Re-rating offers attractive entry opportunity; Initiate

IMPORTANT. Please refer to the last page of this report for “Important disclosures” and analyst(s) certifications.

alsterresearch.com This research is the product of AlsterResearch, which is authorized and regulated by the BaFin in Germany.

Vossloh AG Germany | Industrial Goods & Services | MCap EUR 804.4m

21 September 2021 INITIATION

Re-rating offers attractive entry opportunity; Initiate with BUY

What’s it all about?

We initiate coverage of Vossloh AG with a BUY recommendation and a PT of EUR 58.00 offering an upside potential of 27% after the stock has re-rated by nearly 10% since beginning of Sept. In the last 6 years, the Germany-based rail infrastructure company has undertaken a massive reorganization programme including the divestment of non-core rail vehicles (2015), electrical systems (2017) as well as its locomotive business (2020). With the acquired tie technology business (2017), Vossloh now focusses on the core rail infrastructure market, which we believe should allow for healthy top- and bottom-line growth in the future. An attractive valuation (8x EV/EBITDA 2022E) for a resilient and market leading business model coupled with an attractive ESG rating (Leeway score of 73/100), makes Vossloh an attractive BUYING opportunity.

BUY (INITIATION)

Target price EUR 58.00 (none) Current price EUR 45.80 Up/downside 26.6%

MAIN AUTHOR

Thomas Wissler [email protected] +49 40 309 293-58

https://www.research-hub.de/companies/esg/Vossloh%20AG


http://www.research-hub.de

AlsterResearch Page 2 of 21

Vossloh AG

Germany | Industrial Goods & Services | MCap EUR 804.4m | EV EUR 1,185.6m

BUY (INITIATION) Target price Current price Up/downside

EUR 58.00 (none) EUR 45.80 26.6%

MAIN AUTHOR

Thomas Wissler [email protected] +49 40 309 293-58

Re-rating offers attractive entry opportunity; Initiate with BUY Between 2014 and 2020, a spree of divestments (rail vehicles, electrical systems and locomotives) as well as a bolt-on acquisition of tie technologies (2017) has led to a complete repositioning of the 133 years old Vossloh AG. In fact, as of today, the new Vossloh is a pure play railway infrastructure provider capturing market leading positions in key components and systems as well as a global market presence with superior customer access (mainly state-owned corporations).

This unique positioning is embedded in a market that enjoys secular growth as global megatrends such as increasing urbanization and globalization foster the need for more and - equally important – environmentally friendly transportation. Consequently, a shift to rail with corresponding investments in the existing and expansion of new rail tracks is inevitable in our view. For Vossloh, all this is likely to lead to steady demand from its global customer base (eAR CAGR 2020-2023E of 4.6%). In addition, given that growing traffic density is likely to make track availability a key success factor, Vossloh looks set to capture an ever-increasing share of sales from recurring maintenance and repair, which already stands at a high 80%. In our view, this clearly increases visibility for Vossloh’s sales and earnings forecasts. With regards to the latter, Vossloh guides 4-5% mid-term sales growth with EBIT margins set to further improve by some 400bp – from 6% in 2020 to c. 10% in 2024 (eAR) and beyond.

The recent re-rating of the stock (-10% since beg. of Sept.) therefore provides an attractive entry point for investors who want to own a hidden champion that benefits from secular growth trends. An attractive ESG rating (Leeway score of 73/100), coupled with an undemanding EV/EBITDA of 8x 2022E, therefore makes Vossloh an attractive BUYING opportunity, in our view. On top, a healthy dividend yield of 2%+ further appeals to the equity story. Hence, we are initiating coverage with a BUY recommendation and a PT of EUR 58.00, offering an upside potential of 27%.

Vossloh AG 2018 2019 2020 2021E 2022E 2023E

Sales 865.0 916.4 869.7 922.8 957.8 994.2 Growth yoy -5.8% 5.9% -5.1% 6.1% 3.8% 3.8% EBITDA 88.7 96.9 115.1 130.9 140.0 152.6 EBIT 49.4 -43.2 52.5 72.0 81.4 94.0 Net profit 18.2 -139.7 17.2 30.9 41.4 50.3

Net debt (net cash) 305.8 364.7 345.7 306.8 274.1 239.8 Net debt/EBITDA 3.4x 3.8x 3.0x 2.3x 2.0x 1.6x

EPS recurring 1.14 -8.32 0.98 1.76 2.36 2.87 DPS 1.00 0.00 1.00 0.88 1.18 1.43 Dividend yield 2.2% 0.0% 2.2% 1.9% 2.6% 3.1%

Gross profit margin 21.5% 18.6% 22.6% 23.0% 23.7% 24.6% EBITDA margin 10.3% 10.6% 13.2% 14.2% 14.6% 15.4% EBIT margin 5.7% -4.7% 6.0% 7.8% 8.5% 9.4% ROCE 5.3% -4.9% 5.9% 8.1% 9.5% 10.8%

EV/EBITDA 12.9x 12.4x 10.3x 8.7x 8.0x 7.1x EV/EBIT 23.1x -27.9x 22.6x 15.9x 13.7x 11.5x PER 40.2x -5.5x 46.8x 26.0x 19.4x 16.0x FCF yield 5.1% 1.6% 7.0% 6.9% 6.1% 7.2%

Source: Company data, AlsterResearch

Source: Company data, AlsterResearch

High/low 52 weeks 49.45 / 29.85 Price/Book Ratio 2.0x Ticker / Symbols ISIN DE0007667107 WKN 766710 Bloomberg VOS:GR Changes in estimates Sales EBIT EPS

2021 old ∆

00.0 –

00.0 –

00.0 –

2022 old ∆

00.0 –

00.0 –

00.0 –

2023 old ∆

00.0 –

00.0 –

00.0 –

Key share data Number of shares: (in m pcs) 17.56 Book value per share: (in EUR) 22.69 Ø trading volume: (12 months) 22,000 Major shareholders KB Holding GmbH 50.1% Franklin Mutual Advisers 5.0%

