Listed european technology companies

Listed European Technology Companies – Clipperton Finance Newsletter #3 - Jul.10-Mar.111

MARKET DATA HIGHLIGHT - JUL.10-MAR.11

Listed European Technology Companies Newsletter #3 - Jul.10-Mar.11

• European Tech stocks (CTI) in line with the overall 20% gains of the

major European indices

• NASDAQ strongly outperforms CTI: high valuations of US tech

companies not fully tranposed in Europe

• Small Cap & Mid Cap Tech companies keep on outperforming Large

Caps

• Hardware/Equipment posts by far the best sectorial performance,

supported by strong positive evolution of Large Caps such as Alcatel

Lucent (+100%), Nexans (+42%) and STMicroelectronics (+37%)

companies and deals covered

Vivendi ! p. 3

Ubisoft ! p. 3

Delticom ! p. 4

Sage ! p. 5

Dassault Systèmes ! p. 5

Misys acquires Sophis ! p. 6

0 10 20 30 40 50 60 70 80

CTI - Life Sciences

CTI - Cleantech

CTI - Software

CTI - Telecom Operators

CTI - Media/Web

CTI - IT Services

CTI - Hardware/Equipment 61%

30%

23%

17%

14%

21%

CTI - Large Cap

CTI - Mid Cap

CTI - Small Cap

19%

22%

29%

CAC40

Footsie 100

NASDAQ 100

Dax

CTI

1%

0%

-7%

-9%

-13%

5%

0 5 10 15 20 25 30 35

CAC 40

DAX

CTI

Footsie 100

NASDAQ 100 35%

23%

20%

20%

19%

0 10 20 30 40 50 60 70 80

CTI - Life Sciences

CTI - Cleantech

CTI - Software


CTI - Media/Web

CTI - IT Services


30%

23%

17%

14%

21%

CTI - Large Cap

CTI - Mid Cap

CTI - Small Cap

19%

22%

29%

CAC40

Footsie 100

NASDAQ 100

Dax

CTI

1%

0%

-7%

-9%

-13%

5%

0 5 10 15 20 25 30 35

CAC 40

DAX

CTI

Footsie 100

NASDAQ 100 35%

23%

20%

20%

19%

0 10 20 30 40 50 60 70 80

CTI - Life Sciences

CTI - Cleantech

CTI - Software


CTI - Media/Web

CTI - IT Services


30%

23%

17%

14%

21%

CTI - Large Cap

CTI - Mid Cap

CTI - Small Cap

19%

22%

29%

CAC40

Footsie 100

NASDAQ 100

Dax

CTI

1%

0%

-7%

-9%

-13%

5%

0 5 10 15 20 25 30 35

CAC 40

DAX

CTI

Footsie 100

NASDAQ 100 35%

23%

20%

20%

19%

The CTI (Clipperton Technology Index) is composed of the 684 technology companies listed in the UK (Main Market and AIM), France (Eurolist A, B, C and Alternext), and Germany (Regulated). Full details on CTI are shown at the end of this document

Evolution of main indices and CTI - Jul.10-Mar11


1. market data

CAC 40 DAXFOOTSIE 100CTI NASDAQ 100

Base 100 (Jul 1, 2010)

Jul-10

Aug-10

Oct-10

Nov-10

Jan-11

Feb-1

1

Sep-1

0

Dec-10

Mar-

11

90

100

110

120

130

140After a stable H1-2010 period (see Newsletter # 2), all indices showed a strong and steady performance to the end of March 2011. In Europe, the major indices (FTSE, CAC 40 and DAX) followed the same trends over the period, gaining up to 20pts in late March 2011 compared to early July 2010. The CTI, which was less affected by the worries about Greek sovereign debt (see Newsletter # 2), was on track with the “recovery” growth of the main European indices. In the US, the NASDAQ outperformed all European indices, especially since September 2010, and posted a 35pts increase from July 2010. The NASDAQ has seen the comeback of large IPOs while tech listings in Europe remain scarce.

