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时间：2023-12-11
IPG PHOTONICS
Equity Report
Kenza BENNANI
BUY OR HOLD RECOMMENDATION
1
INTRODUCTION 2
HISTORY OF GROWTH 2
MANAGEMENT 3
BUSINESS MODEL 3
POSITIONING IN THE MARKET 4
MARKET OVERVIEW 4
IPG’S COMPETITIVE ADVANTAGES IN THAT GROWING MARKET 5
FINANCIAL ANALYSIS 6
OVERVIEW 6
MARGINS 7
DEPRECIATION & AMORTIZATION VS. CAPITAL EXPENDITURE 7
NET WORKING CAPITAL 7
CASH AND DEBT 8
ROE & ROCE 9
VALUATION: 10
DISCOUNTED CASH FLOW: 10
TRADING COMPARABLE: 10
TRANSACTIONS METHOD: 11
ANNEXES 13
2
Introduction
IPG Photonics Corporation is a listed and US-based manufacturer that produces high-power fiber lasers and
amplifiers as well as diode lasers. The Company develops and commercializes optical fiber-based lasers used in
a wide range of applications such as materials processing, telecommunications, and medical applications. It has
its headquarters in Oxford, Massachusetts, and has additional plants and offices throughout the world.
History of growth
Nearly all of IPG’s growth has been driven by organic investments and internal strategies. The company made
its brand out of launching innovative technology.
• 1990: NTO IRE-Polus was founded in Russia by Dr. Valentin Gapontsev a physicist and pioneer in the
field of fiber lasers.
• 1992: Adoption of the acronym IPG standing for IRE-Polus Group.
• 1993: Establishment of subsidiary in Europe.
• 1999: Beginning of operations in the US (Massachusetts)
• 2000: Obtention of $100 million in venture financing and creation of the parent company IPG
Photonics, majority owner of the German, Italian and Russian subsidiaries.
• 2002: Hard times as IPG went through a 58% decrease of revenues due to the evaporation of the
telecom capital spending. IPG decided to invest in the development of components they needed for
their lasers: it was a vertical integration strategy that led to significative reduction of costs making
them very competitive.
• 2006: Initial public offering after a very successful period resulting of their technologically innovative
products.
• 2018: Expansion to new markets (UV laser and robotic welding for example) through 4 acquisitions.
• January 2019: IPG Photonics Announces Agreement to Acquire Padtec Submarine Networks Division, a
Brazil-based submarine optical systems division of Padtec.
North America
13,9%
Germany
7,6%
Europe
20,3%
China
43,1%
Rest of World
15,1%
2018 Revenue
$ 1,460m
Figure 1: Geographical breakdown of revenues in 2018
3
Management
Business Model
IPG Photonics’ lasers are used for diverse applications, primarily in materials processing. They are incorporated
into manufacturing, medical and other systems by OEMs1, system integrators and end users. The most significant
materials processing applications are cutting, welding and brazing, marking and engraving. Other applications
include micro-processing, surface treatment, drilling, and annealing. For a wide variety of applications, lasers
provide superior performance and a more cost-effective solution than non-laser technologies.
High-power fiber lasers enable greater precision, higher-speed processing and more flexible production methods
that all lead to enhanced productivity within industrial and semiconductor applications mostly. IPG has
continually pioneered the development and commercial production of numerous unique technologies related to
fiber lasers combining deep materials science expertise and process know-how with a vertically integrated
business model.
The company produces all key components of its fiber laser technology in-house, enabling:
• better performing, higher quality solutions;
• fast product development;
• more efficient production methods with high yields throughout the process;
• industry-low product delivery times;
• rapid ongoing cost reduction with an industry-best margin profile.
1 Original Equipment Manufacturer
• Dr. Gapontsev founded IPG in 1990
• Dr. Gapontsev served as a senior scientist in laser material physics and
was the head of the laboratory at the Soviet Academy of Sciences’
Institute of Radio Engineering and Electronics in Moscow
• He holds a Ph.D. in Physics from the Moscow Institute of Physics and
Technology
Valentin P. Gapontsev, Ph.D.
Chairman and CEO
• Former technical director of IPG Germany (1995-2000)
• He was senior scientist and head of the optical communications
laboratory at the Russian academy of Science
• M.S. in Physics and Ph.D. in Quantum Electronics and a D.Sc. of Laser
Physics
Eugene Scherbakov
Managing Director, COO
• CFO since 2000
• Holds upper B.Sc. Honours degree in International Trade and
Development from LSE
• Member of the Institute of Chartered Accountants of Scotland
Timothy P.V. Mammen
CFO
4
Positioning in the market
Market overview
The future of the fiber laser market looks attractive with opportunities in material processing, instrumentation
and measurement, and other applications.
The market is highly competitive and characterized by rapidly changing technology, continuously evolving
customer requirements, and reduced average selling prices over time. Due to those parameters, the primary
competitive factors in this industry are:
• Product performance and reliability
• Quality and service support
• Price and value to the customer
• Ability to manufacture and deliver products on a timely basis
• Ability to achieve qualification for and integration into OEM systems
• Ability to meet customer specifications
• Ability to respond quickly to market demand and technological developments
Due to their historical presence and their constant development, IPG Photonics are competing favorably with
respect to these criteria. In the materials processing market, the competition is fragmented and includes a large
number of competitors: solid-state lasers, direct diode lasers, high power CO2, YAG and disc lasers. These include
public and private companies such as Coherent, Inc., Laserline GmbH, Lumentum Holdings Inc., Maxphotonics
Co., Ltd., nLight, Inc., Raycus Fiber Laser Technologies Co. Ltd., and Trumpf GmbH + Co. KG.
Even though the laser-based systems are representing a very thin part of the machine tools used today, this part
is continually growing over the years. Besides it is also noticeable that fiber lasers, IPG’s core business, currently
account for about 70% of annual demand for High-Power Industrial Laser sources. And globally this annual
demand keeps growing year after year. It is now around $2 billion and is expected to reach $2,5 billion in 4
years. That high-power industrial application is the most known today, but there are many other applications
that make the whole IPG Photonics target market a much bigger one, reaching $10 billion dollars in 2019.
5
We can categorize laser applications in two different categories: industrial applications and new laser
applications mainly used for microelectronics processing, defense, R&D, sensors and instruments, medical use,
and digital cinema and enterprise displays. All these applications lead to a $10 billion market in 2019, that is
expected to keep on increasing, reaching more than 12 billion in 2023.
IPG’s competitive advantages in that growing market
As pioneer in its sector, IPG Photonics has developed key strengths that turn into their competitive advantages;
• World's Leading Producer of Fiber Laser Technology: They have built leading positions in their various
end markets with a large and diverse customer base overtime. As a result of their technology
leadership, they can commercially manufacture reliable high-power fiber lasers in high volumes at a
lower cost per watt than their competitors.
• Vertically Integrated Development and Manufacturing: They develop and manufacture all of their key
components. They also produce mechanical parts developed especially for use with their lasers. That
vertical integration enhances the ability to meet customer requirements, reduce costs, accelerate and
focus development.
• Manufacturing Scale: They have invested extensively in their production capabilities allowing them to
deliver larger volumes of fiber lasers than competitors in short delivery cycles.
• Breadth and Depth of Expertise: They have extensive know-how in materials sciences. They operate
numerous application development centers worldwide and offer custom engineered systems solutions
which allow them to assist customers in improving their manufacturing using their deep experience with
fiber lasers.
• Broad Product Portfolio and Ability to Meet Customer Requirements: They offer a broad range of
standard and custom fiber lasers operating at various wavelengths and pulse durations and amplifiers,
enabling deployment in a wide variety of applications and end markets. In addition, IPG can further
drive market penetration through their complete customer welding solutions driven by recent
acquisitions of automated welding systems.
• Diverse Customer Base, End Markets and Applications: Their diverse customer base, end markets and
applications provide the company with many growth opportunities.
6
Financial analysis
Overview
The activity is still growing, even if the growth has been slowing down due to tensions in the macroeconomic
environment. As a matter of fact, the trade war between China and the US is affecting the business as we have
seen that China represents their biggest source of revenues. That points out an intrinsic problem to the business:
it is highly dependent on the macroeconomic environment. If one market is going through hard times, companies
will not spend as much on capital expenditures, but those expenses are the ones that make IPG’s sales. It is
particularly true for manufacturers using their products for materials processing, which includes general
manufacturing, automotive, other transportation, aerospace, heavy industry, consumer, semiconductor and
electronics.