Free Float 44.9%

Company description Vossloh AG is a rail infrastructure company, offering a portfolio of hardware and services such as fastening systems, concrete sleepers, switches & crossings as well as rail services. The company has an expansive manufacturing footprint with c. 35 sites globally




Investment case in six charts

Source: Company data; AlsterResearch

Products & Services Regional sales split in %

Segmental breakdown in % Unique hardware and services offering

Mid term outlook Major Shareholders

Domestic9%

Europe (ex domestic)

46%

The Americas15%

Asia17%

Rest of World13%

Freefloat; 45%KB Holding GmbH; 50%

Franklin Mutual Advisers; 5%

Core Components

42%

Customized Modules

46%

Lifecycle Solutions

12%



Table of content

Investment case in six charts 3

Table of content 4

Company background 5

Quality 8

SWOT analysis 9

Growth 10

Valuation 12

Financials in six charts 14

Financials 15

Conflicts of interest 19

Important disclosures 20

Contacts 21



Company background

Products & services

Vossloh is a technology company that provides a comprehensive range of hardware products and services for development and maintenance of rail infrastructure. It develops and markets high-performance rail fastening systems, concrete ties, crossing panels, signaling products, and switch systems. It also provides installation and maintenance services throughout the lifecycle of tracks, ranging from rail commissioning, welding, milling, transporting long rails, providing preventive care of tracks and switches, and replacing/recycling. While the products and services are provided on an industrial scale, Vossloh also customizes these products based on individual projects. The Germany-based Vossloh operates through its 80 group companies in c. 30 countries, has over 35 production sites and sells in more than 85 countries.

Vossloh operates through three business segments: i) Core Components (43% of total revenues in 2020, involves development and large-scale manufacture of rail fastening systems and concrete ties), ii) Customized Modules (46%, involves development, installation and maintenance of customised rail modules, switch systems, crossings, and related products), and iii) Lifecycle Solutions (12%, provides a comprehensive range of corrective and preventive services for rails and switches, welding services, and switch logistics).

Overview Products & Services




Management

The management board consists of three key persons: Oliver Schuster has been serving as chief executive officer and chairman of Vossloh since October 2019. He previously served as chief financial officer (CFO) of Vossloh. Prior to that, he was a member of the executive board of SKW Stahl-Metallurgie Holding AG and held various senior management roles in Infineon Technologies AG.

Dr. Thomas Triska was appointed CFO in November 2020. He joined Vossloh in 2009 and held many management positions, including head ofcorporate controlling, head of corporate development, head of corporate communications and director of finance.

Jan Furnivall has been the group’s chief operating officer since November 2020. He joined Vossloh in 2015 and has served in the roles of general counsel, chief compliance officer and head of corporate strategy.


Sales by segment in %

Management

Oliver Schuster Dr. Thomas Triska Jan Furnivall

CEO CFO COO



Shareholders

Vossloh is majority owned by KB Holding GmbH – an investment vehicle of Hermann Thiele who recently passed away. Besides the 50.1% stake in Vossloh, KB Holding also holds c. 95% of the stake in Knorr Bremse, another Germany-listed company which is the world's leading manufacturer of braking systems and a leading supplier of safety-critical sub-systems for the railroad industry. “KB” actually stands for “Knorr Bremse”. Apart from that, the remainder of the shares are considered free float with Franklin Mutual being the only larger investor with a c. 5% stake. The total number of shares outstanding are approx.. 17.56m (end of 2020).


Major shareholders



Quality

Customers

The majority of Vossloh’s customers are public sector companies, as rail transport in most countries is largely state owned and fuelled by government budgets, hence translating to low customer risk. Its customers also include private railway companies, network operators, and municipal and regional transport companies. The group has a good degree of geographical diversification, with Europe (55% of total revenues in 2020) contributing the highest, followed by Asia (17%), the Americas (15%), Australia (11%), and Africa (2%). Although potential customers are limited, Vossloh benefits from relatively non-cyclical demand for its products, and its markets are characterised by long-term investments and a high level of necessary maintenance spending.

The majority of the group’s revenues (c. 85%) are driven by replacement and maintenance of existing infrastructure, providing high revenue visibility.

Regional sales split (EUR m) 2018 2019 2020 2021E 2022E 2023E

Domestic 85.7 81.8 74.2 78.7 81.7 84.8

Europe (ex domestic) 444.8 422.4 401.8 426.3 442.5 459.3

The Americas 159.5 187.6 127.3 135.1 140.2 145.5

Asia 132.2 149.7 151.4 160.6 166.7 173.1

Rest of World 42.8 74.9 115.0 122.0 126.7 131.5

Sales 865.0 916.4 869.7 922.8 957.8 994.2


Competition

Vossloh is one of the leading rail infrastructure providers in the world. It is the market leader globally in track fasteners and switch systems and a leading manufacturer of concrete ties in North America and Australia. Around 70% of rail tracks in Europe use Vossloh fastening systems, and the group has an unparalleled share of 70% in the US’ installed concrete tie base and a 75% share in deliveries of new rails in Germany. Furthermore, it has a niche position in preventive rail maintenance, backed by its unique high-speed grinding technology.

While there are multiple players in the rail infrastructure space, Vossloh’s 135+ year track record, comprehensive range of products and services, expansive manufacturing footprint in c. 35 sites globally, local production, and sales presence ensuring customer proximity and strong research and development capabilities (which is helping push digital-based products and services) have acted in its favor.

Suppliers

Vossloh has rigorous selection criteria for its suppliers, who, existing and potential, are regularly assessed for their ability to fulfil expected quality standards (mainly on their ability to comply with applicable regulatory and statutory requirements) and timeliness of delivery. The group awards contracts only to companies on the list of approved suppliers. Furthermore, Vossloh has established long-term priority supply agreements and is increasing vertical integration in certain areas to minimize procurement-related risks.



