Eckert & Ziegler AG · 2019-01-23 · Eckert & Ziegler AG 4 Hauck & Aufhäuser Privatbankiers AG Source: Hauck&Aufhäuser; Company data Radiopharma to drive EBIT growth 2017 2018E

Eckert & Ziegler AG Germany - High-tech Engineering

22-January-19

Buy (old: Buy)

Price target: EUR 110.00 (old: EUR 64.00) Aliaksandr Halitsa

Analyst

Price: EUR 82.70 Next result: FY 18E: 28.03.2018

Bloomberg: EUZ@GR Market cap: EUR 421.1 m [email protected]

Reuters: EUZG.DE Enterprise Value: EUR 373.3 m Tel.: +49 40 414 3885 83

Cashing in on burgeoning radiopharma market; PT up

Following the recent developments in the nuclear medicine and increasing attention from pharma heavyweights (Novartis, Bayer), EUZ’s Radiopharma division is poised for big gains as it supplies a number of relevant isotopes to the radiopharma market.

In fact, Radiopharma is seen to pose stellar sales growth of 33% CAGR through 2021E, which should profoundly alter the company’s sales mix and EBIT margin profile

as radiopharma currently accounts for 20% of sales, but already explains 40% of EBIT.

This above all is based on highly visible and strongly dynamic sales growth with 68Ga generators thanks to soaring demand for gallium-68 (68Ga). 68Ga is a diagnostic

agent used in positron-emission tomography (PET) for tumor localization and increasingly as an important counterpart to the therapeutic agent Lutetium-177 (177Lu) used in treatment of cancer.

The recently approved therapy Lutathera (Jan 2018) is case in point. Every

Lutathera treatment is preceded by an injection comprising the same targeting molecule as Lutathera, but labeled with 68Ga to evaluate whether the treatment will be effective. Hence, 68Ga is needed as an independent diagnostic agent and as a part of a targeted treatment.

Importantly, our channel checks (www.medraysintell.com) suggest that there is a growing interest for the development of a new generation of theranostics based on the 68Ga/177Lu pair. In fact, almost all new radiotherapeutics are based on 177Lu, suggesting that the brisk demand for 68Ga and hence for 68Ga generators is not seen to abate any time soon.

While 68Ga is seen as the main driver, it is by no means the only one. EUZ is looking to expand its reach with other important medical isotopes (e.g. 177Lu, 90Yt). For

instance, the revenue with its existing customer SIRTEX may expand from c. € 2m to well into the double-digit realm as SIRTEX seeks to expand its 90Yttrium (90Yt)-based treatment in Europe and China.

This should yield 14% EBIT CAGR through 2021E carried by disproportionate sales growth of the high margin Radiopharma division. Our new PT is € 110 based on DCF (old: € 64; FCFY-based). BUY. - continued -

Source: Company data, Hauck & Aufhäuser

High/low 52 weeks: 82.70 / 34.00

Price/Book Ratio: 3.5

Relative performance (SDAX):

3 months -

6 months -

12 months -

Changes in estimates

Sales EBIT EPS

2018 old: 165.4 22.6 2.63

∆ - - -

2019 old: 171.4 23.7 2.91

∆ - - -

2020 old: 187.7 28.9 3.56

∆ - - -

Key share data:

Number of shares: (in m pcs) 5.3

Authorised capital: (in € m) 0.6

Book value per share: (in €) 23.3

Ø trading volume: (12 months) 20,453

Major shareholders:

Free float 67.8 %

Founders 32.2 %

Eckert & Ziegler AG 0.1 %

Company description:

Produces and markets a wide range of industrial and medical applications featuring radioactive isotopes, including prostate seed implants, calibration standards and radiation afterloaders.

Y/E 31.12 (EUR m) 2014 2015 2016 2017 2018E 2019E 2020E

Sales 127.3 139.7 119.9 138.6 165.1 168.1 184.1

Sales growth 9 % 10 % -14 % 16 % 19 % 2 % 10 %

EBITDA 20.1 26.9 24.9 26.6 33.3 34.3 38.7

EBIT 13.0 18.2 16.1 18.0 24.4 24.8 28.9

Net income 6.8 10.7 9.5 14.7 16.1 17.0 19.8

Net debt -3.1 -15.9 -24.9 -56.0 -60.1 -63.9 -65.3

Net gearing -3.5 % -16.0 % -23.7 % -49.8 % -48.6 % -48.0 % -45.1 %

Net Debt/EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0

EPS pro forma 1.28 2.20 1.93 2.19 3.05 3.21 3.75

CPS 0.82 1.62 2.42 3.54 1.94 2.79 2.35

DPS 0.60 0.60 0.66 0.80 0.88 0.97 1.13

Dividend yield 0.7 % 0.7 % 0.8 % 1.0 % 1.1 % 1.2 % 1.4 %

Gross profit margin 50.1 % 45.0 % 49.7 % 46.1 % 46.0 % 47.5 % 49.0 %

EBITDA margin 15.8 % 19.3 % 20.8 % 19.2 % 20.2 % 20.4 % 21.0 %

EBIT margin 10.2 % 13.0 % 13.5 % 13.0 % 14.8 % 14.7 % 15.7 %

ROCE 8.6 % 11.6 % 10.6 % 12.7 % 17.0 % 16.3 % 17.8 %

EV/sales 3.4 3.0 3.4 2.7 2.3 2.2 2.0

EV/EBITDA 21.3 15.4 16.4 14.2 11.2 10.8 9.5

EV/EBIT 33.1 22.9 25.3 21.0 15.3 14.9 12.7

PER 64.0 37.3 42.5 20.9 24.1 22.7 19.4

Adjusted FCF yield 2.1 % 3.4 % 2.9 % 3.3 % 4.6 % 4.9 % 5.7 %

Source: Company data, Hauck & Aufhäuser Close price as of: 21.01.2019

http://www.medraysintell.com/

Eckert & Ziegler AG

2 Hauck & Aufhäuser Privatbankiers AG

Soaring demand for 68Ga generators With scientific progress in nuclear medicine the radiopharmaceutical market is increasingly gaining momentum as an effective method of diagnosis and treatment of cancer. Various sources project the global nuclear medicine market to grow between 8-12% CAGR through 2025E mainly as a result of increasing incidence of cancer and development of new diagnostic and treatment options.