Evolution of main indices and CTI

CTI-SMALL CAPCTI-MID CAPCTI-LARGE CAP

Base 100 (Jul 1, 2010)

90

100

110

120

130

140

Jul-10

Aug-10

Oct-10

Nov-10

Jan-11

Feb-1

1

Sep-1

0

Dec-10

Mar-

11

Large-caps (>€1bn market capitalisation) were outperformed by both small-caps (market capitalisation <€100m) and mid-caps (€100m-€1,000m). Mid-caps were the standout and strongest performers and increased 29 pts in the 9 month period, whilst small-caps increased 21 pts and large-caps 19pts. Mid-caps, as well as small-caps were more affected by the Sub-prime crisis during the September 2008-March 2009 period (see newsletter # 1); catch-up was overall done by the end of H1-2011.

CTI evolution by size of companies

Sectors’ Evolution and Valuation

Share Price Evolution

EBITDA MultipleEV as of March 31, 2011

Jul.10-Mar.11 EV/EBITDA10 EV/EBITDA11

Hardware/Equipment 61% 8.1x 6.7x

Telecom Operators 21% 5.3x 5.2x

IT Services 30% 7.9x 6.9x

Software 17% 10.8x 9.4x

Media/Web 23% 6.6x 6.3x

Cleantech 14% 8.9x 7.9x

Life Sciences 5% 7.0x 5.1x

Other 32% 9.5x 7.6x

Total CTI 20% 6.9x 5.9x

Ranked by performance, Hardware/Equipment, IT Services, Media/Web and Telecom Operators segments all went up by more than 20pts in the period. Except Telecom Operators, all these segments were already part of the best performers during the H1-2010 period. Hardware/Equipment stands out in particular, gaining 61pts supported by strong positive evolution of a few Large-caps such as Alcatel Lucent (+100%), Nexans (+42%) and STMicroelectronics (+37%). Software, which posted the best performance in H1-2010, relatively slowed down while Cleantech and Life Sciences are still lagging behind. EV/EBITDA average is at 6x for European Tech companies, showing that European valuations are not impacted by the "Tech Bubble" in the US and China.


2. companies and deals

BT Group

Schneider Electric

ITV

Spectrics

Alcatel Lucent

Euro�ns Scienti�c

Spir Communication

E2V Tech

CEVA

Blinkx 188 %

146%

133%

130%

121%

100%

84%

58%

49%

45%

Egide

Lectra

Cast

XP Power

Tonna Electronique503%

216%

200%

193%

161%BT Group

Schneider Electric

ITV

Spectrics

Alcatel Lucent


Spir Communication

E2V Tech

CEVA

Blinkx 188 %

146%

133%

130%

121%

100%

84%

58%

49%

45%

Egide

Lectra

Cast

XP Power


216%

200%

193%

161%

BT Group

Schneider Electric

ITV

Spectrics

Alcatel Lucent


Spir Communication

E2V Tech

CEVA

Blinkx 188 %

146%

133%

130%

121%

100%

84%

58%

49%

45%

Egide

Lectra

Cast

XP Power


216%

200%

193%

161%

Large Cap Mid Cap Small Cap

Vivendi

16

17

18

19

20

21

22

Jul-10

Share Price (€)

Aug-10

Oct-10

Nov-10

Jan-11

Feb-1

1

Sep-1

0

Dec-10

Mar-

11

Strong corporate activity at Vivendi since the start of the year: after receiving a significant cash inflow from the sale of its remaining stake in NBC Universal ($5.8bn) and from the positive outcome of the legal dispute regarding Elektrim in Poland (€1.25bn from DT), Vivendi spent €7.95bn to acquire the 44% stake held by Vodafone in SFR – a transaction at 6.5x 2011 EBITDA multiple seen as “fully priced” by most analysts. After this long awaited transaction, on the one hand the stock becomes increasingly exposed to the French telecom market, and on the other Vivendi should appear less as a

Market Cap (€bn) 25.2

Share price evolution(Jul.10-Mar.11)