Net sales grew from $648.0 million in 2013 to $1,460 million in 2018, representing a five-year compound annual
growth rate of approximately 17.6%. In summary, during that year IPG:
• Increased revenue by 4% thanks to higher sales in the US despite a weaker macroeconomic environment
affecting their two largest geographical markets China and Europe
• Deepened their penetration of laser processing in the cutting, welding, ablation, cladding and drilling
markets especially in the US
• Continued to gain sales from other laser and non-laser technologies
• Introduced new products, systems and accessories to expand their addressable markets
Basically, the company’s revenue increase is driven by:
• Efforts in performance and development of new products
• Increasing demand for the products, fueled by their superior performance and decreasing average cost
per watt of output power
• Increasing sales of fiber lasers for cutting and welding applications and the development of OEM
customers in these applications,
• Introduction of new products, including high power lasers
• Development of new applications for IPG products some of which displace non-laser technologies
Approximately 94% of IPG revenues in 2018 were from customers using their products for materials processing.
Although applications within materials processing are broad, the capital equipment market in general is cyclical
and historically has experienced sudden and severe downturns. For the foreseeable future, their operations will
continue to depend upon capital expenditures by customers for materials processing and will be subject to the
broader fluctuations of capital equipment spending.
IPG Photonics has a very large customers base due to their notoriety and to their products’ diversification.
That customer, geographic and end market diversification tends to minimize dependence on any single industry
or group of customers. However, one of their customers, Han's Laser, headquartered in China, accounted for
12%, 13% and 9% of their net sales in 2018, 2017 and 2016, respectively. No other customer accounted for 10%
or more of the company’s net sales in 2018, 2017 or 2016. We thus understand why a non-negligible part of their
revenues comes from China. But, given the ongoing trade war between the US, where they are based, and China,
an important country for their business, we can imagine a negative effect on the lasers sales.
Therefore, the apparent downward trend and slowing growth is a consequence of exogenic factors such as the
current situation of the markets it operates in, but the company did not suffer any change in its core structure,
and it is doing as good as it has historically been.
7
Margins
Gross margin grew from $554.5 million in 2013 to $800.3 million in 2018, representing a five-year compound
annual growth rate of approximately 7.6%. Their EBITDA margin has been relatively stable from 2014, around
41,5%. That is already a very high margin that no comparable company achieves. The industry average was
around 19% in 2018.
Depreciation & Amortization vs. Capital Expenditure
IPG Invested $160 million in property, plant, equipment and technology and $109 million in strategic acquisitions
in 2018 to keep their leader position in the industry. The CAPEX to Depreciation ratio that is around 2.0x reflects
that high investment in line with the long-term strategy of expansion. Majority of its capex are related to
expansion of manufacturing capacity.
Net working capital
2013-2018 2018
18%
CAGR
60%
Average
42%
Average
37%
Average
Revenue
Growth
Gross
Margin
EBITDA
Margin
EBIT
Margin
4%
0,4%
-2%
-5%
Figure 2: Margins evolution since 2013
2013 2014 2015 2016 2017 2018
CAPEX (in $m) -71 -90 -70 -126 -111 -159
D&A (in $m) 32 36 42 51 65 80
CAPEX/D&A 2,2x 2,5x 1,6x 2,5x 1,7x 2,0x
Figure 3: Capex to D&A evolution since 2013
2013 2014 2015 2016 2017 2018
Inventories (in $m) 173 171 204 239 308 404
DIO 97 81 83 87 80 101
Accounts receivable, net (in $m) 104 143 150 156 237 256
DSO 58 68 61 57 61 64
Accounts payable (in $m) -19 -17 -26 -28 -35 -36
DPO 236 192 303 84 434 463
Total Working Capital (in $m) 206 228 240 279 342 438
WC in days of Revenue 116 108 97 101 89 109
Figure 4: Evolution of Working capital components
8
We notice small changes in the components of the working capital for 2018:
• Inventory has increased lately; it is certainly due to the unfavorable macroeconomic environment we
have talked about earlier and the fact that IPG had been expecting higher demand and was ready to
deliver products. Indeed, IPG’s products are rigorous and need time-consuming testing procedures,
that is why IPG has always invested in inventory to be able to provide short delivery time to
customers.
• Accounts receivable have been following the same trend certainly due to the same reason. The
economic slowdown might not have been foreseen and it led to the increasing amount of AR.
• Account payable have been slightly decreasing certainly due to growth deceleration beginning to be
taken into account.
Looking at the global picture, the working capital has been globally stable these last years, around the target
fixed by IPG.
Cash and debt
They have a very low level of debt and a lot of cash and cash equivalent making their total net debt negative over
the years. That good financial situation gives them the opportunity to establish investment strategies to maintain
their competitiveness and leave no room for a competitor to challenge their leader position in the market.
Organic investment has always been their way to deliver the greatest return to shareholders. Since 2006 they
have spent approximately $900 million on capital expenditures and nearly $600 million on research and
development to grow the business. They have been able to keep injecting cash into the business thanks to their
ability to maintaining a strong balance sheet providing them maximum flexibility to proceed with value-creating
deals or moves during times of market disruption.
IPG returned $178 million to stockholders in stock buybacks in 2018. Their numerous share buybacks programs
show their use of excess in cash. They invest in their own value, buying back their shares sending to the market
a really good image and confidence in the fact that the earnings per share are going to increase. That virtuous
cycle continually increases IPG’s value.
-200
0
200
400
600
800
1000
1200
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Net Debt (in $m) Cash (in $m)
Figure 5: Evolution of Debt and Cash since 2006
9
ROE & ROCE
The important information here is that the ROE and the ROCE are high relatively and stable at their levels. We
have not taken into account the cash for the ROCE computation because of the negative level of debt. These high
levels allow a high profitability for shareholders which explains the high demand for it.
18,6% 20,3%
21,0%
18,5%
19,4%
19,1%
35,6%
37,8%
42,1%
38,0%
40,3%
36,4%
0%
10%
20%
30%
40%
50%
2013 2014 2015 2016 2017 2018
Return on equity Return on invested capital, excluding cash
Figure 6: ROE & ROCE evolution since 2013
10
Valuation
We used the three existing methods in order to compute our valuation. Our final result takes the three results
into account for a more reliable result. We detail the assumptions made for each method below.
Discounted Cash Flow
• We have taken the WACC as equal to the cost of equity (9,49%) because of IPG has an excess of cash
and thus a negative net debt amount.
• The other numbers rely on growth projected from the previous years except for 2019 where we
expect a 3% decrease of revenues due to the macroeconomic environment.
Trading comparable
• We have been able to compute the EBITDA multiple based on the comparable companies, working out
their average without extremal values. We found a 13,5x multiple that we have applied to the 2019E
EBITDA.
2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E
IPG Photonics USA 133,1 6393 5451 4,60x 4,46x 2,62x 15,6x 14,1x 11,1x 20,4x 17,5x 11,8x
Coherent USA 153 3324 3457 2,64x 2,47x n.a 15,3x 11,7x n.a 18,7x 15,0x n.a
Lumentum Holdings USA 57,5 4019 4117 2,75x 2,48x 2,31x 11,9x 7,6x 7,3x 19,6x 10,0x 9,0x
nLight USA 14 479 350 2,17x 1,92x 1,70x 28,1x 16,4x 11,0x n.a n.a n.a
Jenoptik Laser Germany 24,6 1411 1498 1,74x 1,68x 1,61x 11,3x 10,6x 10,0x 16,1x 14,8x 13,7x
Global Average 2,78x 2,60x 2,06x 16,4x 12,1x 9,9x 18,7x 14,3x 11,5x
Global Median 2,64x 2,47x 2,01x 15,3x 11,7x 10,5x 19,2x 14,9x 11,8x
SALES EBITDA EBIT N.I 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E
IPG Photonics 12,7% 18,4% 31,7% 18,2% -10,4% 3,1% 23,2% 29,6% 31,8% 32,6% 22,5% 25,5% 30,7%
Coherent n.a n.a n.a n.a -19,1% 7,2% n.a 17,3% 21,1% n.a 14,2% 16,5% n.a
Lumentum Holdings 9,1% 27,5% n.a n.a 17,5% 10,7% 7,5% 23,2% 32,6% 31,7% 14,0% 24,9% 25,6%
nLight 12,8% n.a n.a n.a -6,8% 12,7% 12,9% 7,7% 11,7% 15,4% -3,0% 1,4% 3,5%
Jenoptik Laser 4,2% 6,2% 8,6% 7,0% 3,1% 3,7% 4,6% 15,4% 15,8% 16,1% 10,8% 11,4% 11,8%
Global Average 9,7% 17,4% 20,2% 12,6% -3,1% 7,5% 12,1% 18,6% 22,6% 24,0% 11,7% 15,9% 17,9%
Global Median 10,9% 18,4% 20,2% 12,6% -6,8% 7,2% 10,2% 17,3% 21,1% 23,9% 14,0% 16,5% 18,7%
Multiple 13,5x Multiple 18,7x
2019E EBITDA (m$) 420 2019E EBIT (m$) 336
EV (m$) 5 687 EV (m$) 6 290
EBITDA VALUATION EBIT VALUATION
EBIT Margin2019-2021e CAGR
EV/EBITDA EV/EBIT
Company
SALES Growth EBITDA Margin
Company Country Price (LOC) Market Cap.