Source: Hauck&Aufhäuser; ResearchAndMarkets.com's, www.medraysintell.com

Naturally, the overall strong market growth and in particular greater proliferation of 68Ga based positron-emission tomography (PET) directly benefits EUZ as its Radiopharma division (20% of sales; 40% of EBIT) supplies relevant radioisotopes to the radiopharmaceutical market.

In particular, EUZ should thrive on one of the latest milestones – the development of Gallium-68 (68Ga) technology as an imaging agent for positron-emission tomography (PET) used to localize tumor cells. 68Ga is a radioisotope that elutes gamma radiation with a half-life of 68 min which makes it an ideal imaging agent.

Here is how it works: 68Ga is attached to certain targeting molecule (i.e. compound) that leads it directly to the tumor via biological pathways in the body (e.g. bloodstream). As 68Ga starts to decay it elutes gamma radiation which is detected by PET camera, which produces a high quality image of the tumor. 68Ga based PET has proven to be a superior technology thanks to increased detection sensitivity, higher quality image and lesser dose of radiation sustained by the patient.

Source: Hauck&Aufhäuser; Presbyterian/St. Luke's Medical Center

Global nuclear medicine market growth: 10% CAGR through 2025E

4.8

10.3

2

4

6

8

10

12

2017 2018 2019 2020 2021 2022 2023 2024 2025

8-12% CAGR

68Ga based PET: Superior imaging qualtiy


https://www.youtube.com/channel/UCIo7-FOO82eVyeKV47ujfMw

Eckert & Ziegler AG


68Ga is produced by means of highly capital intensive cyclotrons requiring millions in investment or increasingly popular portable 68Ga generators, which are supplied by EUZ where it currently commands c. 80% market share (eH&A).

Source: Hauck&Aufhäuser; Company data

GalliaPharm from EUZ was the first 68Ga generator to obtain approval for usage in clinical tests of medications and in other settings. The growth of the 68Ga generators market is highly visible and strongly dynamic, which is seen to have a profound impact on EUZ’s group EBIT going forward. In fact, our channel checks (www.medraysintell.com) suggest that the need for 68Ga generators may reach as much as 4,000 units in a few years compared to the current capacity of few hundred units (supplied by EUZ and IRE-Elit) and should continue to grow.

Source: Hauck&Aufhäuser; www.medraysintell.com

Evidently, due to the supply/demand imbalance the current price of a 68Ga generator (50 mCi) may go well above € 70k (www.medraysintell.com).

However, it is likely that the price will trend lower in the coming years as a result of higher competition from other manufacturers as well as from new technologies under development that could become available within a few years. Consequently, this should translate into 33% sales CAGR through 2021E in high margin Radiopharma, despite anticipating other players and alternative technologies taking a share of the market.

68Ge/

68Ga generator from Eckert&Ziegler (GalliaPharm) and peers

Revenue modeling from Ga-68 generators

2018E … 2021E … 2025ECAGR

18E-21E

CAGR

21E-25E

total market for Ga-68 generators 250 4000 6996 152.0% 15.0%

revenue (in € m) 15.0 46.2 77.0 45.5% 13.6%

ASP (in €) 75,000 66,000 55,000

# of generators sold 200 700 1399

implied market share 80% 18% 20%




Eckert & Ziegler AG



Radiopharma to drive EBIT growth

2017 2018E 2019E 2020E 2021ECAGR

18E-21E

Radiopharma sales EBIT margin

Sales 26.6 30.0 38.0 52.0 70.0 32.6% 91.5 31.3 34.2%

thereof Ga-68 generators 15.0 21.9 34.8 49.5 48.9% 77.0 26.9 35.0%

ASP (in €) 75,000 66,000 55,000

# of generators sold 200 700 1,399

implied market share 80% 18% 20%

thereof the rest 15.0 16.1 17.2 20.5 11.0% 29.4 7.6

thereof Yt-90 (SIRTEX) 2.0 2.8 3.5 6.5 48.1% 14.5 4.4 30.0%

other isotopes, etc. 13.0 13.3 13.7 14.0 2.5% 14.9 3.2 21.6%

EBIT 6.6 8.5 11.2 16.0 22.1 37.5%

EBIT margin 24.9% 28.3% 29.5% 30.8% 31.5%

Isotope products

Sales 86.1 106.8 101.8 103.8 105.9 -0.3% 112.4 13.7 12.2%

EBIT 9.9 14.2 12.2 12.6 12.9 -3.0%

EBIT margin 11.5% 13.3% 12.0% 12.1% 12.2%

Radiation therapy

Sales 25.9 28.3 28.3 28.3 28.3 0.0% 30.0 1.5 4.9%

EBIT 1.9 1.7 1.4 1.4 1.4 -6.3%

EBIT margin 7.3% 6.0% 4.9% 4.9% 4.9%

Group

Sales 138.6 165.1 168.1 184.1 204.2 7.3% 233.9 46.5 19.9%

EBIT 18.5 24.4 24.8 28.9 36.4 14.3%

EBIT margin 13.3% 14.8% 14.7% 15.7% 17.8%

2025E

Eckert & Ziegler AG


Key growth drivers for 68Ga generators Looking deeper into the relevant market it becomes ident that ample growth is there for the taking that to the following drivers:

NETSPOT

In the course of 2016, Advanced Accelerator Applications (AAA) obtained FDA and EMA approvals for its radiopharmaceutical NETSPOT (i.e. gallium 68Ga dotatate injection). NETSPOT is among the latest technologies used to localize neuroendocrine tumors (NETs). It has superior performance and patient-friendly regimen (3 hours vs. 72 hours for injection and imaging) compared to its predecessor.


Importantly, radioisotope 68Ga is used in preparation of ready-to-use NETSPOT injections and until recently EUZ was the only approved supplier of 68Ga generators for NETSPOT. As NETSPOT has seen a rapid adoption in particular in the US (see chart below), the demand for 68Ga generators soared far exceeding supply due to production capacity constraints.

