11 88 0 Solutions AG — Earnings Release 2015

Dec 2, 2015

Telegate AG

Neutral  Target 1.50 EUR vs 2.50 EUR 	Est.chg	2015e	2016e
\$TypCap\$ 1584 3 1 1 x6555 2 Price : 1.15 EUR Upside : 31 %	EPS	0.0%	2.8%

#New strategic approach: possibly telegate's last attempt to right the ship

Sep 12Dez 12Mrz 13Jun 13Sep 13Dez 13Mrz 14Jun 14Sep 14Dez 14Mrz 15Jun 15Sep 15Dez 15

Telegate AG	Telegate AG Relative to Media (Rebased)
Capital
TGT GY TGTG.DE Market Cap (EURm) Enterprise value (EURm) Extrema 12 months Free Float (%)		1.13	22 20 4.15 54.6
Performance (%)	1m	3m	12m
Absolute	-0.8	-5.3	-71.6
Perf. rel. "sector"	-3.0	-13.0	-74.5
Perf. rel. Media	-3.1	-13.2	-76.0
P&L	12/15e	12/16e	12/17e
Sales (EURm)	53.6	49.9	46.9
EBITDA (EURm)	-0.2	2.0	1.2
Current EBIT (EURm)	-10.1	-6.4	-5.6
Attr. net profit (EURm)	-7	-4	-4
Adjusted EPS (EUR)	-0.35	-0.22	-0.19
Dividend (EUR)	0.00	0.00	0.00
P/E (x)	ns	ns	ns
P/B (x)	0.5	0.6	0.7
Dividend Yield (%)	0.0	0.0	0.0
FCF yield (%)	ns	ns	ns
EV/Sales (x)	0.38	0.42	0.46
EV/EBITDA (x)	ns	10.4	17.8
EV/Current EBIT (x)	ns	ns	ns
Gearing (%)	-6	-6	-5
Net Debt/EBITDA(x)	14.7	ns	ns

Next Events

17.03.2016 FY Results

Wednesday 02 December 2015 Q3 2015 results – no surprises there

Telegate was able to keep its revenues flat qoq at € 13.4m (Q2: € 13.4m), implying, at least for this quarter, that Digital revenues offset the decline in Directory Assistance revenues. The revenue contribution from the new products, e.g. the Facebook page and Google MyBusiness, was minor. EBIT was down slightly qoq to € -2.8m (€ -2.7m) – worse than our estimate of € -2.3m. The net loss was nearly in line with our estimate, however – € -1.9m vs. our estimate of € -1.8m – due to lower taxes.

Guidance partly reiterated for 2015, cut for 2016

Management largely reiterated its existing guidance for 2015 (group revenues of EUR 52- 56m), but abandoned its outlook for double-digit revenue growth in the Digital business 2016. The company already beat its full-year 2015 target for EBITDA before non-recurring items, posting € 3.5m in 9M 2015 vs. its target of €2-3m. This target has now been raised to €4m.

Strategic change: focus on business directory and brand 11880

New CEO Christian Marr has admitted that the digital transformation has so far not worked and therefore introduced a new project called "Genesis" based on three pillars i) modifying the sales strategy ii) realigning the product portfolio and iii) boosting competitiveness:

• The focus will be shifted away from website programming to the digital business directory and in-house development of vertical products that will increase the attractiveness of the business directory and will be tailored to individual target groups.
• New product launches will continue; a new directory entry product was already launched in September with further products coming up in Q1 2016: (i) a product that will collect all reviews on different websites, (ii) a product that will harmonize data and business profiles across different platforms comparable to 'Uberall'.
• Telegate's digital business will be rebranded under the brand name '11880'
• Continuation of efficiency program with focus on tele sales
• Final decision on the lawsuit against the no-appeal ruling in its claim for damages against Deutsche Telekom is expected in January/February 2016.

Neutral, TP cut to EUR 1.50 (2.50)

The stock is currently trading in a narrow range around € 1.15, mainly due to the low visibility on the new product portfolio and in particular its financial potential. The mid-term outlook under the 'new' business model is accordingly uncertain. We have updated our model after the Q3 2015 figure incorporating the company's new guidance and lower our TP to € 1.50 (2.50). This suggests upside potential of ~30% if a turnaround should take shape in the next 12 months. The stock currently is valued roughly at the company's cash level, which limits further downside risk. The first signs of success should emerge within the next few quarters.

