Eric Boroian presented his in-depth investment thesis on ISS (Denmark: ISS) at European Investing Summit 2014.

ISS: provides facility services, including cleaning, catering, property services (building maintenance, landscaping), support services (reception services, internal mail handling, office logistics), security (manned guarding, access control, patrolling, key card), and facility management (change management and consulting). The shares are mispriced as the market is doubtful of the company’s growth due to disappointing recent results, driven by weak Western Europe and ‘non portfolio’ work, which is higher margin but cyclical. This disappointment has caused the price to decline which may be worsened by the fact that it’s a recent private equity led IPO. Boroian however thinks the equity is undervalued on both absolute and relative terms. It trades at a 20% discount to lower quality peers and a 30-40% discount to higher quality peers. His base case assumes a reversion to the mean in growth (to 4% annually over the next 5 years), with margins improving by 10bps annually, and a valuation in line with lower quality peers (to be conservative). When discounting that at 10% and taking into account dividends, this would still imply 50% upside. On a bear case scenario, growth would stay low at 2%, margins remain flat, and the company would be at the low end of the historical multiple for peers, which would then imply 25% downside. This means there is a reward to risk ratio of about 2 to 1, which Boroian finds quite attractive.

About the instructor:

Eric Boroian is a Portfolio Manager with Focus Asset Managers based in Paris. He started his career as a business analyst at Vivendi Universal, and then spent time as an equity research analyst at CA Cheuvreux, with a focus on European Consumer Staples. Eric also has investing experience in concentrated portfolios of European and US equities. He graduated from the London School of Economics with a graduate degree in Sociology and Quantitative Research Methods, and from Imperial College London, with an MBA in Finance.

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