Source: Hauck&Aufhäuser; AAA’s annual and quarterly reports

NETSPOT kit: for preparation of gallium 68 Ga dotatate injection

NETSPOT doses sold per month (in units)

232

562

915

1040

0

200

400

600

800

1000

1200

Q4 Q1 Q2 Q3

2016 2017

1.

Eckert & Ziegler AG


In efforts to alleviate the shortage of generators, IRE ELiT’s 68Ga generator (Galli Eo) was promptly approved in late 2018 and became the second 68Ga generator eligible for NETSPOT along with GalliaPharm from EUZ. No wonder EUZ is expanding its capacity by >3x from currently c. 200 generators with first additions expected in H2 2019E. Importantly, as Ga-68 generators have to be replaced after one year or after 400 elutions, this makes it a highly attractive recurring business.

Theranostics (e.g. Lutathera)

Another driver that is seen to fuel the high demand for 68Ga in the long term is “theranostics”. In a nutshell, theranostics is a field of medicine that merges diagnostics and therapy, thereby enabling personalized treatment. A typical theranostic treatment comprises three constituents: diagnostic agent (e.g. 68Ga), treatment agent (e.g. 177Lu) and targeting molecule which is responsible for delivering diagnostic and treatment agents (radioisotopes) to the tumor.

Source: Hauck&Aufhäuser; Lutathera.com NETSPOT and the recently approved therapeutic Lutathera from AAA is case in point. Together they comprise a theranostic pair that targets certain type of NETs. While Lutathera is a targeting molecule labeled with 177Lu emitting beta radiation to destroy cancer cells, NETSPOT is the same molecule labeled with 68Ga that performs evaluation and imaging functions. If NETSPOT images show high uptake in the tumor, then the Lutathera treatment is appropriate. This way, a gallium 68Ga dotatate injection (i.e. NETSPOT) precedes every Lutathera treatment thereby driving the demand for 68Ga. Interestingly, in Oct. 2017 Novartis snapped up AAA for € 3.9bn in efforts to beef up its NET offering prior to the final approval of Lutathera which once again demonstrates the attractiveness of the nuclear medicine market. As Lutathera offers a more effective treatment compared to Novartis’ legacy blockbuster drugs Afinitor and Sandostatin with $ 1.5bn and $ 1.6bn annual revenue respectively, it is likely to replace patent-expired Sandostation. It is hence not surprising that Lutathera is off to a strong start. As of nine months 2018, Novartis sold c. 1,500 doses in the US generating c. $ 86m in revenue.

Theranostic pair: 68

Ga/177

Lu

NETSPOT Lutathera

2.

Eckert & Ziegler AG


Source: Hauck&Aufhäuser; Novartis’ quarterly reports

Evidently, Lutathera has the potential to be used in treatment of a significant number of patients. Only the yearly incidence of midgut NETs (targeted by Lutathera) for the combined populations of the US and the European Union is estimated at 9,300. The total addressable population should be significantly larger owing to the slow-growing nature of this type of tumors. Our base case mid-cycle demand for Lutathera suggests c. 20x increase in number of doses sold compared to 9M 2018. This would require many more 68Ga generators to satisfy the need for 68Ga as production capacity is already stretched.

Discovery of new 68Ga-labeled molecules

While Lutathera is the first approved radiopharmaceutical of its kind, there are many more yet to enter the market over the next decade. In fact, it is estimated that radioisotopes used for therapeutic purposes will represent about 50% of the nuclear medicine market in 2030 up from 10% in 2016.

Source: Hauck&Aufhäuser; HealthCareBusiness news; www.medraysintell.com

Based on our channel checks with industry experts (www.medraysintell.com) it became clear that there is a growing interest for the development of a new generation of theranostics based on the pair 68Ga/177Lu. In fact, Lutetium-177 (177Lu) becomes the radionuclide for therapy of choice and

Lutathera off to a strong start (US)

52

399

1123

0

200

400

600

800

1000

1200

Q1 2018 Q2 2018 Q3 2018

doses sold (in units)

Usage of radioisotopes for therapeutic purposes on the rise

50%

50%

10%

50%

0%

20%

40%

60%

80%

100%

2016 2030

Diagnosis Therapy

3.



Eckert & Ziegler AG


Source: Hauck&Aufhäuser; ClinicalTrials.gov

This all suggests that soaring demand for 68Ga and hence for 68Ga generators is not seen to abate any time soon.

Capitalizing on GCP-CDH acquisition of SIRTEX While 68Ga is the key and more immediate driver, it is by no means the only one. In June 2018, a consortium led by CDH Investments (China) won a takeover battle for the Australian liver cancer specialist SIRTEX ultimately paying $ 1.4bn. SIRTEX’s main product is SIR-Spheres Yt-90 – an approved cancer treatment based on Yttrium-90 (90Yt). EUZ supplies SIRTEX with the relevant isotope in Europe and Asia Pacific. While Americas is currently the most developed region with c. 9,000 dose sales in 2017 and growing, the relevant for EUZ geographies EMEA and APAC remain largely underpenetrated.

Source: Hauck&Aufhäuser; SIRTEX annual reports

Selected Lu-177 based radiotherapeutics under development

Product Company/Sponsor Est. study completion date

177Lu-PSMA-R2 Novartis (AAA) June 24, 2022

177Lu-PSMA-617 Novartis (Endocyte) May, 2021

177Lu-PP-F11NUniversity Hospital, Basel,

SwitzerlandOctober 2020

177Lu-EB-PSMA617Peking Union Medical

College Hospitaln/a

Lutathera Novartis (AAA)Approved for marketing

(2018)

...

SIR-Spheres Yt-90 (dose sales)

58367076

8420 8807

1916

2273

2528 2677

809

903

9831094

0

2000

4000

6000

8000

10000

12000

14000

2014 2015 2016 2017

Americas EMEA APAC

Eckert & Ziegler AG


This, however, looks set to change. According to the World Health Organization, China accounts for more than half the world’s incidence of liver cancer (400,000 people are diagnosed every year in China). Evidently, CDH sees significant potential to introduce SIRTEX’s liver cancer treatment into China.

