FInancial Analysis Example PDF

FNG
BELGIUM Equity Research Report

Bloomberg: FNG:NA 4 September 2017
Factset: FNG-AMS
Closing price (31 August 2017): €27
Market capitalisation: €217m
EV: €331m
Free float: 6%
Finger on the trigger
Share price performance vs. peers (€, rebased) Home-grown, leading Benelux fashion retailer
100
FNG is a leading Benelux fashion retailer listed on the Amsterdam stock exchange. Like most
90 successful fashion retailers, such as giant Inditex, FNG is vertically integrated throughout
80 most of the fashion value chain: from design (owning 10 brands) and sourcing to selling to
70
consumers through an omni-channel strategy (500+ own stores as well as webshops).
60
50
Production, on the other hand, is outsourced. The company’s historical focus was on
40 children and women apparel, although it recently expanded into footwear (acquisition of
30 Brantano) and men’s fashion (announced acquisitions of Suitcase and Concept Fashion).
20
10
0
Market consolidator applying a tested and successful recipe
Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Vertical integration differentiates FNG from much of the domestic peers in fashion retail,
FNG Sector peers Online peers
particularly independent resellers that are hit hard by competition from the online retail
channel. The result is a wave of consolidation, which provides opportunities for winning
concepts such as FNG, which has seen its sales grow from €4m in 2008 to €260m in 2016.
FNG made two large acquisitions in 2016 which are significant in terms of strengthening the
12M-forward EV/EBITDA multiples geographic footprint outside of Belgium (with Miss Etam in the Netherlands), product
45 diversification (with Brantano in footwear), synergy and process optimisation (Benelux-wide
40 logistics operations) and financial impact (margin upside potential for both acquisitions).
35
30 36% EPS CAGR 2017-20 driven mainly by efficiency gains, with more icing on the cake
25 Our forecast of 36% EPS CAGR 2017-20e is well-above the level expected by the more
20
mature listed peers (13.5% CAGR), and driven by (1) 6.8% sales CAGR (efficiency gains,
15
growth in online and enhanced product-mix impact through the multi-brand, omni-channel
10
approach), (2) 26% EBITDA CAGR with group EBITDA margins expected to rise from 8.2% in
5
0
2016 to 14.6% expected in 2022e, (3) Control over other costs (depreciation and financing).
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Icing on the cake, which has yet to be reflected in our forecasts, are the synergy effects of
Fashion peers Oline peers Belgian SMC
up to €30m, above the margin enhancement that we expect
Important Note Around 15% valuation discount reflects undiscovered nature of the story
Merodis BVBA (Merodis) has been mandated
by FNG N.V. (FNG or the company) to
Based on our peer group analysis, FNG is trading on P/E, EV/EBITDA and EV/EBIT discounts
produce a neutral, fair and elaborate equity of respectively 18%, 11% and 9% on average over 2017-19e. The discounts, which may be
research report on the company with the linked to limited liquidity, leverage but also lack of market visibility, do not reflect, in our
aim to increase the visibility and awareness
of FNG's shares in the financial markets. The
view, FNG’s strong historical profitability vs. peers and its superior growth potential. To
authors hereby declare that any views better reflect FNG’s long-term restructuring potential, we use a DCF model which suggests
expressed in this report represent their fair value at €38.3/share at a WACC of 11.2%. Although FNG trades in line with peers on
personal opinion and that FNG has neither
limited nor in any other way influenced the
0.6x EV/Sales 2018e, a correlation analysis with our 2020e EBITDA forecast of 11.8%,
content of this report. suggests a target EV/Sales of 0.94x, or €49/share (before any size or liquidity discount).
Please read the disclaimer at the end of this Arnaud W. Goossens
report
[email protected]
Key financials
€m 2013 2014 2015 2016pro 2017e 2018e 2019e 2020e
Sales 147.1 242.5 255.7 459.8 508.6 543.8 587.0 619.7
EBIT 14.7 15.4 15.5 3.7 29.2 35.9 49.1 57.7
Net profit 7.8 5.9 4.4 -2.8 13.6 18.2 27.5 34.0
EPS (€) 2.00 1.32 0.89 -0.41 1.69 2.26 3.42 4.23
DPS (€) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
P/E (x) 9.0 14.3 19.7 na 16.0 11.9 7.9 6.4
Adj. EV/EBITDA (x) 5.6 6.0 6.6 7.8 7.9 6.7 4.8 3.8
Adj .EV/EBIT (x) 8.3 10.6 11.9 79.6 11.3 9.2 6.2 4.8
Source: Company data, Merodis, FactSet
Equity Research Update
Enterprise Value (€m): 331 Financial summary

Market Cap. (€m): 217
Free-float MCap (€m): 13
2016 CAGR CAGR
Consolidated P&L (€m) 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015 prof. 2017e 2018e 2019e 2020e 08-16 17-20e
Year-end 31/12/06 31/12/07 31/12/08 31/7/10 31/7/11 31/3/13 31/3/14 31/3/15 31/3/16 31/12/16 31/12/17 31/12/18 31/12/19 31/12/20
# of months 12 12 12 19 12 19 12 12 12 12 12 12 12 12
Sales 0.8 1.3 4.2 43.2 46.0 127.4 150.4 254.6 256.9 459.8 508.6 543.8 587.0 619.7 80.0 6.8
EBITDA 0.1 0.0 0.1 6.6 8.0 20.8 21.9 27.5 27.9 37.6 41.9 49.5 63.8 73.2 110.4 20.4
EBIT -0.1 -0.2 -0.4 4.2 3.0 14.0 14.7 15.4 15.5 3.7 29.2 35.9 49.1 57.7 na 25.5
Pretax profit -0.1 -0.4 -0.7 2.7 0.2 9.3 10.6 10.4 9.0 -5.7 20.9 28.0 42.3 52.3 30.3 35.8
Net profit -0.1 -0.4 -0.7 2.7 0.2 7.8 7.8 5.9 4.4 -2.8 13.6 18.2 27.5 34.0 19.1 35.8
Cash Flow (€m) 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015 2016 2017e 2018e 2019e 2020e 08-16 17-20e
Adj. EBITDA 0.1 0.0 0.1 6.6 8.0 20.8 21.9 27.5 27.9 7.0 41.9 49.5 63.8 73.2 70.4 20.4
WCR -0.2 -0.6 0.8 -6.4 -1.9 -5.4 -10.2 -4.4 -24.6 0.3 -4.3 -3.3 -3.9 -3.1 -12.8 -10.9
Gros Op CF -0.1 -0.6 0.9 0.2 6.1 15.4 11.7 23.0 3.2 7.2 37.6 46.2 59.9 70.1 29.0 23.1
Capex 0.0 0.0 -0.1 -0.9 -0.9 -2.5 -3.0 -5.1 -5.1 -21.2 -30.0 -27.0 -15.0 -15.0 99.8 -20.6
FCF -0.2 -0.8 0.6 -2.2 3.6 7.8 2.8 9.0 -12.5 -18.7 -8.0 1.5 23.3 31.4 na na
Net disp./(acq.) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.5 -9.0 0.0 0.0 0.0 na na
Dividends paid 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 na na
Equity issue 0.2 0.0 1.1 0.5 0.3 0.3 2.5 1.8 2.1 68.2 0.0 0.0 0.0 0.0 67.2 na
Others -1.0 -0.7 -4.2 -7.4 -10.1 -27.4 -11.4 -41.7 -7.1 -75.7 0.0 0.0 0.0 0.0 43.4 na
Net Debt (incr.)/decr. -1.0 -1.5 -2.5 -9.1 -6.2 -19.3 -6.1 -30.9 -17.6 -16.7 -17.0 1.5 23.3 31.4 26.7 na
Balance Sheet (€m) 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015 2016 2017e 2018e 2019e 2020e 08-16 17-20e
WC 0.2 0.8 0.0 6.4 8.3 13.6 23.8 28.3 52.9 33.6 38.0 41.3 45.2 48.2 na 8.3
Capital Employed 0.9 2.0 2.8 40.2 47.0 73.6 108.3 160.5 186.5 396.1 427.8 444.5 448.7 451.3 85.9 1.8
Cash & Equivalent 0.0 0.0 0.0 8.6 6.4 11.7 23.1 42.7 24.4 66.9 49.9 31.3 24.6 26.1 159.8 -19.5
Gross Debt 1.0 2.5 5.0 22.6 26.6 51.3 68.8 119.4 118.6 177.8 177.8 157.8 127.8 97.8 56.1 -18.1
Equity 2.4 2.0 2.9 26.2 26.7 34.5 60.8 79.7 84.6 233.6 247.2 265.4 292.9 326.9 73.2 9.8
Growth (%) 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015 2016 2017e 2018e 2019e 2020e
Sales na 57.1 238.5 na na na na 64.8 5.4 79.8 10.6 6.9 7.9 5.6
EBITDA na na na na na na na 25.6 1.5 35.0 11.4 18.2 28.8 14.7
EBIT na na na na na na na 5.0 0.6 -76.1 687.0 23.1 36.7 17.4
Net profit na na na na na na na -24.2 -26.0 na na 33.9 51.2 23.7
FCF na na na na na 114.5 -63.8 217.1 na na na na na 35.1
NWC 328.3 na na 29.2 64.8 74.7 18.5 87.2 -36.4 12.9 8.7 9.4 6.8
Capital Employed 123.1 39.9 na 16.7 56.7 47.2 48.2 16.2 112.4 8.0 3.9 0.9 0.6
Shareholder Equity -16.0 42.9 810.9 2.0 29.2 75.9 31.1 6.2 176.3 5.8 7.4 10.4 11.6
Financial Ratios 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015 2016 2017e 2018e 2019e 2020e
Gross margin (%) 69.0 56.3 52.8 53.7 55.8 59.1 55.9 49.0 50.8 53.6 53.8 54.0 54.3 54.5
EBITDA margin (%) 9.3 -0.7 2.3 15.3 17.3 16.3 14.5 10.8 10.8 8.2 8.2 9.1 10.9 11.8
EBIT margin (%) -7.8 -18.5 -10.5 9.6 6.6 11.0 9.8 6.1 6.0 1.9 5.7 6.6 8.4 9.3
Net margin (%) -14.2 -29.5 -16.4 6.2 0.3 6.1 5.2 2.3 1.7 -0.6 2.7 3.3 4.7 5.5
Opex/Sales (%) 90.6 100.4 97.3 84.0 81.9 83.2 85.2 89.0 89.0 91.8 91.8 90.9 89.1 88.2
Depreciation/Sales (%) 13.9 17.9 12.8 5.5 10.6 5.1 4.8 4.6 4.8 6.2 2.5 2.5 2.5 2.5
Depreciation/EBITDA (%) 150.1 na 546.5 35.9 61.4 31.5 32.9 43.1 44.0 76.3 30.3 27.4 23.0 21.2
Tax rate (%) 0.0 0.0 0.0 0.6 7.3 16.3 26.1 42.9 51.3 51.3 35.0 35.0 35.0 35.0
Capex/Sales (%) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 4.6 5.9 5.0 2.6 2.4
FCF/Sales (%) -23.4 -61.3 14.7 -5.0 7.9 6.1 1.9 3.5 -4.9 -4.1 -1.6 0.3 4.0 5.1
WCR/Sales (%) -24.3 -49.0 20.4 -14.9 -4.1 -4.2 -6.8 -1.7 -9.6 0.1 -0.9 -0.6 -0.7 -0.5
WC/Sales (%) 24.3 63.9 -0.4 14.8 18.0 10.7 15.8 11.1 20.6 7.3 7.5 7.6 7.7 7.8
Capital Employed/Sales (%) 111.5 153.0 66.7 93.1 102.0 57.8 72.0 63.1 72.6 86.1 84.1 81.7 76.4 72.8
Gearing (%) 41.4 124.0 173.9 53.7 75.7 114.5 75.2 96.2 111.4 47.5 51.7 47.6 35.2 21.9
Net Debt/EBITDA (x) 0.0 0.0 51.1 2.1 2.5 1.9 2.1 2.8 3.4 2.9 3.1 2.6 1.6 1.0
ROCE post-tax (%) -7.0 -16.7 -18.3 19.3 6.5 19.4 11.9 6.6 4.3 0.6 4.6 5.4 7.2 8.3
ROE (%) -4.7 -17.4 -27.9 18.3 0.6 25.5 16.4 8.4 5.3 -1.7 5.6 7.1 9.8 11.0
Dividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Valuation 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015 2016 2017e 2018e 2019e 2020e 08-16 17-20e
Market Capitalisation (€m) 5.1 5.9 32.8 31.0 77.2 89.1 90.8 199.4 217.1 217.1 217.1 217.1 58.3 0.0
+ Net Financial Debt (€) 5.0 14.1 20.3 39.6 45.7 76.6 94.2 110.9 127.9 126.4 103.2 71.7 47.3 -17.5
+ Restated Min. + others (€m) 0.0 0.0 0.0 0.1 0.2 0.2 0.2 2.6 3.6 3.6 3.6 3.6 na 0.0
- Associates & Inv. (€m) 5.1 0.1 0.1 1.7 1.3 2.1 0.6 17.6 17.6 17.6 17.6 17.6 16.8 0.0
= Enterprise Value (€m) 5.0 19.9 53.0 68.9 121.8 163.8 184.6 295.2 331.0 329.5 306.3 274.8 66.6 -6.0
Assoc. NFD (gr. share) (€m) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
EV/Sales (x) 1.2 0.5 1.2 0.5 0.8 0.6 0.7 0.6 0.7 0.6 0.5 0.4
EV/EBITDA (x) 50.8 3.0 6.7 3.3 5.6 6.0 6.6 7.8 7.9 6.7 4.8 3.8
EV/EBIT (x) -11.4 4.8 17.4 4.9 8.3 10.6 11.9 79.6 11.3 9.2 6.2 4.8
EV/FCF (x) 8.1 -9.2 14.5 8.8 43.1 18.3 -14.7 -15.8 -41.2 223.7 13.2 8.7
EV/Capital Employed (x) 1.8 0.5 1.1 0.9 1.1 1.0 1.0 0.7 0.8 0.7 0.7 0.6
P/E (x) na 2.1 129.5 3.9 9.0 14.3 19.7 na 16.0 11.9 7.9 6.4
P/BVPS (x) 1.8 0.2 1.2 0.9 1.3 1.1 1.1 0.9 0.9 0.8 0.7 0.7
FCF yield (%) 12.1 -36.7 11.1 25.3 3.7 10.1 -13.8 -9.4 -3.7 0.7 10.7 14.5
Per share data 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015 2016 2017e 2018e 2019e 2020e 08-16 17-20e
# of shares 0.67 0.76 3.49 3.55 4.28 4.71 5.20 8.04 8.04 8.04 8.04 8.04 36.4 0.0
# of avg sh. (FD, ex-treas.) 0.34 0.72 2.12 3.52 3.91 4.49 4.95 6.79 8.04 8.04 8.04 8.04 45.3 0.0
Share price 7.53 7.74 9.42 8.72 18.06 18.92 17.46 24.79 27.00 27.00 27.00 27.00 16.1 0.0
EPS -2.00 3.71 0.07 2.22 2.00 1.32 0.89 -0.41 1.69 2.26 3.42 4.23 -18.0 35.8
EPS FD -2.00 3.71 0.07 2.22 2.00 1.32 0.89 -0.41 1.69 2.26 3.42 4.23 -18.0 35.8
BVPS 4.28 34.53 7.67 9.73 14.21 16.92 16.26 29.05 30.74 33.00 36.42 40.65 27.1 9.8
DPS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 na na
Source: Company data, Merodis
1/50
2/50
TABLE OF CONTENTS (click to follow link in pdf)

Investment Case ............................................................................................................ 5
Home-grown Benelux fashion retailer ....................................................................... 5
Market consolidator applying a tested and successful recipe ................................... 5
Growth driven by efficiency gains with icing on the cake ......................................... 6
Key value drivers ........................................................................................................ 6
Valuation discount ..................................................................................................... 6
Valuation Analysis ......................................................................................................... 8
Peer analysis .............................................................................................................. 8
Discounted Cash flow .............................................................................................. 13
Company Description .................................................................................................. 14
Company history and past acquisitions ................................................................... 14
Major transformational deals of 2016 ..................................................................... 15
Strategy .................................................................................................................... 16
Critical size and brand positioning ........................................................................... 17
Store concept........................................................................................................... 19
Miss Etam ................................................................................................................ 19
Brantano .................................................................................................................. 21
Management team .................................................................................................. 22
SWOT analysis.......................................................................................................... 23
Industry Overview ....................................................................................................... 28
Benelux fashion retail market in a global context ................................................... 28
Positioning of FNG and competition overview ........................................................ 30
The online risks and opportunities .......................................................................... 33
Key sector drivers .................................................................................................... 35
Financial Analysis ......................................................................................................... 38
Recent changes to FNG’s consolidation scope ........................................................ 38
Impact of acquisitions .............................................................................................. 38
P&L analysis and forecasts....................................................................................... 40
Cash flow analysis and forecasts ............................................................................. 45
Balance sheet structure and forecasts .................................................................... 48
Disclaimer .................................................................................................................... 50
3/50
TABLE OF FIGURES (click to follow link in pdf)

