Allgeier SE

Investor Presentation • Nov 19, 2014

Allgeier SE

Recommendation: BUY (BUY)

Risk: MEDIUM (MEDIUM) Price target: EUR 17.00 (20.00)

Preliminary 3Q figures confirmed

• 3Q report issued: The final 3Q figures matched the preliminary figures as published on 6 November. Sales from continuing operations rose by 5.6% and reached EUR 109.6m in 3Q14 (3Q13: EUR 103.8m). EBITDA from continuing operations nevertheless dropped to EUR 8.1m (3Q13: EUR 8.8m). More 3Q and 9M figures are given on p. 2. On 30 Oct. 2014, the Company sold Allgeier Benelux, a business unit with net assets of about EUR 0.9m. Allgeier expects a minor capital gain from this sale. Allgeier Benelux was newly displayed within the discontinued operations in 9M14 and 9M13, just like the previously sold subsidiary Didas (closing: 3 July). Both divestment transactions further substantiated Allgeier's strategy to concentrate on future-oriented business fields with strong growth potential.
• Impact from Cancom shares: Allgeier received 263,783 Cancom shares in return for Didas, and recorded a capital gain of EUR 1.8m from this transaction. According to company information, Allgeier has already sold more than 12% of the Cancom shares at a price relatively close to acquisition cost (roughly EUR 38 per share). The proceeds (EUR 1.3m) are shown in the cash flow statement in the line 'payments from the sale of subsidiaries'. The rest of the shares are held as available-for-sale securities and carried at current market value. Value changes are recognised directly in equity. Due to the unfavourable share price development since the closing date, Allgeier had to book a EUR 1.1m charge to equity in 3Q. As the future selling price of the remaining stake is unforeseeable, we do not assume any future P&L impact from these shares but note that Allgeier might only be able to sell the shares below the original acquisition cost.
• Adjusted estimates: Political discussions, in particular on the maximum duration of temporary employment, have resulted in significant uncertainties and material effects on Allgeier's Experts Division. According to company information, Allgeier has by now carried out the necessary structural and service-related adjustments to react to the changed market environment, and is now on track to expand growth and margins again. Nevertheless, we cautiously cut our sales and earnings estimates for FY2014-16E.
• Valuation and conclusion: We value the Cancom shares at yesterday's closing price of EUR 33.06 (13% below acquisition cost) and add this amount (EUR 7.6m) to Allgeier's fair value of equity from operations. A blend of a DCF model and a peer group comparison results in a new price target of EUR 17.00 (old: EUR 20.00). We confirm our 'BUY'.

Y/E Dec 31, EUR m	2012	2013	2014E	2015E	2016E
Sales	374.8	421.3	435.2	465.7	496.0
EBITDA	23.3	28.0	26.9	29.8	33.0
EBIT	10.6	14.5	14.7	19.8	23.8
Net result (incl. discontinued op.)	8.8	3.5	7.6	9.5	12.1
EPS (incl. discontinued op.)	1.05	0.42	0.86	1.06	1.35
EPS (from continuing op.)	0.53	0.38	0.73	1.06	1.35
DPS	0.50	0.50	0.50	0.50	0.50
EBITDA margin	6.2%	6.6%	6.2%	6.4%	6.6%
EBIT margin	2.8%	3.4%	3.4%	4.3%	4.8%
EV/EBITDA	9.1	7.6	7.9	7.1	6.4
EV/EBIT	20.1	14.7	14.4	10.7	8.9
Source: CBS Research AG, Allgeier SE

19 November 2014

Short company profile:

Munich-based Allgeier SE is one of the leading IT companies for Business Performance in the Germanspeaking region. With more than 5.000 employees and over 1,200 freelance IT experts, Allgeier offers its customers a complete service approach spanning design, implementation, and through to the operation of IT landscapes. Six operating divisions, each with their individual specialist or sector-related focal points, work together for more than 2,000 customers from almost all sectors.