24%

11/10 Revenue (€bn) 29.0/28.9

11/10 EBITDA* (€bn) 6.9/6.7

EV/EBITDA11* 5.8x

Market figures as of March 31, 2011

* Proportionate EBITDA : EBITDA of divisions weighted

by % of ownership

holding company and more as a diversified telecom & media group made of 6 profitable entities with an overall moderate growth prospect This should not be enough to push the stock out of the €15/30 share price funnel where it has been stuck since the end of the Messier’s era – today’s valuation is at 6x proportionate EBITDA, not a real bargain as the growth from the emerging business in Morocco & Brazil is not enough to compensate the sluggish growth potential from European assets. Hence, the fundamental question remains unchanged: what is the strategy to

unlock shareholder’s value from these independent assets? 10 years after the 2001 bubble burst, Messier’s vision of the integration of digital content & telecom is somehow materializing now through the smartphones penetration, the iPhone & Android eco-systems and the convergence of Internet & TV. However, Vivendi seems to have been in idle mode for a while in terms of synergies between the different units. This is why the Group has announced that Sandrine Dufour, deputy CFO, was appointed to the role of “VP Innovation”, reporting to the CEO, and “responsible for strengthening the drive for innovation in the group and for the emergence of new growth projects”, and why Vivendi is “putting more emphasis on organic growth and co-operation between Vivendi’s business units”. Positive results on this front would be the best argument in response to the looming threat posed by the appetite of activist investors for a full breakup of the Group.

top performers – share price evolution (Jul.10-Mar.11)

Ubisoft Entertainment

5

6

7

8

9

10

11

Jul-1

0

Share Price (€)

Aug-1

0

Oct-10

Nov-1

0

Jan-1

1Fe

b-11

Sep-

10

Dec-10

Mar-

11

Market Cap (€m) 679


12%

11/10 Revenue (€m) 1,085/1,028

11/10 EBIT (€m) 48/(54)

EV/EBIT11 15x


Ubisoft stock market performance has been dismal since 2009, severely underperforming all indexes and US peers (EA, Activision). As per

management’s latest estimates, 2010 results (year ending in March 2011) show clear signs of improvements, with a 15/20% rebound in sales and

breakeven in sight, helped by the solid performance from company franchise titles Assassin’s Creed (III) and casual game Just. However, the company still trades at about 15x 2011 EBIT while the share price maintains its downward trend. The game-plan for recovery is built on three pillars, games for HD consoles focused on existing franchises, casual games (Wii & Kinect) and online games. On the casual games’ front, Ubisoft suffered from the overall setback ofthe Wii market but has a head start on the MSFT Kinect platform thanks

companies to watch


Delticom

30

40

50

60

70

80

Jul-1

0

Share Price (€)

Aug-1

0

Oct-10

Nov-1

0

Jan-1

1Fe

b-11

Sep-

10

Dec-10

Mar-

11

Market Cap (€m) 757


74%

11/10 Revenue (€m) 458/419

11/10 EBITDA (€m) 49/48

EV/EBITDA11 14x


Founded in 1999 by two former managers from Continental, Delticom has reached a dominant position in Europe with an estimated 50% market share in online tyre sales, notably thanks to its client base (4m), its network of fitting partners as well as its price advantage.The next challenge is now to sustain this profitable growth. Looking at 2011 forecasted revenue (€458m) one might think the business is slowing down as the company expects a 6.4% growth in 2011 revenue vs. 35% in 2010, but 2010 was an extraordinary year mainly thanks to harsher than usual winter weather across Europe leading to high demand and strong prices, as well as new legislation in

Germany enforcing the use of winter tyres.Actually Delticom has a strong growth opportunity, at a global scale. First in Europe: the dominant position of the company (5 times bigger than its main competitors) will enable it to fully benefit from the online market growth, mainly driven by the growth of the online penetration. Indeed, this penetration , currently at 7%, is expected to grow, as tyres are well-suited to online purchase: clearly defined, standardized, easily comparable, objective purchase and price attractiveness as wholesaler is cut out. 30% online penetration, as in the books market, can be seen as the long term target.

