12.5 13.5 Oil & Gas 3.6 5.2 3.9 4.1 5.0 6.3 4.4 4.7 4.9 4.5 5.1 5.1 5.4 Other -1.5 0.7 2.6 6.2 2.6 -1.3 -2.9 0.2 -1.5 -2.9 -2.8 -1.9 -0.7 Total 4.2 6.2 7.1 8.8 8.7 6.1 5.2 6.3 5.7 5.6 5.7 5.9 6.6

Revenue breakdown (%) Netherlands 24 24 23 24 22 19 18 16 13 12 13 14 14 Germany 19 19 21 22 19 14 15 16 15 16 15 16 16 Oil & Gas 51 52 51 50 55 64 63 66 69 70 70 67 68 Other 6 6 5 4 4 3 3 3 3 2 2 2 2 Total 100 100 100 100 100 100 100 100 100 100 100 100 100

EBIT breakdown (%) Netherlands 9 30 46 54 43 34 33 28 25 21 19 21 23 Germany 49 32 28 22 26 3 22 34 31 39 33 34 33 Oil & Gas 54 44 28 23 32 66 54 47 55 55 63 58 55 Other -3 1 2 3 1 -1 -2 0 -1 -1 -1 -1 0 Overhead -7 -8 -6 -2 -2 -3 -6 -9 -11 -14 -13 -13 -11 Total 100 100 100 100 100 100 100 100 100 100 100 100 100



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Brunel in six charts Fig 10 Revenue: Geographical breakdown, 2013 (%)

Fig 11 Revenue: Segmental breakdown, 2013 (%)

Netherlands12%

Germany16%

Energy70%

Other2%

Engineering23%

Energy70%

ICT4%

Unallocated3%

Source: Company data Source: Company data

Fig 12 EBIT: Geographical breakdown, 2013 (%)

Fig 13 EBIT: Segmental breakdown, 2013 (%)

Netherlands18%

Germany34%

Energy48%

Engineering46%

Energy49%

ICT5%

Source: Company data Source: Company data

Fig 14 Revenue (€m) versus EBITDA margin (%)

Fig 15 Net debt (€m) versus net debt/EBITDA (x)

012345678910

-

200

400

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Revenue (€m) EBITDA margin (%) rhs

-1.6

-1.4

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-1.0

-0.8

-0.6

-0.4

-0.2

0.0

-120

-100

-80

-60

-40

-20

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Net debt(+)/Cash(-) Net debt/EBITDA (x)

Source: Company data, ING estimates Source: Company data, ING estimates


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Financials

Year end Dec (€m) 2009 2010 2011 2012 2013 2014F 2015F 2016F

Income statement

Revenues 738 721 972 1,237 1,283 1,356 1,360 1,537 Cost of goods sold (587) (569) (783) (1,013) (1,053) (1,107) (1,101) (1,245) Gross profit 152 152 189 223 231 249 260 292 Operating costs (103) (111) (123) (144) (149) (165) (173) (184) EBITDA 49 41 66 79 82 83 87 108 Depreciation & amortisation (3) (4) (4) (4) (6) (7) (7) (7) Impairments 0 0 0 0 0 0 0 0 EBIT 45 37 63 75 76 77 81 102 Net interest (0.5) 1 0.9 (0.6) 0.2 1 2 2 Associates 0 0 0 0 0 0 0 0 Other pre-tax items 0 0 0 0 0 0 0 0 Pre-tax profit 45 38 64 74 76 78 83 104 Tax (13) (13) (22) (25) (23) (23) (25) (31) Minorities (1) (0.4) (0.3) (0.4) (0.4) (0.4) (0.5) (0.5) Other post-tax items 0 0 0 0 0 0 0 0 Net profit 31 25 41 49 53 54 57 72 Normalised EBITDA 49 41 66 79 82 83 87 108 Normalised EBIT 45 37 63 75 76 77 81 102 Normalised net profit 31 25 41 49 53 54 57 72

Balance sheet

Tangible fixed assets 10 9 9 9 9 11 12 14 Intangible fixed assets 12 12 16 19 18 18 18 18 Other non-current assets 7 6 7 9 9 9 9 9 Cash & equivalents 73 52 86 99 90 92 90 90 Other current assets 153 203 254 278 305 355 370 415 Total assets 255 282 371 414 430 484 499 546 Short-term debt 0 0 0 0 0 0 0 0 Other current liabilities 73 92 147 154 156 208 196 205 Long-term debt 0 0 0 0 0 0 0 0 Other long-term liabilities 0.5 0.5 1 2 4 2 2 2 Total liabilities 74 92 148 155 160 210 198 206 Total equity 181 202 233 264 278 279 306 344 Total liabilities & equity 255 294 382 420 438 489 504 551 Capital employed 181 202 233 264 278 279 306 344 Net working capital 125 177 210 230 181 235 240 280 Net debt (cash) (73) (52) (86) (99) (90) (92) (90) (90)