SWOT analysis

Strengths

• Long lasting (135+) years of track record

• Market leading position in key components

• Customer proximity with a global manufacturing footprint

• Unprecedented R&D capabilities

• High share of recurring maintenance and repair sales

• Noncyclical demand

• Low customer risk with most customers being state owned companies

Weaknesses

• Exposure to lumpy rail infrastructure market

• Long investment cycles

• Larger dependency from China

Opportunities

• favorable megatrends such as population growth, urbanization, and globalization

• M&A could fuel further growth potential

• Climate protection measurements are likely to lead to higher rail infrastructure investments in the future

• Mass rail transport still the most cost-effective way of traveling

Threats

• Budget restrictions of (mainly) European countries

• Increase in competition in other markets such as China



Growth

Vossloh operates in the defensive rail infrastructure market, where investments are made on a long-term basis and are typically fueled by government budgets for public/mass transport. According to Union des Industries Ferroviaires Européennes (UNIFE), the rail technology market is expected to post a CAGR of 2.3% through 2023-2025 (vs the average volume of 2017-2019), with an estimated annual investments of EUR 177bn per annum, with the majority of business coming from Western Europe and NAFTA countries, where Vossloh has a strong presence.

Globally, rail technology has been witnessing steady growth, riding on favorable megatrends such as population growth, urbanization, globalization, and a resultant increase in international trade flows, in addition to rising demand for an environmentally sustainable and cost-efficient mode of transport. The expectant rise in rail traffic would not only be supported by expansions in network infrastructure, but more so by diverting substantial traffic on existing tracks. This is set to accentuate the use of automated train control systems and smart track maintenance solutions. Vossloh’s unique proposition as a comprehensive provider of track-related products and services (with robust artificial intelligence/analytics-backed predictive and condition-based maintenance capabilities) and its steady investments in digital innovation places it at a sweet spot to tap these secular tailwinds.

Over 2014-2020, Vossloh undertook a series of divestments of non-core businesses (disposed locomotives, electrical systems, and rail vehicles) to reposition itself as a pure-play railway infrastructure provider. As a part of it current strategic priorities, the group intends to strengthen its existing business by increasing sales concentration in selected markets, expanding geographical footprint of its services segment, and focusing on digitalization and sustainable reduction in production costs.

Through these initiatives, Vossloh targets to achieve average annual sales growth of 4%-5% over the medium term (ahead of the current forecast for the industry), and deliver an EBITDA margin of 16% and an EBIT margin of 10% over the long term (vs 14.2% and 8.4% respectively in 2020).

Source: Company data

Secular growth trends



Below shows Vossloh’s growth and earnings history as well as out 2021-2023E forecasts. We believe that the medium EBIT margin will not be achieved before 2024E. Nonetheless, CAGR growth is modelled at 4.6%, which however reflects some catch-up from Covid-19 related slump in sales in 2020 (-5.1%).

Growth table (EURm) 2018 2019 2020 2021E 2022E 2023E

Sales 865.0 916.4 869.7 922.8 957.8 994.2

Sales growth -5.8% 5.9% -5.1% 6.1% 3.8% 3.8%

EBIT 49.4 -43.2 52.5 72.0 81.4 94.0

EBIT margin 5.7% -4.7% 6.0% 7.8% 8.5% 9.4%

Net profit 18.2 -139.7 17.2 30.9 41.4 50.3


Depicted below, is the company’s 2021E outlook as well as its mid-term ambitions. Our 2021 estimates are fully in-line with company guidance.


Quarterly overview

The following table gives an overview about the quarterly performance of Vossloh

P&L data Q3

2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021

Sales 225.0 254.3 182.9 210.2 224.5 252.0 207.1 255.5

yoy growth in % -15.1% 5.2% -3.7% -14.9% -0.2% -0.9% 13.2% 21.6%

Gross profit 41.2 44.6 35.5 48.9 56.8 55.6 49.6 67.9

Gross margin in % 18.3% 17.5% 19.4% 23.3% 25.3% 22.1% 23.9% 26.6%

EBITDA 14.0 14.2 32.5 17.0 33.3 31.1 23.1 42.1

EBITDA margin in % 6.2% 5.6% 17.8% 8.1% 14.8% 12.3% 11.2% 16.5%

EBIT -49.3 -20.0 0.2 12.9 23.0 17.0 9.9 29.5

EBIT margin in % -21.9% -7.9% 0.1% 6.1% 10.2% 6.7% 4.8% 11.5%

EBT -24.5 -34.2 12.4 9.7 21.7 14.9 10.9 27.5

taxes paid 1.1 8.2 -4.8 8.8 4.8 2.9 4.8 12.7

tax rate in % -4.5% -24.0% -38.7% 90.7% 22.1% 19.5% 44.0% 46.2%

net profit -62.3 -52.0 -2.7 -7.4 18.0 9.3 2.8 9.3

yoy growth in % na% na% na% na% na% na% na% na%

EPS -3.56 -2.96 -0.15 -0.43 1.01 0.53 0.16 0.53


Guidance and mid term ambitions



Valuation

DCF Model

The DCF model results in a fair value of EUR 57.67 per share: Top-line growth: We expect Vossloh AG to continue benefitting from structural growth. Hence our growth estimates for 2021-28E is in the range of 3.1% p.a. The long-term growth rate is set at 2.0%.

EBIT margins. As of 2024E, we model 10% EBIT margins, which we believe are defendable in the long run. Consequently, we have used the 10% margin also in our terminal value calculation.

WACC. The averaged 1-, 3- and 5-year historical equity beta is calculated as 0.81. Unleverering and correcting for mean reversion yields an asset beta of 0.72. Combined with a risk-free rate of 2.0% and an equity risk premium of 6.0% this yields cost of equity of 9.5%. With pre-tax cost of borrowing at 5.0%, a tax rate of 25.0% and target debt/equity of 1.0 this results in a long-term WACC of 6.6%.