Currently, EUZ generates a low single-digit million amount (eH&A € 2m) with SIRTEX supplying certain geographies within EMEA and APAC regions. Just assuming that EMEA and APAC reach the current volumes of Americas would imply a >5-fold increase in dose sales.

Yet, China offers the greatest potential due to the high prevalence of liver cancer among Chinese population. In our view, EUZ will need to build up local production footprint given logistic constrains of 90Yt with half-life of 64 hours.

Putting it all together While our forecast is largely based on 68Ga generators and 90Yt (SIRTEX) sales, admittedly there are many more opportunities for EUZ to capture in the mid term which adds optionality value to the overall investment case.ss

First, 90Yt sales may far exceed our rather conservative forecast of € 14.5m by 2025E on the back of ample growth prospects in China.

At the same time, it is quite likely that EUZ may establish itself as a relevant supplier of therapeutic radioisotope 177Lu that is being used in majority of new therapies under development. In fact, the company is already in discussions with Novartis (AAA) with regards to its prostate cancer drug candidate based on 177Lu.

Our DCF model assumes:

10% short term growth (2017-2020E), 5% mid term growth (2020-2025E), and 2.5% terminal growth reflecting structural growth of the radiopharmaceutical market

20% terminal EBIT margin reflecting structural shift in the group’s salex mix towards higher margin radiopharma revenue

WACC of 7.5%

Our DCF model indicates a new PT of € 100 (old: € 64; FCFY-based) based on our forecast (see page 4).

Eckert & Ziegler AG


2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025ET erminal

value

17.1 17.4 20.2 26.6 28.1 29.6 31.1 32.6 33.6

8.9 9.5 9.8 10.0 10.1 10.0 10.0 9.8 9.5

-7.4 -1.3 -6.5 -8.1 -3.1 -0.2 -3.0 -2.9 -2.3

3.3 3.4 3.5 3.5 3.6 3.7 3.8 3.3 3.4

-9.0 -15.0 -15.0 -12.0 -12.0 -10.0 -10.0 -10.0 -9.5

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

12.9 13.9 12.0 20.1 26.7 33.1 31.9 32.7 34.6

12.9 13.0 10.4 16.2 20.1 21.1 20.7 19.7 445.8

7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%

D C F per share derived fro m D C F avg. gro wth and earnings assumptio ns

Total present value 580 Short term growth (2017-2020) 9.9%

thereof terminal value 77% M edium term growth (2020 - 2025) 4.9%

Net debt (net cash) at start o f year -51.1 Long term growth (2026 - infinity) 2.5%

Financial assets 3.2 Terminal year EBIT margin 20.0%

Provisions and off balance sheet debt 66

Equity value 568.7 WA C C derived fro m

Cost of borrowings before taxes 4.5%

D isco unted cash f lo w per share 110.1 Tax rate 27.4%

upside/ (do wnside) 34% Cost of borrowings after taxes 3.3%

Required return on invested capital 7.1%

Risk premium 5.5%

Risk-free rate 1.0%

Share price 82.00 Beta 1.1

Sensit ivity analysis D C F Sensit ivity analysis D C F

110.1 0% 2.0% 2.5% 3.0% 3.5% 110.1 18.0% 19.0% 20.0% 21.0% 22.0%

9.5% 64.0 74.0 77.4 81.3 85.8 9.5% 72.0 74.7 77.4 80.1 82.8

8.5% 72.4 86.2 91.1 96.8 103.6 8.5% 84.5 87.8 91.1 94.4 97.7

7.5% 83.2 102.8 110.1 119.1 130.2 7.5% 101.8 106.0 110.1 114.3 118.5

6.5% 97.2 126.7 138.6 153.9 174.1 6.5% 127.6 133.1 138.6 144.2 149.7

5.5% 116.3 164.1 185.9 216.1 261.1 5.5% 170.3 178.1 185.9 193.6 201.4

Capex

WACC

D C F (EUR m)

(except per share data and beta)

NOPAT

Depreciation

Increase/decrease in working capital

Increase/decrease in long-term provisions and

Present value

Acquisitions

EB IT margin terminal year

WA

CC

5.2

Capital increase

C ash f lo w

No. of shares outstanding

WA

CC

Lo ng term gro wth

Eckert & Ziegler AG


Company background


Iso to pe P ro ducts R adiat io n T herapy R adio pharma Gro up

P ro ducts

Industrial components for metro logy,

radiation soruces, calibration and

measurement sources, raw isotopes,

recycling services, etc.

Impants for treatment of cancer

(seeds), tumor irradiation

equipment (afterloaders), etc.

Long-lived isotopes for pharma, Ge-

68/Ga-68 generators, radiosynthesis

devices, quality contro l devices

Sales 17 (€ m) 86.1 25.9 26.6 138.6

Sales share 62% 19% 19%

End markets

M edical imaging (PET scanners, gamma

cameras), o il and gas drill bits, research

labs, defence and environmental

monitoring

Oncology M edical diagnosis, radiotherapy

C usto mersSchlumberger, Halliburton, GE, Siemens,

PhilipsHospitals, radiation therapists

Hospitals, clinics, biotech and

pharmaceutical companies

Sales distribut io n

by regio n (11)

P ro ductio n sites

EB IT 17 9.9 1.9 6.6 18.0

EB IT -margin 11.5% 7.3% 24.9% 13.0%

USA, Germany, UK, Czech Republic

Europe 40%

Asia, Af rica & Australia 12%

America 48%

Eckert & Ziegler AG


Financials

Profit and loss (EUR m) 2014 2015 2016 2017 2018E 2019E 2020E

Sales 127.3 139.7 119.9 138.6 165.1 168.1 184.1

Sales growth 8.7 % 9.7 % -14.2 % 15.7 % 19.1 % 1.8 % 9.6 %

Cost of sales 63.5 76.9 60.3 74.8 89.2 88.2 93.9

Gross profit 63.8 62.8 59.6 63.9 75.9 79.8 90.2

Sales and marketing 23.6 25.5 18.1 20.0 25.6 26.1 28.2

General and administration 25.0 26.3 24.7 23.9 30.5 31.1 33.9

Research and development 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other operating income 2.9 13.2 3.5 3.8 4.6 4.5 4.6