Secondly, outside Europe, where Delticom is currently doing less than 25% of its revenue: the company already operates in North America and the recent (Dec-2010) acquisition of a majority stake in the leading Asian player (Tyrepac) gives, as stated by Delticom’s CEO, “an important building block in our long-term Asian strategy”. Other acquisitions could help the company take leading positions in specific regions and would be very much supported by a sound financial position with a net cash position of €57m, no debt and an operating cash flow of €30m+ in 2011.This overall solid company’s position has been well validated by the market as the stock price rose by 74% in the Jul.10-Mar.11 period and the Enterprise Value was at 14x EBITDA2011 in late March 2011.Delticom has now the opportunity to be the first e-commerce company starting from a European country and to become a dominant player at a global scale. Somehow, the European-based Amazon of Tyres.

to early R&D investment in this field. The company should post about €300m revenues in casual games for FY 2010. The picture is much less engaging in the online games universe, with only €16m revenues in H1. Ubisoft is being dwarfed in the online arena by global leaders Activision-Blizzard (World of Warcraft) and EA whose digital revenue target in 2011 is $750m, and even pure play companies like Ankama in France. Ubisoft’s current focus is on multiplayer online games as evidenced by the recent

acquisition of multiplayer game engine provider Quazal, while the French company remains quiet in the new growth segment of social gaming. In less than 3 years social gaming has become a new billion dollar industry based on virtual goods monetization on social networks such as Facebook. Reacting to the stellar growth of social gaming leader Zynga, EA and Disney have replied with the acquisitions of Zynga’s challengers PlayFish and Playdom. The recipe of success in social games seems

indeed very different from the traditional video and online games: the games most appeal to a female audience over the age of 30 and the game play is based on self-expression and social interactions. It will be interesting to see in the coming months if Ubisoft manages to break out in this critical space with its own talent and games franchises. Today their most successful social game, CSI, counts about 0.3m daily active users when Zynga’s hits are above 20m.


3. focus software

companies to watch Sage

210

220

230

240

250

260

270

280

290

300

310

Jul-10

Share Price (£)

Aug-10

Oct-10

Nov-10

Jan-11

Feb-1

1

Sep-

10

Dec-10

Mar-

11

Market Cap (£bn) 3.6


23%

11/10 Revenue (£bn) 1.5/1.4

11/10 EBITDA (£m) 408/395

EV/EBITDA11 9.3x


The Newcastle-based, accountancy and business management software and services giant, which serves more than six million businesses worldwide, grew earnings in 2010, recording £388m in EBITDA, a 4% increase from £373m in 2009 (up 14% when exceptional restructuring charges in 2009 are taken into account). This was largely a result of tight cost control, particularly in North America.During the period revenues were flat (slightly contracting by 0.3% from £1,439m, 2009, to £1,435m, 2010).This masks an improvement in the quality of revenue, with a shift away from lower margin activities such as professional services (down 4%), towards the more higher margin and recurring ‘subscription based’ revenue streams (up 2%) to form 66% of total revenue. Revenue growth momentum continued during H1

2011, and significantly all regions reported positive revenue growth for the first time since 2007.Sage’s annual figures were well received by the market and its share price jumped over 5% on the day of release (1st December 2010).With a strong operating cash flow of £429m and a significant reduction in net debt (from £439m in September 2009 to £220m in 2010), Sage is in a strong financial position moving forward. Sage continued to convert profit to cash, with a profit to cash conversion of 123% during H1 2011, further helping to reduce debt. In January 2011 Sage launched a new web based accounting product – Sage One. Currently a UK-only product targeting smaller companies and individuals, it signals Sage’s response to the growing threat from cloud based SMB software start-ups, and in doing so joins the cloud accounting

battleground with players including Liquid, Xero, Netsuite, SAP and Microsoft. During the next 12-24 months Sage will begin to apply its SaaS model beyond SMBs and to applications aimed at the middle market, an important strategy, as addressing the middle market would give Sage’s online tools more of a shelf life.Sage has targeted its US healthcare segment as a prosperous vertical, and its products are likely to capitalise on the opportunities presented by the Healthcare Stimulus. It is predicted that the Electronic Healthcare Record (EHR) market will grow from $2,250m in 2011 to nearly $13,000m by 2016. Notably 60% of practices in the EHR market are in specialities aligned with Sage’s offerings.Sage’s healthcare performance in H1 2011 was however contrasted. The Integry product, accounting for 53% of revenues grew healthily at 8% but Medial Manager and other products contracted. Overall revenue for Sage Healthcare contracted 5% in H1 2011. Although proceeding with caution, it is expected that the stimulus will begin to positively impact revenues during H2 2011.