DCF (EUR m) (except per share data and beta)

2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E Terminal

value

NOPAT 40.5 48.9 57.4 60.8 64.2 65.7 67.3 68.8

Depreciation & amortization 59.0 58.6 58.7 59.1 59.9 60.8 61.8 62.9

Change in working capital 15.1 -2.3 -2.4 -2.5 -1.6 -1.7 -1.7 -1.8

Chg. in long-term provisions 0.5 2.3 2.4 2.7 1.7 1.8 1.8 1.9

Capex -55.4 -57.5 -59.7 -62.0 -63.6 -65.2 -66.8 -68.5

Cash flow 59.6 50.1 56.4 58.0 60.6 61.4 62.3 63.3 1,390.6

Present value 58.7 46.3 49.1 47.5 46.6 44.5 42.5 40.6 870.7

WACC 6.2% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.6%

DCF per share derived from DCF avg. growth and earnings assumptions

Planning horizon avg. revenue growth (2021E - 2028E) 3.1%

Total present value 1,246.5 Terminal value growth (2028E - infinity) 2.0%

Mid-year adj. total present value 1,285.3 Terminal year ROCE 13.0%

Net debt / cash at start of year 345.7 Terminal year WACC 6.6%

Financial assets 108.8

Provisions and off b/s debt 35.5 Terminal WACC derived from

Equity value 1,012.9 Cost of borrowing (before taxes) 5.0%

No. of shares outstanding 17.6 Long-term tax rate 25.0%

Equity beta 0.81

Discounted cash flow / share 57.67 Unlevered beta (industry or company) 0.72

upside/(downside) 25.9% Target debt / equity 1.0

Relevered beta 1.26

Risk-free rate 2.0%

Equity risk premium 6.0%

Share price 45.80 Cost of equity 9.5%

Sensitivity analysis DCF

Long term growth Share of present value

Ch

an

ge

in W

AC

C

(%-p

oin

ts)

1.0% 1.5% 2.0% 2.5% 3.0%

2.0% 32.5 34.5 36.9 39.6 42.8 2021E - 2024E 16.2%

1.0% 39.1 42.0 45.4 49.5 54.4 2025E - 2028E 14.0%

0.0% 48.2 52.5 57.7 64.1 72.3 terminal value 69.9%

-1.0% 61.2 68.0 76.6 88.1 103.8

-2.0% 81.2 93.3 109.9 134.3 173.5

Source: AlsterResearch



FCF Yield Model

Due to the fact that companies rarely bear sufficient resemblance to peers in terms of geographical exposure, size or competitive strength and in order to adjust for the pitfalls of weak long-term visibility, an Adjusted Free Cash Flow analysis (Adjusted FCF) has been conducted. The adjusted Free Cash Flow Yield results in a fair value between EUR 37.59 per share based on 2021E and 71.56 EUR per share on 2025E estimates. We value Vossloh AG using a DCF based fair value approach, which best is reflected using our adj. FCF yield 2023E. The main driver of this model is the level of return available to a controlling investor, influenced by the cost of that investors’ capital (opportunity costs) and the purchase price – in this case the enterprise value of the company. Here, the adjusted FCF yield is used as a proxy for the required return and is defined as EBITDA less minority interest, taxes and investments required to maintain existing assets (maintenance capex).

FCF yield in EURm 2021E 2022E 2023E 2024E 2025E

EBITDA 130.9 140.0 152.6 158.9 165.3

- Maintenance capex 56.4 56.3 56.5 57.0 57.9 - Minorities 6.3 5.6 5.6 6.1 6.5 - tax expenses 20.0 23.2 27.5 29.9 31.9

= Adjusted FCF 48.1 55.0 63.0 65.9 69.0

Actual Market Cap 804.4 804.4 804.4 804.4 804.4

+ Net debt (cash) 306.8 274.1 239.8 207.1 173.3 + Pension provisions 34.1 35.4 36.8 38.3 39.2 + Off b/s financing 0.0 0.0 0.0 0.0 0.0 - Financial assets 108.8 108.8 108.8 108.8 108.8 - Acc. dividend payments 17.6 33.0 53.7 78.9 106.2 EV Reconciliations 214.6 167.7 114.1 57.7 -2.5

= Actual EV' 1,019.1 972.2 918.6 862.2 802.0

Adjusted FCF yield 4.7% 5.7% 6.9% 7.6% 8.6%

base hurdle rate 6.0% 6.0% 6.0% 6.0% 6.0% ESG adjustment 0.5% 0.5% 0.5% 0.5% 0.5% adjusted hurdle rate 5.5% 5.5% 5.5% 5.5% 5.5%

Fair EV 874.9 999.6 1,146.0 1,198.3 1,254.5

- EV Reconciliations 214.6 167.7 114.1 57.7 -2.5

Fair Market Cap 660.3 831.9 1,031.9 1,140.6 1,257.0

No. of shares (million) 17.6 17.6 17.6 17.6 17.6

Fair value per share in EUR 37.59 47.36 58.75 64.94 71.56 Premium (-) / discount (+) -17.9% 3.4% 28.3% 41.8% 56.3%

Sensitivity analysis fair value

Adjusted hurdle rate

3.5% 66.1 79.9 96.0 103.9 112.4

4.5% 48.7 60.0 73.2 80.1 87.4

5.5% 37.6 47.4 58.7 64.9 71.6

6.5% 29.9 38.6 48.7 54.4 60.6

7.5% 24.3 32.2 41.4 46.7 52.5


Simply put, the model assumes that investors require companies to generate a minimum return on the investor’s purchase price. The required after-tax return equals the model’s hurdle rate of 6.0%. Anything less suggests the stock is expensive; anything more suggests the stock is cheap. ESG adjustments might be applicable, based on the overall Leeway ESG Score. A high score indicates high awareness for environmental, social or governance issues and thus might lower the overall risk an investment in the company might carry. A low score on the contrary might increase the risk of an investment and might therefore trigger a higher required hurdle rate.