Figure 1. Target valuation multiples at a value of €38.3share .............................................. 7
Figure 2. EBITDA margin comparison* (%) ............................................................................ 9
Figure 3. Forecast EBITDA margins (%) ................................................................................. 9
Figure 4. Peer group valuation analysis............................................................................... 10
Figure 5. Peer group benchmarking analysis....................................................................... 11
Figure 6. Peer correlation analysis of valuation vs. profitability ......................................... 12
Figure 7. Peer valuation vs. expected EPS growth .............................................................. 12
Figure 8. Discounted cash flow model ................................................................................ 13
Figure 9. WACC assumptions (%) ........................................................................................ 13
Figure 10. Market positioning of FNG brands in the Dutch market ...................................... 18
Figure 11. FNG’s brand portfolio ........................................................................................... 18
Figure 12. Store size and efficiency ....................................................................................... 19
Figure 13. FNG’s Integrated logistics platform in Zoetermeer .............................................. 20
Figure 14. Exterior and interior view of a rebranded Brantano out-of-town store............... 21
Figure 15. FNG shareholders as of June 2017 ....................................................................... 23
Figure 16. FNG share price and trading volumes .................................................................. 25
Figure 17. European unemployment rate (April 2017) and disposable income per capita
(2015) .............................................................................................................................. 28
Figure 18. European population density (population/m²) (2015) ......................................... 29
Figure 19. European fashion retail value chain ..................................................................... 29
Figure 20. Price segments in Europe ..................................................................................... 31
Figure 21. Positioning of Dutch fashion retail brands ........................................................... 32
Figure 22. Europe’s 25 fastest-growing major apparel retailers (revenue CAGR 2009-14) ... 33
Figure 23. E-commerce penetration in Belgium (2017) ........................................................ 34
Figure 24. E-commerce share within the European retail sector (2016)............................... 34
Figure 25. Disposable income growth ................................................................................... 35
Figure 26. Evolution of Belgium’s inflation (+clothing sub-index) and Clothing price levels . 36
Figure 27. FNG sales and EBITDA evolution and forecasts .................................................... 39
Figure 28. Profile of past acquisition under the former FNG scope ...................................... 39
Figure 29. FNG P&L ............................................................................................................... 40
Figure 30. Key segment assumptions .................................................................................... 41
Figure 31. FNG Cash flow ...................................................................................................... 45
Figure 32. Working capital as a % of sales (2014-16 average) .............................................. 46
Figure 33. Peer-average payout ratio since 2004 .................................................................. 47
Figure 34. Peer-average payout ratio (2004-16) ................................................................... 47
Figure 35. FNG Balance sheet ............................................................................................... 48
Figure 36. Debt profile and maturities at FNG Benelux Holding ........................................... 49
4/50
INVESTMENT CASE
Fast growing, and now a leading, FNG, a leading Benelux fashion retailer, has experienced strong growth in the past
Benelux fashion retailer (80% sales CAGR 2008-16), driven largely by external and organic growth driven by a
successful business model which combines strong fashion designs and an effective
omni-channel retail strategy. Going forward, we expect profit growth to remain
buoyant, with 36% EPS CAGR 2017-20e, driven by 26% EBITDA CAGR (margin ramp-
up potential) and 6.8% sales CAGR (efficiency gains and online sales growth). The
stock is trading at a discount to peers, while a premium is justified, in our opinion,
given the strong growth and margin turnaround potential as well upside with respect
to visibility among investors (FNG is a “hidden jewel” among Benelux listed
companies).
Home-grown Benelux fashion retailer

Integrated player operating an FNG is a leading Benelux fashion retailer listed on the Amsterdam stock exchange.
omni-channel strategy Like most successful fashion retailers these days, such as giant Inditex, FNG is
vertically integrated throughout most of the fashion value chain: from design
(owning 10 brands) and sourcing to selling to consumers through an omni-channel
strategy (525 own stores and webshops). Production, on the other hand, is
outsourced. The company’s historical focus was on children and women apparel
(mid- to high-end price range), although it recently expanded into footwear
(acquisition of Brantano) and men’s fashion (announced acquisitions of Suitcase and
Concept Fashion).
Market consolidator applying a tested and successful recipe

Growing sales from €4m in 2008 FNG’s vertical integration differentiates the company from much of the domestic
to €460m in 2016 competition in fashion retail, particularly the independent resellers, which are
suffering dearly from lack of control over the brands that they sell and, hence,
competition from the online retail channel. The result is a wave of consolidation,
which provides opportunities for winning concepts such as FNG. The company has
taken advantage of this consolidation wave, growing its sales from €4m in 2008 to
€460m by 2016. Although FNG is a leading player in the Benelux, the market remains
fragmented, as witnessed by its estimated market share of 2%, which leaves ample
room for growing in its domestic market.
Buy-and-build model Through its buy-and-build strategy, FNG seeks for (1) critical size (economies of scale
in the production and logistics processes, sharing of know-how in back-office
processes, optimising cross-channel strategies and spreading the digital investments
over several brands) and (2) complementarity of its product portfolio. FNG will also
exploit the opportunity to expand internationally with brands such as CKS, Expresso
and Claudia Sträter (demand driven).
Two transformational deals in In 2016, the company made two large acquisitions, Miss Etam and Brantano, which
2016 are significant in terms of (1) strengthening its geographic footprint outside of
Belgium (with Miss Etam in the Netherlands, adding 95 stores in the country,
doubling its store count), (2) product diversification (with Brantano in footwear), (3)
synergy and process optimisation, mainly driven by its worldwide buying platform
and its Benelux-wide logistics operations and (4) financial impact with upside
potential in terms of margins as both Miss Etam and Brantano were, at the time of
acquisition, in a certain state of distress.
5/50
Growth driven by efficiency gains with icing on the cake

Beating peers at growth Our forecast of 36% EPS CAGR 2017-20e is well-above the level expected by more
mature listed peers (13.5% CAGR). The growth is driven by the following impacts:
• 6.8% sales CAGR from (1) efficiency gains (improved management of
underperforming stores, particularly at Brantano and Miss Etam), (2) growth in
online sales at FNG from an estimated 11% of sales in 2016 to 15% by 2020e
(17% CAGR) and (3) enhanced product-mix impact through the multi-brand,
omni-channel approach. Further top-line growth opportunities that we have not
factored into our estimates include store openings and further acquisitions.
• 26% EBITDA CAGR with group EBITDA margins expected to rise from 8.2% in
2016 to 14.6% expected in 2022e. The main drivers for this jump include: (1)
margin ramp-up potential among two recent acquisitions (Miss Etam with 2.9%
in 2016 and Brantano with 3.6%), (2) overall gross margin improvement
potential (from 53.6% in 2016 to 55% by 2022e) fuelled by favourable
purchasing terms (size effect), active brand portfolio management, mark down
management and improved stock allocation, (3) opex optimisation through
shared services (HR, IT, etc.) over a bigger platform.
• Control over other costs such as (1) depreciation which is at a historically high
level due to increased capex from store refurbishment programmes
(particularly at Brantano), but is expected grow in line with sales (7% CAGR
2017-20e) and (2) financial costs which we expect to drop by 13% CAGR from
the impact of strong growing FCF which we expect to turn positive as from
2018e, and the subsequent deleveraging of FNG’s balance sheet (from
ND/EBITA of 3.1x in 2017e to a net cash position in 2022e).
• Icing on the cake which has yet to be reflected in our forecasts are the synergy
effects, above the margin enhancement that we expect at Miss Etam and
Brantano, from these recent acquisitions. We believe synergies could reach
€30m by 2022e, with two-thirds generated by lower COGS, using its buying
platform, and one-third by lower opex, using its logistics platform. They should
happen at the level of the buying platform, of Miss Etam’s central stock
allocation system which can be used across more brands.
Key value drivers

Enhanced visibility and balance Besides earnings growth, the key value drivers include (1) visibility and further
sheet de-gearing should allow for evidence of the margin ramp-up potential which should allow for a further rerating
a rerating potential as explained below and (2) balance sheet deleveraging through strong FCF
generation, which will not only cut financing costs, but also significantly reduce the
risk perception of the stock (for example, we use a restrictive WACC of 11.2% in our
DCF model which is driven by a high beta of 1.8x owing to the company’s risk profile,
including its geared balance sheet) As the balance sheet de-gears, we would expect
the market to apply a lower measure of risk through a lower beta and, hence, WACC.
Valuation discount
Trading at a c15% valuation Our peer group analysis highlights FNG’s valuation discount compared to peers,
discount based on P/E as well as EV/EBITDA and EV/EBIT multiples of respectively 18%, 11%
and 9% on average over 2017-19e. The discount, which probably reflects liquidity
issues as well as balance sheet risks, is not justified in our view given the following
factors:
6/50
• Strong historical profitability compared to peers. FNG has achieved higher-

than-average EBITDA margins compared to peers, particularly in the years 2009-
13, with an average 340bp premium. In 2016, the EBITDA margin reported by
FNG brands (ex-Miss Etam and Brantano) did even better with an EBITDA
margin of 12.7% vs. the sector average of 9.2%. Although the 2016 proforma
EBITDA margin (8.2%) fell short of the sector average (temporary negative
impact of Miss Etam and Brantano) we expect FNG to beat the sector by 2020e.
• Superior growth prospects at FNG. FNG score well, both historically and
prospectively in terms of growth. Historically, the company has achieved 80%
sales CAGR since 2008 (from €4m to €260m in 2016). We expect prospective
growth to remain strong at 7.4% sales CAGR 17-19e, which compares to an
expected sector median of 2.5%. The “excess” profit growth should be even
stronger with 23% EBITDA CAGR and 42% EPS CAGR expected for FNG
compared to consensus peer median of 11% and 14% respectively.
DCF model with 11.2% WACC To better reflect the long term margin enhancement and profit growth potential, we
points to €38.3/share value the stock based on a discounted cash flow model using our explicit earnings
estimates to determine the future cash flows, which we discount using a WACC of
11.2%. Our DCF model points to fair value of €38.3/share. The implied valuation
multiples reflect, however, a premium relative to peers, which we believe is justified
given (1) the sub-optimal profitability expected over the next 2 years, which does not
reflect the company’s true potential, with (2) nevertheless a strong margin ramp-up
expected in the future and (3) superior earnings growth at FNG compared to the
peer group.
Validation through a correlation Our valuation conclusion is confirmed by a sector correlation analysis between
analysis profitability and valuation multiples. Although FNG is currently trading at 0.6x
EV/Sales 2018e, our 2020e EBITDA margin forecast of 11.8%, suggest a target
EV/Sales of 0.94x, which equates to a target value of €49/share (before any size or
liquidity discount).
Figure 1. Target valuation multiples at a value of €38.3share
12M Fwd 2017e 2018e 2019e

Target multiples (x)
PER 20.7 22.7 16.9 11.2
EV/EBITDA 10.3 10.9 9.2 6.8
EV/EBIT 14.7 15.6 12.7 8.8
Premium/(discount) to peer at target
PER 32% 39% 18% -8%
EV/EBITDA 31% 33% 27% 10%
EV/EBIT 35% 35% 36% 7%
Source: Merodis Equity Research
7/50
VALUATION ANALYSIS
Turnaround play with strong FNG is a turnaround play, having acquired two sizeable companies, Miss Etam and
upside potential… Brantano, in 2016 out of bankruptcy situations, paying a low multiple whilst
accessing substantial upside potential. Together, both companies now represent 48%
of group sales, but their current profitability is lagging (2016 EBITDA margins of
respectively 2.9% and 3.6% compared to FNG brands’ EBITDA of 12.7%). Given FNG’s
buy-and-build strategy the objective now is to turn both companies around and
exploit all synergies. We believe the upside potential in profitability is significant as
we expect 13% EBITDA margins for each brand by 2022e. Given the protracted
nature of such a scenario, we believe that a discounted cash flow is best suited to
value the long-term margin potential of the company. We have also compared FNG
to a set of listed peers, for benchmarking purposes as the group’s short term profit
and cash flow potential is of course impeded by the efforts and investments required
to ramp up the profitability at Miss Etam and Brantano.
… trading at a discount The stock is, nevertheless, trading at discounts to peers based on P/E as well as
EV/EBITDA and EV/EBIT multiples of respectively 18%, 11% and 9% on average over
2017-19e, which we view as an opportunity for investors as, we believe, a premium is
deserved.
Our fair value indication suggests Our DCF model points to fair value of €38.3 per share, suggesting 42% upside
a premium rating potential, using a WACC of 11.2% (including a Beta of 1.8x), which we believe should
more than correctly reflect the perceived risk profile of the company including its –at
this moment- restricted share liquidity. Although we do expect a rapid margin ramp-
up and superior earnings growth at FNG compared to the peer group, the current
implied valuation multiples reflect a premium relative to peers, reflecting the
superior growth profile of the company (but also given the lower relative profitability
expected in 2017e and 2018e).
Peer analysis
Our peer group analysis includes a variety of European fashion retailers (also
including Hong Kong-listed Esprit). The list of peers are available in Figure 4
(valuation table) and Figure 5 (benchmarking table).
Peer benchmarking
No analyst coverage with limited Although FNG is listed, its share liquidity is very low and no analyst coverage is
liquidity… for the time being offered on the stock so far, which means that there are no consensus forecasts.
Based on our conversations with management, we strongly believe FNG will address
this issue in the near future. We, nevertheless, benchmark FNG against its peers
based on the available historical information and our forecasts.
Profitability
Superior margin profile in the past FNG compares well to its peers (restricted group, comprising of Inditex, H&M, Esprit,
is expected again in the future Tom Tailor and KappAhl) on historical EBITDA margins, achieving superior
profitability from 2009 to 2013. We notice, in the graph below, that the decline in
profitability is visible, on average, across the entire peer group sample. Even with the
impact of Miss Etam and Brantano in 2016, FNG performs close to the average.
When excluding these impacts in 2016, FNG outperforms, once again, the peer group
on EBITDA profitability.
8/50
Figure 2. EBITDA margin comparison* (%)
Source: Company data, Factset

* Restricted peer group including: Inditex, H&M, Esprit, Tom Tailor and KappAhl
Some temporary margin pressure Going forward, and due to the integration of Miss Etam and Brantano, we expect
expected in the near future FNG to generate an EBIDTA margin slightly below that of its peers at least until 2019e
as shown in the table below. As we expect FNG to deliver 14.6% EBITDA margins by
2022e, we expect this difference with peers to reverse again as from 2020-21e
onwards. This also implies a more elevated EBIDTA CAGR than its peers.
Figure 3. Forecast EBITDA margins (%)
2017e 2018e 2019e

Peer median 9.7 10.5 11.0
FNG 8.2 9.1 10.9
% prem./(disc.) vs median -14.7 -13.6 -1.5
Source: Factset, Merodis Equity Research
Financial structure
A geared-up balance sheet which Another point of interest for investors is the financial structure of FNG, having a
should de-leverage as FCF grows relatively geared balance sheet, whereby debt was used to finance the numerous
acquisitions of the past. FNG’s ND/EBITDA ratio peaked in 2015 at 3.4x and reached
2.9x in 2016 based on the latest pro-forma accounts. We expect the ratio to fall back
to a net cash position in 2022e as FCF turns positive from 2018e.
The trend is clearly positive, but compared to peers, FNG’s balance sheet does
appear more aggressive. Indeed, peers currently have balance sheets supporting
much lower levels of debt with an average ND/EBITDA of 0.2x for 2017e (see Figure 5
for more details).
Growth prospects
Here, FNG scores very strongly, both historically and prospectively. The company has
grown sales by 80% CAGR since 2008 (from €4m to €460m in 2016). We expect
prospective growth to remain strong with an “organic” 6.8% sales CAGR 17-19e
which compares to an expected sector median of 2.3%. The “excess” profit growth
should even be stronger with a forecast 20% EBITDA CAGR and a 36% EPS CAGR
expected for FNG compared to consensus peer median of 11% and 13% respectively.
9/50
Equity Research Report
Figure 4. Peer group valuation analysis

