Investment case: Our DCF valuation points to a fair value of €28.50 per share. Corrected for the value of its 34.8%
stake in Oman Cable, which is currently worth €121.9m (€2.90 per Draka share) and the net present value of its tax
loss carry forward of €80m (or €1.90 per share), Draka is trading at an EV/EBITDA of 3.6x and 3.2x for FY08 and FY09
respectively, implying a discount of 27% to its European peer group (Nexans, Prysmian, Leoni). Hence, also the peer
group analysis confirms that the shares are trading at an unjustified discount.
We believe there are several triggers for the share: 1) The current situation of excess production capacity in optical
fibre turning into a situation of capacity shortage will result in optical fibre prices recovering from their current all-time
low levels in the course of FY09. As the world’s second-largest optical fibre manufacturer after Corning, Draka will
derive benefit from this. 2) Additional (triple S) cost-cutting measures in Industry & Specialty cables should lift divisional
margins from the current 6.2% to more than 7.8% which is currently being achieved by its low voltage Energy and
Infrastructure business. During the 1H08 analyst meeting management confirmed that the operating margins of
Specialty Cable should be at the higher end of the 5-10% range. 3) A better allocation of production capacity in its oil &
marine subdivision in 2H08 will positively impact the sales mix as of 2H08. Additionally, new available capacity for the
production of cable for wind turbines will increase the proportion of high-margin products in the sales mix, thereby
positively impacting operating margins.