BCI Investment Pitch

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BCI Investment Pitch

  1. 1. TSE: BCI 12/5/2013 Close: $15.70 New Look Eyewear (TSE: BCI) Investment Report Report Prepared by: David Fortino Dylan Mulrain Jan-Cayo Fiebig December 6th, 2013
  2. 2. TSE: BCI 12/5/2013 Close: $15.70 Capital Markets Summary Company overview Stock performance BCI provides eye care products and services in eastern Canada. It offers lens, eye glasses, sunglasses, and contact lens, as well as eye examination services. Previous Close: 52-Week Price Range: Dividend Yield: Market Cap: P/E: Industry: Specialty retail, other $15.70 $8.73 - $16.05 4.0 % $159.53 M 21.79 BCI announced acquisition of Vogue Optical Steady increase in EPS Record Q3 earnings Company Overview Industry & Competitors Financial Analysis Valuation Risk Analysis
  3. 3. TSE: BCI 12/5/2013 Close: $15.70 Investment Thesis Company Structure Financials Industry & Market Financial outperformance & favorable market conditions build a strong investment thesis 7.7 Increase in Avg. Age over the last 5 Years in CA 3rd 50% Market position in Canada Of market owned by independents 19% 4% 25%+ CAGR over the last 8 years Current Dividend Yield Recommendation ROE over the last 5 years 2X Industry Average Sales/Store HOL D BUY 1 Year PT $17.91 50% $1.4M # of Shares owned by J. Bennett (Chairman) 19.4% Immediate cost savings post VO* acquistion UPSIDE *VO – Vogue Optical Company Overview Industry & Competitors Financial Analysis Valuation Risk Analysis
  4. 4. TSE: BCI 12/5/2013 Close: $15.70 Industry Overview Fragmented industry and aging population provides potential for growth CA Industry Size* Annual Growth 08 – 13 $2.5 B Annual Growth 13 – 18 2.1% Lifecycle Stage Revenue Volatility MATURE 2.5% LOW DIFFICULT Concentration Industry MEDIUM Market Segmentation in CA Differentiation Competition MEDIUM Average population in CA 40.6 3% 31.6 33.27 41% 56% 12.8% Independants Chains Internet 13.4% 10-Years Ago 5-Years Ago Pop. > 14.7% 60 Years Today * Calculation based on % of population needing glasses, average age, renewal rate & average price Company Overview Industry & Competitors Financial Analysis Valuation Risk Analysis
  5. 5. TSE: BCI 12/5/2013 Close: $15.70 Competitors • • • 35 stores (26 in Wal-Mart) Privately owned Ontario • • • 157 outlets Public company Across Canada • • • • • • 161 stores Privately owned Ontario, Nova Scotia, New Brunswick and Manitoba Company Overview Industry & Competitors • • • 55 stores (26 in Wal-Mart) Privately owned Ontario Financial Analysis Valuation 62 stores (26 in Wal-Mart) Privately owned Maritimes Area • • • 165 stores Privately owned Across Canada 74 stores (26 in Wal-Mart) Public company Quebec • • • • • • • • • 52 stores (26 in Wal-Mart) Privately owned Quebec 77 stores (26 in Wal-Mart) Privately owned Quebec & Ontario Risk Analysis