Financials in six charts


Sales vs. EBITDA margin development EPS, DPS in EUR & yoy EPS growth

ROCE vs. WACC (pre tax) Net debt and net debt/EBITDA

Capex & chgn in w/c requirements in EURm Free Cash Flow in EURm

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

800

850

900

950

1.000

1.050

17 18 19 20 21E 22E 23E

Sales (€m) EBITDA margin (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-10,00

-8,00

-6,00

-4,00

-2,00

0,00

2,00

4,00

17 18 19 20 21E 22E 23E

EPS DPS EPS growth

-6,0%

-4,0%

-2,0%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

17 18 19 20 21E 22E 23E

ROCE WACC pre tax

0,00x

0,50x

1,00x

1,50x

2,00x

2,50x

3,00x

3,50x

4,00x

0

50

100

150

200

250

300

350

400

17 18 19 20 21E 22E 23E

Net debt (€m) Net debt / EBITDA (x)

-60

-40

-20

0

20

40

60

80

17 18 19 20 21E 22E 23E

-20

-10

0

10

20

30

40

50

60

70

80

17 18 19 20 21E 22E 23E

Capex Change in w/c



Financials

Profit and loss (EUR m) 2018 2019 2020 2021E 2022E 2023E

Sales 865.0 916.4 869.7 922.8 957.8 994.2

Sales growth -5.8% 5.9% -5.1% 6.1% 3.8% 3.8%

Cost of sales 678.7 745.6 672.8 710.5 730.8 749.1

Gross profit 186.3 170.8 196.9 212.2 227.0 245.1

SG&A expenses 138.5 161.1 140.3 149.5 155.2 161.1

Research and development 10.9 10.7 8.9 9.2 9.6 9.9

Other operating expenses (income) -16.8 33.6 -13.0 -18.5 -19.2 -19.9

EBITDA 88.7 96.9 115.1 130.9 140.0 152.6

Depreciation 38.4 137.8 60.8 56.4 56.3 56.5

EBITA 50.3 -40.9 54.3 74.5 83.8 96.2

Amortisation of goodwill and intangible assets 0.9 2.3 1.8 2.5 2.4 2.2

EBIT 49.4 -43.2 52.5 72.0 81.4 94.0

Financial result -8.6 -12.9 6.2 -14.7 -11.3 -10.5

Recurring pretax income from continuing operations 40.8 -56.1 58.7 57.3 70.2 83.5

Extraordinary income/loss 0.0 0.0 0.0 0.0 0.0 0.0

Earnings before taxes 40.8 -56.1 58.7 57.3 70.2 83.5

Taxes 16.0 10.3 11.7 20.0 23.2 27.5

Net income from continuing operations 24.8 -66.4 47.0 37.2 47.0 55.9

Result from discontinued operations (net of tax) -2.1 -70.4 -26.2 0.0 0.0 0.0

Net income 22.7 -136.8 20.8 37.2 47.0 55.9

Minority interest -4.5 -2.9 -3.6 -6.3 -5.6 -5.6

Net profit (reported) 18.2 -139.7 17.2 30.9 41.4 50.3

Average number of shares 15.97 16.80 17.56 17.56 17.56 17.56

EPS reported 1.14 -8.32 0.98 1.76 2.36 2.87

Profit and loss (common size) 2018 2019 2020 2021E 2022E 2023E

Sales 100% 100% 100% 100% 100% 100%

Cost of sales 78% 81% 77% 77% 76% 75%

Gross profit 22% 19% 23% 23% 24% 25%

SG&A expenses 16% 18% 16% 16% 16% 16%

Research and development 1% 1% 1% 1% 1% 1%

Other operating expenses (income) -2% 4% -1% -2% -2% -2%

EBITDA 10% 11% 13% 14% 15% 15%

Depreciation 4% 15% 7% 6% 6% 6%

EBITA 6% -4% 6% 8% 9% 10%

Amortisation of goodwill and intangible assets 0% 0% 0% 0% 0% 0%

EBIT 6% -5% 6% 8% 9% 9%

Financial result -1% -1% 1% -2% -1% -1%

Recurring pretax income from continuing operations 5% -6% 7% 6% 7% 8%

Extraordinary income/loss 0% 0% 0% 0% 0% 0%

Earnings before taxes 5% -6% 7% 6% 7% 8%

Taxes 2% 1% 1% 2% 2% 3%

Net income from continuing operations 3% -7% 5% 4% 5% 6%

Result from discontinued operations (net of tax) -0% -8% -3% 0% 0% 0%

Net income 3% -15% 2% 4% 5% 6%

Minority interest -1% -0% -0% -1% -1% -1%

Net profit (reported) 2% -15% 2% 3% 4% 5%




Balance sheet (EUR m) 2018 2019 2020 2021E 2022E 2023E

Intangible assets (exl. Goodwill) 35.9 27.8 39.4 36.9 34.5 32.3

Goodwill 266.9 252.3 260.2 260.2 260.2 260.2

Property, plant and equipment 268.6 296.8 313.6 312.5 313.7 316.9

Financial assets 198.3 266.7 108.8 108.8 108.8 108.8

FIXED ASSETS 769.7 843.6 722.0 718.4 717.3 718.2

Inventories 174.8 152.1 163.4 155.7 160.2 164.2

Accounts receivable 219.5 217.8 213.8 214.9 223.1 231.5

Other current assets 34.6 43.1 33.7 33.7 33.7 33.7

Liquid assets 49.2 56.7 68.1 83.2 55.9 60.2

Deferred taxes 0.0 0.0 0.0 0.0 0.0 0.0

Deferred charges and prepaid expenses 17.6 18.1 15.5 16.6 17.2 17.9

CURRENT ASSETS 495.7 487.8 494.5 504.1 490.1 507.5

TOTAL ASSETS 1,265.4 1,331.4 1,216.5 1,222.5 1,207.3 1,225.7

SHAREHOLDERS EQUITY 512.5 394.2 398.6 418.3 449.8 485.1

MINORITY INTEREST 10.8 9.4 15.9 15.9 15.9 15.9

Long-term debt 324.0 385.8 244.5 240.0 180.0 150.0

Provisions for pensions and similar obligations 30.1 34.8 35.5 34.1 35.4 36.8

Other provisions 23.5 30.1 25.8 27.7 28.7 29.8

Non-current liabilities 377.6 450.7 305.8 301.8 244.2 216.6

short-term liabilities to banks 31.0 35.6 169.3 150.0 150.0 150.0

Accounts payable 139.2 132.8 152.3 165.5 170.2 174.5

Advance payments received on orders 15.8 29.0 42.7 41.5 43.1 44.7

Other liabilities (incl. from lease and rental contracts) 131.7 222.2 82.4 78.4 81.4 84.5