Price MCap P/E EV/Sales EV/EBITDA EV/EBIT P/B DYield
Company Country (local) (local m) 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e
Ahlers GERMANY 6.14 84 26.1 21.2 18.1 0.5 0.5 0.4 10.9 9.9 8.7 22.6 18.6 15.2 0.8 0.8 0.8 3.3 4.5 4.9
Adler GERMANY 5.50 102 16.3 14.3 12.0 0.2 0.2 0.2 3.6 3.3 2.7 7.6 7.1 5.6 1.0 1.0 0.9 2.6 3.8 5.1
Bonmarche UNITED KINGDOM 0.88 43 6.9 5.7 5.0 0.2 0.2 0.2 2.9 2.3 1.9 4.7 3.7 2.9 114.0 102.1 91.4 8.2 8.4 8.7
Calida SWITZERLAND 37.55 308 18.9 17.2 14.5 0.7 0.7 0.6 8.5 7.2 6.0 12.8 10.4 8.3 1.9 1.8 1.7 2.1 2.1 2.1
Debenhams UNITED KINGDOM 0.40 518 6.4 7.1 7.0 0.3 0.3 0.3 3.4 3.6 3.6 6.9 7.7 7.7 0.5 0.5 0.5 8.4 7.7 7.7
Esprit HONG KONG 4.53 8,768 197.0 29.8 17.4 0.2 0.2 0.1 5.7 3.0 1.8 7.7 3.5 0.8 0.8 0.7 0.0 1.5 2.5
Fashion retailers
Gerry Weber GERMANY 10.70 490 46.2 19.6 15.6 0.8 0.7 0.7 9.8 7.2 6.3 33.5 15.5 12.5 1.1 1.1 1.0 1.9 2.8 3.4
H&M SWEDEN 201.00 332,669 17.4 15.8 14.5 1.6 1.5 1.3 9.9 9.0 8.1 13.4 12.1 11.0 5.2 4.8 4.4 4.9 5.0 5.1
IC Group DENMARK 137.00 2,281 23.6 17.6 14.0 0.9 0.8 0.8 11.7 9.1 7.5 18.4 12.7 9.9 3.2 2.7 2.5 3.6 4.8 4.5
Inditex SPAIN 31.92 99,353 27.7 24.5 21.9 3.6 3.2 2.8 16.1 14.2 12.6 20.1 17.6 15.5 7.0 6.3 5.9 2.4 2.7 3.1
JD Sports UNITED KINGDOM 3.24 3,154 14.8 13.4 12.1 1.0 0.8 0.7 8.2 7.1 6.2 10.1 8.7 7.5 4.1 3.2 2.6 0.9 1.0 1.2
KappAhl SWEDEN 45.00 3,457 11.2 10.3 9.5 0.7 0.6 0.6 6.2 5.5 4.8 8.2 7.3 6.5 1.7 1.6 1.4 4.3 4.9 5.8
Marks & Spencer UNITED KINGDOM 3.20 5,193 11.6 11.3 11.0 0.7 0.6 0.6 5.6 5.5 5.3 10.5 10.0 9.4 1.6 1.6 1.6 5.8 5.8 5.8
MQ SWEDEN 32.00 1,125 11.1 9.8 8.9 0.7 0.7 0.6 8.1 6.8 6.1 9.7 8.2 7.3 1.0 1.0 0.9 5.5 6.0 6.7
N Brown UNITED KINGDOM 3.27 925 14.9 14.3 13.6 1.3 1.3 1.3 10.7 10.3 9.8 14.4 14.1 13.0 1.9 1.8 1.7 4.3 4.4 4.6
New Wave Group SWEDEN 55.75 3,699 10.7 8.8 7.1 1.0 0.9 0.8 10.0 8.4 6.7 11.3 9.3 7.3 1.2 1.1 1.0 3.1 3.9 4.3
Next UNITED KINGDOM 41.29 5,890 10.4 10.5 10.5 1.7 1.7 1.6 8.0 8.0 8.0 9.2 9.3 9.3 10.3 8.3 6.9 3.8 3.8 5.3
OVS ITALY 6.27 1,423 13.5 11.8 10.5 1.1 1.0 0.9 7.8 6.8 6.0 10.5 9.1 7.8 1.4 1.3 1.2 2.9 3.2 3.7
SuperGroup UNITED KINGDOM 15.90 1,294 16.7 14.6 12.9 1.4 1.2 1.1 8.4 7.2 6.2 11.9 10.2 8.8 3.1 2.7 2.4 2.0 2.3 2.7
Ted Baker UNITED KINGDOM 24.95 1,102 19.7 17.4 15.4 2.0 1.8 1.6 12.1 10.7 9.4 15.7 13.8 12.1 5.2 4.5 3.9 2.4 2.8 3.1
Tom Tailor GERMANY 8.40 323 36.3 11.9 9.2 0.5 0.5 0.4 6.5 4.8 3.9 14.0 8.0 6.4 1.0 1.1 1.0 0.1 0.5 1.4
PEER AVERAGE 26.6 14.6 12.4 1.0 0.9 0.8 8.3 7.1 6.3 13.3 10.5 8.9 8.0 7.1 6.4 3.5 3.9 4.4
PEER MEDIAN 16.3 14.3 12.1 0.8 0.7 0.7 8.2 7.2 6.2 11.6 9.3 8.3 1.7 1.6 1.6 3.1 3.8 4.5
FNG NETHERLANDS 27.00 217 16.0 11.9 7.9 0.7 0.6 0.5 7.9 6.7 4.8 11.3 9.2 6.2 0.9 0.8 0.7 0.0 0.0 0.0
% prem./(disc.) vs median -2.1 -16.7 -35.0 -15.2 -16.2 -24.6 -3.5 -7.8 -22.0 -2.0 -1.6 -24.5 -48.9 -48.8 -53.2 -100.0 -100.0 -100.0
Zalando GERMANY 39.79 9,842 64.8 49.3 37.3 2.0 1.6 1.3 29.6 22.3 17.0 39.6 29.7 22.0 6.4 5.7 5.0 0.0 0.0 0.0
Online peers
Asos GERMANY 56.67 4,728 74.5 57.7 45.0 2.4 1.9 1.5 36.2 27.1 21.0 57.8 44.7 34.6 18.0 13.5 10.2 0.0 0.0 0.0
Boohoo UNITED KINGDOM 2.27 2,475 76.4 61.8 49.9 5.0 3.8 2.9 49.1 36.8 28.3 57.2 45.1 35.3 15.2 12.3 10.0 0.0 0.0 0.0
Yoox ITALY 27.62 3,698 95.5 58.5 34.6 1.7 1.4 1.2 21.3 15.7 11.9 62.7 39.4 25.4 2.0 1.9 1.7 0.0 0.0 0.0
PEER AVERAGE 77.8 56.8 41.7 2.8 2.2 1.7 34.0 25.5 19.5 54.3 39.7 29.3 10.4 8.3 6.7 0.0 0.0 0.0
PEER MEDIAN 75.4 58.1 41.2 2.2 1.7 1.4 32.9 24.7 19.0 57.5 42.0 30.0 10.8 9.0 7.5 0.0 0.0 0.0
FNG NETHERLANDS 27.00 217 16.0 11.9 7.9 0.7 0.6 0.5 7.9 6.7 4.8 11.3 9.2 6.2 0.9 0.8 0.7 0.0 0.0 0.0
% prem./(disc.) vs median -78.8 -79.5 -80.8 -70.0 -65.3 -63.3 -76.0 -73.1 -74.7 -80.3 -78.2 -79.2 -91.9 -90.9 -90.1 na na na
Source: Merodis, Factset
10/50
Figure 5. Peer group benchmarking analysis

Freefloat (%) Depr/ Capex/ ND/EBITDA EBITDA margin (%) EBIT margin (%) Net margin (%) ROE (%) 2017-19e CAGR (%)
Company 2017e EBITDA Sales 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e EPS EBITDA Sales
Ahlers 57 63% 3% 2.7 2.5 2.1 4.3 4.7 5.1 2.1 2.5 2.9 1.2 1.6 1.9 3.1 3.8 4.4 20.3 11.7 2.0
Adler 42 49% 2% 0.3 0.1 -0.2 5.8 5.8 6.2 2.7 2.7 3.1 1.5 1.3 1.5 6.3 6.9 8.0 16.8 5.2 1.5
Bonmarche 44 27% 3% -0.4 -0.5 -0.6 6.7 7.5 8.1 4.1 4.7 5.2 3.2 3.6 4.0
Calida 64 31% 3% -0.8 -1.0 -1.3 8.7 9.6 10.6 5.8 6.7 7.8 4.3 4.6 5.3 10.4 10.7 11.9 14.1 13.1 2.4
Debenhams 81 44% 6% 1.2 1.3 1.3 7.5 7.2 7.2 3.7 3.3 3.3 2.6 2.2 2.2 8.0 6.6 6.8 -4.6 -1.0 1.3
Esprit 86 -27% 2% -10.9 -7.2 -5.8 3.2 5.3 6.9 -0.1 2.0 3.5 0.3 1.8 3.0 0.4 2.6 4.3 236.2 48.2 1.3
Fashion retailers
Gerry Weber 49 30% 12% 2.6 1.7 1.3 7.9 10.0 10.9 2.3 4.7 5.5 0.9 2.8 3.4 2.4 5.5 6.7 71.9 19.7 1.5
H&M 66 19% 7% -0.1 -0.1 -0.2 15.9 16.3 16.5 11.8 12.1 12.2 9.2 9.4 9.5 30.5 31.5 31.5 9.5 10.0 7.9
IC Group 41 22% 3% 0.1 -0.3 -0.4 7.4 9.1 10.5 4.7 6.5 7.9 3.2 4.7 5.8 13.3 16.7 18.7 29.9 20.8 1.2
Inditex 35 21% 7% -1.2 -1.3 -1.4 22.1 22.4 22.6 17.7 18.0 18.4 13.8 14.1 14.4 26.9 27.2 27.8 12.3 11.3 10.1
JD Sports 41 27% 4% -0.9 -1.2 -1.5 12.1 12.0 12.0 9.8 9.8 9.8 7.5 7.5 7.5 32.0 27.0 23.6 10.5 8.7 9.3
KappAhl 77 41% 4% -0.1 -0.3 -0.5 11.1 11.7 12.4 8.4 8.9 9.3 6.2 6.6 7.0 16.1 16.0 15.7 8.8 7.8 2.2
Marks & Spencer 97 49% 5% 1.5 1.3 1.1 11.6 11.4 11.0 6.2 6.2 6.2 4.2 4.2 4.2 14.2 14.3 14.4 2.6 -0.1 2.5
MQ 63 14% 1% 1.0 0.6 0.3 8.5 9.5 10.0 7.1 8.0 8.4 5.3 6.1 6.5 9.2 10.1 10.5 11.5 10.4 2.0
N Brown 55 24% 7% 2.6 2.6 2.4 12.5 12.6 12.8 9.3 9.3 9.6 6.3 6.6 6.8 12.9 13.0 13.1 4.8 4.7 3.5
New Wave Group 96 18% 2% 3.2 2.5 1.8 9.7 10.5 11.8 8.6 9.5 10.7 6.2 7.0 8.1 11.9 13.2 14.7 22.3 18.1 7.0
Next 95 12% 4% 1.0 0.9 0.8 21.2 20.7 20.4 18.4 17.9 17.5 14.2 13.8 13.6 108.8 87.6 71.7 -0.8 -1.2 0.9
OVS 58 32% 5% 1.0 0.7 0.3 14.3 14.7 15.1 10.5 11.0 11.5 6.8 7.3 7.8 10.8 11.6 11.9 13.3 9.5 6.4
SuperGroup 62 36% 8% -0.7 -0.8 -0.9 16.5 16.8 16.9 11.7 11.9 12.1 9.0 9.2 9.3 19.5 19.9 19.9 13.7 13.3 12.0
Ted Baker 64 20% 20% 0.8 0.6 0.5 16.7 17.0 17.2 12.8 13.1 13.4 9.5 9.8 10.1 28.5 27.7 26.9 13.0 12.1 10.4
Tom Tailor 99 -74% 2% 1.9 1.2 0.8 7.5 9.8 10.5 3.5 5.8 6.4 0.3 1.8 3.2 3.2 8.8 11.4 99.1 20.3 2.0
PEER AVERAGE 65 23% 5% 0.2 0.2 0.0 11.0 11.6 12.1 7.7 8.3 8.8 5.5 6.0 6.4 18.4 18.0 17.7 30.3 12.1 4.4
PEER MEDIAN 63 27% 4% 0.8 0.6 0.3 9.7 10.5 11.0 7.1 8.0 8.4 5.3 6.1 6.5 12.4 13.1 13.8 13.2 10.8 2.3
FNG 6 44% 5% 3.1 2.6 1.6 8.2 9.1 10.9 5.7 6.6 8.4 2.7 3.3 4.7 5.6 7.1 9.8 42.3 23.4 7.4
% prem./(disc.) vs median -90.4 65.5 6.8 259.9 330.1 459.6 -14.7 -13.6 -1.5 -19.0 -17.2 -0.7 -49.5 -45.1 -28.1 -54.4 -45.8 -28.5 220.3 115.7 221.8
Zalando 41 27% 2% -3.3 -2.7 -2.3 6.7 7.2 7.8 5.0 5.4 6.0 3.4 3.8 4.1 10.3 12.2 14.2 31.7 30.4 20.8
Online peers
Asos 63 33% 4% -1.1 -0.9 -1.0 6.5 6.9 7.2 4.1 4.2 4.4 3.3 3.4 3.5 27.4 26.7 25.9 28.6 30.3 23.9
Boohoo 60 16% 7% -1.4 -0.9 -0.6 10.2 10.2 10.1 8.7 8.4 8.1 6.1 5.7 5.4 25.0 22.0 22.1 23.8 32.3 32.7
Yoox 73 61% 7% -0.2 -0.3 -0.5 8.0 9.2 10.0 2.7 3.7 4.7 1.7 2.4 3.4 2.1 3.3 5.2 66.1 32.0 18.0
PEER AVERAGE 59 34% 5% -1.5 -1.2 -1.1 7.8 8.4 8.8 5.1 5.4 5.8 3.6 3.8 4.1 16.2 16.0 16.9 37.6 31.3 23.9
PEER MEDIAN 62 30% 5% -1.3 -0.9 -0.8 7.3 8.2 8.9 4.5 4.8 5.4 3.4 3.6 3.8 17.7 17.1 18.2 30.2 31.2 22.4
FNG 1 44% 5% 3.1 2.6 1.6 8.2 9.1 10.9 5.7 6.6 8.4 2.7 3.3 4.7 5.6 7.1 9.8 42.3 23.4 7.4
FNG -98.2 48.0 -15.8 na na na 12.3 11.0 22.4 26.4 37.3 56.4 -20.5 -6.5 22.1 -68.0 -58.5 -45.8 40.1 -25.0 -66.8
Source: Merodis, Factset
11/50
Multiple comparison vs sector peers

Trading at a discount to peers of As reflected in Figure 4, FNG trades at a discount to peers based on P/E as well as on
around 15% EV/EBITDA and EV/EBIT multiples of respectively 18%, 11% and 9% on average over
2017-19e. This level of discount may also reflect the company’s limited level of
transparency (so far) and restricted liquidity (so far) compared to peers.
Figure 6. Peer correlation analysis of valuation vs. profitability
Source: Merodis Equity Research, Factset
Based on the sector correlation between profitability (2018e EBITDA margin) and
valuation multiples (2018e EV/Sales), we notice that FNG is trading more or less in
line with its peers (ie. on the correlation line), at 0.6x EV/Sales, as suggested by the
correlation equation. Based on this equation and our 2020e EBITDA forecast of
11.8%, the target EV/Sales of the group would reach 0.94x, equating to a target value
of €49 before applying any size or liquidity discount.
Figure 7. Peer valuation vs. expected EPS growth
Source: Merodis Equity Research, Factset
12/50
The superior growth profile of FNG The growth prospects of FNG are superior to those of the peer group, driven mainly
is not reflected in valuations by the turnaround expected at recently acquired Miss Etam and Brantano, which
together now weigh 48% of group sales. As we expect 42% EPS CAGR 2017-19e and
given the stock’s 2018 P/E multiple of 12.8x, FNG is trading at PEG of 0.3x,
significantly below the sector median PEG ratio of 1.0x. This also suggests value
upside should the market reflect FNG’s full turnaround potential.
Discounted Cash flow
Figure 8. Discounted cash flow model
Eur m 2015 2016 2017e 2018e 2019e 2020e 2021e 2022e

Sales 256.9 459.8 508.6 543.8 587.0 619.7 654.1 689.4
% growth 0.0% 79.0% 10.6% 6.9% 7.9% 5.6% 5.5% 5.4%
EBITDA 27.9 37.6 41.9 49.5 63.8 73.2 87.6 100.3
% sales 10.8% 8.2% 8.2% 9.1% 10.9% 11.8% 13.4% 14.6%
Tax -4.6 2.9 -7.3 -9.8 -14.8 -18.3 -23.7 -28.5
Tax rate -29.9% 78.6% -25.0% -27.2% -30.1% -31.7% -33.2% -34.3%
EBITDA after tax 23.2 40.5 34.6 39.7 49.0 54.9 63.9 71.8
- Capex -5.1 -21.2 -30.0 -27.0 -15.0 -15.0 -15.0 -15.0
% sales -2.0 -4.6 -5.9 -5.0 -2.6 -2.4 -2.3 -2.2
- Investments in working capital -24.6 0.3 -4.3 -3.3 -3.9 -3.1 -3.2 -5.3
% sales -9.6 0.1 -0.9 -0.6 -0.7 -0.5 -0.5 -0.8
Operating cash flow -6.5 19.6 0.3 9.4 30.1 36.8 45.8 51.5
% growth -99% 3536% 219% 22% 24% 13%
WACC 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2
Discount factor 1.00 0.90 0.81 0.73 0.65 0.59
Present value of free cash flow 0.3 8.5 24.4 26.8 29.9 30.3
Cumulative present value of free cash flow 120.2
+ Present value of terminal value 300.4
= Enterprise value 420.6
- Net Financial Debt/(cash) (2017) 127.9
- Other liabilities (book) 2.6
- Equity stakes & investments (book) 17.6
= Estimated market value of equity 307.7
Fair value per share (EUR) 38.3
Figure 9. WACC assumptions (%)
Target gearing (%) 30.0