  6. 6. TSE: BCI 12/5/2013 Close: $15.70 Business Model within Industry Key Drivers • Supply Industries Consumer Confidence Index # of adults aged 40+ Demand from optometrists Federal Funding for Medicare • • • • • • Glasses & Contact Lenses manufacturing Glasses & Contact Lenses Wholesaling Optometrists Market is ready to consolidate • • • • Eye Glasses and Contact Lenses Stores Demand Industries Consumers Why BCI will be successful in the future No dominant company Luxottica & New Look only public players Ideally suited to consolidate independents or other chains Over the five years to 2018, the number of retailers is projected to fall an average 0.9% annually • • • • In-house lab significantly reducing lens costs Higher average ticket through favorable highend product mix Good location and bigger store size generate almost double the traffic per store Effective marketing strategy with off-peak marketing promotions BCI will maintain competitive advantage resulting in an organic and inorganic growth Company Overview Industry & Competitors Financial Analysis Valuation Risk Analysis
  7. 7. TSE: BCI 12/5/2013 Close: $15.70 Vogue Optical Acquisition Our research indicates that the Vogue Optical acquisition will be accretive. Company & deal details Purchase Price # of stores TTM EBITDA Multiple $74M 65 8.6x TTM EBITDA $40M $9M 1.20 Why acquire Vogue Optical • TTM Revenue 1.00 Highly complementary network with no geographic overlap 0.80 Transfer of lens production to current lab • Better supply terms from increased scale 0.40 • Upgrade product mix and gross margins 0.20 • Increase marketing efforts • Generate higher traffic EPS • Incremental EPS 0.60 BCI EPS - Synergies expected to reach $1.4M out-of-the-gate or 16% of EBITDA Company Overview Industry & Competitors Financial Analysis Valuation Risk Analysis
  8. 8. TSE: BCI 12/5/2013 Close: $15.70 Operating Performance 25.0% 20.0% Operating Margins Operating Margin (%) 15.0% • • 10.0% 5.0% 0.0% -5.0% 2007 2008 2009 2010 2011 2012 Operating margins inline with industry Efficiencies expected to increase as utilization of lab facility capacity increases 2013e -10.0% -15.0% New Look Eyewear Luxottica Optical Essilor Contant Contact 70.0% 60.0% 50.0% • • • Consistently high ROE Outperformance relative to peers Deserves a to trade at a premium Return on Equity Return on Equity 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% Company Overview Industry & Competitors Financial Analysis 2007 2008 Valuation 2009 2010 2011 Risk Analysis
  9. 9. TSE: BCI 12/5/2013 Close: $15.70 Capital Structure New Look Eyewear will have a more optimal capital structure post acquisition Pre-acquisition Post-acquisition 8% 35% Market Value of Debt Market Value of Equity 65% 92% Value of Debt: Value of Equity*: Debt to Equity Ratio Post-Acquisition: Value of Debt: Value of Equity: $ 9.81M $ 120.81 M 54.2% Earnings Before Interest & Tax Post-Acquisition: $21.1M $ 84.81 M $ 156.40 M Interest Coverage Ratio Post-Acquisition: 4.51 *Based on 10 day trading price prior to acquisition announcement Company Overview Industry & Competitors Financial Analysis Valuation Risk Analysis
  10. 10. TSE: BCI 12/5/2013 Close: $15.70 Valuation Summary The EBITDA, Perpetuity and Forward P/E method all indicate a Buy on BCI $23.00 $21.00 PT Price Per Share $19.00 19.4 % $17.00 Upside $15.00 CP $13.00 1 Year PT $11.00 $9.00 $17.91 $7.00 $5.00 52 Week Range EBITDA Method Perpetuity Method Forward PE Method 4 YR AVG EV/EBITDA Perpetuity Growth Comparable Ratios Forward PE Low BCI Industry Average Assumed Company Overview Average High Low Average High Low Average High 7.53x 9.84x 11.14x 9.84x 13.70x 11.63x 40.82x 14.39x (2.50 %) 1.10 % 2.20 % 4.00 % 2.50 % 8.20 % 4.00 % 3.20 % 15.0x 17.20x 15.67x - 21.74x 20.06x Industry & Competitors Financial Analysis Valuation Risk Analysis