Cash flow

Cash flow EBITDA 49 41 66 79 82 83 87 108 Change in working capital 32 (22) (12) (12) (41) (52) (5) (40) Other non-cash items 0.8 1.0 1 3 3 0 0 0 Operating cash flow 82 20 56 70 43 32 82 68 Cash interest paid 0.0 (0.7) (0.7) (0.3) 0.1 0 0 0 Cash taxes paid (19) (16) (14) (31) (16) (23) (25) (31) Net cash from operating activities 62 3 41 39 27 8 57 37 Capex (6) (3) (7) (7) (8) (8) (8) (8) Net acquisitions (6) (0.2) 0 0 0 0 0 0 Other net investing cash flows 0.5 1 0.9 0.3 0.0 0 0 0 Cash from investing activities (11) (2) (6) (7) (8) (8) (8) (8) Increase (decrease) in equity 0.9 3 5 8 4 0 0 0 Increase (decrease) in debt 0 0 0 0 0 0 0 0 Dividends & minority distribution (20) (19) (19) (22) (25) (53) (31) (35) Other financing cash flow 0 0 0 0 0 0 0 0 Cash from financing activities (19) (16) (14) (14) (21) (53) (31) (35) Forex & discontinued operations 0.7 6 2 (0.5) (8) 0 0 0 Net change in cash & equivalents 34 (10) 23 17 (9) (53) 18 (6) FCF 57 0.5 35 32 19 0.4 49 29

Normalised earnings (eg, EBITDA, EBIT, net income and other sector-specific line items) are in the opinion of the analyst the best representation of a company's underlying and sustainable earnings derived from its regular operating activities. Source: Company data, ING estimates


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Valuation, ratios and metrics

Year end Dec 2009 2010 2011 2012 2013 2014F 2015F 2016F

Performance & returns

Revenue growth (%) 3.4 -2.4 34.9 27.2 3.8 5.7 0.31 13.0 Normalised EBITDA growth (%) -25.7 -15.5 62.0 19.6 3.3 1.6 4.4 24.3 Normalised EBIT growth (%) -27.3 -17.2 67.9 19.6 1.5 1.0 4.8 26.2 Normalised EPS growth (%) -30.6 -18.9 60.3 16.8 6.8 -0.35 5.4 25.2 Gross margin (%) 20.6 21.1 19.5 18.1 18.0 18.3 19.1 19.0 Normalised EBITDA margin (%) 6.6 5.7 6.8 6.4 6.4 6.2 6.4 7.0 Normalised EBIT margin (%) 6.1 5.2 6.4 6.1 5.9 5.7 5.9 6.6 Reported net margin (%) 4.2 3.5 4.2 4.0 4.2 4.0 4.2 4.7 Reported ROE (%) 18.1 13.2 19.0 19.8 19.7 19.5 19.7 22.3 Normalised ROA (%) 18.4 13.9 19.2 19.1 18.0 16.8 16.4 19.5 ROAIC (%) 15.0 11.2 23.7 18.1 22.5 19.5 19.3 22.0 ROACE (%) 26.2 19.5 28.8 30.1 28.1 27.6 27.5 31.3 ROACE - WACC (%) 15.7 9.0 18.3 19.6 17.6 17.1 17.0 20.8

Leverage & solvency

Working capital as % of sales 17.0 24.6 21.6 18.6 14.1 17.3 17.6 18.2 Net debt (cash)/EBITDA (x) (1.5) (1.3) (1.3) (1.2) (1.1) (1.1) (1.0) (0.83) Net debt (cash)/equity (%) -40.4 -25.8 -36.9 -37.3 -32.2 -32.9 -29.3 -26.1 EBITDA net interest coverage (x) 104.8 n/a n/a 141.6 n/a n/a n/a n/a Current ratio (x) 3.1 2.8 2.3 2.4 2.5 2.1 2.3 2.5 Dividend cover (cash flow) (x) 4.1 0.99 2.8 2.5 1.8 1.0 2.6 1.8

Valuation

EV/revenue (x) 1.1 1.1 0.80 0.62 0.60 0.57 0.57 0.51 EV/normalised EBITDA (x) 16.3 19.8 11.7 9.6 9.4 9.3 8.9 7.2 EV/normalised EBIT (x) 17.5 21.8 12.4 10.2 10.2 10.1 9.6 7.6 EV/capital employed (x) 4.4 4.0 3.3 2.9 2.8 2.8 2.5 2.3 EV/invested capital (x) 4.4 4.3 3.5 2.9 2.8 2.8 2.6 2.3 Normalised PER (x) 25.8 31.8 19.8 17.0 15.9 16.0 15.2 12.1 Price/book (x) 4.4 4.0 3.5 3.2 3.1 3.1 2.8 2.6 Dividend yield (%) 4.6 4.6 5.1 5.7 6.3 3.6 4.0 4.0 FCF yield (%) 7.2 0.06 4.5 4.1 2.5 0.06 6.4 3.8