Deferred taxes 7.1 7.9 7.7 7.7 7.7 7.7

Deferred income 39.7 49.6 41.8 43.4 45.0 46.7

Current liabilities 364.5 477.1 496.2 486.5 497.4 508.1

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1,265.4 1,331.4 1,216.5 1,222.5 1,207.3 1,225.7

Balance sheet (common size) 2018 2019 2020 2021E 2022E 2023E

Intangible assets (excl. Goodwill) 3% 2% 3% 3% 3% 3%

Goodwill 21% 19% 21% 21% 22% 21%

Property, plant and equipment 21% 22% 26% 26% 26% 26%

Financial assets 16% 20% 9% 9% 9% 9%

FIXED ASSETS 61% 63% 59% 59% 59% 59%

Inventories 14% 11% 13% 13% 13% 13%

Accounts receivable 17% 16% 18% 18% 18% 19%

Other current assets 3% 3% 3% 3% 3% 3%

Liquid assets 4% 4% 6% 7% 5% 5%

Deferred taxes 0% 0% 0% 0% 0% 0%

Deferred charges and prepaid expenses 1% 1% 1% 1% 1% 1%

CURRENT ASSETS 39% 37% 41% 41% 41% 41%

TOTAL ASSETS 100% 100% 100% 100% 100% 100%

SHAREHOLDERS EQUITY 41% 30% 33% 34% 37% 40%

MINORITY INTEREST 1% 1% 1% 1% 1% 1%

Long-term debt 26% 29% 20% 20% 15% 12%

Provisions for pensions and similar obligations 2% 3% 3% 3% 3% 3%

Other provisions 2% 2% 2% 2% 2% 2%

Non-current liabilities 30% 34% 25% 25% 20% 18%

short-term liabilities to banks 2% 3% 14% 12% 12% 12%

Accounts payable 11% 10% 13% 14% 14% 14%

Advance payments received on orders 1% 2% 4% 3% 4% 4%

Other liabilities (incl. from lease and rental contracts) 10% 17% 7% 6% 7% 7%

Deferred taxes 1% 1% 1% 1% 1% 1%

Deferred income 3% 4% 3% 4% 4% 4%

Current liabilities 29% 36% 41% 40% 41% 41%

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 100% 100% 100% 100% 100% 100%