  11. 11. TSE: BCI 12/5/2013 Close: $15.70 Management Team BCI has a strong management team being able to lead the company in the future Management Team Experience Key Person • Chairman • VP of … Antoine Amiel • Vice Chairman of New Look Eyewear Inc. Richard Cherney • Secretary - Managing Partner of Davies Ward Phillipes M. William Cleman • Management Consultant of Cleman Consultig Inc. Paul Eschenberg • President and CEO of Schroders & Associates Canada INC. William Ferguson • President of Eric T. Websters Foundation Martial Gagne • President of New Look Eyewear Inc. C. Emmett Pearson • Director New Look Eyewear Inc. Bennet Board of Directors Diverse and experienced Board who is capable of maintaining competitive advantage Company Overview Industry & Competitors Financial Analysis Valuation Risk Analysis
  12. 12. TSE: BCI 12/5/2013 Close: $15.70 Risk analysis While a successful integration of Vogue Optical is critical, no major risks are present Risk Prob Impact Description Industry Risk LOW • • internet continues to be minor player licensing of dispense glasses will limit exp. MED • • laser peaked in 2005, and down 10% since most patients still need glasses after surgery MED MED • • • private independents own 50% of market do not have financial capacity Favorable product mix with more high end-frames Integration of Acquisition MED • HIGH • • Due Diligence LOW HIGH • inability to generate higher traffic Internet LOW Laser Surgery LOW Other Retail Chains Vogue Optical Acquisition Company Overview Industry & Competitors • first material acquisition in BCI history no prior experience in large acquisitions risk mitigation through management team overvalued current company operations Financial Analysis Valuation Risk Analysis
  13. 13. TSE: BCI 12/5/2013 Close: $15.70 Experienced Management Team Two members of management make NewLook’s future more promising Antoine Amiel Vice Chairman John Bennett Chairman • Charged with strategic development at NewLook Eyewear • Prior to NewLook he was the Vice President of International Subsidiaries of Nikon-Essilor Co. Ltd. (2005-2012). • Experience with the operational responsibility for five distribution subsidiaries and six factories in the United States. • Also managing director of Nikon Optical UK, and CFO of Nikon’s ophthalmic division • Mr. John Bennett has significant capital markets experience (Senior executive with Scotia McLeod (now Scotia Capital) • Through his investment holding company, Benvest Capital, Mr. Bennett owns approximately 4.6 million shares (46%) and is the largest shareholder.
  14. 14. TSE: BCI 12/5/2013 Close: $15.70 Financial Model