(EURm)
EV (EURm)
EV/SALES
2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E
IPG Pho onics USA 133,1 6393 5451 4,60x 4,46x 2,62x 15,6x 14,1x 11,1x 20,4x 17,5x 11,8x
Coherent USA 153 3324 3457 2,64x 2,47x n.a 15,3x 11,7x n.a 18,7x 15,0x n.a
Lumentum Holdings USA 57,5 4019 4117 2,75x 2,48x 2,31x 11,9x 7,6x 7,3x 19,6x 10,0x 9,0x
nLight USA 14 479 350 2,17x 1,92x 1,70x 28,1x 16,4x 11,0x n.a n.a n.a
Jenoptik Laser Germany 24,6 1411 1498 1,74x 1,68x 1,61x 11,3x 10,6x 10,0x 16,1x 14,8x 13,7x
Global Average 2,78x 2,60x 2,06x 16,4x 12,1x 9,9x 18,7x 14,3x 11,5x
Global Median 2,64x 2,47x 2,01x 15,3x 11,7x 10,5x 19,2x 14,9x 11,8x
SALES EBITDA EBIT N.I 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E
IPG Photonics 12,7% 18,4% 31,7% 18,2% -10,4% 3,1% 23,2% 29,6% 31,8% 32,6% 22,5% 25,5% 30,7%
Coherent n.a n.a n.a n.a -19,1% 7,2% n.a 17,3% 21,1% n.a 14,2% 16,5% n.a
Lumentum Holdings 9,1% 27,5% n.a n.a 17,5% 10,7% 7,5% 23,2% 32,6% 31,7% 14,0% 24,9% 25,6%
nLight 12,8% n.a n.a n.a -6,8% 12,7% 12,9% 7,7% 11,7% 15,4% -3,0% 1,4% 3,5%
Jenoptik Laser 4,2% 6,2% 8,6% 7,0% 3,1% 3,7% 4,6% 15,4% 15,8% 16,1% 10,8% 11,4% 11,8%
Global Average 9,7% 17,4% 20,2% 12,6% -3,1% 7,5% 12,1% 18,6% 22,6% 24,0% 11,7% 15,9% 17,9%
Global Median 10,9% 18,4% 20,2% 12,6% -6,8% 7,2% 10,2% 17,3% 21,1% 23,9% 14,0% 16,5% 18,7%
Multiple 13,5x Multiple 18,7x
2019E EBITDA (m$) 420 2019E EBIT (m$) 336
EV (m$) 5 687 EV (m$) 6 290
EBITDA VALUATION EBIT VALUATION
EBIT Margin2019-2021e CAGR
EV/EBITDA EV/EBIT
Company
SALES Growth EBITDA Margin
Company Country Price (LOC) Market Cap.
(EURm)
EV (EURm)
EV/SALES
In US$m 2018 2019 2020 2021 2022 2023 2024 CAGR 19-24 TV
Revenue 1 460 1 416 1 529 1 682 1 918 2 121 2 346 10,6% 2 595
% growth (3%) +8% +10% +14% +11% +11% +11%
EBIT 523 340 459 572 713 789 873 20,8% 965
% margin 36% 24% 30% 34% 37% 37% 37% 37%
D&A 80 85 92 101 153 170 188 17,2% 208
% of revenue 5,5% 6% 6% 6% 8% 8% 8% 8%
EBITDA 604 425 551 673 867 959 1060 20,1% 1173
% margin 41% 30% 36% 40% 45% 45% 45% 45%
CAPEX (159) (142) (153) (168) (230) (255) (282) 14,7% (205)
% of revenue 10,9% 10% 10% 10% 12% 12% 12% 12%
Income Tax (130) (92) (124) (154) (193) (213) (236) 20,8% (261)
Tax rate 24% 27% 27% 27% 27% 27% 27% 27%
Change in WC (96) (54) (58) (64) (73) (81) (90) 10,6% (99)
% of revenue 6,6% 4% 4% 4% 4% 4% 4% 4%
Unlevered free cash flow 218 137 215 286 371 410 454 27,0% 608
% of EBITDA 36% 32% 39% 43% 43% 43% 43% 52%
Period 1 2 3 4 5 6 6
Discount factor 0,91 0,83 0,76 0,70 0,64 0,58 0,58
Discounted cash flow 125 180 218 258 261 263
Valuation
PV of cash flow 1 305
PV of terminal value 4 811
EV 6 116
TV EV/EBITDA (x) 7,1
Actual Forecats
11
Transactions method
• We have analyzed the transaction in the fiber lasers sector, that occurred during the last 5 years.
• We found a 13,9x EBITDA multiple (higher than the one found with the precedent method which is
logical because here the premium paid during the transaction is taken into account).
Announced
Date Target Company Bidder Company
Enterprise
Value
(EURm)
Reported
Revenue
Multiple Y1
Reported
EBIT
Multiple Y1
Reported
EBITDA
Multiple Y1
05/06/2019
Gauss Lasers Tech. (Shanghai)
Co., Ltd. (51% Stake)
Wuhan Raycus Fiber Laser
Technologies Co., Ltd.
12/03/2018 Oclaro, Inc. Lumentum Holdings Inc 1253 2,6 13,0 11,0
19/06/2017
Innovative Laser Technologies,
Inc. IPG Photonics Corporation 36 1,8 Multiple 13,9x Multiple 10,8x
31/03/2016 Fianium Holdings Limited NKT Photonics A/S 27 3,0
2019E EBITDA (m$) 604 2019E EBIT (m$) 523
16/03/2016 Rofin-Sinar Technologies Inc. Coherent, 686 1,5 13,6 10,5
EV (m$) 8419 EV (m$) 5627
15/04/2015 JK Lasers SPI Lasers UK Ltd 28 1,6
10/09/2014
Lumentum Holdings Inc.
(80.1% Stake)
JDS Uniphase Corporation
(Shareholders) 1104 1,8 15,2
Average
2,0 13,9 10,8
Median
1,8 13,6 10,8
EBITDA VALUATION EBIT VALUATION
Announced
Date Target Company Bidder Company
Enterprise
Value
(EURm)
Reported
Revenue
Multiple Y1
Reported
EBIT
Multiple Y1
Reported
EBITDA
Multiple Y1
05/06/2019
Gauss Lasers Tech. (Shanghai)
Co., Ltd. (51% Stake)
Wuhan Raycus Fiber Laser
Technologies Co., Ltd.
12/03/2018 Oclaro, Inc. Lumentum Holdings Inc 1253 2,6 13,0 11,0
19/06/2017
Innovative Laser Technologies,
Inc. IPG Photonics Corporation 36 1,8 Multiple 13,9x Multiple 10,8x
31/03/2016 Fianium Holdings Limited NKT Photonics A/S 27 3,0
2019E EBITDA (m$) 604 2019E EBIT (m$) 523
16/03/2016 Rofin-Sinar Technologies Inc. Coherent, 686 1,5 13,6 10,5
EV (m$) 8419 EV (m$) 5627
15/04/2015 JK Lasers SPI Lasers UK Ltd 28 1,6
10/09/2014
Lumentum Holdings Inc.
