Italy

Bulletin Optics

22 March 2001

Paola Durante
(39) 02 6553 0891
Marcolin
Antoine Colonna
(33) 1 5365 5815 Still No Good News NEUTRAL*
Sally Ronald
Specialist Sales
(44) 20 7772 1539 Reason for Report: Reducing 2001-02 Forecasts Long Term
ACCUMULATE

Price: EUR1.59 Highlights

Estimates (Dec) 2000A 2001E 2002E 2003E • Reiterate intermediate-term Neutral rating.
Turnover 119.6 158.4 170.8 184.2 Marcolin’s undemanding valuations reflect
EBIT 7.9 10.8 12.0 13.4 the continued lack of a clear growth strategy.
Net Income After Extraord. 4.1 5.0 5.3 6.0
Net Income Restated (1) 4.9 5.8 6.0 6.8 • Marcolin’s 2000 net profits, of EUR4.16mn,
EPS 0.09 0.11 0.12 0.13
EPS Restated (1) 0.11 0.13 0.13 0.15 were on a par with 1999’s and 11% lower
P/E 17.5 14.4 13.7 12.0 than our forecasts.
P/E Restated (1) 14.8 12.5 12.0 10.7
Price/Cash Flow 7.4 6.5 6.4 6.0 • We accordingly downgrade our 2001-02
EV/EBITDA 5.1 4..0 3.4 3.2
EV/Sales 0.7 0.6 0.5 0.4
forecasts, excluding the newly acquired
Creative Optics.
Opinion & Financial Data
Investment Opinion – Local: D-3-2-7
• Our revised 2001 consolidated figures include
Mkt. Value / Shares Outstanding (mn): 72 / 45.38 the integration of Creative Optics, acquired in
Book Value/Share (Dec-00): 1.501 March 2001.
Price/Book Ratio: 1.06
ROE 2001E Average: 7.1% • We are now looking for a 3-year sales CAGR
Net Debt/Net Equity: -1.1%
Est. 5 Year EPS Growth: 15%
of 15% and net profit growth of 13% per year
2001E P/E Rel. to Mkt: 71% on average.
Stock Data • 2000A sales grew 25% to EUR 119.6mn in line
52-Week Range – Local: 2.07-1.53 with our forecasts. Sales benefited from the
Symbol / Exchange – Local: MRCSF / Milan full consolidation of Cebe (acquired in July
Bloomberg / Reuters: MCC IM / MCL.MI 1999).
Exchange Rate: EUR1.11/USD
Free Float: 31% • 2000 EBIT profit declined to 6.7% of sales
(1) Before Goodwill amortisation (versus 8.6% in 1999) almost exactly in line
For full investment opinion definitions, see footnotes. with our forecast of 6.8%.
All figures are in Euro except where otherwise noted.
Stock Performance
x10-3
2.40 7.50

2.30 7.00

2.20
6.50

2.10
6.00

2.00
5.50
1.90

5.00
1.80

4.50
1.70

1.60 4.00

1.50 3.50
1998 1999 2000 2001
I:MCL
I:MCL/DJEURST~EL(R.H.SCALE)

Source: Datastream
Merrill Lynch & Co. 1mth 3mths 12mths
Global Securities Research & Economics Group Absolute % -2.5 -0.3 -11.4
Global Fundamental Equity Research Department Relative to DJ Euro Stoxx % +5.3 +10.3 +15.9
RC#10108126
Marcolin – 22 March 2001

What Has Changed?

Table 1: Marcolin Discount to Peers on P/E ..
Marcolin’s FY 2000 results above the EBIT level were
in line with our estimates, while net profit was 11% P/E PEG
lower than expected. We reiterate our intermediate- Rating Market Cap 2001E 2002E 3Y
term Neutral stance. Luxottica /LUX C-1-1-7 7420.2 17.1 14.6 0.6
Safilo /SAFLF C-3-1-7 1075.5 19.8 17.7 1.4
We have reduced our forecasts for Marcolin’s organic
DeRigo /DR D-3-1-7 382.5 14.4 11.2 0.3
growth. We also include in our 2001 numbers the
Marcolin D-3-2-7 70.6 12.3 11.7 1.4
consolidation of Creative Optics, which Marcolin Average Frames Prod. 15.9 13.8 0.9
recently acquired in the US.
Source: Merrill Lynch Estimates
We are now looking for a 3-year sales CAGR of 15%,
EBIT CAGR of 19% and net profit CAGR of 13%.

Destroying Shareholder Value Table 2:…and EV/EBITDA Justified..

Despite Marcolin’s undemanding valuations, we reiterate EV/EBITDA EV/EBITDAG
our intermediate-term Neutral recommendation on the Rating Market Cap 2001E 2002E 3Y
shares for the following four reasons: Luxottica C-1-1-7 7420.2 11.6 9.9 0.4
1. Management has still to prove that it has a clear Safilo C-3-1-7 1075.5 15.5 13.8 1.1
DeRigo D-3-1-7 383.1 5.2 4.1 0.1
growth strategy in mind;
Marcolin D-3-2-7 70.6 4.2 3.5 0.3
2. more than 50% of the group’s sales are generated by Average Frames Prod. 9.1 7.8 0.5
its Dolce & Gabbana licence; Source: Merrill Lynch Estimates
3. communication to the financial community is poor;
and
4. finally but most importantly, since the IPO, Marcolin
has destroyed value for shareholders. Table 3: …by its No Value Creation
Net ROCE (ML) ROCE - WACC
(EUR ) Rating 2001E 2002E 2001E 2002E
Luxottica C-1-1-7 18.7 18.7 10.3 10.3
Safilo C-3-1-7 17.9 19.2 8.7 10.0
DeRigo D-3-1-7 9.6 11.9 1.2 3.5
Marcolin D-3-2-7 5.6 6.4 -3.8 -2.9
Source: Merrill Lynch Estimates

[SAFLF, MRCSF] The securities of the company are not listed but trade over-the-counter in the United States. In the US, retail sales and/or distribution of this report may be made only in states where these securities are
exempt from registration or have been qualified for sale. MLPF&S or its affiliates usually make a market in the securities of this company.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -
Reduce, 5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
Copyright 2001 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). All rights reserved. Any unauthorized use or disclosure is prohibited. This report has been prepared and issued by MLPF&S and/or one of its
affiliates and has been approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is regulated by SFA; has been considered and distributed in Australia by Merrill Lynch Equities
(Australia) Limited (ACN 006 276 795), a licensed securities dealer under the Australian Corporations Law; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Ltd, which is regulated by the Hong Kong SFC; and is distributed
in Singapore by Merrill Lynch International Bank Ltd (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd, which are regulated by the Monetary Authority of Singapore. The information herein was obtained from various sources;
we do not guarantee its accuracy or completeness. Additional information available.
Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments").
MLPF&S and its affiliates may trade for their own accounts as odd-lot dealer, market maker, block positioner, specialist and/or arbitrageur in any securities of this issuer(s) or in related investments, and may be on the opposite side
of public orders. MLPF&S, its affiliates, directors, officers, employees and employee benefit programs may have a long or short position in any securities of this issuer(s) or in related investments. MLPF&S or its affiliates may from
time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report.
This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific
person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that
statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive
back less than originally invested. Past performance is not necessarily a guide to future performance.
Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced
by the currency of the underlying security, effectively assume currency risk.