  15. 15. TSE: BCI 12/5/2013 Close: $15.70 Income Statement: Post-acquisition of Vogue Optical Actual 2010 2011 2012 2013e 2014e Estimate 2015e 2016e 2017e 131.492 134.243 140.476 Revenue 70.778 80.190 82.296 89.593 Cost of Revenue as % of revenue 20.934 29.6% 22.208 27.7% 23.214 28.2% 23.610 26.4% 36.05 27.4% 36.81 27.4% 37.65 27.4% 38.52 27.4% Gross Profit as % of revenue 49.844 70.4% 57.982 72.3% 59.082 71.8% 65.983 73.6% 95.439 72.6% 97.436 72.6% 99.666 72.6% 101.960 72.6% Operating Expenses as % of revenue 43.617 61.6% 49.059 61.2% 48.945 59.5% 51.610 57.6% 74.424 56.6% 75.981 56.6% 77.720 56.6% 79.509 56.6% Operating Income as % of revenue 6.227 8.8% 8.923 11.1% 10.137 12.3% 14.373 16.0% 21.015 16.0% 21.454 16.0% 21.945 16.0% 22.451 16.0% Interest Expense Net Non-Operating Losses (Gains) 0.407 0.851 0.376 (0.010) 0.432 - 0.440 - 4.665 - 4.665 - 4.665 - 4.665 - Pretax Income 4.969 8.557 9.705 13.933 16.350 16.790 17.281 17.786 Income Tax Expense Tax rate (%) (6.524) - 2.512 29.4% 3.209 33.1% 3.290 23.6% Income Before XO Items Extraordinary Loss Net of Tax Minority Interests 11.493 0.005 6.045 0.021 6.496 0.018 10.643 0.030 11.249 - 11.551 - 11.889 - 12.237 - Net Income Profit Margin % 11.488 16.2% 6.024 7.5% 6.478 7.9% 10.613 11.8% 11.249 8.6% 11.551 8.6% 11.889 8.7% 12.237 8.7% Available to Common Shareholders 11.488 6.024 6.478 7.290 11.249 11.551 11.889 12.237 1.15 1.14 0.60 0.59 -48% 0.64 0.63 6% 0.72 0.72 15% 0.92 0.92 27% 0.94 0.94 2.69% 0.97 0.97 2.92% 1.00 1.00 2.92% 10.02 10.06 10.07 10.13 10.20 10.32 10.10 10.10 12.26 12.26 12.26 12.26 12.26 12.26 12.26 12.26 - - - 2.16 - - - - Earnings per share (EPS) Basic Diluted EPS Growth Average of shares outstanding Basic Diluted Shares Issued (bought) 5.10 31.2% 5.24 31.2% 137.315 5.39 31.2% 5.55 31.2%
  16. 16. TSE: BCI 12/5/2013 Close: $15.70 Revenue Forecast: Post-acquisition of Vogue Optical 2009 Current Store Revenue Stores, period end Average stores Current Revenue per Store Same store sales growth 2010 68.958 63 62 1.112 70.778 Actual 2011 80.190 2012 2013e 82.296 90.532 91.890 2017e 93.268 94.667 69 66.5 71 70 76 73.5 76 76 76 76 76 76 76 76 1.115 0.2% 1.206 8.2% 1.176 -2.5% 1.174 -0.2% 1.191 1.5% 1.209 1.5% 1.227 1.5% 1.246 1.5% 3.33 40.96 42.35 44.05 45.81 40.000 Stores, period end Average stores 65 5.4 70.78 64 80.19 67 82.30 70 Average Revenue Growth % 1.112 1.115 1.206 1.176 65 65 65 65 65 65 0.63 2.4% 0.65 3.4% 0.68 4.0% 0.70 4.0% 89.59 79 131.49 141 134.24 141 137.31 141 140.48 141 -0.1% 68.96 62 65 65 0.62 1.4% Acquied Revenue per Store Same store sales growth Total Revenue per store 2014e 64 63.5 Acquired Store Revenue Total Revenue Total averge stores 86.260 Estimate 2015e 2016e 2.2% 2.7% 2.9% 2.9% 1.135 0.933 0.952 0.974 0.996
  17. 17. TSE: BCI 12/5/2013 Close: $15.70 Actual EBITDA Calculation 2010 Net Income 2011 11.488 2012 2013e Estimate 2015e 2016e 2014e 6.478 3.843 5.43% 4.036 5.03% 4.709 5.72% 4.81 5.37% 7.09 5.39% 7.23 5.39% 7.40 5.39% 7.57 5.39% 1.258 (6.524) 0.366 2.512 0.432 3.209 0.440 3.290 4.665 5.101 4.665 5.238 4.665 5.392 4.665 5.549 10.07 12.94 14.83 19.15 28.10 28.69 29.34 30.02 Add: Depreciation as % of revenue Interest Income Taxes EBITDA 10.613 11.249 11.551 11.889 2017e 6.024 12.237 CAPEX: Post-acquisition of Vogue Optical Actual 2010 Capital Expenditures Normalization Acquisition of Land Acquisition of Building Sustaining CAPEX as % of revenue 2011 2012 (2.980) (3.841) (3.84) 4.67% (4.49) 5.21% 2017e 1.462 2.834 (2.98) 3.72% 2014e (8.789) - 2013e Estimate 2015e 2016e (4.059) 4.53% (5.958) 4.53% (6.082) 4.53% (6.221) 4.53% (6.365) 4.53%