Other operating expenses 5.1 6.1 5.0 4.5 0.0 2.4 3.9

Unusual or infrequent items 0.0 0.0 0.9 -1.2 0.0 0.0 0.0

EBITDA 20.1 26.9 24.9 26.6 33.3 34.3 38.7

Depreciation 7.1 8.8 8.7 8.6 8.9 9.5 9.8

EBITA 13.0 18.2 16.1 18.0 24.4 24.8 28.9

Amortisation of goodwill 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Amortisation of intangible assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Impairment charges 0.0 0.0 0.0 0.0 0.0 0.0 0.0

EBIT (inc revaluation net) 13.0 18.2 16.1 18.0 24.4 24.8 28.9

Interest income 0.5 0.2 0.4 0.3 0.3 0.3 0.3

Interest expenses 1.6 1.4 1.2 0.9 0.8 0.8 0.8

Other financial result 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financial result -1.2 -1.3 -0.7 -0.6 -0.5 -0.5 -0.5

Recurring pretax income from continuing operations 11.8 16.9 15.4 17.3 23.9 24.2 28.4

Extraordinary income/loss 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Earnings before taxes 11.8 16.9 15.4 17.3 23.9 24.2 28.4

Taxes 5.3 5.6 5.0 5.3 7.2 7.3 8.5

Net income from continuing operations 6.5 11.3 10.4 12.0 16.7 17.0 19.8

Result from discontinued operations (net of tax) 0.0 -0.9 -0.7 3.1 0.0 0.0 0.0

Net income 6.5 10.3 9.8 15.1 16.7 17.0 19.8

Minority interest -0.3 -0.4 0.2 0.4 0.6 0.0 0.0

Net profit (reported) 6.8 10.7 9.5 14.7 16.1 17.0 19.8

Average number of shares 5.3 5.3 5.3 5.3 5.3 5.3 5.3

EPS reported 1.28 2.02 1.81 2.78 3.05 3.21 3.75

Profit and loss (common size) 2014 2015 2016 2017 2018E 2019E 2020E

Sales 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Cost of sales 49.9 % 55.0 % 50.3 % 53.9 % 54.0 % 52.5 % 51.0 %

Gross profit 50.1 % 45.0 % 49.7 % 46.1 % 46.0 % 47.5 % 49.0 %

Sales and marketing 18.5 % 18.3 % 15.1 % 14.4 % 15.5 % 15.5 % 15.3 %

General and administration 19.7 % 18.8 % 20.6 % 17.3 % 18.5 % 18.5 % 18.4 %

Research and development 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

Other operating income 2.3 % 9.4 % 2.9 % 2.7 % 2.8 % 2.7 % 2.5 %

Other operating expenses 4.0 % 4.3 % 4.2 % 3.2 % 0.0 % 1.5 % 2.1 %

Unusual or infrequent items 0.0 % 0.0 % 0.7 % neg. 0.0 % 0.0 % 0.0 %

EBITDA 15.8 % 19.3 % 20.8 % 19.2 % 20.2 % 20.4 % 21.0 %

Depreciation 5.6 % 6.3 % 7.3 % 6.2 % 5.4 % 5.7 % 5.3 %

EBITA 10.2 % 13.0 % 13.5 % 13.0 % 14.8 % 14.7 % 15.7 %

Amortisation of goodwill 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

Amortisation of intangible assets 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

Impairment charges 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

EBIT (inc revaluation net) 10.2 % 13.0 % 13.5 % 13.0 % 14.8 % 14.7 % 15.7 %

Interest income 0.4 % 0.1 % 0.4 % 0.2 % 0.2 % 0.1 % 0.1 %

Interest expenses 1.3 % 1.0 % 1.0 % 0.6 % 0.5 % 0.5 % 0.4 %

Other financial result 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

Financial result neg. neg. neg. neg. neg. neg. neg.

Recurring pretax income from continuing operations 9.3 % 12.1 % 12.9 % 12.5 % 14.4 % 14.4 % 15.4 %

Extraordinary income/loss 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

Earnings before taxes 9.3 % 12.1 % 12.9 % 12.5 % 14.4 % 14.4 % 15.4 %

Tax rate 44.9 % 33.3 % 32.2 % 30.7 % 30.0 % 30.0 % 30.0 %

Net income from continuing operations 5.1 % 8.1 % 8.7 % 8.7 % 10.1 % 10.1 % 10.8 %

Result from discontinued operations (net of tax) 0.0 % -0.7 % -0.6 % 2.2 % 0.0 % 0.0 % 0.0 %

Net income 5.1 % 7.4 % 8.2 % 10.9 % 10.1 % 10.1 % 10.8 %

Minority interest neg. neg. 0.2 % 0.3 % 0.3 % 0.0 % 0.0 %

Net profit (reported) 5.3 % 7.6 % 8.0 % 10.6 % 9.8 % 10.1 % 10.8 %


Eckert & Ziegler AG


Balance sheet (EUR m) 2014 2015 2016 2017 2018E 2019E 2020E

Intangible assets 55.6 54.1 53.0 51.4 51.4 51.4 51.4

Property, plant and equipment 36.1 36.0 37.8 33.8 33.9 39.4 44.6

Financial assets 6.3 2.8 2.9 3.2 3.2 3.2 3.2

FIXED ASSETS 98.0 92.9 93.7 88.5 88.6 94.1 99.3

Inventories 24.3 25.0 25.1 26.8 31.9 32.5 35.6

Accounts receivable 23.8 21.4 23.2 24.3 28.9 29.5 32.3

Other current assets 9.9 16.5 11.9 10.9 10.2 10.3 11.3

Liquid assets 21.8 31.5 36.6 57.7 60.6 64.4 65.8

Deferred taxes 9.5 9.4 9.0 8.8 0.0 0.0 0.0

Deferred charges and prepaid expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CURRENT ASSETS 89.3 103.8 105.8 128.5 131.6 136.7 145.0