Brigitte Julie Thomalla (Analyst)

+49 (69) 92 05 48 24 brigitte.thomalla@oddoseydler.com

Page 1/6

Conflict of interests:

Oddo Securities, a division of Oddo et Cie, limited sharepartnership - Bank authorised by ACPR. Oddo & Cie and/or one of its subsidiaries could be in a conflict of interest situation with one or several of the groups mentioned in this publication. Please refer to the conflict of interests section at the end of this document.

This is a non-contractual document, it is strictly for the private use of the recipient, and the information it contains is based on sources we believe to be reliable, but whose accuracy and completeness cannot be guaranteed. The opinions given in the document reflect our appraisal at the time of publication and may therefore be revised at a later date.

New strategic approach

So far, telegate's digital transformation has not seen much success, despite the new products the company has added from time to time and, most importantly, despite the extension of its basic contract period from 12 to 24 months. The revenues generated by the Digital segment have not been able to offset the decline of the Directory Assistance business (which remains the company's cash cow). Given the high churn rate on its contracts, the digital business has not been able to consistently break even at the EBITDA level. To improve profitability, the churn rate in the digital business has to be lowered. Additionally, the old strategy assumed a customer retention period of ~2.8 years before a return on the sales investment could be achieved. The target for the (new) products is profitability in year 1.

The 'new' product portfolio will centre around the digital business directory, which will be flanked by the introduction of verticals and user review portals. Nonetheless, 'old' products like website programming and upselling of additional products like landing pages, Facebook and Google MyBusiness will continue to be sold. Further, telegate will continue to be Google AdWords reseller, as it still generates a significant amount of revenue from these product groups. Besides the digital business directory, telegate will aim to accelerate its sales of data CDs, which are highly profitable. The first products from this new strategic realignment are planned for Q1 2016: (i) a product that will collect all reviews on different websites, (ii) a product that will harmonize data and business profiles across different platforms comparable to 'Uberall'.

New product portfolio and product share relative to total revenues

Portal strategy: verticals factory

Verticals (= portals for industries/sectors) will be introduced as a new product. Possible promising industry verticals are indicated by high traffic volume in telegate's current directory assistance channels (e.g. at present 51,000 customers try to book a taxi via telegate AG channels per month, and it receives 80,000 requests per month related to locksmith services). Content (the service itself) for the portals will be purchased externally. 5 portals are planned for Q1 2016, which might be scaled up to 20 portals by year-end 2016 if the first portals do well. For the mid-term the aim will be to generate leads (consumer interest or inquiry into products or services) for telegate customers.

Plans for the Directory Assistance business

This segment is to be revitalised by broadening the product portfolio offered by the two remaining call centers. Possible products here are an office service for telegate's customers or third-party businesses e.g. to take inbound calls and/or to make outbound calls.

According to the company, all measures combined (new products + increased conversion + churn reduction) provide additional revenue potential of € 10-100m in 2018 (without giving the base revenue figure). As it is difficult to judge how successful the soon-to-be-established portals will be, we focus more on the short term, where product (re)launches are more important for the operational business. The company does not have very much time to build a new business case that will ultimately decide whether the stock deserves a higher valuation than currently (the stock is currently trading close to the value of the company's cash position). We will need to closely monitor the progress of the new initiatives (especially the verticals, which appear

promising given already-high active users in these specific fields) and update our model and valuation as necessary.

Additional outlook for 2016 and beyond

In 2016, the company aims to reduce its cash burn rate (CBR) at least to € 3.5m from what it estimates to be € 6.9m in 2015, driven largely by cost and sales optimisation including a shift of focus to tele sales, potentially reducing field sales to zero. However, the CBR estimate of € 3.5m includes only the operative CBR from the segments and one-offs. The effective CBR might ultimately be higher as the company plans to increase its investments e.g. the hiring of new staff for the new products. On our current estimates, telegate will start 2016 with a cash & cash equivalents position of ~ € 20-21m.

Telegate is also developing a new key performance indicator (KPI) system with focus on operative KPIs. In the future the company may also provide guidance on its cash burn rate; this would allow the investor community to better monitor the success of the strategy change.

Estimated cash burn rate and effects of savings

Source: Company data

Beyond 2016, telegate outlines three possible scenarios for itself.

