BI Makes Axel Springer A Buy In HSBC's Eyes

• The share price of Axel Springer SE SPR has declined almost 15 percent over the past six months, touching a low of €46.455 on June 19.
• HSBC’s Christopher Johnen has reiterated a Buy rating on the company while lowering the price target from €60 to €59.
• Johnen sees the purchase of BusinessInsider as a “richly-valued long-shot” but expects robust operational performance from Axel Springer in H2.

Analyst Christopher Johnen explained that Axel Springer has announced the acquisition of an 88 percent stake in BusinessInsider for €306 million, which values the business at 20 times its EV/EBITDA for 2020.

The recent underperformance of the stock reflects that the market did not take too well to this valuation, a sentiment that Johnen agrees with, believing that the deal could be dilutive for several years “and clearly more risky than Springer’s past M&A.”

However, Johnen also explained that the deal did not change the investment case for the company. “Management made it clear that BI will be the last sizable investment in a non-profitable company in the foreseeable future and will now focus on deal execution,” the HSBC report stated.

The management also emphasized that it had not altered its prudent approach to M&A and that they were “well aware about the different risk/reward profile versus prior deals” but also had confidence that the long term value of owning BusinessInsider would justify any dilution in the near term.

“We don’t like Springer for its strategy in content, we like it despite it, as we continue to see upside on classifieds,” Johnen added.