TOTAL ASSETS 187.3 196.7 199.5 217.0 220.2 230.8 244.3

SHAREHOLDERS EQUITY 88.6 99.7 105.2 112.3 123.6 133.1 145.0

MINORITY INTEREST 5.9 5.0 4.9 5.2 5.2 5.2 5.2

Long-term debt 7.3 5.0 4.1 0.0 0.0 0.0 0.0

Provisions for pensions and similar obligations 11.1 10.5 11.8 11.7 11.9 12.1 12.4

Other provisions 27.2 31.4 35.3 48.7 49.6 50.6 51.6

Non-current liabilities 45.6 46.9 51.2 60.4 61.6 62.8 64.1

short-term liabilities to banks 11.4 10.6 7.5 1.7 0.5 0.5 0.5

Accounts payable 8.2 7.5 6.4 4.5 6.1 6.0 6.4

Advance payments received on orders 3.1 0.4 1.4 5.9 5.9 5.9 5.9

Other liabilities (incl. from lease and rental contracts) 19.5 18.6 15.6 17.3 17.3 17.3 17.3

Deferred taxes 4.9 6.2 5.6 6.4 0.0 0.0 0.0

Deferred income 0.1 1.8 1.7 3.3 0.0 0.0 0.0

Current liabilities 47.2 45.1 38.2 39.1 29.8 29.7 30.1

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 187.3 196.7 199.5 217.0 220.2 230.8 244.3

Balance sheet (common size) 2014 2015 2016 2017 2018E 2019E 2020E

Intangible assets 29.7 % 27.5 % 26.6 % 23.7 % 23.4 % 22.3 % 21.1 %

Property, plant and equipment 19.3 % 18.3 % 19.0 % 15.6 % 15.4 % 17.1 % 18.3 %

Financial assets 3.4 % 1.4 % 1.4 % 1.5 % 1.5 % 1.4 % 1.3 %

FIXED ASSETS 52.3 % 47.2 % 47.0 % 40.8 % 40.2 % 40.8 % 40.6 %

Inventories 13.0 % 12.7 % 12.6 % 12.3 % 14.5 % 14.1 % 14.6 %

Accounts receivable 12.7 % 10.9 % 11.6 % 11.2 % 13.1 % 12.8 % 13.2 %

Other current assets 5.3 % 8.4 % 6.0 % 5.0 % 4.6 % 4.5 % 4.6 %

Liquid assets 11.7 % 16.0 % 18.3 % 26.6 % 27.5 % 27.9 % 27.0 %

Deferred taxes 5.1 % 4.8 % 4.5 % 4.1 % 0.0 % 0.0 % 0.0 %

Deferred charges and prepaid expenses 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

CURRENT ASSETS 47.7 % 52.8 % 53.0 % 59.2 % 59.8 % 59.2 % 59.4 %

TOTAL ASSETS 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

SHAREHOLDERS EQUITY 47.3 % 50.7 % 52.7 % 51.8 % 56.2 % 57.7 % 59.3 %

MINORITY INTEREST 3.2 % 2.5 % 2.5 % 2.4 % 2.4 % 2.2 % 2.1 %

Long-term debt 3.9 % 2.5 % 2.1 % 0.0 % 0.0 % 0.0 % 0.0 %

Provisions for pensions and similar obligations 5.9 % 5.3 % 5.9 % 5.4 % 5.4 % 5.3 % 5.1 %

Other provisions 14.5 % 16.0 % 17.7 % 22.4 % 22.5 % 21.9 % 21.1 %

Non-current liabilities 24.3 % 23.8 % 25.7 % 27.8 % 28.0 % 27.2 % 26.2 %

short-term liabilities to banks 6.1 % 5.4 % 3.8 % 0.8 % 0.2 % 0.2 % 0.2 %

Accounts payable 4.4 % 3.8 % 3.2 % 2.1 % 2.8 % 2.6 % 2.6 %

Advance payments received on orders 1.6 % 0.2 % 0.7 % 2.7 % 2.7 % 2.5 % 2.4 %

Other liabilities (incl. from lease and rental contracts) 10.4 % 9.4 % 7.8 % 8.0 % 7.9 % 7.5 % 7.1 %

Deferred taxes 2.6 % 3.2 % 2.8 % 3.0 % 0.0 % 0.0 % 0.0 %

Deferred income 0.1 % 0.9 % 0.8 % 1.5 % 0.0 % 0.0 % 0.0 %

Current liabilities 25.2 % 22.9 % 19.1 % 18.0 % 13.5 % 12.9 % 12.3 %

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %


Eckert & Ziegler AG


Cash flow statement (EUR m) 2014 2015 2016 2017 2018E 2019E 2020E

Net profit/loss 6.5 10.3 9.8 15.1 16.7 17.0 19.8

Depreciation of fixed assets (incl. leases) 7.1 8.8 8.7 8.6 8.9 9.5 9.8

Amortisation of goodwill 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Amortisation of intangible assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Others 1.3 -5.5 -0.8 5.5 0.2 -1.8 -1.8

Cash flow from operations before changes in w/c 14.9 13.6 17.7 29.3 25.8 24.7 27.9

Increase/decrease in inventory -5.1 0.3 0.3 -1.7 -5.1 -0.6 -3.1

Increase/decrease in accounts receivable -0.8 2.0 2.0 -1.1 -4.6 -0.5 -2.8

Increase/decrease in accounts payable 3.1 0.2 0.1 -1.9 1.6 -0.1 0.4

Increase/decrease in other working capital positions -1.5 0.1 0.2 2.2 0.7 -0.2 -1.0

Increase/decrease in working capital -4.3 2.6 2.6 -2.5 -7.4 -1.3 -6.5

Cash flow from operating activities 10.7 16.2 20.3 26.8 18.4 23.4 21.4

CAPEX 7.8 3.8 5.3 4.2 9.0 15.0 15.0

Payments for acquisitions 0.8 0.6 0.2 5.5 0.0 0.0 0.0

Financial investments 2.3 0.0 0.0 0.5 0.0 0.0 0.0

Income from asset disposals 0.1 5.4 0.0 15.2 0.0 0.0 0.0

Cash flow from investing activities -10.8 1.0 -5.5 5.1 -9.0 -15.0 -15.0

Cash flow before financing -0.2 17.2 14.8 31.9 9.4 8.4 6.4

Increase/decrease in debt position -4.1 -3.3 -3.9 -5.3 -1.2 0.0 0.0

Purchase of own shares 0.0 0.0 0.0 0.0 1.2 0.0 0.0

Capital measures 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Dividends paid 3.2 3.2 3.2 3.5 4.1 4.5 5.0