(80.1% Stake)
JDS Uniphase Corporation
(Shareholders) 1104 1,8 15,2
Average
2,0 13,9 10,8
Median
1,8 13,6 10,8
EBITDA VALUATION EBIT VALUATION
12
Final Recommendation – Football Field
Our valuation results in a price of 144$ while the market is pricing IPG’s share at 143,42$ (as of October 11, 2019)
so we consider it underpriced. That cheap price is certainly due to the current macroeconomic environment that
is not ideal.
All of our considerations lead to our final recommendation: hold or buy as we see IPG Photonics as an innovative
leader in the fiber lasers sector, with strong financials despite a moving economic environment.
Enterprise Value ($m)
Share price ($)
4500 5000 5500 6000 6500 7000 7500 8000 8500 9000 9500
DCF
Comps
Transactions
6 760
80 100 120 140 160 180 200
DCF
Comps
Transactions
144136,7
13
Annexes
Figure 7: Sensitivities
Sensitivities
EV (m$)
6 116 7,5% 8,5% 9,5% 10,5% 11,5%
1,0% 7 544 9 134 9 134 7 544 5 508
1,5% 8 090 9 946 9 946 8 090 5 793
2,0% 8 735 10 939 10 939 8 735 6 116
2,5% 9 510 12 180 12 180 9 510 6 486
3,0% 10 457 13 778 13 778 10 457 6 912
Terminal EV/EBITDA (x)
7,1 7,5% 8,5% 9,5% 10,5% 11,5%
1,0% 8,1 9,5 9,5 8,1 6,2
1,5% 7,5 8,7 8,7 7,5 5,8
2,0% 7,5 8,7 8,7 7,5 5,8
2,5% 8,1 9,5 9,5 8,1 6,2
3,0% 9,6 11,8 11,8 9,6 7,1
PGR
WACC
PGR
WACC
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: W
or
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d
ou
t B
al
an
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S
he
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si
nc
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20
06
15
(in $ millions) 2013 2014 2015 2016 2017 2018
Net sales 648,0 769,8 901,3 1006,2 1408,9 1459,9
Cost of Sales 93,5 353,3 409,4 453,9 612,0 659,6
Gross profit 554,5 416,5 491,9 552,2 796,9 800,3
Sales & Marketing 7,9 30,6 31,9 38,4 49,8 57,8
Research & Development 13,8 53,4 63,3 78,6 100,9 122,8
General & Administrative 15,1 55,3 57,2 66,5 80,7 102,4
Loss (Gain) on FX -2,6 -6,6 -2,6 4,5 14,5 -6,2
Total Operating Expenses w/o D&A 34,3 132,8 149,8 187,9 245,8 276,9
Income from operations (EBIT) 520,3 283,8 342,0 364,3 551,1 523,4
Interest income/(expense) 0,1 -0,1 -0,3 1,3 0,7 9,1
Other Income/(expense) 0,1 0,8 -0,1 0,9 0,0 1,9
Income before provision for income taxes 520,4 284,5 341,6 366,6 551,9 534,4
Provision for Income taxes -23,3 -84,0 -99,6 -105,8 -204,3 -130,2
Net Income 497,1 200,4 242,0 260,7 347,6 404,2
Less: Net Income (Loss) Attributable to Noncontrolling Interests 0,0 0,0 -0,1 0,0 0,0 0,1
Net Income to IPG Photonics 497,1 200,4 241,9 260,7 347,6 404,3
Diluted income per common share:
Reported EPS 1,1 3,8 4,5 4,9 6,4 7,4
Weighted average diluted shares 52,9 52,8 53,4 53,8 54,7 54,7
D&A 31,5 35,6 42,4 51,5 64,6 80,3
EBITDA 551,8 319,4 384,5 415,8 615,7 603,7
Growth Rates:
Total Sales 15% 19% 17% 12% 40% 4%
EBIT 4% 30% 21% 7% 51% -5%
EBITDA 6% 28% 20% 8% 48% -2%
Net income 7% 28% 21% 7% 34% 16%
EPS (operating) 6% 28% 20% 7% 31% 16%
Margins & Ratios:
Gross Margin 85,6% 54,1% 54,6% 54,9% 56,6% 54,8%
Sales & Marketing 1,2% 4,0% 3,5% 3,8% 3,5% 4,0%
Research & Development 2,1% 6,9% 7,0% 7,8% 7,2% 8,4%
General & Administrative 2,3% 7,2% 6,3% 6,6% 5,7% 7,0%
EBITDA margin (%) 38,5% 41,5% 42,7% 41,3% 43,7% 41,4%
EBIT margin (%) 33,7% 36,9% 38,0% 36,2% 39,1% 35,9%
Net profit margin (%) 24,0% 25,9% 26,9% 25,8% 24,7% 27,5%
Return on equity 18,6% 20,3% 21,0% 18,5% 19,4% 19,1%
Return on invested capital 18,2% 19,7% 20,5% 18,0% 18,9% 18,2%
Return on invested capital, excluding cash 35,6% 37,8% 42,1% 38,0% 40,3% 36,4%
Tax rate 29,2% 29,5% 29,2% 28,9% 37,0% 24,4%
Segment Breakdown
Materials Processing 608,7 731,3 849,3 942,1 1332,6 1374,4
Y/Y Growth 23,7% 20,1% 16,1% 10,9% 41,4% 3,1%
Other 39,3 38,6 51,9 64,1 76,3 85,4
Y/Y Growth -44,2% -2,0% 34,7% 23,3% 19,1% 12,0%
Total 648,0 769,8 901,3 1006,2 1408,9 1459,9
Y/Y Growth 15,2% 18,8% 17,1% 11,6% 40,0% 3,6%
Geographic Breakdown
United States and other North America 113,1 111,8 131,5 141,2 165,4 202,7
Y/Y Growth 4,4% -1,1% 17,7% 7,3% 17,1% 22,6%
Germany 65,3 77,4 93,8 90,9 114,6 111,3
Y/Y Growth -27,3% 18,5% 21,2% -3,1% 26,1% -2,9%
Other including Eastern Europe/CIS 140,7 171,6 189,1 224,8 290,1 296,9
Y/Y Growth 26,9% 22,0% 10,2% 18,9% 29,0% 2,4%
China 192,1 246,4 311,9 358,5 621,3 629,1
Y/Y Growth 38,4% 28,3% 26,6% 14,9% 73,3% 1,3%
Japan 68,6 72,6 76,0 88,6 80,6 87,6
Y/Y Growth -1,4% 5,8% 4,8% 16,5% -9,0% 8,7%
Other Asia and Australia 65,0 85,4 95,5 100,1 131,5 127,3
Y/Y Growth 49,6% 31,4% 11,8% 4,8% 31,4% -3,2%
Rest of World 3,3 4,6 3,3 2,1 5,4 5,0
Y/Y Growth 95,0% 39,1% -27,5% -36,0% 154,5% -8,1%
Figure 9: Worked out Income Statement since 2013
Equity Report
Kenza BENNANI
BUY OR HOLD RECOMMENDATION
1
INTRODUCTION 2
HISTORY OF GROWTH 2
MANAGEMENT 3
BUSINESS MODEL 3
POSITIONING IN THE MARKET 4
MARKET OVERVIEW 4
IPG’S COMPETITIVE ADVANTAGES IN THAT GROWING MARKET 5
FINANCIAL ANALYSIS 6
OVERVIEW 6
MARGINS 7
DEPRECIATION & AMORTIZATION VS. CAPITAL EXPENDITURE 7
NET WORKING CAPITAL 7
CASH AND DEBT 8
ROE & ROCE 9
VALUATION: 10
DISCOUNTED CASH FLOW: 10
TRADING COMPARABLE: 10
TRANSACTIONS METHOD: 11
ANNEXES 13
2
Introduction
IPG Photonics Corporation is a listed and US-based manufacturer that produces high-power fiber lasers and
amplifiers as well as diode lasers. The Company develops and commercializes optical fiber-based lasers used in
a wide range of applications such as materials processing, telecommunications, and medical applications. It has
its headquarters in Oxford, Massachusetts, and has additional plants and offices throughout the world.
History of growth
Nearly all of IPG’s growth has been driven by organic investments and internal strategies. The company made
its brand out of launching innovative technology.
• 1990: NTO IRE-Polus was founded in Russia by Dr. Valentin Gapontsev a physicist and pioneer in the
field of fiber lasers.