Share data:
Share price (EUR, last closing price):	14.28
Shares outstanding (m):	8.8
Market capitalisation (EUR m):	126.0
Enterprise value (EUR m):	212.3
Ø daily trading volume (3 m., no. of shares):	8,753
Performance data:
High 52 weeks (EUR):	19.88
Low 52 weeks (EUR):	12.60
Absolute performance (12 months):	-13.5%
Relative performance vs. CDAX:
1 month	-5.6%
3 months	-13.0%
6 months	-22.1%
12 months	-23.3%
Shareholders:
Supervisory Board & Management:	42%
Own shares:	1%
Institutional investors:	3%
Other free float:	54%
Financial calendar:
-
Author: Martin Decot (Analyst)
Close Brothers Seydler Research AG
Phone: +49 (0) 69-977 84 56 0
Email: research@cbseydlerresearch.ag
www.cbseydlerresearch.ag

Please notice the information on the preparation of this document, the disclaimer, the advice regarding possible conflicts of interests, and the mandatory information required by § 34b WpHG (Securities Trading Law) at the end of this document. This financial analysis in accordance with § 34b WpHG is exclusively intended for distribution to individuals that buy or sell financial instruments at their own account or at the account of others in connection with their trading activities, occupation, or employment.

Quarterly key data

Quarterly key data
IFRS EURm		3Q 2014 3Q 2013	Change		9M 2014 9M 2013	Change
Sales	109.6	103.8	6 %	309.5	303.9	2 %
Total output	111.3	103.6	7 %	317.2	309.7	2 %
YoY grow th	0.0%	0.0%		0.0%	0.0%
Gross profit	67.2	58.6	15%	189.9	170.2	12%
as % of total output	60.4%	56.5%		59.9%	55.0%
EBITDA	8.1	8.8	-9%	19.3	21.3	-9%
as % of sales	7.3%	8.5%		6.2%	7.0%
EBIT	4.9	6.2	-21%	10.2	13.1	-22%
as % of sales	4.5%	6.0%		3.3%	4.3%
Net income from continuing operations
(excluding minority interest)	2.4	3.4	-29%	4.5	6.0	-26%
EPS from continuing operations (EUR)	0.27	0.41	-33%	0.51	0.72	-30%
Total net income of the group
(excluding minority interest)	4.0	3.0	33%	5.5	5.0	10%
as % of total output	3.6%	2.9%		1.8%	1.6%
Total EPS (EUR)	0.45	0.36	25%	0.63	0.60	5 %
Net financial debt (incl. pension liab.)	49.8
Liquid funds	33.1

Source: Allgeier SE, CBS Research AG

Change in sales and earnings estimates

	2014E		2015E		2016E
EURm (except for EPS)	new	old	new	old	new	old
Sales	435.2	438.0	465.7	468.6	496.0	499.1
EBITDA	26.9	30.6	29.8	33.1	33.0	36.2
EBIT	14.7	18.4	19.8	23.1	23.8	26.9
Net result after minorities	7.6	10.1	9.5	12.8	12.1	15.7
EPS (EUR)	0.86	1.15	1.06	1.44	1.35	1.78

Source: CBS Research AG

Profit and loss account

IFRS	2012	2013	2014E	2015E	2016E
Sales YoY grow th	374.8 n.m.	421.3 12.4%	435.2 3.3%	465.7 7.0%	496.0 6.5%
Inventory changes (finished goods, WIP)	0.6	0.6	0.7	0.6	0.6
Other own work capitalised	0.0	0.0	0.0	0.0	0.0
Total output	375.4	422.0	436.0	466.3	496.6
Cost of materials as % of total output	-191.9 -51.1%	-190.3 -45.1%	-175.5 -40.3%	-201.2 -43.2%	-224.9 -45.3%
Gross profit as % of total output	183.5 48.9%	231.6 54.9%	260.5 59.8%	265.1 56.9%	271.6 54.7%
Personnel expenses as % of total output	-132.2 -35.2%	-169.7 -40.2%	-193.4 -44.4%	-194.9 -41.8%	-196.6 -39.6%
Other operating income as % of total output	6.6 1.8%	8.1 1.9%	5.8 1.3%	6.1 1.3%	6.2 1.2%
Other operating expenses as % of total output	-34.6 -9.2%	-42.1 -10.0%	-46.0 -10.6%	-46.4 -10.0%	-48.2 -9.7%
EBITDA as % of total output	23.3 6.2%	28.0 6.6%	26.9 6.2%	29.8 6.4%	33.0 6.6%
Depreciation and amortization, excl. goodwill impairments as % of total output	-12.8 -3.4%	-13.5 -3.2%	-12.2 -2.8%	-10.0 -2.1%	-9.1 -1.8%
Goodwill impairments as % of total output	0.0 0.0%	0.0 0.0%	0.0 0.0%	0.0 0.0%	0.0 0.0%
EBIT as % of total output	10.6 2.8%	14.5 3.4%	14.7 3.4%	19.8 4.3%	23.8 4.8%
Result from at-equity consolidated investments	0.0	0.2	0.2	0.3	0.3
Interest and other financial income	0.5	0.5	0.7	0.5	0.5
Interest expenses	-3.5	-4.9	-3.7	-3.5	-3.1
EBT (Earnings before income taxes) as % of total output	7.7 2.0%	10.4 2.5%	11.9 2.7%	17.1 3.7%	21.5 4.3%
Taxes on income as % of EBT	-2.8 -36.8%	-7.1 -68.3%	-4.8 -40.0%	-6.8 -40.0%	-8.6 -40.0%
Net income from continuing operations	4.8	3.3	7.2	10.3	12.9
Income from discontinued operations/ disposals, net of taxes	4.4	0.4	1.1	-	-
Net income of the group as % of total output	9.2 2.5%	3.7 0.9%	8.3 1.9%	10.3 2.2%	12.9 2.6%
Minority interests	-0.4	-0.1	-0.7	-0.8	-0.8
Net income attributable to shareholders	8.8	3.5	7.6	9.5	12.1
Total EPS incl. discontinued operations (EUR)	1.05	0.42	0.86	1.06	1.35
EPS from continuing operations (EUR)	0.53	0.38	0.73	1.06	1.35