Tax rate (%) 35.0
Cost of debt before tax (%) 5.0
Cost of Debt after tax (%) 3.3
Long term growth rate (%) 1.0
Risk free - 10Y Belgian OLO (%) 2.00
Equity risk premium (%) 7.00
Beta 1.80
Cost of equity (%) 14.6
WACC (%) 11.2
13/50
COMPANY DESCRIPTION
Belgium fashion retailer, with a FNG Group is a Belgium-based fashion retailer operating 10 brands with 525 stores in
leading position in the Benelux the Benelux with its own webshops, selling to more than 1,500 multi-brand stores
and online platforms. The company’s historical focus was on children and women
apparel (mid- to high-end price range), although it recently expanded into footwear
(acquisition of Brantano) and men’s fashion (announced acquisitions of Suitcase and
Concept Fashion).
Integrated player, from design to The company was launched in 2003 by its current management team with the Fred &
consumers Ginger brand of clothes for children. The group is an integrated fashion retailer
operating its own (1) brands, (2) local design teams, (3) local sourcing teams and (4)
retail network (offline and online). The company operates a multi-channel
distribution strategy relying with not only on its own stores (rented), but also on
online sales and on third-party resellers.
FNG Group is a Benelux market consolidator, having acquired most of its brands
since inception, allowing the company to expand geographically towards the
Netherlands from 2012 with the acquisition of Claudia Sträter.
Company history and past acquisitions
An acquisitive past FNG Group was founded in 2003 by Emmanuel Bracke, Anja Maes and Dieter
Penninckx. The Fred & Ginger brand of children clothes was launched in 2005
following the acquisition and integration of Kleertjes in 2003 and Kiekeboe in 2004.
The company grew its store base through acquisitions and greenfield openings. The
key transactions are described below:
• 2006: acquisition of Hilde & Co (store count rises to 10)
• 2007: First shop-in-shop at Galeria Inno, a Belgian department store
• 2008: IPO on Euronext Brussels’ Free Market segment
• 2009: Acquisition of CKS (group store count increases to 45 and 1,000 multi-
brand boutiques)
• 2011: Store count reaches 60 in Belgium (27 Fred & Ginger, 22 CKS and 12 Van
Hassels). New Dutch in-house design team develops first Baker Bridge collection
• 2012: Acquisition of Dutch ladies fashion brand Claudia Sträter adding 27 stores
and 12 shop-in-shops in Bijenkorf
• 2013: Acquisition of Dutch ladies fashion brand Expresso with 24 stores in the
Netherlands (group store count reaches 129 and 30 shop-in-shops)
• 2014: Acquisition of Steps and Superstar in the Netherlands, adding a ladies
fashion brands Steps and Superstar and allowing the integration of its sourcing
platform located in Hong Kong, Delhi and Istanbul
• 2015: Launch of a new collection for women called Ginger based on the Fred &
Ginger philosophy and F.R.E.D., a new retail concept
• 2016: Major transformational deal through the acquisition of Dutch ladies
fashion retailer Miss Etam (via the reverse take-over of R&R, the Amsterdam-
listed owner of Miss Etam) and Belgium-based shoe retailer Brantano
14/50
• 2017: Acquisition of Belgium-based Suitcase and Concept Fashion. The group

store count reaches 525 own stores and its products are sold in 1,500 multi-
brand stores
Major transformational deals of 2016
A major step in the transformation The group has undertaken major strategic steps in 2016 that has radically
of the group transformed it from a Benelux fashion retailer with 325 stores (including 233 in the
Netherlands) and sales of €256m to a leading Benelux Fashion player with 525 stores
(including 328 in the Netherlands) and sales of €460m, expanding into footwear as
well as men’s fashion.
These transformational deals were executed in several separate steps, which we
have summarised as follows:
• FIPH/R&S Finance acquires Miss Etam (May 2015): FIPH BV (owned by Rens
van der Schoor, a business partner of FNG through the Coltex Retail Group
which was acquired in 2014) took over Miss Etam and Promiss brands by
acquiring them from the bankrupt estate of Etam Groep Retail and Etam Groep
Holding. FIPH, which owns 100% of R&S Finance, transfers the ownership of the
brands to the latter.
• Dico/R&S Retail Group acquires R&S Finance (November and December 2015):
An Amsterdam-listed shell company called Dico, 90% owned by Value8,
announces the acquisition of R&S Finance through a reverse-takeover
transaction (ie. financed by issuing 10m new Dico shares to FIPH, the owner of
R&S Finance, in exchange for the company), valuing it at €16m (10m shares
valued at €1.6/share) (the transaction was finalised on 6 January 2016).
Simultaneously, Dico changes its name to R&S Retail Group (approved by the
December 2015 EGM, finalised in 19 January 2016) with FIPH owning 75% of the
new group, Value8 23% and other investors 2%. The press releases issued by
Dico highlights a budgeted 12-months sales target for the group of €110m,
targeting €120m in 2017 with 5% EBITDA margins. In total, there are 13,367,128
R&S Retail Group shares outstanding, including 10m “A” shares (those issued to
FIPH) which are untradeable on the stock exchange.
• First official indication of a FNG-R&S Retail Group partnership (January 2016):
FNG Group and R&S Retail Group announce a “partnership”, without providing
details of the contemplated structure of such a partnership. They are clearly
looking to exploit synergies such as FNG’s purchasing strength with platforms in
Turkey, India and China and Miss Etam’s online channel strategy with online
sales reaching at around 20% of total sales.
• Separately, BrantNew acquires Brantano (January 2016): Brantano is a leading
Belgian shoe retailer. BrantNew is owned by Rens van der Schoor, CEO of R&S
Retail Group at the time and shareholder of FIPH, which itself owns a 3% stake
in R&S Retail Group), Dieter Penninckx (CEO of FNG Group and shareholder of
R&S Retail Group) and the Torfs family (owner of Torfs, the Belgian shoe
retailer, of which Dieter Penninckx is a board member). Brantano was
previously owned by Macintosh, a Dutch retailer that had acquired the
company in 2008, but which was declared bankrupt in 2015.
• Reverse takeover of R&S Retail Group by FNG announced (March 2016):
Reverse takeover of R&S Retail Group by FNG Group, in a transaction whereby
R&S Retail Group issues 17.2 new shares for each FNG Group shares (5,873,151
in total excluding 400,000 warrants, which are exchanged against 8.6 new R&S
Retail Group shares).
15/50
• R&S Retail Group negotiates call option to acquire BrantNew (April 2016). This
would allow R&S Retail Group to take control of Brantano Group, which, at that
time, operated 140 stores in Belgium and Luxembourg. In June 2016, the group
closed and sold a number of stores to reach its current size of 105 stores. The
call option was exercised in September 2016 by the issue of 10m new shares
(total outstanding shares post-transaction at 140,847,819) at €1.6/share (pre-
split).
• Launch of reverse takeover (July 2016). The offer was launched on 26 July
following approval of all regulatory authorities (financial and competition) and
approval by FNG’s Board on 21 June, backed by the 77.66% stake owned by
FNG’s founders (Dieter Penninckx, Manu Bracke and Anja Maes), Emiel
Lathouwers and treasury shares. 99.91% of the shares were exchanged as of 26
August. Transaction finalised on 23 September 2016 and end of FNG’s listing on
Euronext Brussels as from 19 September.
• Reverse share split announced (October 2016): The company announces a 1-
for-20 reverse split (1 new share for 20 existing) effective as of 13 October.
• Financing transactions announced (July and November 2016): In July, R&S
Benelux Holdings (subsidiary of R&S Retail Group) issued €20m worth of 7-year
bonds yielding 5.5%. In November R&S Retail Group raises €32m in a private
placing through the issue of 1m new “A” shares (untradeable) at €32/share
(post-split).
• New CEO, name change back to FNG and launch of new website (January
2017): R&S Retail Group announced Dieter Penninckx (CEO of the former FNG
Group) as new CEO in December 2016 and a change in its name back to FNG
NV. The new website is launched (http://www.fng.eu/).
Strategy
Integrated from design to retail, Above all, FNG is an integrated fashion retailer, involved in each step of the value
excluding (outsourced) production chain except for production, which is outsourced. To begin with, FNG focusses on
designing, producing (through outsourcing contracts) and delivering, initially at least,
children and women apparel that its target clients want to buy. On the retail side,
FNG is involved in optimising the assortment of brands, inventory and demand
generation that maximizes the market opportunity for each of its stores based on
their location.
Omni-channel strategy for optimal access to consumers
FNG aims to be the leading Benelux fashion retailer by developing strong and
complementary brands for clearly-defined target groups. The products are offered
(1) at a price ranging from the mid to high segment and (2) with an omni-channel
sales strategy providing a seamless shopping experience, whatever the sales channel
(own store, online, shop-in-shop, etc.).
Client intimacy is key to the group’s strategy. FNG has registered 95% of its
customers, which allows for a better understanding of its customers’ needs as well as
dedicated and targeted marketing communication. In the digital world we are living
in, a database like that should serve FNG’s future commercial purposes if and when
fully exploited.
Omni-channel approach
An omni-channel strategy to
optimise access to consumers
16/50
The increasing penetration of online retail, combined with the effects of the 2008
crisis, have negatively impacted the performance of physical stores. FNG is
developing its online penetration, which currently weighs and estimated 11% of
group sales. In this respect, Miss Etam, which achieves online sales of 20-25%, is a
best-practice platform for the group. Although market experts do not expect “bricks-
and-mortar” stores to disappear, their role as being the sole distribution channel has
and will be changed in the future. Experts believe that stores will increasingly act as a
“sounding board” for retailers and brand owners in order to connect with
consumers, measure demand trends, provide advice and increase brand visibility.
This is the approach that FNG embraces, while benefitting from the crisis to play the
role of Benelux market consolidator, acquiring interesting and exploitable brands and
retailers and market share positioning.
Critical size and brand positioning
Building scale and spreading best- Key to the company’s growth strategy has been its buy-and-build approach, whereby
practice FNG has acquired strong brands in the Benelux, its home market, seeking for (1)
critical size and (2) complementarity of its product portfolio. FNG will also exploit the
opportunity to expand internationally with some of its brands (demand driven).
Critical size is an important factor in the apparel sector given the need for:
• Economies of scale in the production process to optimise gross margins as well
in the logistics process to cover high fixed costs. The company operates buying
platforms in Turkey, India and China which purchases goods directly from the
production sites. FNG can use the existing purchasing capacity for the entire
group and future acquisition in order to leverage its expertise and fixed costs.
• Sharing know-how and back-office processes such as inventory management,
logistics, IT and HR (remaining lean, spreading fixed costs and improving
efficiency). The group operates a highly automated central stock allocation
system, which can be used for all its Dutch brands (sold through the 96 Miss
Etam and 233 FNG stores in the Netherlands), allowing for significant cost-
savings.
• Optimising a cross-channel sales strategy in B2B and B2C, whether offline
(stores, shop-in-shops, etc.) or online, to optimise sales and
• Spreading digital investments over many brands, leading to accelerated
payback periods.
Transformation deals should also As highlighted before, the company made two large acquisitions in 2016 (Miss Etam
generate synergies in the Netherlands and Brantano in Belgium), which are significant in terms of (1)
strengthening its geographic footprint outside of Belgium (with Miss Etam in the
Netherlands, adding 95 stores in the country to a total of 328), (2) product
diversification (with Brantano in footwear), (3) synergy and process optimisation
(mainly with regards to its Benelux-wide logistics operations) and (4) financial impact
as both Miss Etam and Brantano were, at the time of acquisition, in a state of
distress.
Both acquired brands already yielded a positive (circa 3-4%) EBITDA margin as bad
performing shops were simply closed (or sold or not taken over at time of
acquisition) and the first ‘low-hanging-fruit’ synergies were collected.
17/50
Figure 10. Market positioning of FNG brands in the Dutch market
Source: Company data
The synergies sought with this large-scale integration include (1) cost savings through
economies of scale (sourcing, logistics, stock allocation, distribution and shared
services such as HQ, IT, HR, legal, etc.) and (2) improve sales and margins through
store refurbishment and operational improvement (particularly the case for
Brantano).
Two smaller companies have been acquired in 2017, Suitcase and Concept Fashion,
which also mark an entry into (1) multi-brand men’s fashion retail with both
companies as well as (2) curated shopping business model with Suitcase, which
should also help FNG to further strengthen its ‘digital’/on-line strategy.
Figure 11. FNG’s brand portfolio
Source: Company data, Merodis Equity Research
18/50
Store concept
In terms of stores, FNG currently operates 525, mainly in the Netherlands (62%) and
in Belgium (38%). The store concept, size and location (city center, out-of-town,
shopping mall, etc.) differ from brand to brand. A key strength of FNG is that it can
optimise and ”asset manage” its brand portfolio in order to improve each store that
it operates by selling the appropriate brand, collection and item, based on the
shoppers changing trends and demands. Here are some guidelines of the store
concepts:
Figure 12. Store size and efficiency
No. of stores Avg. area/store Sales/store pa (€m) Sales/m² pa (€)
(m²)
FNG 325 150 0.7 5,000
Miss Etam 95 275 1.0 3,700
Brantano 105 750 1.2 1,600
• FNG’s initial brands. The 325 stores operated by FNG (pre-transformational

deal) are generally in city center locations or shopping malls, whether in
Belgium or in the Netherlands. The average store size is 150m² with 1-2 staff.
Rental costs range from €90/m² pa (out-of-town) to €1,200/m² pa (shopping
malls). Sales per store reached an estimated €700k pa in 2016 (€5,000/m² pa).
• Miss Etam. Miss Etam operates 95 stores exclusively in the Netherlands. Store
size is bigger, on average, compared to other FNG brands, at 275m². Rental
costs in 2015 reached €13m, 21% of revenues (excluding online sales, around
20% of revenues, that do not require rental costs). The stores are in city center
A and B locations. Sales per store reached €1m pa (€6900/m² pa).
• Brantano. Brantano operates 105 stores that are all located out-of-town, which
differs from FNG’s typical location. The stores are also much bigger, typically
750m². The location allows for a cheaper rent, which average €90/m² pa. In
terms of revenues efficiency, the average sales per store is €1.2m pa with
€1,600/m² pa, the lowest in the group, which suggest upside potential.
Miss Etam
A strong brand in the Netherlands Miss Etam, the assets of which were acquired by R&S in May 2015 for €20m, is a
Dutch fashion retailer for women. Miss Etam is a top-3 brand in the Netherlands,
with strong client intimacy and a loyal client base of more than 2m in the country. It
operates 95 stores, all located in the Netherlands, with staff of 800. The company
offers fashionable clothing at a fair price, aiming an audience of Dutch women of
above 35 years of age with regular to above-size profiles. A younger audience is
reached through the online platform.
Restructuring already well- R&S Finance took over the operations of Miss Etam from the bankrupt estate of
underway Etam Groep Retail B.V and Etam Groep Holding B.V. in May 2015. At the time, the
group operated 197 stores under the Miss Etam (145 stores) and Promiss brands (52
stores). In June 2015, the group decided to take the Promiss brand off the market
and to close 48 underperforming Miss Etam stores.
The acquisition rationale includes:
19/50
• Efficiency gains. Mainly through integration synergies (logistics, central stock