  18. 18. TSE: BCI 12/5/2013 Close: $15.70 Comparable Ratos: Average EV/TTM EBITDA New Look Eyewear TTM Luxottica Optical TTM Essilor TTM Constant Contact TTM 2010 9.04 13.56 13.32 75.35 2011 11.63 11.76 12.91 41.28 2012 7.53 13.19 16.46 20.15 Current 11.14 13.51 14.86 26.48 Median Low Range High Range Average 9.84 13.01 14.39 40.82 *Constant Contact Excluded 13.70 11.14 14.39 Price to Earnings: Pre-acquisition of Vogue Optical Actual Net Income Equity ROE ROE WACC Growth 2010 11.488 16.9931 67.60% 29% 7.9% 2.67% Growth 2011 6.024 24.058 25.04% 2012 6.478 26.324 24.61% 2013e 7.280 28.465 25.58% 17.46 1.60% 2.10% 2.60% 3.10% 3.60% 4.10% 4.60% 26.0% 15.0 16.0 17.1 18.5 20.2 22.4 25.3 27.0% 15.0 16.0 17.2 18.6 20.3 22.6 25.5 2014e 7.423 32.037 Estimate 2015e 2016e 7.533 7.645 37.098 Return on Equity 28.0% 29.0% 15.1 15.1 16.1 16.1 17.2 17.3 18.7 18.8 20.5 20.6 22.7 22.8 25.6 25.8 30.0% 15.1 16.1 17.4 18.8 20.7 23.0 26.0 2017e 7.759
  19. 19. TSE: BCI 12/5/2013 Close: $15.70 DCF: Post-acquisition of Vogue Optical Actual 2010 2011 2012 2013e 2014e Estimate 2015e 2016e 2017e EBITDA 19.153 28.100 28.688 29.344 30.020 Changes in Working Capital Capital Expenditures Taxes 0.001 (4.059) (3.290) (0.001) (5.958) (5.101) (0.001) (6.082) (5.238) (0.001) (6.221) (5.392) (0.001) (6.365) (5.549) Total Unleavered Free Cash Flow 11.81 17.04 17.37 17.73 18.10 Net Present Value Calculation Period Discounted Cash Flow Total Net Present Value 1.0 11.15 66.18 2.0 14.93 3.0 14.10 4.0 13.35 5.0 12.64 7.9% WACC Schedule Cost of Equity Risk-free rate Equity risk premium Beta Cost of equity 3.15% CAD 30-year T 6.00% 1.15 Assumed higher 10.05% Statutory tax rate EBITDA Method Exit Year EBITDA Multiple Terminal Value Net Present Value Low 28.100 11.1x 313.03 214.44 High 28.100 14.39 404.29 276.96 Perpetuity Method Unlevered Free Cash Flow Growth Rate Terminal Value Net Present Value Low 18.10 2.2% 324.94 222.60 High 18.10 3.2% 398.05 272.68 Discounted Cash Flow Total Valuation EBITDA Method Low Total of Present Value of Cash Flows Present Value of Terminal Value Total Enterprise Value Net Debt Equity Value Share Count Pre-acquisition (millions) Issuance of shares (millions) Total share count Estimated Equity Value per Share $ 66.18 214.44 280.62 83.28 197.34 10.46 2.16 12.62 15.64 $ Perpetuity Method High 66.18 276.96 343.13 83.28 259.85 10.46 2.16 12.62 20.60 $ Low 66.18 222.60 288.78 83.28 205.50 10.46 2.16 12.62 16.29 $ High 66.18 272.68 338.86 83.28 255.58 10.46 2.16 12.62 20.26 31.2% Cost of Debt WACC Schedule Risk-free rate Credit rating Credit spread Cost of debt 3.2% N/A 2.40% Assumed 5.55% After Tax Cost of Debt 3.8% Capital Structure Long-term Debt Senior secured debt facility Junior unsecured debt facility Notes Payable Market Value of Debt 9.10 60.00 **should line of 15.00 0.71 84.81 Share Price at valuation date Number of shares outstanding Market Value of Equity Debt/EV Equity/EV Debt/Equity $ $ 14.95 10,461,489 156 35% 65% 54% WACC 7.9% Growth Rate 2.7% Forward Price to Earnings Valuation Low 2014 Eanrings per Share Forward PE Ratio Estimated Equity Value per Share High 0.92 17.2 $ 15.77 0.92 20.6 $ 18.88
  20. 20. TSE: BCI 12/5/2013 Close: $15.70 Appendix
  21. 21. TSE: BCI 12/5/2013 Close: $15.70 Market Size
  22. 22. TSE: BCI 12/5/2013 Close: $15.70 Age & Population Overview

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