Per share data

Reported EPS (€) 0.68 0.55 0.88 1.03 1.10 1.10 1.15 1.45 Normalised EPS (€) 0.68 0.55 0.88 1.03 1.10 1.10 1.15 1.45 Dividend per share (€) 0.80 0.80 0.90 1.00 1.10 0.63 0.70 0.70 Equity FCFPS (€) 1.25 (0.01) 0.74 0.66 0.40 0.01 0.99 0.58 BV/share (€) 3.94 4.42 4.98 5.53 5.72 5.64 6.14 6.86


Company profile Founded in 1975, Brunel is a 100% specialist staffing company, focused on energy, engineering, ICT, finance, legal, insurance and banking. Brunel is active in the Netherlands, Germany, Belgium, Canada and worldwide in the Oil & Gas sector. Founder Jan Brand owns 63% of the company. The Netherlands accounts for 13% of revenues (c.50% engineering, 20% ICT, c.20% legal & finance and 10% insurance & banking) and Germany for 15% (focusing entirely on engineering). Representing 69% of revenues, Oil & Gas provides temporary staff to oil and gas exploration companies (such as ExxonMobil).


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Disclosures Appendix ANALYST CERTIFICATION The analyst(s) who prepared this report hereby certifies that the views expressed in this report accurately reflect his/her personal views about the subject securities or issuers and no part of his/her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report.

IMPORTANT DISCLOSURES For disclosures on companies other than the subject companies of this report visit our disclosures page at http://research.ing.com or write to The Compliance Department, ING Financial Markets LLC, 1325 Avenue of the Americas, New York, USA, 10019.

US regulatory disclosures • One or more members of ING Group holds 1% or more of the equity shares (as at the end of the month preceding this

publication) in the following subject company/ies of this report: Brunel International NV

• The following subject company/ies of this report are or have been a client of ING Financial Markets LLC or an affiliate within the last 12 months and have received investment banking services: Brunel International NV

Valuation & risks: For details of the methodologies used to determine our price targets and risks related to the achievement of these targets refer to main body of report and/or the most recent equity company report at http://research.ing.com. Research analyst(s): The research analyst(s) for this report may not be registered/qualified as a research analyst with the NYSE and/or NASD. The research analyst(s) for this report may not be an associated person of ING Financial Markets LLC and therefore may not be subject to Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by the research analyst’s account.

European regulatory disclosures • One or more members of ING Group holds 1% or more of the equity shares (as at the end of the month preceding this

publication) in the following subject company/ies of this report: Brunel International NV

• The following subject company/ies of this report are or have been party to an investment banking agreement with one or more members of ING Group over the last 12 months: Brunel International NV

The remuneration of research analysts is not tied to specific investment banking transactions performed by ING Group although it is based in part on overall revenues, to which investment banking contribute. Financial interests: One of more members of ING Group may hold financial interests in the companies covered in this report other than those disclosed above. Securities prices: Prices are taken as of the previous day’s close on the home market unless otherwise stated. Job titles. The functional job title of the person/s responsible for the recommendations contained in this report is equity research analyst unless otherwise stated. Corporate titles may differ from functional job titles. Conflicts of interest policy. ING manages conflicts of interest arising as a result of the preparation and publication of research through its use of internal databases, notifications by the relevant employees and Chinese walls as monitored by ING Compliance. For further details see our research policies page at http://research.ing.com.

Other disclosures Target prices, where included, are based on reasonable assumptions supported by objective data. Unless otherwise stated, neither historic share price performance data nor ING projections on potential share price performance reflect the impact of commissions, fees and charges. Past performance is not indicative of future results. Forecasts are not a reliable indicator of future performance.

FOREIGN AFFILIATES DISCLOSURES Each ING legal entity which produces research is a subsidiary, branch or affiliate of ING Bank N.V. See back page for the addresses and primary securities regulator for each of these entities.

RATING DISTRIBUTION (as of end 2Q14) RATING DEFINITIONS

Equity coverage Investment Banking clients* Buy: Forecast 12-mth absolute total return greater than +15%

Hold: Forecast 12-mth absolute total return of +15% to -5%

Sell: Forecast 12-mth absolute total return less than -5%

Total return: forecast share price appreciation to target price plus forecast annual dividend. Price volatility and our preference for not changing recommendations too frequently means forecast returns may fall outside of the above ranges at times.

Buy 45% 60% Hold 44% 62% Sell 11% 58% 100% * Percentage of companies in each rating category that are Investment Banking clients of ING Financial Markets LLC or an affiliate.

http://research.ing.com/


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PRICE & RATINGS HISTORY TO 06/08/14: BRUNEL INTERNATIONAL (BRUN.AS)

B

H

810121416182022242628

1/8/11 1/11/11 1/2/12 1/5/12 1/8/12 1/11/12 1/2/13 1/5/13 1/8/13 1/11/13 1/2/14 1/5/14 1/8/14

Price Target price

B = Buy; H = Hold; S = Sell; NR = Not Rated; R = Restricted Chart shows ING coverage: current analyst may or may not have covered the stock for the entire period shown Where ING coverage is longer than three years, chart shows recommendation current at start of the share price history Source: ING


13

c

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