• i) Preferred scenario: A take-over offer by a media company. Management named companies like Ströer, Axel Springer or ProSiebenSat1. If the portal strategy is successful, Scout24 might also be a realistic option as its business model bears the closest similarities to that of telegate.
• ii) Second choice: Telegate remains a stand-alone company with financial support from current shareholders (capital increase and/or loans) to develop telegate's business model further and allow for higher marketing spending.
• iii) Third choice (and currently the most realistic one): Telegate remains a stand-alone company but will have to get back on track by itself.

Possible scenarios for telegate post 2016

Telegate AG Wednesday 02 December 2015

TGTG.DE TGT GY		Neutral				Price	1.15EUR
Advertising Germany		Upside	30.89%			TP	1.50EUR
PER SHARE DATA (EUR)	12/10	12/11	12/12	12/13	12/14	12/15e	12/16e	12/17e
Adjusted EPS Reported EPS	0.32 0.32	0.18 0.18	2.46 2.46	-0.10 -0.10	-0.33 -0.33	-0.35 -0.35	-0.22 -0.22	-0.19 -0.19
Growth in EPS(%)	-58.0%	-43.7%	ns	ns	ns	ns	ns	ns
Net dividend per share	0.50	0.35	2.00	0.40	0.00	0.00	0.00	0.00
FCF to equity per share	0.62	-0.08	1.93	-0.80	-0.30	-0.12	-0.03	-0.04
Book value per share Number of shares market cap	3.25 21.08	3.18 19.11	5.29 19.11	3.19 19.11	2.49 19.11	2.14 19.11	1.92 19.11	1.73 19.11
Number of diluted shares	21.08	19.11	19.11	19.11	19.11	19.11	19.11	19.11
VALUATION	12/10	12/11	12/12	12/13	12/14	12/15e	12/16e	12/17e
12m highest price 12m lowest price	10.74 5.83	8.90 5.00	6.86 4.71	9.32 5.35	6.40 2.75	3.35 1.13
(*) Reference price	7.73	6.70	5.67	7.27	5.07	1.15	1.15	1.15
Capitalization	163	128	108	139	97	22	22	22
Restated Net debt	-48.8	-39.0	-93.3	-10.0	-4.3	-2.5	-2.2	-1.7
Minorities (fair value)	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Financial fixed assets (fair value) Provisions	7.8 7.3	3.6 2.3	0.5 4.5	0.0 4.0	0.0 2.5	0.0 1.1	0.0 1.2	0.0 1.4
Enterprise Value	114	88	19	133	95	20	21	22
P/E (x)	24	37	2.3	ns	ns	ns	ns	ns
P/CF (x)	10	20	1.9	ns	62	14	5.4	7.3
Net Yield (%) FCF yield (%)	6.5% 8.0%	5.2% ns	35.3% 34.1%	5.5% ns	0.0% ns	0.0% ns	0.0% ns	0.0% ns
P/B incl. GW (x)	2.38	2.11	1.07	2.28	2.04	0.54	0.60	0.66
P/B excl. GW (x)	2.38	2.11	1.07	2.28	2.04	0.54	0.60	0.66
EV/Sales (x) EV/EBITDA (x)	0.92 5.1	0.80 7.9	0.22 0.3	1.84 18	1.53 42	0.38 ns	0.42 10	0.46 18
EV/EBIT (x)	37	27	0.4	ns	ns	ns	ns	ns
(*) historical average price
PROFIT AND LOSS (EURm)	12/10	12/11	12/12	12/13	12/14	12/15e	12/16e	12/17e
Sales EBITDA	123 22.1	110 11.1	87 65	72 7.6	62 2.3	54 -0.2	49.9 2.0	46.9 1.2
Depreciations	-19.1	-7.9	-14.9	-10.4	-11.8	-10.0	-8.5	-6.8
Current EBIT	3.1	3.2	50	-2.8	-9.5	-10.1	-6.4	-5.6