allocation using Miss Etam’s distribution center, central purchasing of services
such as HR, IT, legal etc.) with FNG’s existing activities of 233 stores in the
Netherlands offering the Claudia Sträter, Expresso and Steps brands.
• Cost savings. Including in the renegotiation of the rental contracts with an
impact of cutting rental costs by 10-15% and reduced staff costs by joining the
Mitex-CAO (the Dutch fashion sector collective labour agreement).
Online star, with more than 20% of The company currently operates 95 stores throughout the Netherlands with an
sales through the internet online platform that is fully aligned to its store strategy in terms of marketing
promotions and overall shopping experience. More than 20% of the brand’s sales are
generated through the internet (the target is 25%). Miss Etam also has an affiliate
contract with Wehkamp, an online fashion retailer. Other competing platforms
include Zalando and Otto.
Miss Etam achieved €98.7m in sales in 2016 which is difficult to compare as we only
have 8-months sales in 2015 of €73m (from May 2015, the date of the acquisition by
R&S). EBITDA margins improved to 2.9% in 2016 from 2.6% in the last 8 months of
2015.
State of the art distribution center Production is outsourced to European and Turkish suppliers. Miss Etam operates a
state-of-the art, full automated 36,000m² distribution center in Zoetermeer
equipped with receipt/division units as well as an inventory management system.
Figure 13. FNG’s Integrated logistics platform in Zoetermeer
The intellectual property of the Miss Etam Group includes, in fact, its registered
words as well as the image trademarks. The group may look to expand the marketing
of the collection to Belgium, but this will be done under another brand as Etam, a
French company and the original owner of the brand, is already present in the
Belgian market.
20/50
Brantano
Belgium’s leading shoe retailer Brantano is a well-known, leading foot-wear retailer in Belgium, currently operating
105 stores (with 77,250m² of retail space) in out-of-town locations. Brantano offers a
broad range of shoes for the entire family (children, men and women) targeting the
mid-segment.
Brantano was previously owned by Macintosh, a Dutch retailer that had acquired the
company in 2008 for €160m (with €295m in sales at the time and 288 stores in
Belgium, Luxembourg and the UK). Macintosh was declared bankrupt in 2015.
In January 2016, Brantano was acquired by BrantNew BVBA, a company owned by
Rens van der Schoor (Director of R&S Retail Group and shareholder of FIPH, which
itself owns a 3% stake in R&S Retail Group), Dieter Penninckx (CEO of FNG Group and
shareholder of R&S Retail Group) and the Torfs family (owner of Torfs, another well-
known mid-segment Belgian shoe retailer, and of which Dieter Penninckx is a board
member).
In April 2016, R&S Retail Group (now FNG) agreed on a 3-year call option to acquire
BrantNew, allowing it to take control of Brantano Group, which, at that time,
operated 140 stores in Belgium and Luxembourg with staff of 1,300. In June 2016,
the group closed and sold a number of stores to reach its current size of 105 stores.
Acquired by FNG in September The call option was exercised in September 2016, paid in R&S Retail Group shares
2016 (issue of 20m new shares at €1.6/share pre-split) and valuing Brantano at €32m, a
price which was based on the initial acquisition price by BrantNew in addition to the
transfer costs and the cash flow generated by the entity until the date of exercise of
the option.
The acquisition rationale lies on many fronts including:
• Rationalisation and productivity improvement potential. Brantano operates a
portfolio of 100,000m² of shoe retail space with a – currently - low level of
sales/m² (€1,600/m²). FNG’s management is strongly convinced there is ample
room to improve the sales performance through further store closures and
refurbishments, as well as improving and extending the product range (see
cross-selling potential below). Refurbishments require investments, which are
estimated at €50m in total (€0.5m/store on average) spread largely over 3 years
to 2018e. Given the initial results generated by the first set of refurbished
stores (+20% sales performance on average), FNG’s management may
accelerate the refurbishment roll-out.
Figure 14. Exterior and interior view of a rebranded Brantano out-of-town store
21/50
• Inventory optimisation. FNG believes that there is room for efficiency gains in
terms of shoe retail inventory management through the clearance of overstock
as well as reducing future purchases.
• Cross-selling potential. Extending the product range sold in stores to apparel
based on FNG’s existing brands for children, women and, since recently, men
(through the Concept Fashion acquisition). In a further stage it would be logical
to start selling shoes also through FNG’s apparel stores in Belgium and in the
Netherlands, optimising even further the purchasing of foot-wear with a
potentially positive impact on gross margins.
• Complementary store location. Brantano operates 105 stores in Belgium which
are mainly located out-of-town. This compares to FNG’s circa 102 stores
(excluding Concept Fashion’s 10 stores) in Belgium located mainly in city centers
and shopping malls. Diversification, towards out-of-town stores should lead to a
better reach of FNG’s target audience.
• Online strategy enhancement. Brantano’s online performance has been almost
non-existant, historically at around 1% of sales through this channel. However,
through its omni-channel strategy, FNG expects to boost sales through the
online channel to closer to 10% by 2020, and which should lead to growth
opportunities and considerable margin gains.
Management team
Experienced management and The management team consists of the three founders of FNG, Dieter Penninckx,
Board Manu Bracke and Anja Maes. The Board of Directors also hosts two highly
experienced Belgian retail experts, Emiel Lathouwers and Gino Van Ossel as well as
Eric Verbaere, a Belgian corporate financier.
Founding team and other members of management

Fred & Ginger was founded by a trio of civil engineers, Dieter Penninckx, Manu
Bracke and Anja Maes, that decided to launch themselves into a fashion retail career
in 2003. Together, the three founders, together with Emiel Lathouwers, own 58% of
FNG
Dieter Penninckx, CEO. Civil Engineer with a major in Mechanical and
electrotechnical engineering (KUL, 1997). Founder of the KUL spin-off in High Tech
(until 2002). Co-founded FNG in 2003.
Manu Bracke, COO. Civil Engineer with a major in Mechanical and electrotechnical
engineering (KUL, 1997). 6 years of experience in the Telecom and IT sector before
co-founding FNG in 2003.
Anja Maes, Creative Director. Civil Engineer with a major in Architecture.
Independent architect since 2002, after apprenticeship of 2 years. Co-founded FNG
in 2003.
22/50
Other Board members

Emiel Lathouwers. Founder of AS Adventure, a European retailer focused on outdoor
equipment and clothing trekking, climbing, skiing and camping. PE group Lion Capital
acquired a 50%-stake in AS Adventure in 2007, valuing the company at €263m. In
2015, PAI Partners acquired the stake in AS Adventure, which operated 151 stores at
the time under various brands including AS Adventure in Belgium, France, Germany
and Luxembourg, Bever in the Netherlands and Cotswold Outdoor in Britain. The deal
valued the company at c. €400m according to a press article by Reuters.
Gino Van Ossel. Adjunct Professor in Retail & Trade Marketing at the Vlerick Business
School and Independent Director of Formen (fashion), Pirana Concepts (advertising)
and the Dutch Trade Marketing Association. He is also Chairman of the Expert Group
Retail of the Belgian Marketing Foundation. Gino Van Ossel started his career in the
advertising department of Procter & Gamble.
Eric Verbaere. Founding partner of VD&P Corporate Finance, a Belgian corporate
finance boutique firm and an expert in corporate finance.
Shareholdership
The three co-founders of FNG as well as Emiel Lathouwers own 58.3% of the shares,
with other LT shareholders accounting for just below 36%. Free float is, therefore, at
6%.
Figure 15. FNG shareholders as of June 2017
Shareholder Stake (%)

3 co-founders (Penninckx, Maes, Bracke) 58.3
L.H. Van de Schoor 4.97
FNG Stak 7.14
Torfs Import Services 3.73
Biloba Holding BVBA 4.45
VMF Luxembourg 4.27
Safelberg Investments 6.66
Belfius Insurance 4.47
Others 6.01
SWOT analysis
Strengths
• Strong track record of managing and retailing successful brands. FNG has built
a solid track record of growth with, in addition, best-in-class margins through
strong brand management as well as by building an integrated business model
with control over the full value chain, from design (over buying) to retail,
including purchasing and inventory management. The recent acquisitions of
Miss Etam and Brantano allow for further optimisation and exploitation of
synergies (Miss Etam integrated logistics platform which can accommodate
more volume and Brantano’s out-of-town stores which can be optimised to sell
other products from FNG’s portfolio leading to higher sales/m²). Brantano (a
previously listed company until 2008) also brings with it a finance team, which
will be valuable for FNG’s corporate activity.
23/50
• Critical size. With sales having reached €460m in 2016 on a proforma basis, FNG
now has the critical size to become truly competitive in a Benelux and even
European context. This should allow for further economies of scale (and, hence,
margin improvement), further sharing of know-how and back-office processes,
optimisation of cross-channels sales as well as spreading investments,
particularly digital investments, across the various brands.
• Well-oiled fashion management. The three founders of FNG are Civil Engineers
and have brought with them a more scientific approach to brand management,
which has been very successful so far. Through its experience and integrated
approach, FNG has been able to put in place the appropriate procedures across
the entire value chain to generate growth at above-average margins while
always being focused on the creative side of design and on client satisfaction.
• Experience in buy-and-build strategy. The strategy of FNG has relied on
acquisitions of brands following a buy-and-build approach whilst adding their
proven recipe of buying low and turning around distressed situations. Their
expansive strategy has allowed for increased flexibility in terms of adapting to
fashion and consumer trends (adjusting collections and brands and using the
off- and on-line distribution channels accordingly) as well as being able to
exploit the aforementioned critical size benefits. FNG has, to date, acquired
more than 10 companies including the largest acquisitions in 2016 (Miss Etam
with 95 stores and Brantano with 105 stores). In 2017, FNG has already
announced 2 new acquisitions (Suitcase ad Concept Fashion) which will position
the company, for the first time, in the market of men’s fashion.
Weaknesses
• Limited market size. The Benelux market is made up of 28m consumers, which
makes it a rather small market in a global context. Spreading exposure (brand
marketing, design costs, logistics, online platform, etc.) to a larger market would
make sense for a company like FNG, although competition is fierce from other
much bigger players like Inditex, H&M and Primark. Hence, the need to remain
creative and to develop brand recognition to allow for international expansion
should be a feasible challenge.
• Cyclical and seasonal exposure. Fashion retail is a cyclical activity very much
exposed to consumer confidence and spending, which tends fluctuate heavily
with the economic cycle. Besides that, there are sales, working capital and cash
flow risks attached to the industry as the costs of purchasing material (mainly
textile) and the outsourcing of production are made ahead of booking the sales
without any hedging opportunities (pre-order by final client, etc.). If any
collection is not to the taste of demand for whatever reason, the financial
impact for FNG could be quite negative (loss of sales while costs have been
incurred). FNG mitigates these risks through its multi-brand and multi-target
approach as well as with its 15 collections pa, which allows to spread such risks.
Weather is also an important variable beyond the control of management
which influences the customers’ decisions of whether and where they will shop.
Open-air city center shops may be impacted by rainy conditions, particularly
during weekends, although shopping malls may benefit from such conditions.
Warm autumn and cold spring months could also delay shoppers decision to
buy winter and summer collections respectively.
24/50
• Lack of experience in footwear and men’s fashion. FNG has built its experience
and track record on the design and retail of children’s and women’s fashion. In
2016, however, the group acquired Brantano, a Belgian market leader in
footwear and, in 2017, it further diversified by acquiring Suitcase and Concept
Fashion, two companies with exposure to men’s fashion. These are quite
different markets compared to children and women’s fashion. We believe,
however, that there are synergies to operate including cross-selling, offline and
online, opportunities between footwear and fashion clothing. Store location is
also complementary as both Brantano and Concept Fashion operate out-of-
town stores. Complementarities also exist at widening the target audience to
families (ie. combining children, women and men’s fashion and footwear).
• Leveraged balance sheet. FNG has financed much of its acquisition by debt,
pushing ND/EBITDA at high levels (peaking at 3.4x in 2015). The business is,
nevertheless, cash generative and we expect the company to deleverage
rapidly, assuming no new sizeable acquisitions are announced in the coming
years or these will be mainly financed with shares if they were to occur. As
such, we expect the company to revert to a net cash position by 2022e.
• Share liquidity and financial transparency. With only 6% free float and a sub-
optimal Amsterdam-based listing on Euronext, FNG shares are particularly
illiquid. Liquidity is clearly an issue. We would expect the company to take
advantage of a stock market listing and deal with this situation with a
commitment to widen the free float and attract institutional and private
investors.
Figure 16. FNG share price and trading volumes
Source: Factset
Opportunities
• Profitability upside from restructuring potential. As we will analyse further, we
expect FNG to report 36% EPS CAGR 2017-20e driven by 6.8% sales CAGR, 20%
EBITDA CAGR, and 25% EBIT CAGR. The upside in profitability is mainly driven
by lifting margins at recently-acquired Brantano and Miss Etam, which reported
EBITDA margins in 2016 of 3.6% and 2.9% respectively. This compares to FNG
brands’ own margin of 12.7%. Upside will come from efficiency gains at
Brantano and Miss Etam, active brand portfolio management, improved stock
management and scale effects (optimised purchasing terms, sharing fixed costs
from shared services such as HR, HQ, IT, logistics, over much higher sales
volumes).
25/50
• Consolidation wave in the fashion industry. The digital disruption is impacting

the retail sector, including fashion retailers. This has led to sector consolidation,
with brand owners winning over pure retailers. Integrated players, such as FNG,
that owns its brands and control the entire value chain including their retail
channels, are expected to gain market share as they adopt an omni-channel
strategy to grow sales through their own (or through third-party) online
platforms. FNG has participated actively in this consolidation wave within the
Benelux with sales growing from €4m in 2008 to €460m in 2016 (80% sales
CAGR 2008-16). Although we do not forecast acquisitions in our earnings
estimates, we do expect FNG to continue to be a market consolidator.
• Cross-selling potential of existing brands in the Benelux. There is room, as
highlighted above, for FNG to grow by cross-selling its various brands and
optimising its sales channels, whether among offline channels, online channels
or across both channels. Refurbished Brantano stores are currently offering
clothes from FNG’s brands. Store performance is constantly monitored and
demand is assessed, which leads to optimising the product offering for each
store location, with a positive impact on sales and costs. There are also cross-
selling opportunities within the Benelux among the brands. The only pitfall is
Miss Etam, which would be prevented to cross the border under that brand
name (Etam, the original owner of the brand, a French company, already
operates the Etam brand in Belgium). Therefore FNG would market the brand
under the name Miss E in Belgium.
• International expansion potential of own brands. FNG’s designers have been
able to build strong designs that appeal to a wider audience than just the
Benelux. Growing outside of the Benelux has begun, with some stores in
Germany. FNG also sells its products through wholesales channels to European
market including countries such as Germany and Spain. As the company builds
up scale and experience, we expect international expansion could become a
strong growth driver, which we have not yet factored into our business plan.
• Online sales also an opportunity. We expect FNG to gain from the successful
experience from Miss Etam, that generates 20% of sales through online channel
compared to 10% for FNG brands. This is a great opportunity to roll-out best
practice for the group’s other brands and to take advantage of the online
opportunity as consumers flock to that sales channel. We expect online sales to
rise from 11% of group sales to 18% by 2022e, with 17% sales CAGR 2017-20e
Threats
• Online competition. As analysed further, online competition from third-party
sales channels or from competing brands is a threat, although FNG is mitigating
this, as explained above, by building demand for its brands and offering them
online through own webshops or third-party players such as Zalando and
Wehkamp.
• Adverse fashion trends. FNG designs, finances and distributes its own brands,
which leads to a potential inventory risk. Collections are designed and
purchased well in advance of their release in stores, leading to a significant
financing and inventory risk in case of lack of success of a collection. Stock
allocation management allows to minimise unsold stock and eliminate them
through outlet stores, but the impact on gross margins remains negative. The
fact that FNG designs up to 15 different collections within one year, far more
than most peers, should help mitigate its ”adverse fashion trend”-risk.
26/50
• Integration risks. Acquisitions always come with integration risks due to

difficulties of achieving synergies due to various factors including
misjudgements in terms of demand and costs, cultural fit, talent retention, etc.
FNG is not immune to this risk, particularly as it has engaged in large-scale and
relatively risky acquisitions in 2016. On the positive side we note that, so far,
FNG has been able to buy at acceptable – cheap - prices. Two smaller
acquisitions have already been announced in 2017, which suggests
management confidence in turning Brantano and Miss Etam around
successfully.
• Stretched management. FNG’s management team has expanded by only one
member, Rens van de Schoor, since 2008, although the company has morphed
from a quasi “start-up” (€4m in sales in 2008) to a leading Benelux market
player, with several brands, targeting four different markets (children, women,
men’s fashion as well as footwear), involved in the entire value chain and selling
through own channels (including online) as well as through wholesale (B2B)
channels. Brantano and Miss Etam, two recent and large acquisitions, are still in
“intensive care”, having both emerged from a state of distress. Such situations
require the full attention of management, with which FNG appears to be coping
well given the performance of FNG brands in 2016 and confirmation that the
turnaround of Brantano and Miss Etam is well on track. We would expect,
however, more frequent financial communication towards investors, which will
require extra investments in terms of management time.
27/50
INDUSTRY OVERVIEW
FNG is a multi-brand Benelux fashion and shoe retailer offering products for women,
children and, since recently, men. The company operates 525 stores which are
mainly located in the Benelux, hence our focus on analysing the main trends of that
geographic market.
Benelux fashion retail market in a global context

1
An attractive market The Benelux is retail fashion market is worth €219bn in yearly turnover (47% the
Netherlands, 41% Belgium, 12% Luxembourg), with a large and prosperous customer
base. Altogether, the region count a population of 28.8m with attractive consumer
traits: below-average unemployment (Figure 17), high disposable income and high
population density (Figure 18).
Figure 17. European unemployment rate (April 2017) and disposable income per capita (2015)
Source: Eurostat, Merodis Equity Research
As fashion retail, as opposed to basic clothing needs, is in part, a discretionary

expenditure for consumers, the unemployment rate is key to measure the share of
the population which is likely to allocate financial resources to such spending.
Unemployment rate also impacts consumer confidence and, hence, consumer
spending. In this respect, the positioning of the Benelux is quite strong and the
cyclical trends are currently playing in the favour of consumption as economic
growth is accelerating, unemployment is falling and consumer spending is picking up
after years of weakness following the 2008 recession.
The higher the disposable income, the more likely consumers are to purchase
discretionary goods and services, such as fashion. The Benelux is, again, well-
positioned in this respect. However, consumers have several options to spend their
disposable income, including saving, which has been particularly high in the Benelux
at around 12%. In Belgium, the average saving rate since 2000 is 16% of disposable
income, peaking at 18% in 2009 and currently down to 12%.
1
Benelux Retail 2025, General Secretariat of the Benelux Union, January 2017
28/50
Figure 18. European population density (population/m²) (2015)
European retail structure