Source: CBS Research AG, Allgeier SE

Valuation summary

	Weighting factor	Fair value per share (EUR)
DCF valuation	50.0%	17.73
Peer group valuation	50.0%	16.37
Fair value per share (EUR)		17.05

Source: CBS Research AG

Discounted Cash Flow Model

		PHASE 1					PHASE 2				PHASE 3
EURm	2014E	2015E	2016E	2017E	2018E	2019E	2020E	2021E	2022E	2023E	8
Sales revenues	435.2	465.7	496.0	520.7	541.6	557.8	574.6	591.8	606.6	615.7
Y-o-Y grow th	3.3%	7.0%	6.5%	5.0%	4.0%	3.0%	3.0%	3.0%	2.5%	1.5%
EBIT	14.7	19.8	23.8	28.4	29.8	30.0	31.3	32.3	33.1	33.1
EBIT margin as % of sales	3.4%	4.3%	4.8%	5.5%	5.5%	5.4%	5.4%	5.5%	5.5%	5.4%
Income tax on EBIT (cash tax rate)	-5.9	-7.9	-9.5	-11.4	-11.9	-12.0	-12.5	-12.9	-13.2	-13.2
Depreciation and amortisation	12.2	10.0	9.1	6.1	6.2	7.0	6.9	7.0	7.2	7.8
Change in net working capital and non-cash income and expenses*	-4.7	-4.5	-4.3	-4.1	-3.9	-3.1	-3.3	-3.4	-3.3	-2.0
Net capital expenditure incl. earnouts and
proceeds from the sale of subsidiaries	-16.5	-13.9	-10.4	-9.3	-9.0	-8.8	-8.4	-7.9	-7.5	-7.8
Free cash flow	-0.2	3.6	8.7	9.8	11.2	13.1	14.0	15.1	16.2	17.9
Present values	-0.2	3.3	7.3	7.6	8.0	8.7	8.6	8.5	8.5	8.6	133.2
Present value Phase 1	10.4	5 %			Risk free rate		3.00%		Target equity ratio		70.0%
Present value Phase 2	58.5	29%			Equity risk premium		6.00%		Beta		1.20
Present value Phase 3	133.2	66%			Debt risk premium		2.00%		WACC		8.04%
Total present value	202.0	100%			Tax shield (Phase 3)		40.0%		Terminal growth		1.50%
+ Liquid funds	33.1	Latest report 0.0	31/12/10 61.3					Sensitivity analysis
+ Securities**	7.6	-82.9	-32.5						Terminal growth (Phase 3)
- Financial debt and minority interests***	-86.3						0.5%	1.0%	1.5%	2.0%	2.5%
Fair value of equity	156.5					7.04%	19.46	20.90	22.60	24.65	27.14
						7.54%	17.39	18.58	19.96	21.60	23.56
Number of shares outstanding (m)	8.8				WACC	8.04%	15.60	16.59	17.73	19.06	20.63
						8.54%	14.04	14.88	15.83	16.92	18.20
Fair value per share (EUR)	17.73					9.04%	12.67	13.38	14.18	15.09	16.14