Others -1.3 -2.0 -2.5 -1.2 0.0 0.0 0.0

Effects of exchange rate changes on cash 1.2 0.9 0.3 -0.8 0.0 0.0 0.0

Cash flow from financing activities -8.5 -8.4 -9.5 -10.0 -6.5 -4.5 -5.0

Increase/decrease in liquid assets -7.5 9.6 5.6 21.1 2.9 3.8 1.4

Liquid assets at end of period 21.2 31.4 37.0 57.7 60.6 64.4 65.8

Source: Company data, Hauck & Aufhäuser Regional split (EUR m) 2014 2015 2016 2017 2018E 2019E 2020E

Domestic 0.0 0.0 0.0 0.0 0.0 0.0 0.0

yoy change n/a n/a n/a n/a n/a n/a n/a

Rest of Europe 67.6 72.0 74.5 84.9 96.8 110.4 125.9

yoy change -1.9 % 6.5 % 3.5 % 14.0 % 14.0 % 14.0 % 14.0 %

NAFTA 41.6 44.5 46.1 53.0 60.9 70.1 80.6

yoy change 26.8 % 7.0 % 3.5 % 15.0 % 15.0 % 15.0 % 15.0 %

Asia Pacific 11.8 13.0 14.0 15.8 17.9 20.2 22.9

yoy change 4.4 % 10.0 % 8.0 % 13.0 % 13.0 % 13.0 % 13.0 %

Rest of world 6.3 10.2 -14.7 -15.1 -10.6 -32.6 -45.2

yoy change 53.7 % 62.1 % neg. neg. neg. neg. neg.

TTL 127.3 139.7 119.9 138.6 165.1 168.1 184.1

yoy change 8.7 % 9.7 % -14.2 % 15.7 % 19.1 % 1.8 % 9.6 %


Eckert & Ziegler AG


Key ratios (EUR m) 2014 2015 2016 2017 2018E 2019E 2020E

P&L growth analysis

Sales growth 8.7 % 9.7 % -14.2 % 15.7 % 19.1 % 1.8 % 9.6 %

EBITDA growth -8.7 % 33.7 % -7.6 % 7.0 % 25.1 % 3.0 % 12.9 %

EBIT growth 1.1 % 40.2 % -11.2 % 11.4 % 35.8 % 1.6 % 16.6 %

EPS growth -25.5 % 57.5 % -10.5 % 53.9 % 9.7 % 5.3 % 17.0 %

Efficiency

Total operating costs / sales 39.9 % 32.0 % 37.0 % 32.2 % 31.2 % 32.8 % 33.3 %

Sales per employee n/a n/a n/a n/a n/a n/a n/a

EBITDA per employee n/a n/a n/a n/a n/a n/a n/a

Balance sheet analysis

Avg. working capital / sales 26.6 % 26.9 % 32.9 % 29.3 % 27.1 % 29.4 % 28.7 %

Inventory turnover (sales/inventory) 5.2 5.6 4.8 5.2 5.2 5.2 5.2

Trade debtors in days of sales 68.2 55.9 70.7 64.0 64.0 64.0 64.0

A/P turnover [(A/P*365)/sales] 47.3 35.8 38.7 22.0 25.0 25.0 25.0

Cash conversion cycle (days) n/a n/a n/a n/a n/a n/a n/a

Cash flow analysis

Free cash flow 2.8 12.3 15.0 22.7 9.4 8.4 6.4

Free cash flow/sales 2.2 % 8.8 % 12.5 % 16.4 % 5.7 % 5.0 % 3.5 %

FCF / net profit 41.9 % 115.6 % 156.6 % 154.2 % 58.5 % 49.3 % 32.1 %

Capex / depn 141.3 % 43.8 % 61.0 % 53.9 % 101.1 % 157.9 % 153.1 %

Capex / maintenance capex 121.6 % 48.7 % 67.8 % 48.1 % 106.4 % 166.2 % 161.1 %

Capex / sales 7.9 % 2.8 % 4.4 % 3.4 % 5.5 % 8.9 % 8.1 %

Security

Net debt -3.1 -15.9 -24.9 -56.0 -60.1 -63.9 -65.3

Net Debt/EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net debt / equity neg. neg. neg. neg. neg. neg. neg.