• 1992: Adoption of the acronym IPG standing for IRE-Polus Group.
• 1993: Establishment of subsidiary in Europe.
• 1999: Beginning of operations in the US (Massachusetts)
• 2000: Obtention of $100 million in venture financing and creation of the parent company IPG
Photonics, majority owner of the German, Italian and Russian subsidiaries.
• 2002: Hard times as IPG went through a 58% decrease of revenues due to the evaporation of the
telecom capital spending. IPG decided to invest in the development of components they needed for
their lasers: it was a vertical integration strategy that led to significative reduction of costs making
them very competitive.
• 2006: Initial public offering after a very successful period resulting of their technologically innovative
products.
• 2018: Expansion to new markets (UV laser and robotic welding for example) through 4 acquisitions.
• January 2019: IPG Photonics Announces Agreement to Acquire Padtec Submarine Networks Division, a
Brazil-based submarine optical systems division of Padtec.
North America
13,9%
Germany
7,6%
Europe
20,3%
China
43,1%
Rest of World
15,1%
2018 Revenue
$ 1,460m
Figure 1: Geographical breakdown of revenues in 2018
3
Management
Business Model
IPG Photonics’ lasers are used for diverse applications, primarily in materials processing. They are incorporated
into manufacturing, medical and other systems by OEMs1, system integrators and end users. The most significant
materials processing applications are cutting, welding and brazing, marking and engraving. Other applications
include micro-processing, surface treatment, drilling, and annealing. For a wide variety of applications, lasers
provide superior performance and a more cost-effective solution than non-laser technologies.
High-power fiber lasers enable greater precision, higher-speed processing and more flexible production methods
that all lead to enhanced productivity within industrial and semiconductor applications mostly. IPG has
continually pioneered the development and commercial production of numerous unique technologies related to
fiber lasers combining deep materials science expertise and process know-how with a vertically integrated
business model.
The company produces all key components of its fiber laser technology in-house, enabling:
• better performing, higher quality solutions;
• fast product development;
• more efficient production methods with high yields throughout the process;
• industry-low product delivery times;
• rapid ongoing cost reduction with an industry-best margin profile.
1 Original Equipment Manufacturer
• Dr. Gapontsev founded IPG in 1990
• Dr. Gapontsev served as a senior scientist in laser material physics and
was the head of the laboratory at the Soviet Academy of Sciences’
Institute of Radio Engineering and Electronics in Moscow
• He holds a Ph.D. in Physics from the Moscow Institute of Physics and
Technology
Valentin P. Gapontsev, Ph.D.
Chairman and CEO
• Former technical director of IPG Germany (1995-2000)
• He was senior scientist and head of the optical communications
laboratory at the Russian academy of Science
• M.S. in Physics and Ph.D. in Quantum Electronics and a D.Sc. of Laser
Physics
Eugene Scherbakov
Managing Director, COO
• CFO since 2000
• Holds upper B.Sc. Honours degree in International Trade and
Development from LSE
• Member of the Institute of Chartered Accountants of Scotland
Timothy P.V. Mammen
CFO
4
Positioning in the market
Market overview
The future of the fiber laser market looks attractive with opportunities in material processing, instrumentation
and measurement, and other applications.
The market is highly competitive and characterized by rapidly changing technology, continuously evolving
customer requirements, and reduced average selling prices over time. Due to those parameters, the primary
competitive factors in this industry are:
• Product performance and reliability
• Quality and service support
• Price and value to the customer
• Ability to manufacture and deliver products on a timely basis
• Ability to achieve qualification for and integration into OEM systems
• Ability to meet customer specifications
• Ability to respond quickly to market demand and technological developments
Due to their historical presence and their constant development, IPG Photonics are competing favorably with
respect to these criteria. In the materials processing market, the competition is fragmented and includes a large
number of competitors: solid-state lasers, direct diode lasers, high power CO2, YAG and disc lasers. These include
public and private companies such as Coherent, Inc., Laserline GmbH, Lumentum Holdings Inc., Maxphotonics
Co., Ltd., nLight, Inc., Raycus Fiber Laser Technologies Co. Ltd., and Trumpf GmbH + Co. KG.
Even though the laser-based systems are representing a very thin part of the machine tools used today, this part
is continually growing over the years. Besides it is also noticeable that fiber lasers, IPG’s core business, currently
account for about 70% of annual demand for High-Power Industrial Laser sources. And globally this annual
demand keeps growing year after year. It is now around $2 billion and is expected to reach $2,5 billion in 4
years. That high-power industrial application is the most known today, but there are many other applications
that make the whole IPG Photonics target market a much bigger one, reaching $10 billion dollars in 2019.
5
We can categorize laser applications in two different categories: industrial applications and new laser
applications mainly used for microelectronics processing, defense, R&D, sensors and instruments, medical use,
and digital cinema and enterprise displays. All these applications lead to a $10 billion market in 2019, that is
expected to keep on increasing, reaching more than 12 billion in 2023.
IPG’s competitive advantages in that growing market
As pioneer in its sector, IPG Photonics has developed key strengths that turn into their competitive advantages;
• World's Leading Producer of Fiber Laser Technology: They have built leading positions in their various
end markets with a large and diverse customer base overtime. As a result of their technology
leadership, they can commercially manufacture reliable high-power fiber lasers in high volumes at a
lower cost per watt than their competitors.
• Vertically Integrated Development and Manufacturing: They develop and manufacture all of their key
components. They also produce mechanical parts developed especially for use with their lasers. That
vertical integration enhances the ability to meet customer requirements, reduce costs, accelerate and
focus development.
• Manufacturing Scale: They have invested extensively in their production capabilities allowing them to
deliver larger volumes of fiber lasers than competitors in short delivery cycles.
• Breadth and Depth of Expertise: They have extensive know-how in materials sciences. They operate
numerous application development centers worldwide and offer custom engineered systems solutions
which allow them to assist customers in improving their manufacturing using their deep experience with
fiber lasers.
• Broad Product Portfolio and Ability to Meet Customer Requirements: They offer a broad range of
standard and custom fiber lasers operating at various wavelengths and pulse durations and amplifiers,
enabling deployment in a wide variety of applications and end markets. In addition, IPG can further
drive market penetration through their complete customer welding solutions driven by recent
acquisitions of automated welding systems.
• Diverse Customer Base, End Markets and Applications: Their diverse customer base, end markets and
applications provide the company with many growth opportunities.
6
Financial analysis
Overview
The activity is still growing, even if the growth has been slowing down due to tensions in the macroeconomic
environment. As a matter of fact, the trade war between China and the US is affecting the business as we have
seen that China represents their biggest source of revenues. That points out an intrinsic problem to the business:
it is highly dependent on the macroeconomic environment. If one market is going through hard times, companies
will not spend as much on capital expenditures, but those expenses are the ones that make IPG’s sales. It is
particularly true for manufacturers using their products for materials processing, which includes general
manufacturing, automotive, other transportation, aerospace, heavy industry, consumer, semiconductor and
electronics.
Net sales grew from $648.0 million in 2013 to $1,460 million in 2018, representing a five-year compound annual
growth rate of approximately 17.6%. In summary, during that year IPG:
• Increased revenue by 4% thanks to higher sales in the US despite a weaker macroeconomic environment
affecting their two largest geographical markets China and Europe
• Deepened their penetration of laser processing in the cutting, welding, ablation, cladding and drilling
markets especially in the US
• Continued to gain sales from other laser and non-laser technologies
• Introduced new products, systems and accessories to expand their addressable markets
Basically, the company’s revenue increase is driven by:
• Efforts in performance and development of new products
• Increasing demand for the products, fueled by their superior performance and decreasing average cost
per watt of output power
• Increasing sales of fiber lasers for cutting and welding applications and the development of OEM
customers in these applications,
• Introduction of new products, including high power lasers
• Development of new applications for IPG products some of which displace non-laser technologies
Approximately 94% of IPG revenues in 2018 were from customers using their products for materials processing.
Although applications within materials processing are broad, the capital equipment market in general is cyclical
and historically has experienced sudden and severe downturns. For the foreseeable future, their operations will
continue to depend upon capital expenditures by customers for materials processing and will be subject to the
broader fluctuations of capital equipment spending.
IPG Photonics has a very large customers base due to their notoriety and to their products’ diversification.