Dassault Systèmes

44

46

48

50

52

54

56

58

60

Jul-1

0

Share Price (€)

Aug-10

Oct-10

Nov-10

Jan-11

Feb-1

1

Sep-

10

Dec-10

Mar-

11

Market Cap (€bn) 6.6


11%

11/10 Revenue (€bn) 1.7/1.6

11/10 EBITDA (€m) 531/427

EV/EBITDA11 11x


Dassault Systèmes remains a global leader in Product Lifecycle Management (PLM) software, a market that is estimated to be worth $12-15bn, with a solid growth. The company’s 2010 results have

confirmed this; in all of its core segments and industries, DS has a high and increasing market share: it holds an overall 25% share of Computer Aided Design (CAD) software, and 30-35% of PLM

solutions for automotive, aerospace, capital goods and shipbuilding. Main products continue to be CATIA (flagship product, product lifecycle management, 42% of DS revenue) and ENOVIA (collaborative PLM, 13% of revenue); other PLM solutions account for 15% of revenue and other CAD solutions for 15%. Services only generate 10% of the company’s revenue. Last but not least, the firm’s exposure to Japan seems limited as the vast majority of its business in Japan is recurring. Compared to other European Software vendors, DS has a very


Misys Figures 2010 2011 est

Revenue (£m) 371 448

EBITDA (£m) 87 112

EV/Rev 5.0x 4.2x

EV/EBITDA 21x 17x


Misys acquisition of Sophis - November 12th, 2010

selected deal

70

80

90

100

110

120

130

Jul-10

Mysis Share Price (rebased to November 12th 2010 value)

Aug-10

Oct-10

Nov-10

Jan-11

Feb-1

1

Sep-1

0

Dec-10

Mar-

11

The acquisition of Sophis, announced on November 12th, was approved by Misys’ shareholders on February 11th, and was officially closed on March 1st. The company headquartered in Dublin but with its roots in France, was owned by Advent International and its management. Misys employed 3,500 people worldwide and its operating margin in 2009 (year end May 2010) was of 23%, while Sophis employed 360 people, with a client base of 130 financial institutions, including 80 buy-side customers and total revenue of €74m. The acquired company had an outstanding reputation and financial performance, with an operating margin of 40%. The price paid by Misys corresponds to a 2009 EV/EBITDA multiple of 15x for a 6x sales multiple. The management

justified this apparently high price with anticipated synergies of £40m to £50m over three years. These synergies should come both from up-sales to existing Misys and Sophis customers and from new customers, thanks to Misys’ global distribution network. Though the company’s medium-term revenue growth target range remains at 5-8%, operating margin targets were moved up to over 20%.It should also be mentioned that to finance this acquisition, Misys repurchased 169 million of its own shares for a total of £525m and returned £145m to its shareholders following the disposal of its Allscript holdings. The Current market capitalization of the company was thus significantly reduced, now down to £1.1 bn as of end of March.

The market has continued to validate Misys’ strategy over the past year – and since its turnaround plan established in 2007, Misys’ share price has increased by 62% since January 2009, meanwhile the FTSE 100 only increased 7%. Since the Sophis deal was announced (November 25th 2010), the share price grew by 25% (vs. 4% for FTSE 100). If this acquisition is successfully managed, Misys will be in a very favorable position to secure its competitive advantage in an otherwise generally unstable environment for financial services – affected in particular by regulatory changes and mergers. The main risks one can identify are related to the integration of the new structure, in particular for R&D and sales, and the related diversion of the management’s time and attention. But all in all, this transaction appears as a very smart move to an otherwise aging company such as Misys, and should help the management team build a leading player in financial services, with sustainable size and recognized technological leadership.

