Date: 14/07/2017 Headquarters: Germany Target Price: 236.

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Ticker: ETR: ADS Potential: 26.7% Price: 180.60

52Week High/Low
Market Profile
188-129.15
xxxEquity Report
Avg. Volume (3M) 683
Shares Out. 209.22 M Business Overview
Market Cap. 37 785 M The Adidas AG share is listed on the "Deutsche Brse" stock exchange in Frankfurt. The
Dividend Yield 1.08% stock is part of the DAX-30 index, which includes only the largest German companies
BETA 0.84 listed. It is the second largest sports manufacturer and biggest seller around the world and
EPS 5.59 the largest network in Europe. Beside sports goods, the company is also associated with
PER 32.31 the manufacture of clothing and wears accessories like shirts, bags, watches, belts etc.
Closing Price 180.60 Although Adidas is a global brand, it is facing fierce competition from other brands such
Nike and Under Armor. Other smaller competitors are: Puma, Umbro, Kappa, Warrior
Source: Thomson Reuters, Bloomberg
Sports. Besides this, there is regular competition from local players, substitutes and mar-
Share Price ket penetrators.
The strategy - Creating the New - is the attitude that leads the companys next five-year
plan into the future an exciting future, because the industry is growing in size and sco-
pe and will continue to do so. In fact, the sporting goods industry is growing faster than
most other industries, including consumer electronics.
Key Ratios 2016 2017E 2018F 2019F 2020F 2021F
Source: Thomson Reuters Eikon Total Revenues 19 291 21 392 23 788 26 508 29 616 33 168
Net Profit 936 1 021 1 204 1 424 1 796 2 013
EV/EBITDA / PER EBITDA Margin 9.3% 9.7% 10.1% 10.5% 11.3% 11.1%
Return on Assets 9.3% 8.9% 9.5% 10.4% 11.9% 12.2%
Return on Equity 14.5% 15.4% 16.3% 17.1% 18.7% 18.2%
Cash Cycle 66 68 68 68 68 68
Debt/Assets 57.4% 60.7% 60.6% 59.3% 57.1% 54.6%
Fin. Leverage 1.34 1.54 1.54 1.46 1.33 1.20
Interest Coverage 32.7 37.4 27.2 24.1 26.3 27.2
PER 51.2 48.4 42.7 37.4 30.8 28.4
Source: Team Estimates EV/EBITDA 422 602 656 683 716 731
NetDebt / EBITDA 4.85 4.95 4.71 4.37 3.79 3.60
ROC / WACC Source: Team Estimates

Investment Analysis
I issue a Buy recommendation based on the analysis done. Adidas AG at the current pri-
ce of 180.60 is undervalued based on the DCF estimated share value of 236.21.

Source: Team Estimates

Adidas is managing growth rates on the two digits, at the same time that increases profit
margins. Adidas still faces a fierce competition from Nike and newcomers in mature
Sensitivity Analysis
markets like Europe and North America, but segments like fitness clothing in this regions
WACC
and the expansion to Asia are driving Adidas on a path of strong growth.
Growth Rate

3.12% 4.12% 5.12%

1.5% 316 192 137
2.0% 454 236 158
2.5% 813 307 187

Source: Team Estimates

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 Revenue P&L
(Millions EUR) 2015 2016 2017E 2018F 2019F 2020F 2021F
Total revenues 16 915 19 291 21 392 23 788 26 508 29 616 33 168
Cost of revenue 8 748 9 912 11 124 12 370 13 784 15 400 17 248
Gross Profit 8 167 9379 10 268 11 418 12 724 14 215 15 921
Operating expenses 6 866 7 586 8 201 9 006 9 946 10 855 12 224
Source: Team Estimates EBITDA 1 412 1 793 2 067 2 412 2 778 3 361 3 697
Sales by region D&A 354 388 569 628 658 695 712
EBIT 1 058 1 405 1 497 1 719 2 034 2 565 2 876
Net income 686 936 1 021 1 204 1 424 1 796 2 013
EPS 3.40 4.47 4.88 5.75 6.80 8.58 9.62
Source: Team Estimates

Source: Adidas Annual Report

Debt Balance Statment
(Millions EUR) 2015 2016 2017E 2018F 2019F 2020F 2021F
Total Assets 13 343 15 176 16 855 18 731 20 444 22 350 24 403
Property and Eq. 1 638 1 915 2 313 2 517 2 774 2 890 2 890
Intangible Assets 1 816 1 847 1 937 1 984 2 042 2 068 2 068
Other nc. assets 2 175 2 269 2 310 2 308 2 303 2 270 2 212
Source: Team Estimates Clients 2 049 2 200 2 632 2 926 3 261 3 643 4 081
Multiples Inventories 3 113 3 763 3 942 4 384 4 885 5 458 6 113
EV/EBITDA PER PBV Cash and Eq. 1 530 1 876 2 406 3 229 3 719 4 471 5 388
Investments 217 258 298 351 415 489 577
Adidas 602 48.4 0.76
Other c. Assets 805 1 047 1 017 1 031 1 045 1 059 1 073
Nike 15.9 22.0 7.07 Equity 5 666 6 472 6 629 7 371 8 310 9 597 11 077
Total Liabilities 7 677 8 704 10 226 11 360 12 133 12 753 13 327
Puma 25.7 81.4 3.99
IBD 1 929 1 730 2 730 3 530 3 930 4 130 4 230
UA 17.0 51.8 6.18 Suppliers 2 024 2 496 2 586 2 876 3 205 3 581 4 010
Source: Team Estimates
Skechers 8.7 17.4 2.49 Deferred Income Tax 368 387 370 370 370 370 370
Source: Thomson Reuters Eikon Other Liabilities 3 356 4 091 4 540 4 584 4 628 4 672 4 717
DCF Source: Team Estimates
Enterprise Value 49 446
Cash 2 406
NOA 298
Firm Value 52 150
Debt 2 730 FCFF
Equity 49 420 (Millions EUR) 2016 2017E 2018F 2019F 2020F 2021F
Value of Share 236.21 EBIT 1 405 1 497 1 784 2 121 2 665 2 985
EBIT (1-T) 966 1 048 1 249 1 484 1 866 2 090
Current Share Price 180.60 CAPEX 716 1 100 900 1000 850 712
Source: Team Estimates D&A 388 569 628 658 695 712
WACC R&D 164 199 220 219 243 272
Rf 0.59% WC 329 521 447 507 579 662
Kd 3.20% FCFF 145 (202) 310 415 889 1 156
Source: Team Estimates
BETA 1.01
MRP 6%
Ke 6.66%
WACC 4.12%
Source: Team Estimates

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The team:

Analysts Email Linkedin

Andrea Prtelpoeg andrea.partelpoeg@gmail.com

Director

Pedro Andr Seabra da Silva pedroasilvawork@gmail.com linkedin.com/in/pedroassilva

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