The retail market is broken down into food and non-food retail, which is, FNG’s
focus. As shown in Figure 19, the retail market consists of various, but also
complementary, distribution channels. In the case of FNG, the company uses several
channels including: specialised clothing chains (the nature of its main activity
regarding most of its brands), independent multi-brand stores (Brantano and
Concept Fashion), Department stores (shop-in-shop concept) and Online.
Figure 19. European fashion retail value chain
Source: CBI
29/50
Benelux apparel market

Fragmented market, potentially We estimate the size of the Benelux apparel retail market at €23bn, which would
providing further opportunities for mean that FNG, with sales of €460m, has an estimated market share of 2%,
FNG highlighting the fragmented nature of the market. This is also true for the major
European brands such as for example Zara and H&M, who rarely have market shares
above the 5% threshold within the markets they are active in. To make our point, we
hereby refer to a recent article from De Tijd (31 March 2017) regarding the Belgian
apparel retail market, citing 2016 sales figures for both Zara and H&M in Belgium
being respectively €296m and circa €466m.
Fashion retail in Belgium is an We estimate the size of the Belgian apparel retail industry at €9bn, which represents
estimated €9bn market 10% of the entire retail market. The apparel market is broken down between women
fashion (56% of the market), men’s (29%) and children (15%).
The Belgian retail property market can be divided into 3 segments: (1) high streets in
cities such as Brussels, Antwerp, Bruges, Ghent, Liège and Hasselt, (2) shopping mall
(5 in Brussels, 3 in Liège, 2 in Kortrijk, 1 in Antwerp, Genk, Maasmechelen, Sint
Niklaas, Charleroi, Mons, Louvain-La-Neuve and Nivelles) and retail warehousing. E-
commerce is a growing retail sales channel with online retailers such as Bol.com and
Zalando offering fashion items.
€14bn in the Netherlands The size of the Dutch fashion retail market is estimated at €14bn, 14% of the total
retail market. The market structure is quite similar to Belgium, although shopping
mall penetration is even lower with just eight shopping centers of 50,000m² in size.
The market is made up of three large metropolitan areas (Amsterdam, Rotterdam
and Utrecht), with a number of small and mid-sized cities.
The market is considered mature and even saturated to a certain extent, hence the
wave of consolidation which FNG is taking advantage of.
Positioning of FNG and competition overview
As explained earlier, FNG is positioned as an integrated fashion retailer in the mid to

premium segment. Based on the table below, we would position FNG in the Upper to
middle price segments.
30/50
Figure 20. Price segments in Europe
Source: CBI
Competition and their positioning in the Dutch market is summarised in the table
below. We highlighted the main brands owned by FNG, with one which is missing:
Claudia Sträter. In terms of positioning, Steps and Expresso were perceived as
relatively expensive, combined with a positive quality perception. This was the case
before the acquisition of the brands; now they offer more value for the same price.
Miss Etam also enjoys a strong reputation in terms of quality, but at a lower price
segment. Besides competition from Zara (Inditex) and Esprit, other brands in FNG’s
segments are WE Fashion, Shoeby, Vero Moda, The Sting (Lady), Didi and Open 32.
As highlighted below, V&D was declared bankrupt in 2015.
31/50
Figure 21. Positioning of Dutch fashion retail brands
Source: GfK (2015), Merodis Equity Research
In Belgium, we would expect the positioning of FNG’s brands (mainly Fred & Ginger,
CKS, Concept Fashion as well as Brantano) to be broadly similar as in the
Netherlands.
Ongoing consolidation in Belgium Belgian competition among the mid to premium segment in Belgium includes JBC,
Vero Moda, Bershka, E5, Esprit, Only, H&M, Pimkie, Primark, Bellerose, River Island,
Forever21, Zara, Mango, Kookai, Benetton, Mexx, Jack & Jones and W E Fashion. A
number of retailers have declared bankruptcy in the recent months incuding
McGregor and Gaastra (23 stores) as well as MS Mode, while Charles Vögele exited
the Belgain market in 2016.
Highlight on H&M and … Regarding the larger fashion retailers, H&M operates a total of 91 stores in Belgium
generating €466m in sales (estimated 5% market share) with the groups brands
(H&M, COS, & Other Stories, Weekday). The group has announced that it will open a
new store in 2017 under its Arket brand.
… and Inditex Inditex generates close to €300m in sales (estimated 3% market share) with 82 stores
under its various brands: Zara, Massimo Dutti, Bershka, Pull & Bear and Oysho as far
as clothing is concerned.
32/50
The online risks and opportunities
Online fashion retail is booming The advent of internet and the development of e-commerce has had a profound
impact on the overall retail industry, including the fashion retail. As shown below,
online platforms such as Zalando, Showroomprivé, Net-à-porter, ASOS, Yoox as well
as others in the Benelux including Bol.com, Bon prix and Wehkamp.nl, are growing
rapidly and gaining market share from the traditional “bricks-and-mortar” retailers.
Figure 22. Europe’s 25 fastest-growing major apparel retailers (revenue CAGR 2009-14)
Source: Fung Business Intelligence Center
33/50
E-commerce penetration is high Overall penetration of e-commerce is high, having reached 74% of the Belgian online
population and 63% of the entire population. The most active age group in e-
commerce are the 15-34 years-old (81% penetration), but even a majority of the
elderly population (64% of the 55-70 age group) have bought over the internet over
the past 12 months. 7% of the population have at least monthly transaction (7%
weekly) and the average monthly spend is €191.
Figure 23. E-commerce penetration in Belgium (2017)
Comeos
According to the Ecommerce Foundation, the fashion industry is by far the sector
which has already absorbed the largest - thus far- impact from e-commerce since
from all online European retail sales there is 37% linked to fashion.
Figure 24. E-commerce share within the European retail sector (2016)
Source: Ecommerce Foundation
Fashion works well online Fashion is often quoted by consumers as being the items for which they most
frequently buy online. In Belgium, for instance, fashion (64%, +8% points y-o-y) was
the most popular product that consumers have bought online, ahead of travel (62%)
and electronic devices (50%), according to a recent survey by Comeos. In terms of
frequency (# of purchases over the past 12 months), however, fashion dropped to a
fifth position behind food, entertainment, telecom, books and pets, with an average
of 2x per year (food, for example, is between 11 and 20x on average). In terms of
future potential (buying intention over the next 12-months), only 15% of the
population surveyed declared their intention to buy more fashion products online,
down from 26% in 2016. As far as the average online basket size is concerned, it has
dropped to €74 for fashion products down from €78 in 2016.
We view online as an opportunity For an integrated group like FNG with, in addition, an omni-channel retail strategy,
for FNG given its strategy and combining both stores and online sales, we see the growing e-commerce penetration
positioning in the Benelux as a clear opportunity.
34/50
Key sector drivers
Disposable income
A cyclical, albeit, currently strong The cyclical driver in fashion retail is consumer spending which depends largely on
driver disposal income trends. Disposable income increases as economies expand driven by
a higher employment rate and wage growth. During a recession, consumers tend to
pull back on spending and increase their savings rate, which negatively impacts most
discretionary spending, including large parts of fashion spending (except basic
clothing needs).
Figure 25. Disposable income growth
The trend is quite favourable since 2009 in Belgium and since 2014 in the
Netherlands as shown in the graph above.
Pricing trends
Clothing price inflation is generally Besides volume growth driven by demand (see above), pricing trends also have an
low, but there is limited room for impact on fashion retail growth. The pricing trend can be broken down between
upside in the Benelux inflationary pressure in clothing and the up- or down-side potential in the price of
clothing in a specific market.
As far as inflation trends are concerned, we notice that, while overall inflation (CPI) is
on the rise in Belgium (see below), the inflation trends for clothing and footwear
remains subdued, probably due to competitive pressure as well as high clothing
prices in the Belgian market compared to neighbouring countries.
35/50
Figure 26. Evolution of Belgium’s inflation (+clothing sub-index) and Clothing price levels
Source: be.Stat, Eurostat, Merodis Equity Research
The advent of e-commerce, pushing competition on a European or even global basis,

is likely to keep price rises subdued in countries such as Belgium and Netherlands
where clothing prices are above-average, particularly compared to neighbouring.
Spending habits
A key driver Fashion is clearly one destination for discretionary spending among many others.
Consumers have the choice between several items including leisure and holidays,
meals, big ticket items, etc. In this respect, the trend is not currently in fashion’s
advantage as witnessed by falling clothing sales in, for example, the UK in 2016
despite growing overall consumer spending. In addition to increasing online spending
for fashion items, other explanations to this trend include:
• Weather trends and lower predictability of weather leads to deferred spending
for winter and summer collections, which could even lead to more limited
spending as winters are warmer.
• Limited changes to fashion trends in recent years that prevent big changes to
consumer wardrobes and defers spending. Some fashion experts indicate that
there have not been any big fashion revolution in the last ten years which
would boost the renewal of consumers’ wardrobes.
• Change in (millennial) spending habits. Under-25s seem to have pulled out of
the clothes retail market, spending their money on other items such as food
and dining out. In general, the share of retail in private consumption has also
dropped from more than 31% in 2013 to 30.4% in 2015, driven, according to
GfK, to the economic cycle (the higher the purchasing power, the more
discretionary spending on, for example, recreational activities).
• Impact of discount buying. Since the recession and the advent of online
platforms, consumers are growing increasingly addicted to discounts which also
lead to a deferral of consumption to the sales season and negative gross margin
impact for retailers.
Competition
A mature market, ripe for As we mentioned, the fashion retailing market in the Benelux market is considered
consolidation mature and even saturated to a certain extent, hence the wave of consolidation that
is taking place and which is a growth opportunity for FNG.
Although we do not expect the launch of many new local entrants, competition from
international retailers is significant. Such retailers are launching new brands in the
Benelux market as part of their international expansion strategy.
36/50
Online threat/opportunity
A strong growth driver for FNG As we have seen, online penetration of the fashion retail sector is expected to grow
in the Benelux and, in particular, in Belgium. Whilst this can be viewed as a threat, it
is clearly also an opportunity. The threat for FNG comes from the increased online
presence of competing brands as well as from third-party websites, such as Zalando,
that sell competing brands. However, FNG’s omni-channel strategy (and not to forget
its in-house experience with Miss Etam’s 20% online sales generation) as well as the
presence of its brands on third-party websites should offer an opportunity for the
group to compensate for eventual, future decline of its store sales due to competing
online sales.
37/50
FINANCIAL ANALYSIS
FNG has been a listed company since 2008 on the Free Market of Euronext Brussels,
which means that consolidated financial statements are accessible although the
transparency standards are below those of a full Euronext listing. Hence, we rely on
the company’s reporting to the NBB/BNB (National Bank of Belgium). These are
available until March 2015. For the following periods, we relied on FNG’s internal
accounts (for FY 2015) and the recently-published FY 2016, which, for the first time,
are based on IFRS versus Belgian GAAP for the prior-years’ accounts.
A history of growth and changes in The financial analysis is made slightly more complicated given that (1) FNG has
scope of consolidation changed the consolidation period twice (in 2009 and in 2011 with 19-months of
consolidation), which reduces the y-o-y comparability for a number of years and
“masks” an entire year in the historical accounts (2012) as well as leads to an overlap
(Q1 2016 is reflected in 2015 with 12 months to March 2016 as well as in 2016
proforma with 12 months to December 2016) and (2) the major transformational
transactions in 2016 with the reverse take-over of R&S Retail Group and its
acquisitions of Miss Etam and Brantano complicates the analysis further. For 2016
we have used the “LTM pro forma” 2016 accounts (assuming that the
aforementioned acquisitions were consolidated as from 1 January 2016).
Recent changes to FNG’s consolidation scope
Major impact from As explained earlier (see “Major transformational deals in 2016” in Company
transformational deals in 2016 Description), FNG has undergone a radical change in the scope of consolidation in
2016. We summarise the key events as follows:
• Until July 2016, FNG was a Belgian company listed on Euronext Brussels’ Free
market segment with a scope of consolidation which included 347 stores
(including 233 in the Netherlands), selling 6 brands mainly aimed at women and
children. Sales reached around €260m with an EBITDA margin of close to 11%.
• In July 2016, the reverse-takeover of R&S Retail Group, a Dutch company with
an Amsterdam listing, led to some dilution, but added: (1) Miss Etam business
valued at €21m (EV of €37m) for 95 stores in the Netherlands, with FY sales
representing close to €100m and an EBITDA margin just below 3%, as well as, in
a second step, (2) Brantano business valued at €32m (EV €33m) for 105 stores
in Belgium, FY sales of €123m and an EBITDA margin of 3.6%. The company
subsequently raised new equity for €32m.
• In 2017, two more acquisitions were announced: Suitcase (April 2017) and
Concept Fashion (May 2017), but within the current structure, which eases the
impact analysis.
Impact of acquisitions
Based on the available information, we were unable to analyse in full detail the
financial impact of the acquisitions that occurred before 2015. We show below a
timeline with the acquisition and FNG’s evolution of its overall level of sales and
EBITDA margin.
38/50
Figure 27. FNG sales and EBITDA evolution and forecasts
Strong profitability under some The conclusion is that FNG has enjoyed, and still enjoys, strong profitability, although
pressure from acquisitions, but it declined in recent years as a result of the various acquisitions (mainly owing to
also sector trends weaker profitability at time of acquisition, particularly Expresso and Steps/Superstar)
as well as the macro environment (consumer spending and confidence which has
impacted the entire sector).
Strong rebound of underlying 2016 results showed a strong improvement in profitability at the old-FNG scope with
margins in 2016 EBITDA margins rebounding from 10.9% in 2015 to 12.7%, hence providing proofs of
their ”turning-around” recipe. As shown in the graph above, FNG had the time to
integrate its latest acquisition at the time, which was Expresso/Steps in 2014.
The 2016 proforma accounts reflect, however, weakness due to the negative impact
of recently-acquired Miss Etam and Brantano. Both companies were acquired in mid-
2016, with EBITDA margins around 3% owing to their recent past in distress (Miss
Etam emerged from bankruptcy in 2015, and Brantano’s owner, Macintosh, was a
distressed seller and failed to invest in store refurbishment for quite a while at
Brantano).
Figure 28. Profile of past acquisition under the former FNG scope
% of total Old-FNG Current profitability
Company acquired Year of acquisition No. of stores
stores vs. group average
Hilde & Co. 2006 10 3% na
Van Hassels 2008 12 3% 
CKS 2009 22 6% =
Claudia Sträter 2012 27 7% 
Expresso 2013 25 7% 
Steps 2014 80 22% 
39/50
P&L analysis and forecasts
We estimate solid earnings growth at FNG with 36% EPS CAGR 2017-20e driven by
6.8% sales CAGR, 20% EBITDA CAGR, and 25% EBIT CAGR.
Figure 29. FNG P&L
Eur m 2008 2009 2010 2011 2013 2014 2015 2016 pro 2017e 2018e 2019e 2020e
Year-end 31-12-08 31-07-10 31-07-11 31-03-13 31-03-14 31-03-15 31-03-16 31-12-16 31-12-17 31-12-18 31-12-19 31-12-20
Months of conso. 12 19 12 19 12 12 12 12 12 12 12 12
Net sales 4.1 41.0 43.7 125.2 147.1 242.5 255.7 459.8 508.6 543.8 587.0 619.7
% growth 238.5 na na na na 64.8 5.4 79.8 10.6 6.9 7.9 5.6
Other revenues 0.056 2.215 2.296 2.254 3.312 12.090 1.239
Total sales 4.2 43.2 46.0 127.4 150.4 254.6 256.9 459.8 508.6 543.8 587.0 619.7
% growth 221.0 na na na na 69.3 0.9 79.0 10.6 6.9 7.9 5.6
Materials -2.0 -20.0 -20.3 -52.2 -66.4 -129.9 -126.4 -213.5 -235.0 -249.9 -268.4 -281.9
Gross Profit 2.2 23.2 25.7 75.3 84.0 124.7 130.5 246.3 273.6 293.9 318.6 337.9
% growth 200.9 na na na na 48.5 4.6 88.7 11.1 7.4 8.4 6.0
% sales 52.8 53.7 55.8 59.1 55.9 49.0 50.8 53.6 53.8 54.0 54.3 54.5
Services -1.4 -9.9 -11.0 -30.7 -34.2 -67.1 -69.8 -126.3 -140.5 -146.7 -149.4 -153.3
% growth 347.1 na na na na 96.4 4.1 80.8 11.3 4.4 1.8 2.6
% sales 33.0 23.0 23.9 24.1 22.7 26.3 27.2 27.5 27.6 27.0 25.4 24.7
Staff -0.7 -6.4 -6.4 -23.2 -27.6 -29.7 -32.5 -82.4 -91.2 -97.6 -105.4 -111.4
% growth 66.3 na na na na 7.7 9.1 153.8 10.7 7.0 8.0 5.7
% sales 17.1 14.8 13.9 18.2 18.4 11.7 12.6 17.9 17.9 17.9 18.0 18.0
Opex -4.1 -36.3 -37.7 -106.0 -128.2 -226.7 -228.7 -422.2 -466.7 -494.2 -523.2 -546.5
% growth 211.3 na na na na 76.8 0.9 84.6 10.5 5.9 5.9 4.5
% sales 97.3 84.0 81.9 83.2 85.2 89.0 89.0 91.8 91.8 90.9 89.1 88.2
Others 0.0 -0.3 -0.3 -0.6 -0.4 -0.4 -0.4
EBITDA 0.1 6.6 8.0 20.8 21.9 27.5 27.9 37.6 41.9 49.5 63.8 73.2
% growth na na na na na 25.6 1.5 35.0 11.4 18.2 28.8 14.7
% sales 2.3 15.3 17.3 16.3 14.5 10.8 10.8 8.2 8.2 9.1 10.9 11.8
Depreciation -0.5 -2.4 -4.9 -6.5 -7.2 -11.8 -12.3 -28.7 -12.7 -13.6 -14.7 -15.5
% sales 12.8 5.5 10.6 5.1 4.8 4.6 4.8 6.2 2.5 2.5 2.5 2.5
Prov. & impairments -0.1 0.0 -0.2 -0.2 -0.1
REBIT -0.4 4.2 3.0 14.0 14.7 15.4 15.5 8.9 29.2 35.9 49.1 57.7
% growth na na na na na 5.0 0.6 -42.5 227.3 23.1 36.7 17.4
% sales -10.5 9.6 6.6 11.0 9.8 6.1 6.0 1.9 5.7 6.6 8.4 9.3
Non-recurring -5.2
EBIT -0.4 4.2 3.0 14.0 14.7 15.4 15.5 3.7 29.2 35.9 49.1 57.7
% growth na na na na na 5.0 0.6 -76.1 687.0 23.1 36.7 17.4
% sales -10.5 9.6 6.6 11.0 9.8 6.1 6.0 0.8 5.7 6.6 8.4 9.3
Financial income 0.0 0.1 0.1 0.2 0.6 0.4 0.1
Financial expenses -0.3 -1.6 -1.6 -3.8 -3.6 -4.9 -6.1
Net financial result -0.3 -1.4 -1.5 -3.5 -3.1 -4.5 -6.0 -9.4 -8.3 -8.0 -6.8 -5.4
Ordinary pretax profit -0.7 2.7 1.5 10.5 11.6 10.9 9.5 -5.7 20.9 28.0 42.3 52.3
Extraordinary income 0.0 0.0 0.0 0.0 0.0 0.2 0.1
Extraordinary charges 0.0 -0.1 -1.4 -1.2 -1.0 -0.7 -0.6
Net extra. results 0.0 0.0 -1.4 -1.2 -1.0 -0.5 -0.5 0.0 0.0 0.0 0.0 0.0
Pretax profit -0.7 2.7 0.2 9.3 10.6 10.4 9.0 -5.7 20.9 28.0 42.3 52.3
% growth na na na na na -1.9 -13.1 na na 33.9 51.2 23.7
% sales -16.4 6.2 0.4 7.3 7.0 4.1 3.5 -1.2 4.1 5.1 7.2 8.4
Tax base (estimated) 0.0 2.7 -2.3 8.1 9.4 9.2 7.8 0.0 0.0 0.0 0.0 0.0
Tax 0.0 0.0 -1.5 -2.8 -4.4 -4.6 2.9 -7.3 -9.8 -14.8 -18.3
% 0% 1% 7% 16% 26% 43% 51% 51% 35% 35% 35% 35%
Net income -0.7 2.7 0.2 7.8 7.8 5.9 4.4 -2.8 13.6 18.2 27.5 34.0
Group share -0.7 2.7 0.2 7.8 7.8 5.9 4.4 -2.8 13.6 18.2 27.5 34.0
% growth na na na na na -24.2 -26.0 na na 33.9 51.2 23.7
% sales -16.4 6.2 0.3 6.1 5.2 2.3 1.7 -0.6 2.7 3.3 4.7 5.5
40/50
Figure 30. Key segment assumptions