Cash flow statement (EUR m) 2018 2019 2020 2021E 2022E 2023E

Net profit/loss 54.2 -37.6 73.1 37.2 47.0 55.9

Depreciation of fixed assets (incl. leases) 38.4 137.8 60.8 56.4 56.3 56.5

Amortisation of goodwill 0.0 0.0 0.0 0.0 0.0 0.0

Amortisation of intangible assets 0.0 0.0 0.0 2.5 2.4 2.2

Others -28.4 -50.4 -39.3 0.5 2.3 2.4

Cash flow from operations before changes in w/c 64.2 49.8 94.6 96.7 108.0 117.0

Increase/decrease in inventory 0.0 0.0 0.0 7.7 -4.4 -4.0

Increase/decrease in accounts receivable 0.0 0.0 0.0 -1.1 -8.2 -8.5

Increase/decrease in accounts payable 0.0 0.0 0.0 13.2 4.7 4.3

Increase/decrease in other w/c positions -26.6 -37.5 -37.9 -4.7 5.6 5.8

Increase/decrease in working capital -26.6 -37.5 -37.9 15.1 -2.3 -2.4

Cash flow from operating activities 37.6 12.3 56.7 111.8 105.7 114.6

CAPEX -57.1 -51.3 -52.0 -55.4 -57.5 -59.7

Payments for acquisitions -42.9 -4.8 0.0 0.0 0.0 0.0

Financial investments 1.6 -3.0 -0.6 0.0 0.0 0.0

Income from asset disposals 3.4 4.0 3.7 0.0 0.0 0.0

Cash flow from investing activities -95.0 -55.1 -48.9 -55.4 -57.5 -59.7

Cash flow before financing -57.4 -42.8 7.8 56.4 48.2 54.9

Increase/decrease in debt position 20.1 17.1 -50.0 -23.8 -60.0 -30.0

Purchase of own shares 0.0 0.0 0.0 0.0 0.0 0.0

Capital measures 0.0 48.5 0.0 0.0 0.0 0.0

Dividends paid -20.3 0.0 0.0 -17.6 -15.4 -20.7

Others -13.9 -37.5 -17.4 0.0 0.0 0.0

Effects of exchange rate changes on cash -0.6 0.4 -2.2 0.0 0.0 0.0

Cash flow from financing activities -14.7 28.5 -69.6 -41.4 -75.4 -50.7

Increase/decrease in liquid assets -72.1 -14.3 -61.8 15.1 -27.3 4.3

Liquid assets at end of period 23.3 48.6 32.7 47.8 20.5 24.8


Regional sales split (EURm) 2018 2019 2020 2021E 2022E 2023E

Domestic 85.7 81.8 74.2 78.7 81.7 84.8

Europe (ex domestic) 444.8 422.4 401.8 426.3 442.5 459.3

The Americas 159.5 187.6 127.3 135.1 140.2 145.5

Asia 132.2 149.7 151.4 160.6 166.7 173.1

Rest of World 42.8 74.9 115.0 122.0 126.7 131.5

Total sales 865.0 916.4 869.7 922.8 957.8 994.2

Regional sales split (common size) 2018 2019 2020 2021E 2022E 2023E

Domestic 9.9% 8.9% 8.5% 8.5% 8.5% 8.5%

Europe (ex domestic) 51.4% 46.1% 46.2% 46.2% 46.2% 46.2%

The Americas 18.4% 20.5% 14.6% 14.6% 14.6% 14.6%

Asia 15.3% 16.3% 17.4% 17.4% 17.4% 17.4%

Rest of World 4.9% 8.2% 13.2% 13.2% 13.2% 13.2%

Total sales 100% 100% 100% 100% 100% 100%




Ratios 2018 2019 2020 2021E 2022E 2023E

Per share data

Earnings per share reported 1.14 -8.32 0.98 1.76 2.36 2.87

Cash flow per share 2.35 0.73 3.23 3.15 2.81 3.31

Book value per share 32.10 23.47 22.69 23.81 25.61 27.62

Dividend per share 1.00 0.00 1.00 0.88 1.18 1.43

Valuation

P/E 40.2x -5.5x 46.8x 26.0x 19.4x 16.0x

P/CF 19.4x 62.6x 14.2x 14.5x 16.3x 13.8x

P/BV 1.4x 2.0x 2.0x 1.9x 1.8x 1.7x

Dividend yield (%) 2.2% 0.0% 2.2% 1.9% 2.6% 3.1%

FCF yield (%) 5.1% 1.6% 7.0% 6.9% 6.1% 7.2%

EV/Sales 1.3x 1.3x 1.4x 1.2x 1.2x 1.1x

EV/EBITDA 12.9x 12.4x 10.3x 8.7x 8.0x 7.1x

EV/EBIT 23.1x -27.9x 22.6x 15.9x 13.7x 11.5x

Income statement (EURm)

Sales 865.0 916.4 869.7 922.8 957.8 994.2

yoy chg in % -5.8% 5.9% -5.1% 6.1% 3.8% 3.8%

Gross profit 186.3 170.8 196.9 212.2 227.0 245.1

Gross margin in % 21.5% 18.6% 22.6% 23.0% 23.7% 24.6%

EBITDA 88.7 96.9 115.1 130.9 140.0 152.6

EBITDA margin in % 10.3% 10.6% 13.2% 14.2% 14.6% 15.4%

EBIT 49.4 -43.2 52.5 72.0 81.4 94.0

EBIT margin in % 5.7% -4.7% 6.0% 7.8% 8.5% 9.4%

Net profit 18.2 -139.7 17.2 30.9 41.4 50.3

Cash flow statement (EURm)

CF from operations 37.6 12.3 56.7 111.8 105.7 114.6

Capex -57.1 -51.3 -52.0 -55.4 -57.5 -59.7

Maintenance Capex 0.0 0.0 0.0 56.4 56.3 56.5

Free cash flow -19.5 -39.0 4.7 56.4 48.2 54.9

Balance sheet (EURm)

Intangible assets 302.8 280.1 299.6 297.1 294.7 292.5

Tangible assets 268.6 296.8 313.6 312.5 313.7 316.9

Shareholders' equity 512.5 394.2 398.6 418.3 449.8 485.1

Pension provisions 30.1 34.8 35.5 34.1 35.4 36.8

Liabilities and provisions 408.6 486.3 475.1 451.8 394.2 366.6

Net financial debt 305.8 364.7 345.7 306.8 274.1 239.8

w/c requirements 239.3 208.1 182.2 163.6 169.9 176.5

Ratios

ROE 4.4% -34.7% 5.2% 8.9% 10.5% 11.5%

ROCE 5.3% -4.9% 5.9% 8.1% 9.5% 10.8%

Net gearing 59.7% 92.5% 86.7% 73.4% 60.9% 49.4%

Net debt / EBITDA 3.4x 3.8x 3.0x 2.3x 2.0x 1.6x




Conflicts of interest

Disclosures regarding research publications of SRH AlsterResearch AG pursuant to section 85 of the German Securities Trading Act (WpHG) and distributed in the UK under an EEA branch passport, subject to the FCA requirements on research recommendation disclosures 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 analyzed 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 SRH AlsterResearch 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 analyzed company, (2) has entered into an agreement on the production of the research report with the analyzed company, (3) or its affiliate(s) has, within the past twelve months, been party to an agreement on the provision of investment banking

services with the analyzed company or have received services or a promise of services under the term of such an agreement,

(4) or its affiliate(s) holds a) 5% or more of the share capital of the analyzed company, or b) the analyzed company holds 5%

or more of the share capital of SRH AlsterResearch AG or its affiliate(s), (5) or its affiliate(s) holds a net long (a) or a net short (b) position of 0.5% of the outstanding share capital of the analyzed

company or derivatives thereof, (6) or its affiliate(s) is a market maker or liquidity provider in the financial instruments of the issuer, (7) or the analyst has any other significant financial interests relating to the analyzed company such as, for example,

exercising mandates in the interest of the analyzed company or a significant conflict of interest with respect to the issuer, (8) The research report has been made available to the company prior to its publication. Thereafter, only factual changes

have been made to the report. Conflicts of interest that existed at the time when this research report was published:

Company Disclosure

Vossloh AG



Important disclosures 1. General Information/Liabilities This research report has been produced for the information purposes of institutional investors only, and is not in any way a personal recommendation, offer or solicitation to buy or sell the financial instruments mentioned herein. The document is confidential and is made available by SRH AlsterResearch AG, exclusively to selected recipients [in DE, GB, FR, CH, US, UK, Scandinavia, and Benelux or, in individual cases, also in other countries]. A distribution to private investors in the sense of the German Securities Trading Act (WpHG) is excluded. It is not allowed to pass the research report on to persons other than the intended recipient without the permission of SRH AlsterResearch AG. Reproduction of this document, in whole or in part, is not permitted without prior permission SRH AlsterResearch AG. All rights reserved. Under no circumstances shall SRH AlsterResearch AG, any of its employees involved in the preparation, have any liability for possible errors or incompleteness of the information included in this research report – neither in relation to indirect or direct nor consequential damages. Liability for damages arising either directly or as a consequence of the use of information, opinions and estimates is also excluded. Past performance of a financial instrument is not necessarily indicative of future performance. 2. Responsibilities This research report was prepared by the research analyst named on the front page (the ʺProducerʺ). The Producer is solely responsible for the views and estimates expressed in this report. The report has been prepared independently. The content of the research report was not influenced by the issuer of the analyzed financial instrument at any time. It may be possible that parts of the research report were handed out to the issuer for information purposes prior to the publication without any major amendments being made thereafter. 3. Organizational Requirements SRH AlsterResearch AG took internal organizational and regulative precautions to avoid or accordingly disclose possible conflicts of interest in connection with the preparation and distribution of the research report. All members of AlsterResearch AG involved in the preparation of the research report are subject to internal compliance regulations. No part of the Producer’s compensation is directly or indirectly related to the preparation of this financial analysis. In case a research analyst or a closely related person is confronted with a conflict of interest, the research analyst is restricted from covering this company. 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. 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. Detailed information on the valuation principles and methods used and the underlying assumptions can be found at https://www.alsterresearch.com. SRH AlsterResearch AG uses the following three-step rating system for the analyzed 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. NB: The ratings of SRH AlsterResearch AG are not based on a performance that is expected to be “relative“ to the market.

The decision on the choice of the financial instruments analyzed in this document was solely made by SRH AlsterResearch AG. The opinions and estimates in this research report are subject to change without notice. It is within the discretion of SRH AlsterResearch AG whether and when it publishes an update to this research report, but in general updates are created on a regular basis, after 6 months at the latest. A sensitivity analysis is included and published in company’s initial studies. 5. Date and time of first publication of this financial analysis 21-Sep-21 10:34:51 6. Risk information

• Stock exchange investments and investments in companies (shares) are always speculative and involve the risk of total loss.

• This is particularly true in respect of investments in companies which are not established and/or small and have no established business or corporate assets.

• Share prices may fluctuate significantly. This is particularly true for shares with low liquidity (market breadth). Even small orders can have a significant impact on the share price.

• In the case of shares in narrow markets, it may also happen that there is no or very little actual trading there and that published prices are not based on actual trading but have only been provided by a stockbroker.

• In such markets a shareholder cannot expect to find a buyer for his shares at all and/or at reasonable prices. In such narrow markets there is a very high possibility of manipulating prices and in such markets there are often considerable price fluctuations.

• An investment in shares with low liquidity and low market capitalization is therefore highly speculative and represents a very high risk.

• There is no regulated market for unlisted shares and securities and a sale is not possible or only possible on an individual basis.

7. Major Sources of Information Part of the information required for this research report was made available by the issuer of the financial instrument. Furthermore, this report is based on publicly available sources (such as, for example, Bloomberg, Reuters, VWD-Trader and the relevant daily press) believed to be reliable. SRH AlsterResearch AG has checked the information for plausibility but not for accuracy or completeness. 8. Competent Supervisory Authority SRH AlsterResearch AG are under supervision of the BaFin – German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht), Graurheindorfer Straße 108, 53117 Bonn and Marie-Curie-Straße 24 – 28, 60439 Frankfurt a.M. This document is distributed in the UK under a MiFID EEA branch passport and in compliance with the applicable FCA requirements. 9. Specific Comments for Recipients Outside of Germany This research report is subject to the law of the Federal Republic of Germany. The distribution of this information to other states in particular to the USA, Canada, Australia and Japan may be restricted or prohibited by the laws applicable within this state. 10. Miscellaneous According to Article 4(1) No. i of the delegated regulation 2016/958 supplementing regulation 596/2014 of the European Parliament, further information regarding investment recommendations of the last 12 months are published free of charge under https://www.alsterresearch.com.


https://www.alsterresearch.com/


Contacts

SRH AlsterResearch AG Himmelstr. 9 22299 Hamburg

Tel: +49 40 309 293-52 Fax: +49 40 556 330-54 E-Mail: [email protected]

mwb fairtrade Wertpapierhandelsbank AG Rottenbucher Straße 28 82166 Gräfelfing Tel: +49 89 85852-0 Fax: +49 89 85852-505 E-Mail: [email protected]

Our research can be found under

Research OLIVER DREBING Senior Analyst Tel: +49 40 309 293-57 E-Mail: [email protected] HARALD HOF Senior Analyst Tel: +49 40 309 293-52 E-Mail: [email protected] KARSTEN RAHLF, CFA Senior Analyst Tel: +49 40 309 293-54 E-Mail: [email protected] KATHARINA SCHLÖTER Analyst Tel: +49 40 309 293-52 E-Mail: [email protected] THOMAS WISSLER Senior Analyst Tel: +49 40 309 293-58 E-Mail: [email protected] DR. OLIVER WOJAHN, CFA Senior Analyst Tel: +49 40 309 293-58 E-Mail: [email protected] ALEXANDER ZIENKOWICZ Senior Analyst Tel: +49 40 309 293-56 E-Mail: [email protected]

Sales MARKUS KÖNIG-WEISS Head of Sales Tel: +49 40 309 293-52 E-Mail: [email protected]

Equity Capital Markets / Trading KAI JORDAN Member of the Board Tel: +49 40 36 0995-22 E-Mail: [email protected] ALEXANDER DEUSS Head of Institutional Sales Tel: +49 40 36 0995- 22 E-Mail: [email protected] SASCHA GUENON Head of Designated Sponsoring Tel: +49 40 360 995 - 23 E-Mail: [email protected] RESEARCH HUB www.research-hub.de BLOOMBERG www.bloomberg.com FACTSET www.factset.com THOMSON REUTERS / REFINITIV www.refinitiv.com CAPITALIQ www.capitaliq.com


Documents

Re-rating offers attractive entry opportunity; Initiate