That customer, geographic and end market diversification tends to minimize dependence on any single industry
or group of customers. However, one of their customers, Han's Laser, headquartered in China, accounted for
12%, 13% and 9% of their net sales in 2018, 2017 and 2016, respectively. No other customer accounted for 10%
or more of the company’s net sales in 2018, 2017 or 2016. We thus understand why a non-negligible part of their
revenues comes from China. But, given the ongoing trade war between the US, where they are based, and China,
an important country for their business, we can imagine a negative effect on the lasers sales.
Therefore, the apparent downward trend and slowing growth is a consequence of exogenic factors such as the
current situation of the markets it operates in, but the company did not suffer any change in its core structure,
and it is doing as good as it has historically been.
7
Margins
Gross margin grew from $554.5 million in 2013 to $800.3 million in 2018, representing a five-year compound
annual growth rate of approximately 7.6%. Their EBITDA margin has been relatively stable from 2014, around
41,5%. That is already a very high margin that no comparable company achieves. The industry average was
around 19% in 2018.
Depreciation & Amortization vs. Capital Expenditure
IPG Invested $160 million in property, plant, equipment and technology and $109 million in strategic acquisitions
in 2018 to keep their leader position in the industry. The CAPEX to Depreciation ratio that is around 2.0x reflects
that high investment in line with the long-term strategy of expansion. Majority of its capex are related to
expansion of manufacturing capacity.
Net working capital
2013-2018 2018
18%
CAGR
60%
Average
42%
Average
37%
Average
Revenue
Growth
Gross
Margin
EBITDA
Margin
EBIT
Margin
4%
0,4%
-2%
-5%
Figure 2: Margins evolution since 2013
2013 2014 2015 2016 2017 2018
CAPEX (in $m) -71 -90 -70 -126 -111 -159
D&A (in $m) 32 36 42 51 65 80
CAPEX/D&A 2,2x 2,5x 1,6x 2,5x 1,7x 2,0x
Figure 3: Capex to D&A evolution since 2013
2013 2014 2015 2016 2017 2018
Inventories (in $m) 173 171 204 239 308 404
DIO 97 81 83 87 80 101
Accounts receivable, net (in $m) 104 143 150 156 237 256
DSO 58 68 61 57 61 64
Accounts payable (in $m) -19 -17 -26 -28 -35 -36
DPO 236 192 303 84 434 463
Total Working Capital (in $m) 206 228 240 279 342 438
WC in days of Revenue 116 108 97 101 89 109
Figure 4: Evolution of Working capital components
8
We notice small changes in the components of the working capital for 2018:
• Inventory has increased lately; it is certainly due to the unfavorable macroeconomic environment we
have talked about earlier and the fact that IPG had been expecting higher demand and was ready to
deliver products. Indeed, IPG’s products are rigorous and need time-consuming testing procedures,
that is why IPG has always invested in inventory to be able to provide short delivery time to
customers.
• Accounts receivable have been following the same trend certainly due to the same reason. The
economic slowdown might not have been foreseen and it led to the increasing amount of AR.
• Account payable have been slightly decreasing certainly due to growth deceleration beginning to be
taken into account.
Looking at the global picture, the working capital has been globally stable these last years, around the target
fixed by IPG.
Cash and debt
They have a very low level of debt and a lot of cash and cash equivalent making their total net debt negative over
the years. That good financial situation gives them the opportunity to establish investment strategies to maintain
their competitiveness and leave no room for a competitor to challenge their leader position in the market.
Organic investment has always been their way to deliver the greatest return to shareholders. Since 2006 they
have spent approximately $900 million on capital expenditures and nearly $600 million on research and
development to grow the business. They have been able to keep injecting cash into the business thanks to their
ability to maintaining a strong balance sheet providing them maximum flexibility to proceed with value-creating
deals or moves during times of market disruption.
IPG returned $178 million to stockholders in stock buybacks in 2018. Their numerous share buybacks programs
show their use of excess in cash. They invest in their own value, buying back their shares sending to the market
a really good image and confidence in the fact that the earnings per share are going to increase. That virtuous
cycle continually increases IPG’s value.
-200
0
200
400
600
800
1000
1200
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Net Debt (in $m) Cash (in $m)
Figure 5: Evolution of Debt and Cash since 2006
9
ROE & ROCE
The important information here is that the ROE and the ROCE are high relatively and stable at their levels. We
have not taken into account the cash for the ROCE computation because of the negative level of debt. These high
levels allow a high profitability for shareholders which explains the high demand for it.
18,6% 20,3%
21,0%
18,5%
19,4%
19,1%
35,6%
37,8%
42,1%
38,0%
40,3%
36,4%
0%
10%
20%
30%
40%
50%
2013 2014 2015 2016 2017 2018
Return on equity Return on invested capital, excluding cash
Figure 6: ROE & ROCE evolution since 2013
10
Valuation
We used the three existing methods in order to compute our valuation. Our final result takes the three results
into account for a more reliable result. We detail the assumptions made for each method below.
Discounted Cash Flow
• We have taken the WACC as equal to the cost of equity (9,49%) because of IPG has an excess of cash
and thus a negative net debt amount.
• The other numbers rely on growth projected from the previous years except for 2019 where we
expect a 3% decrease of revenues due to the macroeconomic environment.
Trading comparable
• We have been able to compute the EBITDA multiple based on the comparable companies, working out
their average without extremal values. We found a 13,5x multiple that we have applied to the 2019E
EBITDA.
2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E
IPG Photonics USA 133,1 6393 5451 4,60x 4,46x 2,62x 15,6x 14,1x 11,1x 20,4x 17,5x 11,8x
Coherent USA 153 3324 3457 2,64x 2,47x n.a 15,3x 11,7x n.a 18,7x 15,0x n.a
Lumentum Holdings USA 57,5 4019 4117 2,75x 2,48x 2,31x 11,9x 7,6x 7,3x 19,6x 10,0x 9,0x
nLight USA 14 479 350 2,17x 1,92x 1,70x 28,1x 16,4x 11,0x n.a n.a n.a
Jenoptik Laser Germany 24,6 1411 1498 1,74x 1,68x 1,61x 11,3x 10,6x 10,0x 16,1x 14,8x 13,7x
Global Average 2,78x 2,60x 2,06x 16,4x 12,1x 9,9x 18,7x 14,3x 11,5x
Global Median 2,64x 2,47x 2,01x 15,3x 11,7x 10,5x 19,2x 14,9x 11,8x
SALES EBITDA EBIT N.I 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E
IPG Photonics 12,7% 18,4% 31,7% 18,2% -10,4% 3,1% 23,2% 29,6% 31,8% 32,6% 22,5% 25,5% 30,7%
Coherent n.a n.a n.a n.a -19,1% 7,2% n.a 17,3% 21,1% n.a 14,2% 16,5% n.a
Lumentum Holdings 9,1% 27,5% n.a n.a 17,5% 10,7% 7,5% 23,2% 32,6% 31,7% 14,0% 24,9% 25,6%
nLight 12,8% n.a n.a n.a -6,8% 12,7% 12,9% 7,7% 11,7% 15,4% -3,0% 1,4% 3,5%
Jenoptik Laser 4,2% 6,2% 8,6% 7,0% 3,1% 3,7% 4,6% 15,4% 15,8% 16,1% 10,8% 11,4% 11,8%
Global Average 9,7% 17,4% 20,2% 12,6% -3,1% 7,5% 12,1% 18,6% 22,6% 24,0% 11,7% 15,9% 17,9%
Global Median 10,9% 18,4% 20,2% 12,6% -6,8% 7,2% 10,2% 17,3% 21,1% 23,9% 14,0% 16,5% 18,7%
Multiple 13,5x Multiple 18,7x
2019E EBITDA (m$) 420 2019E EBIT (m$) 336
EV (m$) 5 687 EV (m$) 6 290
EBITDA VALUATION EBIT VALUATION
EBIT Margin2019-2021e CAGR
EV/EBITDA EV/EBIT
Company
SALES Growth EBITDA Margin
Company Country Price (LOC) Market Cap.