stable customer basis, with only 29% of its software revenue originating from new licences – versus 70% in the case of Autonomy and 50% for Software AG. Compared to its direct competition, the company continues to show a far better performance, with a 25% operating margin, versus 17% for Autodesk and 11% for PTC. In March, DS announced the acquisition of Intercim for an enterprise value base of $36.5m. With this deal, it looks at strengthening its PLM offering by a continuum of products and solutions from engineering to the factory operations. This acquisition will not reduce the company’s exposure to the aerospace and automotive sectors, which account for half of its revenue,

as the two companies had signed in June 2008 an MOU to provide the aerospace and defense industry with Intercim's web-based manufacturing operations management solution. So what next, from here? The market does not price the company as generously as some of its less performing peers. At the same time, DS is a dominant player on its market, with strong profitability metrics and a proven technological leadership. The group has partly managed to diversify over the past years into new segments, such as industrial equipment, technologies, and more importantly consumer goods and health. The important question will now be its ability to expand out of its natural market. This

could either come from the continued deployment of its PLM offering in growth segments like High Tech, consumer goods, energy and life sciences, or from a move into a new vertical or family of software. In that respect, a significant acquisition could be a logical option, particularly if the company’s valuation continues to improve. In the world of global software vendors, DS is now a medium sized player, clearly not at critical size yet when compared with peers like SAP and the US players. The high ownership of the Dassault Group in the company could provide to be an impediment on that route, as it may not want to accompany the company in an aggressive acquisition strategy.


disclaimer

This document has been produced by Clipperton Finance (“Clipperton”) and is communicated to you solely for your information and should not be construed as a solicitation or offer to buy or sell any securities or related financial instruments. This newsletter expresses only Clipperton’s views on the European high tech and media landscape and does not express in any case any judgment of the future trends on the capital market evolutions.

No representation or warranty (expressed or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information contained herein and, accordingly, none of Clipperton’s officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this document.

composition of clipperton technology index (cti)

clipperton finance

Based in Paris and London, Clipperton Finance is a European corporate finance boutique dedicated to the High Tech and Media industries. Clipperton is focused on start-up and high-growth companies in the Internet, Software, Telecom, Components, CleanTech, MedTech and Media spaces, advising them in their financial transactions: fundraising/capital increases and Mergers & Acquisitions. Over the past years the company and its team have successfully structured numerous high level international transactions in the European High Tech sector. For more information, visit www.clipperton.net

ContactsNicolas von Bülow, [email protected]

Mike Callow, Senior [email protected]

Thibaut Revel, [email protected]

Alexis Barba, [email protected]

France | 10, rue du Mont Thabor - 75001 ParisUK | 58 Grosvenor Street - London W1K 3JB

020

40

60

80

100

Life Sciences

Telecom Operators

Media/Web

Software

Other

33%

Market Cap Weight # of companies

24%

12%

8%

23%

99

20

166115

284

# of companies

Market Cap Weight

0

20

40

60

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100

Large Cap

Mid CapSmall Cap

7%2%

77

188419

# of companies

Market Cap Weight

UK

France

Germany

32%

27%

221

256

207

Total 100% 684

Total 100% 684

Total 100% 684

91%

41%

020

40

60

80

100

Life Sciences

Telecom Operators

Media/Web

Software

Other

33%


24%

12%

8%

23%

99

20

166115

284

# of companies

Market Cap Weight

0

20

40

60

80

100

Large Cap

Mid CapSmall Cap

7%2%

77

188419

# of companies

Market Cap Weight

UK

France

Germany

32%

27%

221

256

207

Total 100% 684

Total 100% 684

Total 100% 684

91%

41%

020

40

60

80

100

Life Sciences

Telecom Operators

Media/Web

Software

Other

33%


24%

12%

8%

23%

99

20

166115

284

# of companies

Market Cap Weight

0

20

40

60

80

100

Large Cap

Mid CapSmall Cap

7%2%

77

188419

# of companies

Market Cap Weight

UK

France

Germany

32%

27%

221

256

207

Total 100% 684

Total 100% 684

Total 100% 684

91%

41%

cti composition - by country cti composition - by size of company cti composition - by sector

Business

Listed european technology companies