*Other non-cash income and expenses comprise mainly expenses from additions to provisions

**Cancom shares (available for sale), valued at last closing price

**Financial debt including pension provisions

Source: CBS Research AG

Multiple-based valuation

Company name				P / E		EV / EBIT				EV / EBITDA
			2014E	2015E	2016E	2014E	2015E	2016E	2014E	2015E	2016E
European IT service/consulting companies (market cap below EUR 1bn):
ASSYSTEM			13.2	10.8	9.9	7.0	5.9	5.6	5.4	4.9	4.5
CENIT AG			14.9	13.8	12.0	7.5	7.0	6.2	6.0	5.7	5.2
DATAGROUP AG			31.3	12.8	9.9	21.1	10.2	8.4	9.9	6.8	6.4
DEVOTEAM SA			16.5	11.4	9.5	4.5	3.9	3.5	3.8	3.2	2.8
ECONOCOM GROUP			10.0	9.2	8.2	8.6	7.5	6.6	7.4	6.5	5.8
GFI INFORMATIQUE			12.6	10.5	9.6	6.9	6.3	6.1	6.3	5.6	5.4
GFT TECHNOLOGIES AG			14.0	11.7	10.9	11.2	8.8	8.3	8.9	7.4	7.0
ORDINA NV			12.0	7.8	6.1	8.9	6.5	5.1	6.1	4.9	4.2
PHOENIX IT GROUP PLC			14.0	12.1	n.m.	10.8	10.0	n.m.	5.6	5.3	n.m.
SOLUCOM			13.9	12.6	n.m.	7.7	7.1	n.m.	7.3	6.7	n.m.
SOPRA GROUP			9.3	7.9	6.9	8.6	5.2	4.5	7.0	4.6	4.1
TIETO OYJ			12.7	12.4	11.7	9.9	9.7	9.3	7.8	6.9	6.6
REALTECH AG			n.m.	19.2	11.7	n.m.	11.9	7.5	n.m.	5.8	4.4
SEVEN PRINCIPLES AG			n.m.	n.m.	n.m.	n.m.	n.m.	n.m.	n.m.	10.6	n.m.
S&T AG			9.8	7.4	6.3	8.4	7.0	6.2	6.1	4.9	4.4
Average			14.2	11.4	9.4	9.3	7.6	6.4	6.8	6.0	5.1
Median	Weight:	50.0%	13.2	11.5	9.8	8.6	7.0	6.2	6.3	5.7	4.8
Major players with market cap above EUR 1bn:
ATOS			12.1	10.5	9.5	8.6	7.3	6.6	5.5	4.8	4.5
CAP GEMINI			15.6	14.0	12.7	9.7	8.8	8.1	7.8	7.1	6.6
INDRA SISTEMAS SA			11.4	10.0	9.0	9.8	9.0	8.4	7.7	7.2	6.8
Average			13.0	11.5	10.4	9.4	8.4	7.7	7.0	6.4	5.9
Median	Weight:	25.0%	12.1	10.5	9.5	9.7	8.8	8.1	7.7	7.1	6.6
Indian IT service companies:
INFOSYS LTD			19.7	17.6	15.6	15.2	13.5	12.0	14.1	12.5	11.0
TATA CONSULTANCY SVCS LTD			23.7	20.4	17.7	18.9	16.1	14.2	17.8	15.2	13.3
WIPRO LTD			16.1	14.4	12.8	13.3	11.6	10.4	11.9	10.5	9.3
Average	Weight:	25.0%	19.8	17.4	15.4	15.8	13.8	12.2	14.6	12.7	11.2
Median			19.7	17.6	15.6	15.2	13.5	12.0	14.1	12.5	11.0
Weighted average of peer groups			14.6	12.8	11.1	10.7	9.2	8.2	8.7	7.8	6.9