FNG 2016 prof. 2017e 2018e 2019e 2020e 2021e 2022e
Sales 237.8 263.3 278.8 303.0 319.1 337.2 357.4
% growth na 10.7 5.9 8.7 5.3 5.7 6.0
"Organic" store sales 213.8 224.5 234.3 261.5 269.4 277.4 285.8
% growth -16.4 5.0 4.4 -6.2 -11.1 -13.1 -15.2
# stores 365 380 380 380 380 380 380
Net additions 15
Sales/store 0.586 0.642 0.668 0.688 0.709 0.730 0.752
% inflation 1.0 1.0 1.0 1.0 1.0 1.0
% growth 4.0 3.0 2.0 2.0 2.0 2.0
Online sales 24.0 28.8 34.6 41.5 49.8 59.7 71.7
% growth 20.0 20.0 20.0 20.0 20.0 20.0
% sales 10.1 10.9 12.4 13.7 15.6 17.7 20.1
Acquired sales 0.0 20.0 20.0 0.0 0.0 0.0 0.0
Suitcase + Concept Store 20.0 20.0
No. stores 15.0 15.0
No. months consolidated 6.0 6.0
EBITDA 30.3 32.1 36.1 43.3 47.9 52.3 57.2
% growth na 5.8 12.6 19.9 10.5 9.2 9.4
% sales 12.7 12.2 13.0 14.3 15.0 15.5 16.0
Miss Etam 2016 prof. 2017e 2018e 2019e 2020e 2021e 2022e
Sales 98.7 105.9 113.8 121.4 128.7 136.6 144.2
% growth na 7.3 7.4 6.7 6.0 6.2 5.6
"Organic" sales 76.7 81.3 86.2 90.5 94.1 97.9 100.8
% growth na 6.0 6.0 5.0 4.0 4.0 3.0
# stores 95 95 95 95 95 95 95
Net additions 0 0 0 0 0 0
Sales/store 0.807 0.856 0.907 0.953 0.991 1.030 1.061
% inflation 1.0 1.0 1.0 1.0 1.0 1.0
% growth 5.0 5.0 4.0 3.0 3.0 2.0
Online sales 22.0 24.6 27.6 30.9 34.6 38.8 43.4
% growth 12.0 12.0 12.0 12.0 12.0 12.0
% sales 22.3 23.3 24.3 25.5 26.9 28.4 30.1
Acquired sales
EBITDA 2.9 4.2 6.6 9.1 11.6 16.4 18.8
% growth na 46.1 55.7 38.0 27.2 41.5 14.3
% sales 2.9 4.0 5.8 7.5 9.0 12.0 13.0
Brantano 2016 prof. 2017e 2018e 2019e 2020e 2021e 2022e
Sales 123.3 139.4 151.2 162.6 171.9 180.3 187.7
% growth na 13.0 8.5 7.6 5.7 4.9 4.1
"Organic" sales 120.3 135.6 146.5 156.7 164.6 171.2 176.3
% growth na 12.7 8.0 7.0 5.0 4.0 3.0
m² 100,000 100,000 100,000 100,000 100,000 100,000 100,000
Sales/m² 1,233 1,356 1,465 1,567 1,646 1,712 1,763
% inflation 1.0 1.0 1.0 1.0 1.0 1.0
% growth 9.0 7.0 6.0 4.0 3.0 2.0
# stores 105 105 105 105 105 105 105
Sales/store 1.174 1.327 1.440 1.549 1.637 1.717 1.788
% growth 13.0 8.5 7.6 5.7 4.9 4.1
Online sales 3.0 3.8 4.7 5.9 7.3 9.2 11.4
% growth 25.0 25.0 25.0 25.0 25.0 25.0
% sales 2.5 2.8 3.2 3.7 4.5 5.3 6.5
Acquired sales
EBITDA 4.4 5.6 6.8 11.4 13.8 18.9 24.4
% growth na 26.7 22.0 67.3 20.8 37.7 28.9
% sales 3.6 4.0 4.5 7.0 8.0 10.5 13.0
41/50
Top-line growth drivers

Taking the current consolidation scope into account, we expect FNG to generate
6.8% top-line CAGR 2017-20e, driven by Brantano (6.7% CAGR), Miss Etam (6%
CAGR) and FNG brands (4.7%, including the impact of the 2017 acquisitions of
Suitcase and Concept Fashion).
Positive macro drivers adding to In addition to the macro top-line drivers that we have discussed earlier (disposable
internal strengths income, inflation/clothes pricing trends, consumer spending habits), we expect sales
growth at FNG to be driven by
• Efficiency improvements with the aim to boost volumes through an
improvement of sales/m² in underperforming stores driven by store
management and brand synergies. Measures include: major store
refurbishments (mainly at Brantano), product repositionings (change the store
offering/brands to better suit needs of local customers), product line extensions
(dedicating space for selling clothes at Brantano), enhancing store inventory
management to further optimise sales, etc.
• Online sales. Most of the growth in the fashion retail sector is expected to be
driven by the online channel. In the case of FNG, this will happen through their
own web-shops (each brand has its own online sales platform), which through
the omni-channel strategy is being more and more integrated into the offline
selling strategy, and through third-party websites such as Zalando, where FNG’s
products are also on offer. We expect online sales for Miss Etam to be the
highest in the group, at 22%, followed by FNG brands (10%) and Brantano (less
than 5%). Going forward, we expect group online sales to reach 18% of total
sales in 2020e from 11% in 2016e.
• Product mix enhancement through the design of premium clothing in order to
raise the average selling price.
• Store openings are a key driver to fuel growth, although we do not forecast
store-openings in our model over the foreseeable future as we believe
management will have enough on its plate to integrate the several recent
acquisitions.
• External growth. FNG has a long history of making acquisitions and successfully
integrating them so far. Although we do not forecast any unannounced
acquisitions, we expect this buy-and-build strategy to remain a cornerstone of
FNG’s strategy. Acquisitions will definitively boost top-line growth even further
(their earnings impact will depend on the price paid as well as the synergies that
can be exploited).
Looking at the three segments, we have included the following sales assumptions in
our financial model:-
• FNG brands. The FNG brands under the previous structure (Fred & Ginger, Van
Hassels, CKS, Baker Bridge, Claudia Sträter and Expresso) operated 325 stores.
We do not expect this number to change much, although, in practice, it is likely
to evolve based on the company dynamic store-management. We have added
Concept Fashion’s 15 multi-brand stores with an estimated top-line contribution
of €20m. Our other underlying assumptions include (1) online sales growth of
20% pa, weighing 20% of divisional sales by 2022e (from , (2) a positive price
impact of 1% pa to 2020e and (3) store efficiency gains (measured by
sales/store) of 3.3% pa driven by an underlying improvement of 2.8% and the
impact of Concept Fashion accounting for the remainder.
42/50
• Miss Etam. Our underlying assumptions include (1) online sales growing by 12%
pa, weighing 30% of divisional sales by 2022e (from 22% in 2016e), (2) a positive
price impact of 1% pa to 2020e and (3) store efficiency gains (measure by
sales/store) of 5% pa. Miss Etam has emerged from bankruptcy in 2015 and we
believe there is room to enhance the product offering based on FNG’s enlarged
scope (design team, purchasing capacity, etc.)
• Brantano. Our underlying assumptions include (1) online sales growing by 25%
pa, weighing 7% of divisional sales by 2022e (from 2.5% in 2016e), (2) a positive
price impact of 1% pa to 2020e and (3) store efficiency gains (measure by
sales/store) of 7% pa, driven mainly by store refurbishments as explained
earlier. The first results of the early refurbishments show a positive sales impact
of 20% per refurbished store. With a further 60-70 stores to be refurbished over
the next two years, we expect organic growth to be at a high single-digit level.
Margin drivers
Strong margin rebound expected Overall, we expect EBITDA margins to strongly improve from 8.2% in 2016 to 14.6%
in 2022e. As a reminder, the group’s 2008-2015 average EBITDA margin was 12.5%,
peaking at between 16 and 17% in 2010 and 2011. The margin weakness in 2016 is
driven entirely by the Miss Etam and Brantano acquisitions, with very low levels of
margins resulting from quasi-distress situations for both brands. The FNG brands (ex-
Brantano and Miss Etam) reached 12.7% in 2016, up from 10.8% in 2015, which is,
we believe, a genuine testimony of the upside potential for the group.
The EBITDA margin improvement that we expect is driven by the following factors:
• Gross margin improvement. Gross margins reached 53.6% in 2016, in line with
the 2008-15 average, with little synergy impact yet being felt from the
acquisitions of Miss Etam and Brantano. We expect gross margins to improve to
55%, and which is still below the peak gross margin reached in the years 2010-
11 when the group posted gross margins of 56-59%. At the level of FNG brands,
gross margin improvement should stem from positive effects of its active brand
portfolio management, mark down management and improved central stock
allocation. At Miss Etam, the main driver of gross margin improvement (from
the current level of c53%) include more favourable purchasing terms as part of
a bigger group and more professional mark down management. At Brantano,
where we expect gross margins to be at around 50%, there is considerable
room for improvement driven by more focused management and combined
purchasing power (bigger buying and sourcing platform compared to
previously).
• Opex control. Most of the opex optimisation should happen at the shared
services (HR, IT, finance, etc.) and logistics levels. The organisation now has the
assets and capacity to handle more volumes more efficiently, ie. allowing to
spread higher sales over fixed costs, which should have a positive impact on
EBITDA margins.
43/50
• Potential synergies. Although we do not explicitly forecast synergies, those that

could be exploited from the recent acquisitions are expected to happen at the
level of FNG’s buying platform with a positive impact expected on the cost of
goods sold (COGS) and, hence, at the gross margin level. At the opex level, Miss
Etam’s central stock allocation system should lead to a better management of
stock including lower obsolescence and improved markdown management.
Miss Etam’s new distribution center can also accommodate 15m additional
fashion items, which will allow better utilisation of the fixed costs base. The
group also expects cost savings on IT, HQ costs (1 instead of 2 in the
Netherlands, for example) as well as on other indirect costs that are common
for all brands (bags, hangers, marketing material, etc.). These synergies could
reach €30m by 2022e with two-thirds in COGS and one-third in opex.
Other P&L items