(EURm)
EV (EURm)
EV/SALES
2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E
IPG Pho onics USA 133,1 6393 5451 4,60x 4,46x 2,62x 15,6x 14,1x 11,1x 20,4x 17,5x 11,8x
Coherent USA 153 3324 3457 2,64x 2,47x n.a 15,3x 11,7x n.a 18,7x 15,0x n.a
Lumentum Holdings USA 57,5 4019 4117 2,75x 2,48x 2,31x 11,9x 7,6x 7,3x 19,6x 10,0x 9,0x
nLight USA 14 479 350 2,17x 1,92x 1,70x 28,1x 16,4x 11,0x n.a n.a n.a
Jenoptik Laser Germany 24,6 1411 1498 1,74x 1,68x 1,61x 11,3x 10,6x 10,0x 16,1x 14,8x 13,7x
Global Average 2,78x 2,60x 2,06x 16,4x 12,1x 9,9x 18,7x 14,3x 11,5x
Global Median 2,64x 2,47x 2,01x 15,3x 11,7x 10,5x 19,2x 14,9x 11,8x
SALES EBITDA EBIT N.I 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E
IPG Photonics 12,7% 18,4% 31,7% 18,2% -10,4% 3,1% 23,2% 29,6% 31,8% 32,6% 22,5% 25,5% 30,7%
Coherent n.a n.a n.a n.a -19,1% 7,2% n.a 17,3% 21,1% n.a 14,2% 16,5% n.a
Lumentum Holdings 9,1% 27,5% n.a n.a 17,5% 10,7% 7,5% 23,2% 32,6% 31,7% 14,0% 24,9% 25,6%
nLight 12,8% n.a n.a n.a -6,8% 12,7% 12,9% 7,7% 11,7% 15,4% -3,0% 1,4% 3,5%
Jenoptik Laser 4,2% 6,2% 8,6% 7,0% 3,1% 3,7% 4,6% 15,4% 15,8% 16,1% 10,8% 11,4% 11,8%
Global Average 9,7% 17,4% 20,2% 12,6% -3,1% 7,5% 12,1% 18,6% 22,6% 24,0% 11,7% 15,9% 17,9%
Global Median 10,9% 18,4% 20,2% 12,6% -6,8% 7,2% 10,2% 17,3% 21,1% 23,9% 14,0% 16,5% 18,7%
Multiple 13,5x Multiple 18,7x
2019E EBITDA (m$) 420 2019E EBIT (m$) 336
EV (m$) 5 687 EV (m$) 6 290
EBITDA VALUATION EBIT VALUATION
EBIT Margin2019-2021e CAGR
EV/EBITDA EV/EBIT
Company
SALES Growth EBITDA Margin
Company Country Price (LOC) Market Cap.
(EURm)
EV (EURm)
EV/SALES
In US$m 2018 2019 2020 2021 2022 2023 2024 CAGR 19-24 TV
Revenue 1 460 1 416 1 529 1 682 1 918 2 121 2 346 10,6% 2 595
% growth (3%) +8% +10% +14% +11% +11% +11%
EBIT 523 340 459 572 713 789 873 20,8% 965
% margin 36% 24% 30% 34% 37% 37% 37% 37%
D&A 80 85 92 101 153 170 188 17,2% 208
% of revenue 5,5% 6% 6% 6% 8% 8% 8% 8%
EBITDA 604 425 551 673 867 959 1060 20,1% 1173
% margin 41% 30% 36% 40% 45% 45% 45% 45%
CAPEX (159) (142) (153) (168) (230) (255) (282) 14,7% (205)
% of revenue 10,9% 10% 10% 10% 12% 12% 12% 12%
Income Tax (130) (92) (124) (154) (193) (213) (236) 20,8% (261)
Tax rate 24% 27% 27% 27% 27% 27% 27% 27%
Change in WC (96) (54) (58) (64) (73) (81) (90) 10,6% (99)
% of revenue 6,6% 4% 4% 4% 4% 4% 4% 4%
Unlevered free cash flow 218 137 215 286 371 410 454 27,0% 608
% of EBITDA 36% 32% 39% 43% 43% 43% 43% 52%
Period 1 2 3 4 5 6 6
Discount factor 0,91 0,83 0,76 0,70 0,64 0,58 0,58
Discounted cash flow 125 180 218 258 261 263
Valuation
PV of cash flow 1 305
PV of terminal value 4 811
EV 6 116
TV EV/EBITDA (x) 7,1
Actual Forecats
11
Transactions method
• We have analyzed the transaction in the fiber lasers sector, that occurred during the last 5 years.
• We found a 13,9x EBITDA multiple (higher than the one found with the precedent method which is
logical because here the premium paid during the transaction is taken into account).
Announced
Date Target Company Bidder Company
Enterprise
Value
(EURm)
Reported
Revenue
Multiple Y1
Reported
EBIT
Multiple Y1
Reported
EBITDA
Multiple Y1
05/06/2019
Gauss Lasers Tech. (Shanghai)
Co., Ltd. (51% Stake)
Wuhan Raycus Fiber Laser
Technologies Co., Ltd.
12/03/2018 Oclaro, Inc. Lumentum Holdings Inc 1253 2,6 13,0 11,0
19/06/2017
Innovative Laser Technologies,
Inc. IPG Photonics Corporation 36 1,8 Multiple 13,9x Multiple 10,8x
31/03/2016 Fianium Holdings Limited NKT Photonics A/S 27 3,0
2019E EBITDA (m$) 604 2019E EBIT (m$) 523
16/03/2016 Rofin-Sinar Technologies Inc. Coherent, 686 1,5 13,6 10,5
EV (m$) 8419 EV (m$) 5627
15/04/2015 JK Lasers SPI Lasers UK Ltd 28 1,6
10/09/2014
Lumentum Holdings Inc.
(80.1% Stake)
JDS Uniphase Corporation
(Shareholders) 1104 1,8 15,2
Average
2,0 13,9 10,8
Median
1,8 13,6 10,8
EBITDA VALUATION EBIT VALUATION
Announced
Date Target Company Bidder Company
Enterprise
Value
(EURm)
Reported
Revenue
Multiple Y1
Reported
EBIT
Multiple Y1
Reported
EBITDA
Multiple Y1
05/06/2019
Gauss Lasers Tech. (Shanghai)
Co., Ltd. (51% Stake)
Wuhan Raycus Fiber Laser
Technologies Co., Ltd.
12/03/2018 Oclaro, Inc. Lumentum Holdings Inc 1253 2,6 13,0 11,0
19/06/2017
Innovative Laser Technologies,
Inc. IPG Photonics Corporation 36 1,8 Multiple 13,9x Multiple 10,8x
31/03/2016 Fianium Holdings Limited NKT Photonics A/S 27 3,0
2019E EBITDA (m$) 604 2019E EBIT (m$) 523
16/03/2016 Rofin-Sinar Technologies Inc. Coherent, 686 1,5 13,6 10,5
EV (m$) 8419 EV (m$) 5627
15/04/2015 JK Lasers SPI Lasers UK Ltd 28 1,6
10/09/2014
Lumentum Holdings Inc.
(80.1% Stake)
JDS Uniphase Corporation
(Shareholders) 1104 1,8 15,2
Average
2,0 13,9 10,8
Median
1,8 13,6 10,8
EBITDA VALUATION EBIT VALUATION
12
Final Recommendation – Football Field
Our valuation results in a price of 144$ while the market is pricing IPG’s share at 143,42$ (as of October 11, 2019)
so we consider it underpriced. That cheap price is certainly due to the current macroeconomic environment that
is not ideal.
All of our considerations lead to our final recommendation: hold or buy as we see IPG Photonics as an innovative
leader in the fiber lasers sector, with strong financials despite a moving economic environment.
