Dialog Semiconductor: A whole new profile: more diversified but also more risky

After yesterday’s conference call, we have no other choice but to adopt a more cautious approach. We estimate the company’s guidance of a targeted EBIT margin of 23-25% is optimistic regarding a “new co” pro-forma operating margin of 18% on FY14 figures. In addition, we believe the target of USD150m of synergies within two years is aggressive and we prefer to adopt a more cautious scenario implying synergies activated over a 3-year period. Regarding the new company profile, including a weaker financial structure, new execution risks of integration, and a more cyclical business, we update our valuation methods with a higher beta in our DCF (1.6 vs. 1.2) and a 15% discount regarding peers comparison. We believe the short term brings more risks than opportunities, and adopt a Neutral recommendation and a lower FV of EUR39. As a consequence, we remove Dialog from our Top Picks list.

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