Interest cover 8.0 12.6 13.9 20.4 30.5 31.0 36.1

Dividend payout ratio 46.8 % 28.8 % 37.4 % 27.9 % 28.0 % 29.3 % 30.2 %

Asset utilisation

Capital employed turnover 0.8 0.9 0.8 1.0 1.1 1.1 1.1

Operating assets turnover 1.7 1.9 1.5 1.9 2.0 1.9 1.8

Plant turnover 3.5 3.9 3.2 4.1 4.9 4.3 4.1

Inventory turnover (sales/inventory) 5.2 5.6 4.8 5.2 5.2 5.2 5.2

Returns

ROCE 8.6 % 11.6 % 10.6 % 12.7 % 17.0 % 16.3 % 17.8 %

ROE 7.6 % 10.7 % 9.1 % 13.1 % 13.0 % 12.7 % 13.7 %

Other

Interest paid / avg. debt 7.9 % 8.4 % 8.6 % 13.2 % 71.1 % 155.7 % 157.6 %

No. employees (average) 0 0 0 0 0 0 0

Number of shares 5.3 5.3 5.3 5.3 5.3 5.3 5.3

DPS 0.6 0.6 0.7 0.8 0.9 1.0 1.1

EPS reported 1.28 2.02 1.81 2.78 3.05 3.21 3.75

Valuation ratios

P/BV 4.9 4.3 4.1 3.9 3.5 3.3 3.0

EV/sales 3.4 3.0 3.4 2.7 2.3 2.2 2.0

EV/EBITDA 21.3 15.4 16.4 14.2 11.2 10.8 9.5

EV/EBITA 33.0 22.9 25.3 21.0 15.3 14.9 12.7

EV/EBIT 33.1 22.9 25.3 21.0 15.3 14.9 12.7

EV/FCF 151.2 33.7 27.3 16.6 39.6 44.2 57.8

Adjusted FCF yield 2.1 % 3.4 % 2.9 % 3.3 % 4.6 % 4.9 % 5.7 %

Dividend yield 0.7 % 0.7 % 0.8 % 1.0 % 1.1 % 1.2 % 1.4 %


Eckert & Ziegler AG


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It is essential that any research recommendation is fairly presented and discloses interests of indicates relevant conflicts of interest. Pursuant to section 85 of the German Securities Trading Act (WpHG) a research report has to point out possible conflicts of interest in connection with the analysed company. Further to this, under the FCA’s rules on research recommendations, any conflicts of interest in connection with the recommendation must be disclosed. A conflict of interest is presumed to exist in particular if Hauck & Aufhäuser Privatbankiers AG

(1) or its affiliate(s) (either in its own right or as part of a consortium) within the past twelve months, acquired the financial instruments of the analysed company,

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(4) or its affiliate(s) holds a) 5% or more of the share capital of the analysed company, or b) the analysed company holds 5% or more of the share capital of Hauck & Aufhäuser Privatbankiers AG or its affiliate(s),

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Company Disclosure

Eckert & Ziegler AG 2

Historical target price and rating changes for Eckert & Ziegler AG in the last 12 months

Initiation coverage

08-April-10

Company Date Analyst Rating Target price Close

Eckert & Ziegler AG 21.11.2018 Halitsa, Aliaksandr Buy EUR 64,00 EUR 54,40

01.08.2018 Halitsa, Aliaksandr Buy EUR 50,00 EUR 42,50

19.04.2018 Halitsa, Aliaksandr Buy EUR 46,00 EUR 35,55

Eckert & Ziegler AG


Hauck & Aufhäuser distribution of ratings and in proportion to investment banking services

Buy 65.90 % 90.00 %

Sell 12.14 % 0.00 %

Hold 21.97 % 10.00 %

Date of publication creation: 22/01/2019 09:23 AM

Date of publication dissemination: 22/01/2019 09:32 AM

Eckert & Ziegler AG


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4. Information Concerning the Methods of Valuation/Update The determination of the fair value per share, i.e. the price target, and the resultant rating is done on the basis of the adjusted free cash flow (adj. FCF) method and on the basis of the discounted cash flow – DCF model. Furthermore, a peer group comparison is made.

The adj. FCF method is based on the assumption that investors purchase assets only at a price (enterprise value) at which the operating cash flow return after taxes on this investment exceeds their opportunity costs in the form of a hurdle rate of 7.5%. The operating cash flow is calculated as EBITDA less maintenance capex and taxes.

Within the framework of the DCF approach, the future free cash flows are calculated initially on the basis of a fictitious capital structure of 100% equity, i.e. interest and repayments on debt capital are not factored in initially. The adjustment towards the actual capital structure is done by discounting the calculated free cash flows with the weighted average cost of capital (WACC), which takes into account both the cost of equity capital and the cost of debt. After discounting, the calculated total enterprise value is reduced by the interest-bearing debt capital in order to arrive at the equity value.

Hauck & Aufhäuser Privatbankiers AG uses the following three-step rating system for the analysed companies:

Buy: Sustainable upside potential of more than 10% within 12 months Sell: Sustainable downside potential of more than 10% within 12 months. Hold: Upside/downside potential is limited. No immediate catalyst visible.

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Eckert & Ziegler AG


Contacts: Hauck&Aufhäuser Privatbankiers AG

Hauck & Aufhäuser Research

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Tim Wunderlich, CFA Head of Transactional Research Tel.: +49 40 414 3885 81 E-Mail: [email protected]

Henning Breiter Head of Research Tel.: +49 40 414 3885 73 E-Mail: [email protected]

Marie-Thérèse Grübner Head of Corporate Brokerage Tel.: +49 40 450 6342 3097 E-Mail: [email protected]

Carlos Becke Analyst Tel.: +49 40 414 3885 74 E-Mail: [email protected]

Simon Bentlage Analyst Tel.: +49 40 4506342 3096 E-Mail: [email protected]

Frederik Bitter Analyst Tel.: +44 203 9473 247 E-Mail: [email protected]

Robin Brass, CFA Analyst Tel.: +49 40 414 3885 76 E-Mail: [email protected]

Christian Glowa Analyst Tel.: +49 40 414 3885 95 E-Mail: [email protected]

Aliaksandr Halitsa Analyst Tel.: +49 40 414 3885 83 E-Mail: [email protected]

Alina Köhler Analyst Tel.: +49 40 4506342 3095 E-Mail: [email protected]

Christian Salis Analyst Tel.: +49 40 414 3885 96 E-Mail: [email protected]

Christian Sandherr Analyst Tel.: +49 40 414 3885 79 E-Mail: [email protected]

Julius Stinauer

Analyst Tel.: +49 40 414 3885 84 E-Mail: [email protected]

Hauck & Aufhäuser Sales

Toby Woods Sales Tel.: +44 203 9473 245 E-Mail: [email protected]

Christian Alisch Sales Tel.: +49 40 414 3885 99 E-Mail: [email protected]

Vincent Bischoff Sales Tel.: +49 40 414 3885 88 E-Mail: [email protected]

Alexander Lachmann Sales Tel.: +41 43 497 30 23 E-Mail: [email protected]

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Marc Niemann Sales Tel.: +49 40 414 3885 91 E-Mail: [email protected]

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Hauck & Aufhäuser Sales Trading

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Fin Schaffer Trading Tel.: +49 40 414 3885 98 E.Mail: [email protected]

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Carolin Weber Middle-Office Tel.: +49 40 414 3885 87 E.Mail: [email protected]

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