Enterprise Value ($m)
Share price ($)
4500 5000 5500 6000 6500 7000 7500 8000 8500 9000 9500
DCF
Comps
Transactions
6 760
80 100 120 140 160 180 200
DCF
Comps
Transactions
144136,7
13
Annexes
Figure 7: Sensitivities
Sensitivities
EV (m$)
6 116 7,5% 8,5% 9,5% 10,5% 11,5%
1,0% 7 544 9 134 9 134 7 544 5 508
1,5% 8 090 9 946 9 946 8 090 5 793
2,0% 8 735 10 939 10 939 8 735 6 116
2,5% 9 510 12 180 12 180 9 510 6 486
3,0% 10 457 13 778 13 778 10 457 6 912
Terminal EV/EBITDA (x)
7,1 7,5% 8,5% 9,5% 10,5% 11,5%
1,0% 8,1 9,5 9,5 8,1 6,2
1,5% 7,5 8,7 8,7 7,5 5,8
2,0% 7,5 8,7 8,7 7,5 5,8
2,5% 8,1 9,5 9,5 8,1 6,2
3,0% 9,6 11,8 11,8 9,6 7,1
PGR
WACC
PGR
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(1
7
14
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(2
6
31
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(2
8
04
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(3
5
10
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(3
6
30
3)
Ac
cr
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d
co
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-
-
-
-
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(2
1
45
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(2
1
97
2)
(2
5
72
7)
(3
1
67
3)
(3
3
61
7)
(4
3
76
1)
(6
3
20
3)
(6
0
10
7)
C
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re
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-
-
-
-
-
(1
5
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(1
7
17
4)
(1
8
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(1
6
60
5)
(2
1
52
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(3
4
57
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(4
7
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(4
6
70
3)
C
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-
-
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(6
1
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)
(7
8
38
)
(7
7
24
)
(9
4
89
)
(1
4
87
1)
(1
5
71
1)
(2
5
05
9)
(2
3
10
6)
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co
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xe
s
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(8
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)
(9
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(5
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(2
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)
(1
1
59
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(2
1
23
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(4
2
44
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(1
5
21
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(2
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(3
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(2
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(4
3
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(4
4
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(7
3
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(6
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(5
6
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)
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8
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4
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(2
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3
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6
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12
6
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19
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93
1
23
1
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5
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8
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7
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4
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4
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6
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5
49
5
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2
59
1
21
6
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91
3
95
5
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2
Lia
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(i
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Sh
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15
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6
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3
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7
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7
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1
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9
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1
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02
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2
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5
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8
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te
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s
2
82
7
4
45
5
5
12
7
14
1
20
3
28
7
-
-
-
1
13
7
16
6
-
68
6
R
ed
ee
m
ab
le
N
on
co
nt
ro
lli
ng
In
te
re
st
s
-
-
-
-
24
9
03
46
1
23
-
-
-
-
-
-
-
N
et
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t
(3
4
69
7)
(1
3
70
4)
(1
2
18
4)
(5
8
91
3)
(1
24
0
42
)
(1
81
2
89
)
(3
66
0
92
)
(4
32
8
14
)
(4
86
5
19
)
(6
69
4
49
)
(7
89
8
11
)
(1
0
67
1
75
)
(9
99
4
12
)
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na
nc
ia
l D
eb
t
40
9
70
31
2
18
39
0
99
24
0
07
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8
18
24
3
96
17
9
61
15
9
62
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6
31
19
6
67
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8
23
48
9
82
45
3
78
C
as
h
(7
5
66
7)
(4
4
92
2)
(5
1
28
3)
(8
2
92
0)
(1
47
8
60
)
(2
05
6
85
)
(3
84
0
53
)
(4
48
7
76
)
(5
22
1
50
)
(6
89
1
16
)
(8
30
6
34
)
(1
1
16
1
57
)
(1
0
44
7
90
)
Lia
bi
lit
ie
s
12
6
72
4
19
0
93
1
23
1
11
5
19
7
65
8
21
7
66
4
30
8
44
4
37
6
83
5
49
5
15
5
56
0
04
2
59
1
21
6
76
7
91
3
95
5
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1
20
6
82
2
Fi
gu
re
8
: W
or
ke
d
ou
t B
al
an
ce
S
he
et
si
nc
e
20
06
15
(in $ millions) 2013 2014 2015 2016 2017 2018
Net sales 648,0 769,8 901,3 1006,2 1408,9 1459,9
Cost of Sales 93,5 353,3 409,4 453,9 612,0 659,6
Gross profit 554,5 416,5 491,9 552,2 796,9 800,3
Sales & Marketing 7,9 30,6 31,9 38,4 49,8 57,8
Research & Development 13,8 53,4 63,3 78,6 100,9 122,8
General & Administrative 15,1 55,3 57,2 66,5 80,7 102,4
Loss (Gain) on FX -2,6 -6,6 -2,6 4,5 14,5 -6,2
Total Operating Expenses w/o D&A 34,3 132,8 149,8 187,9 245,8 276,9
Income from operations (EBIT) 520,3 283,8 342,0 364,3 551,1 523,4
Interest income/(expense) 0,1 -0,1 -0,3 1,3 0,7 9,1
Other Income/(expense) 0,1 0,8 -0,1 0,9 0,0 1,9
Income before provision for income taxes 520,4 284,5 341,6 366,6 551,9 534,4
Provision for Income taxes -23,3 -84,0 -99,6 -105,8 -204,3 -130,2
Net Income 497,1 200,4 242,0 260,7 347,6 404,2
Less: Net Income (Loss) Attributable to Noncontrolling Interests 0,0 0,0 -0,1 0,0 0,0 0,1
Net Income to IPG Photonics 497,1 200,4 241,9 260,7 347,6 404,3
Diluted income per common share:
Reported EPS 1,1 3,8 4,5 4,9 6,4 7,4
Weighted average diluted shares 52,9 52,8 53,4 53,8 54,7 54,7
D&A 31,5 35,6 42,4 51,5 64,6 80,3
EBITDA 551,8 319,4 384,5 415,8 615,7 603,7
Growth Rates:
Total Sales 15% 19% 17% 12% 40% 4%
EBIT 4% 30% 21% 7% 51% -5%
EBITDA 6% 28% 20% 8% 48% -2%
Net income 7% 28% 21% 7% 34% 16%
EPS (operating) 6% 28% 20% 7% 31% 16%
Margins & Ratios:
Gross Margin 85,6% 54,1% 54,6% 54,9% 56,6% 54,8%
Sales & Marketing 1,2% 4,0% 3,5% 3,8% 3,5% 4,0%
Research & Development 2,1% 6,9% 7,0% 7,8% 7,2% 8,4%
General & Administrative 2,3% 7,2% 6,3% 6,6% 5,7% 7,0%
EBITDA margin (%) 38,5% 41,5% 42,7% 41,3% 43,7% 41,4%
EBIT margin (%) 33,7% 36,9% 38,0% 36,2% 39,1% 35,9%
Net profit margin (%) 24,0% 25,9% 26,9% 25,8% 24,7% 27,5%
Return on equity 18,6% 20,3% 21,0% 18,5% 19,4% 19,1%
Return on invested capital 18,2% 19,7% 20,5% 18,0% 18,9% 18,2%
Return on invested capital, excluding cash 35,6% 37,8% 42,1% 38,0% 40,3% 36,4%
Tax rate 29,2% 29,5% 29,2% 28,9% 37,0% 24,4%
Segment Breakdown
Materials Processing 608,7 731,3 849,3 942,1 1332,6 1374,4
Y/Y Growth 23,7% 20,1% 16,1% 10,9% 41,4% 3,1%
Other 39,3 38,6 51,9 64,1 76,3 85,4
Y/Y Growth -44,2% -2,0% 34,7% 23,3% 19,1% 12,0%
Total 648,0 769,8 901,3 1006,2 1408,9 1459,9
Y/Y Growth 15,2% 18,8% 17,1% 11,6% 40,0% 3,6%
Geographic Breakdown
United States and other North America 113,1 111,8 131,5 141,2 165,4 202,7
Y/Y Growth 4,4% -1,1% 17,7% 7,3% 17,1% 22,6%
Germany 65,3 77,4 93,8 90,9 114,6 111,3
Y/Y Growth -27,3% 18,5% 21,2% -3,1% 26,1% -2,9%
Other including Eastern Europe/CIS 140,7 171,6 189,1 224,8 290,1 296,9
Y/Y Growth 26,9% 22,0% 10,2% 18,9% 29,0% 2,4%
China 192,1 246,4 311,9 358,5 621,3 629,1
Y/Y Growth 38,4% 28,3% 26,6% 14,9% 73,3% 1,3%
Japan 68,6 72,6 76,0 88,6 80,6 87,6
Y/Y Growth -1,4% 5,8% 4,8% 16,5% -9,0% 8,7%
Other Asia and Australia 65,0 85,4 95,5 100,1 131,5 127,3
Y/Y Growth 49,6% 31,4% 11,8% 4,8% 31,4% -3,2%
Rest of World 3,3 4,6 3,3 2,1 5,4 5,0
Y/Y Growth 95,0% 39,1% -27,5% -36,0% 154,5% -8,1%
Figure 9: Worked out Income Statement since 2013