• Depreciation. Although we expect depreciation to rise under the impact of
higher capex driven mainly by Brantano’s refurbishment plan (€50m over 3
years) and FNG’s plan to spend €60m on store refurbishments and Benelux
expansion of successful brands, group EBIT margins are expected to rise
significantly from a low of 1.9% in 2016 (vs a 2009-15 average of 8.2%) to 12%
which we expect could be reached by 2022e even without the synergies effect
that we highlighted above. This compares favourably to market expectations for
the peer group in 2019e at 9.1%. Depreciation growth is expected at around 7%
CAGR 2017-20e, which is in line with group sales growth, but above opex
growth of 5%.
• Financial costs. Growing cash flows from improved profitability is expected to
reduce the level of debt and, hence, the level of financial costs. We expect a
13% CAGR 2017-20e drop in financial costs with net debt dropping from €128m
in 2017e to €72m by 2020e.
• Tax charge. This reduction in financial costs should be offset by a strong
increase in the tax charge, which we estimate at 35% (in line with the Belgian
corporate tax rate).
44/50
Cash flow analysis and forecasts
Given the limited historical disclosure of cash flow statements (not required under
Belgian GAAP), we have built a model which lacks mainly the prices paid for the past
acquisitions as well as the level of dividend, which we do not expect to have been
paid over that period. Please note that, here too, any historical analysis is made
difficult by the changes in the length of financial years.
Figure 31. FNG Cash flow
Eur m 2008 2009 2010 2011 2013 2014 2015 2016 2017e 2018e 2019e 2020e
Year-end 31-12-08 31-07-10 31-07-11 31-03-13 31-03-14 31-03-15 31-03-16 31-12-16 31-12-17 31-12-18 31-12-19 31-12-20
Months of consolidation 12 19 12 19 12 12 12 12 12 12 12 12
Corrected EBITDA 0.1 6.6 8.0 20.8 21.9 27.5 27.9 7.0 41.9 49.5 63.8 73.2
Decrease/(incr.) in WCap 0.8 -6.4 -1.9 -5.4 -10.2 -4.4 -24.6 0.3 -4.3 -3.3 -3.9 -3.1
Inventories 0.0 -9.0 -3.0 -10.4 -2.2 -11.0 -2.2 12.5 -4.8 -2.4 -3.9 -2.4
Amounts receivable -0.5 -3.4 0.2 -4.4 -14.2 -8.7 -10.0 32.6 -5.1 -4.3 -4.7 -3.9
Other payables 1.6 -0.6 0.3 0.1 -0.7 -1.1 -1.5 4.4 -0.9 -0.7 -0.8 -0.7
Accruals 0.0 -0.1 -0.1 -0.2 -1.4 0.0 -2.4 0.0 0.0 0.0 0.0 0.0
Trade debts and prepay. 0.3 5.3 1.0 4.5 6.6 14.6 -9.3 -49.4 4.5 2.4 3.8 2.3
Taxes, rem. & social sec. -0.6 1.1 -0.5 4.4 1.9 1.1 -1.1 0.2 1.9 1.7 1.8 1.5
0ther amounts payable 0.0 0.3 0.3 0.7 -0.3 0.7 1.9 0.0 0.0 0.0 0.0 0.0
Gross operating cash flow 0.9 0.2 6.1 15.4 11.7 23.0 3.2 7.2 37.6 46.2 59.9 70.1
Net interest (paid) / received -0.3 -1.4 -1.5 -3.5 -3.1 -4.5 -6.0 -4.8 -8.3 -8.0 -6.8 -5.4
Tax 0.0 0.0 0.0 -1.5 -2.8 -4.4 -4.6 0.0 -7.3 -9.8 -14.8 -18.3
Capex -0.1 -0.9 -0.9 -2.5 -3.0 -5.1 -5.1 -35.0 -30.0 -27.0 -15.0 -15.0
Free cash flow 0.6 -2.2 3.6 7.8 2.8 9.0 -12.5 -32.5 -8.0 1.5 23.3 31.4
Net disposals/(acquisitions) na na na na na na na 9.5 -9.0
Dividends paid na na na na na na na na 0.0 0.0 0.0 0.0
Capital increase 1.1 0.5 0.3 0.3 2.5 1.8 2.1 68.2
Others -4.2 -7.4 -10.1 -27.4 -11.4 -41.7 -7.1 -61.9
Net cash flow -2.5 -9.1 -6.2 -19.3 -6.1 -30.9 -17.6 -16.7 -17.0 1.5 23.3 31.4
Net debt/(cash) 5.0 14.1 20.3 39.6 45.7 76.6 94.2 110.9 127.9 126.4 103.2 71.7
ND/annualised EBITDA (x) 51.1 2.1 2.5 1.9 2.1 2.8 3.4 2.9 3.1 2.6 1.6 1.0
Gross financial debt 5.0 22.6 26.6 51.3 68.8 119.4 118.6 177.8 177.8 157.8 127.8 97.8
Debt increase/(reduction) 2.5 17.6 4.0 24.7 17.5 50.6 -0.7 59.2 -20.0 -30.0 -30.0
Cash & Equivalent 0.0 8.6 6.4 11.7 23.1 42.7 24.4 66.9 49.9 31.3 24.6 26.1
Positive FCF from 2018e Based on our forecasts, we expect FNG to turn free cash flow positive by 2018e
following three years of heavy investments in terms of working capital (2015),
financial leverage (high financing costs) and now in terms of capex (mainly Brantano
refurbishment).
Our main assumptions in terms of cash flow include:
• Stable working capital needs. We expect the working capital to only
moderately increase from 7.3% of sales in 2016 to 8.2% by 2022e. This is quite
low compared to the group’s historical level as comparability is blurred by the
changes in consolidation periods (the historical average over 12-months periods
is 20%). The recent drop is due, in our view, to a shift in sales from B2B
(wholesale) to B2C, with shorter DSOs as the final customer pays cash, the scale
effect with longer buying terms. We believe the company could maintain such a
level of working capital, but with some upside pressure driven by growth, hence
the stable need of working capital going forward. The drop also positions the
company closer to its international peers as shown in the graph below, which
provides credibility to expectations of a sustainable lower level of working
capital.
45/50
Figure 32. Working capital as a % of sales (2014-16 average)
• Decreasing financing costs as explained above.

• Higher tax charge as explained above.
• Initially higher capex costs from the store refurbishment plan for Brantano. The
plan includes Brantano’s refurbishment plan (€50m over 3 years) and FNG’s
plan to spend €60m on store refurbishment and Benelux expansion of
successful brands. There is also slightly more than €20m earmarked for Miss
Etam’s refurbishment and web platform.
• No acquisitions except already-announced Suitcase and Concept Fashion, for
which we estimate that FNG paid circa €9m (ie. 6x EBITDA). Going forward,
although we would expect FNG to continue its buy-and-build strategy, we do
not include any external growth in our forecasts given the numerous and
unpredictable variables involved in such transactions.
Dividend policy
No dividends planned in our FNG’s balance sheet, the expected negative FCF until 2017e and bond covenants (FCF
model, although FNG could afford for interest payments first) do not currently allow for a dividend payment. However,
one from 2020e with the forecast deleveraging of the balance sheet, and excluding any large-scale
acquisitions, we would expect the company to be in a position to pay a dividend as
from 2019-20e onwards, by which time ND/EBITDA would fall below 2x based on our
forecasts.
The company’s pay-out policy is likely to be quite in line to that of its European
sector peers, while accommodating its buy-and-build strategy which may continue to
require additional financial resources. A selection of peers (Inditex, H&M, Esprit and
KappAhl) have seen their pay-out decrease from an average of 60% between 2004
and 2012 (ranging from 40% to 100%), to below 50% since 2013.
46/50
Figure 33. Peer-average payout ratio since 2004
Based on this and on FNG’s buy-and-build strategy, we could expect the company to
adopt a dividend pay-out of between 30% and 50% as from 2020e onwards.
However, we have not yet pencilled in a dividend payment in our model given the
above-discussed forecast horizon.
Figure 34. Peer-average payout ratio (2004-16)
47/50
Balance sheet structure and forecasts
Figure 35. FNG Balance sheet
Eur m 2008 2009 2010 2011 2013 2014 2015 2016 pro 2017e 2018e 2019e 2020e
Year-end 31-12-08 31-07-10 31-07-11 31-03-13 31-03-14 31-03-15 31-03-16 31-12-16 31-12-17 31-12-18 31-12-19 31-12-20
Months of consolidation 12 19 12 19 12 12 12 12 12 12 12 12
Net working capital 0.0 6.4 8.3 13.6 23.8 28.3 52.9 38.0 38.0 41.3 45.2 48.2
% growth na na 29.2 64.8 74.7 18.5 87.2 12.9 12.9 8.7 9.4 6.8
% sales -0.4 14.8 18.0 10.7 15.8 11.1 20.6 7.5 7.5 7.6 7.7 7.8
Intangible fixed assets 2.1 29.7 33.5 49.6 69.6 112.5 106.6 305.4 310.4 310.4 310.4 310.4
Goodwill 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Tangible fixed assets 0.7 4.1 5.1 10.3 14.9 19.8 27.0 74.4 79.4 92.8 93.1 92.6
Financial fixed assets 5.1 0.1 0.1 1.7 1.3 2.1 0.6 17.6 17.6 17.6 17.6 17.6
Invested capital 2.8 40.2 47.0 73.6 108.3 160.5 186.5 417.8 427.8 444.5 448.7 451.3
% growth 39.9 1,345.6 16.7 56.7 47.2 48.2 16.2 5.5 8.0 3.9 0.9 0.6
ROCE post-tax (%) -18.3 19.3 6.5 19.4 11.9 6.6 4.3 4.7 4.6 5.4 7.2 8.3
Discontinued assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net debt/(cash) 5.0 14.1 20.3 39.6 45.7 76.6 94.2 127.9 127.9 126.4 103.2 71.7
Gearing (%) 173.9 53.7 75.7 114.5 75.2 96.2 111.4 51.7 51.7 47.6 35.2 21.9
Net debt/EBITDA (x) 51.1 2.1 2.5 1.9 2.1 2.8 3.4 3.1 3.1 2.6 1.6 1.0
Shareholders funds 2.9 26.2 26.7 34.5 60.8 79.7 84.6 247.2 247.2 265.4 292.9 326.9
Equity capital 2.9 26.2 26.7 34.5 60.8 79.7 84.6 247.2 247.2 265.4 292.9 326.9
% growth 42.9 810.9 2.0 29.2 75.9 31.1 6.2 5.8 5.8 7.4 10.4 11.6
ROaE -27.9 18.3 0.6 25.5 16.4 8.4 5.3 5.6 5.6 7.1 9.8 11.0
FNG’s balance has been relatively geared up to finance the numerous past
acquisitions. ND/EBITDA peaked at 3.4x in 2015 (FY-end March 2016). The recently-
announced 2016 results show a slight easing of the ratio to 3.1x based on the
proforma accounts (full consolidation over 12 month of Miss Etam and Brantano).
We expect a further deleveraging going forward with a forecast net cash position
expected by 2022e.
Net working capital

As mentioned above, working capital has come down to below 8%, closer to the
peer-group level, and we expect it to remain at roughly that level.
Intangible fixed assets

Intangibles have increased following the acquisition and the value of the acquired
brands. The jump in the 2016 accounts reflect, on the one hand, the major
transactions that took place during the year as well as, on the other hand, IFRS rules
which FNG report under. Although we still lack clear information on the accounting
treatment of the intangibles, we believe they will be tested each year for
impairment, without amortisation as required by IFRS.
Tangible fixed assets

These consist mainly of HQ, the logistics centre and store fitting. FNG does not own
its stores; they are all rented. We expect tangible fixed assets to grow with the
refurbishment programme underway at FNG brands and Brantano.
48/50
Financial debt and maturities

FNG’s financial debt of €178m is mainly held at the level of FNG Benelux Holding,
100% (indirectly) owned by FNG. The profile and maturities of its debt instruments
are described in the graph below.
Figure 36. Debt profile and maturities at FNG Benelux Holding
Source: Company presentation
With average FCF of €37m pa from 2019-22e, we expect FNG’s to sufficiently cover
the repayment of the bank loan in 2019 and we would expect a partial repayment
and extension for 2020 loan.
49/50
DISCLAIMER
YOU ARE ADVISED TO READ THE FOLLOWING CAREFULLY BEFORE READING, ACCESSING OR MAKING ANY OTHER USE OF THE MATERIALS IN THIS
DOCUMENT
This document, that has been issued by Merodis BVBA (Merodis) about FNG N.V. (FNG or the Company), comprises written materials about the
Company, is strictly confidential and is being provided to you solely for your information. If you have received this research document and you are not
a relevant person, you must return it immediately.
Merodis BVBA (Merodis) has been mandated by the subject company, FNG N.V. (FNG or the company) to produce a neutral, fair, and elaborate equity
research report about FNG with the aim to increase visibility and investors’ awareness about the stock. The authors hereby declare that this report
represents their personal opinion and that the company has neither limited nor in any other way influenced the content of this report. Merodis
explicitly authorises FNG to post the present equity research report on its company's website and to distribute the report to interested parties. This
Report is and at all times shall remain the exclusive property of Merodis.
This research report is provided for information purposes only and does not constitute or form part of, and should not be construed as, any offer or
invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares, nor shall any part of it nor the fact of its distribution
form part of or be relied on in connection with any contract or investment decision relating thereto, nor does it constitute a recommendation
regarding the securities of the Company. The merits or suitability of any securities or any transaction described in these materials to a particular
person’s situation should be independently determined by such person. Any such determination should involve, inter alia, an assessment of the legal,
tax, accounting, regulatory, financial and other related aspects of the securities or such transaction.
No representation or warranty (express or implied) is made in respect of, and no reliance should be placed on, the accuracy, completeness or
correctness of any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to
any errors, omissions or misstatements contained herein, and, accordingly, none of Merodis, the Company, its advisors or representatives or any of its
or their parent or subsidiary undertakings or any such person’s directors, officers or employees accepts any liability (in negligence or otherwise)
whatsoever arising directly or indirectly from the use of this research report.
This research report contains forward-looking information, forecasts, beliefs, opinions and estimates prepared by Merodis, relating to the currently
expected future performance of the Company and the market in which the Company operates (“forward-looking statements”). By their very nature,
forward-looking statements involve inherent risks, uncertainties and assumptions, both general and specific, and risks exist that the forward-looking
statements will not be achieved. Investors should be aware that a number of important factors could cause actual results to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in, or implied by, such forward-looking statements. Such forward-looking
statements are based on various hypotheses and assessments of known and unknown risks, uncertainties and other factors which seemed sound at
the time they were made, but which may or may not prove to be accurate. Some events are difficult to predict and can depend on factors on which
Merodis or the Company has no control. Statements contained in this research report regarding past trends or activities should not be taken as a
representation that such trends or activities will continue in the future.
This uncertainty is further increased due to financial, operational and regulatory risks and risks related to the economic outlook, which reduces the
predictability of any declaration, forecast or estimate made by Merodis. Consequently, the reality of the earnings, financial situation, performance or
achievements of the Company may prove substantially different from the guidance (if any) regarding the future earnings, financial situation,
performance or achievements set out in, or implied by, such forward-looking statements. Given these uncertainties, investors are advised not to place
undue reliance on these forward-looking statements. Additionally, the forward-looking statements only apply on the date of this research report.
Merodis and the Company expressly disclaims any obligation or undertaking, unless if required by applicable law, to release any update or revision in
respect of any forward-looking statement, to reflect any changes in its expectations or any change in the events, conditions, assumptions or
circumstances on which such forward-looking statements are based. Neither Merodis, nor the Company, nor its representatives, officers or advisers,
guarantee that the assumptions underlying the forward-looking statements are free from errors, and neither of them makes any representation,
warranty or prediction that the results anticipated by such forward-looking statements will be achieved.
This research report has not been submitted to the Financial Services and Markets Authority for approval.
Merodis expressly indicates that it is not acting in a capacity as placement agent, underwriter or settlement agent.
This research report is not being made and may not be distributed or sent into Australia, Canada or Japan. Neither Merodis, nor the Company has
authorised any offer to the public of Shares in any Member State of the European Economic Area other than Belgium. This research report is not
intended for distribution to, or use by any person or entity in any jurisdiction or country where, or to any person to whom, such distribution or use
would be contrary to local law or regulation. In particular, this research report is not intended for distribution and may not be distributed in the
United States or to U.S. persons (as defined in Regulation S) under the United States Securities Act of 1933, as amended.
All disputes in respect of this research report will be resolved exclusively in the courts of Belgium (Brussels bar) under Belgian Law.
By receiving this research report you agree to be bound by the foregoing limitations and restrictions.
For more information about

Merodis
please visit:
www.merodis.com
50/50

FInancial Analysis Example PDF

Uploaded by

Copyright:

Available Formats

FInancial Analysis Example PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

FInancial Analysis Example PDF

Uploaded by

Copyright:

Available Formats

FNG

BELGIUM Equity Research Report

Finger on the trigger

Enterprise Value (€m): 331 Financial summary

TABLE OF CONTENTS (click to follow link in pdf)

TABLE OF FIGURES (click to follow link in pdf)

Home-grown Benelux fashion retailer

Market consolidator applying a tested and successful recipe

Growth driven by efficiency gains with icing on the cake

Key value drivers

• Strong historical profitability compared to peers. FNG has achieved higher-

12M Fwd 2017e 2018e 2019e

Figure 2. EBITDA margin comparison* (%)

Source: Company data, Factset

2017e 2018e 2019e

Figure 4. Peer group valuation analysis

Figure 5. Peer group benchmarking analysis

Multiple comparison vs sector peers

Source: Merodis Equity Research, Factset

Source: Merodis Equity Research, Factset

Discounted Cash flow

Figure 8. Discounted cash flow model

Eur m 2015 2016 2017e 2018e 2019e 2020e 2021e 2022e

Figure 9. WACC assumptions (%)

Target gearing (%) 30.0

Company history and past acquisitions

• 2017: Acquisition of Belgium-based Suitcase and Concept Fashion. The group

Major transformational deals of 2016

Critical size and brand positioning

Figure 10. Market positioning of FNG brands in the Dutch market

Source: Company data

Figure 11. FNG’s brand portfolio

Source: Company data, Merodis Equity Research

• FNG’s initial brands. The 325 stores operated by FNG (pre-transformational

• Efficiency gains. Mainly through integration synergies (logistics, central stock

Source: Company data

Source: Company data

Founding team and other members of management

Other Board members

Shareholder Stake (%)

• Consolidation wave in the fashion industry. The digital disruption is impacting

• Integration risks. Acquisitions always come with integration risks due to

Benelux fashion retail market in a global context

Source: Eurostat, Merodis Equity Research

As fashion retail, as opposed to basic clothing needs, is in part, a discretionary

Figure 18. European population density (population/m²) (2015)

Source: Eurostat, Merodis Equity Research

European retail structure

Benelux apparel market

Positioning of FNG and competition overview

As explained earlier, FNG is positioned as an integrated fashion retailer in the mid to

Figure 20. Price segments in Europe

Figure 21. Positioning of Dutch fashion retail brands

Source: GfK (2015), Merodis Equity Research

The online risks and opportunities

Source: Fung Business Intelligence Center

Source: Ecommerce Foundation

Key sector drivers