EURm, except EPS (EUR)			EPS			EBIT			EBITDA
		2014E	2015E	2016E	2014E	2015E	2016E	2014E	2015E	2016E
Allgeier SE (estimates by CBSR)		0.73	1.06	1.35	14.7	19.8	23.8	26.9	29.8	33.0
Applied multiples (peer group - weighted average)		14.6	12.8	11.1	10.7	9.2	8.2	8.7	7.8	6.9
Fair Enterprise Value		-	-	-	156.6	181.8	194.6	234.7	232.8	226.9
+ Liquid funds	33.1
+ Securities (current market value)	7.6
- Financial debt incl. pension provisions	-82.9
- Minority interests	-3.4
Fair value of equity from each multiple		93.8	119.7	132.3	111.1	136.2	149.1	189.2	187.3	181.3
Average of derived fair values	144.5
Premium (discount) vs. peer group companies	0%
Fair value of equity	144.5
Number of shares outstanding (m)	8.8
Fair value per share (EUR)	16.37

Source: CBS Research AG

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Recommendation System:

CBSR uses a 3-level absolute share rating system. The ratings pertain to a time horizon of up to 12 months:

BUY: The expected performance of the share price is above +10%. HOLD: The expected performance of the share price is between 0% and +10%.

SELL: The expected performance of the share price is below 0%.

This rating system is only a guideline. Therefore, deviations from this system may apply.

Recommendation history over the last 12 months for the company analysed in this report:

Date	Recommendation	Price at change date	Price target
19 November 2014	BUY	EUR 14.28	EUR 17.00
15 August 2014	BUY	EUR 15.23	EUR 20.00
30 July 2014	BUY	EUR 15.50	EUR 20.00
15 May 2014	BUY	EUR 17.53	EUR 23.00
13 May 2014	BUY	EUR 17.40	EUR 23.00

19 March 2014	BUY	EUR 17.895	EUR 23.00
28 January 2014	BUY	EUR 15.74	EUR 23.00

Risk-scaling System:

CBSR uses a 3-level risk-scaling system. The ratings pertain to a time horizon of up to 12 months:

LOW: The volatility is expected to be lower than the volatility of the benchmark MEDIUM: The volatility is expected to be equal to the volatility of the benchmark HIGH: The volatility is expected to be higher than the volatility of the benchmark

The following valuation methods are used when valuing companies: Multiplier models (price/earnings, price/cash flow, price/book value, EV/Sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer group comparisons, historical valuation approaches, discounting models (DCF, DDM), break-up value approaches or asset valuation approaches. The valuation models are dependent upon macroeconomic measures such as interest, currencies, raw materials and assumptions concerning the economy. In addition, market moods influence the valuation of companies. The figures taken from the income statement, the cash flow statement and the balance sheet upon which the evaluation of companies is based are estimates referring to given dates and therefore subject to risks. These may change at any time without prior notice.

The opinions and forecasts contained in this report are those of the author alone. Material sources of information for preparing this report are publications in domestic and foreign media such as information services (including but not limited to Reuters, VWD, Bloomberg, DPA-AFX), business press (including but not limited to Börsenzeitung, Handelsblatt, Frankfurter Allgemeine Zeitung, Financial Times), professional publications, published statistics, rating agencies as well as publications of the analysed issuers. Furthermore, discussions were held with the management for the purpose of preparing the analysis. Potentially parts of the analysis have been provided to the issuer prior to going to press; no significant changes were made afterwards, however. Any information in this report is based on data considered to be reliable, but no representations or guarantees are made by the author with regard to the accuracy or completeness of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Possible errors or incompleteness of the information do not constitute grounds for liability, neither with regard to indirect nor to direct or consequential damages. The views presented on the covered company accurately reflect the personal views of the author. All employees of the author's company who are involved with the preparation and/or the offering of financial analyzes are subject to internal compliance regulations.

The report is for information purposes, it is not intended to be and should not be construed as a recommendation, offer or solicitation to acquire, or dispose of, any of the securities mentioned in this report. Any reference to past performance should not be taken as indication of future performance. The author does not accept any liability whatsoever for any direct or consequential loss arising from any use of material contained in this report. The report is confidential and it is submitted to selected recipients only. The report is prepared for professional investors only and it is not intended for private investors. Consequently, it should not be distributed to any such persons. Also, the report may be communicated electronically before physical copies are available. It may not be reproduced (in whole or in part) to any other investment firm or any other individual person without the prior written approval from the author. The author is not registered in the United Kingdom nor with any U.S. regulatory body.

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This analysis is intended to provide information to assist institutional investors in making their own investment decisions, not to provide investment advice to any specific investor.

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