Published EBIT Net financial income	3.1 2.1	3.2 1.4	50 23.1	-2.8 0.0	-9.5 0.4	-10.1 0.2	-6.4 0.2	-5.6 0.2
Corporate Tax	-0.8	-1.2	-26.7	0.9	2.3	3.2	2.0	1.7
Net income of equity-accounted companies	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Profit/loss of discontinued activities (after tax) Minority interests	2.3 0.0	0.0 0.0	0.2 0.0	-0.1 0.0	0.4 0.0	0.0 0.0	0.0 0.0	0.0 0.0
Attributable net profit	6.7	3.4	47.1	-2.0	-6.4	-6.7	-4.2	-3.7
Adjusted attributable net profit	6.7	3.4	47.1	-2.0	-6.4	-6.7	-4.2	-3.7
BALANCE SHEET (EURm) Goodwill	12/10 7.5	12/11 6.7	12/12 6.7	12/13 6.8	12/14 6.8	12/15e 6.8	12/16e 6.8	12/17e 6.8
Other intangible assets	22	18	12	12	10	7.4	5.2	3.4
Tangible fixed assets	4.7	4.1	6.0	5.7	3.7	2.1	0.9	0.1
WCR Financial assets	-15.1 7.8	-8.2 3.6	-13.1 0.5	30 0.0	25 0.0	23 0.0	23 0.0	22 0.0
Ordinary shareholders equity	68	61	101	61	48	41	37	33
Minority interests	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Shareholders equity	68	61	101	61	48	41	37	33
Non-current provisions Net debt	7.3 -48.8	2.3 -39.0	4.5 -93.3	4.0 -10.0	2.5 -4.3	1.1 -2.5	1.2 -2.2	1.4 -1.7
CASH FLOW STATEMENT (EURm)	12/10	12/11	12/12	12/13	12/14	12/15e	12/16e	12/17e
EBITDA	22.1	11.1	65.3	7.6	2.3	-0.2	2.0	1.2
Change in WCR Interests & taxes	0.9 -2.0	-5.0 -4.6	-15.6 14.0	-3.1 -10.9	-1.6 -0.4	1.6 2.2	0.3 2.2	0.4 1.9
Others	-4.4	-0.1	-22.1	0.8	-0.4	-0.4	-0.2	-0.1
Operating Cash flow	16.6	1.4	41.6	-5.6	-0.1	3.1	4.4	3.4
CAPEX Free cash-flow	-3.7 13.0	-2.9 -1.5	-4.6 37.0	-9.8 -15.3	-5.7 -5.8	-5.4 -2.2	-5.0 -0.6	-4.2 -0.8
Acquisitions / disposals	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Dividends	-14.9	-9.6	-6.7	-14.0	-31.9	0.0	0.0	0.0
Net capital increase Others	-15.0 2.1	0.0 1.3	0.0 23.9	0.0 -0.8	0.0 -0.1	0.0 0.0	0.0 0.0	0.0 0.0
Change in net debt	-11.2	-9.7	54.2	-83.3	-5.7	-1.7	-0.3	-0.5
GROWTH MARGINS PRODUCTIVITY	12/10	12/11	12/12	12/13	12/14	12/15e	12/16e	12/17e
Sales growth Lfl sales growth	-7.5% 0.0%	-10.6% 0.0%	-21.3% 0.0%	-16.5% 0.0%	-13.9% 0.0%	-13.9% 0.0%	-6.8% 0.0%	-6.1% 0.0%
Current EBIT growth	-86.5%	4.9%	ns	ns	ns	ns	ns	ns
Growth in EPS(%)	-58.0%	-43.7%	ns	ns	ns	ns	ns	ns
Net margin	5.4%	3.1%	54.4%	-2.8%	-10.3%	-12.5%	-8.5%	-7.8%
EBITDA margin Current EBIT margin	18.0% 2.5%	10.1% 2.9%	75.4% 58.2%	10.5% -3.9%	3.7% -15.2%	-0.3% -18.9%	4.0% -12.9%	2.6% -11.9%
CAPEX / Sales	-3.0%	-2.6%	-5.3%	-13.5%	-9.2%	-10.0%	-10.0%	-9.0%
WCR / Sales	-12.3%	-7.4%	-15.1%	41.6%	40.0%	43.2%	45.6%	47.7%
Tax Rate Normative tax rate	15.2% 32.0%	25.4% 32.0%	36.3% 32.0%	32.1% 32.0%	25.6% 32.0%	32.0% 32.0%	32.0% 32.0%	32.0% 32.0%
Asset Turnover	3.8	5.6	5.4	2.2	1.2	1.3	1.3	1.4
ROCE post-tax (normative tax rate)	6.4%	11.1%	ns	-5.7%	-12.8%	-16.2%	-11.7%	-11.1%
ROCE post-tax hors GW (normative tax rate) ROE	8.3% 8.1%	17.3% 5.3%	ns 58.2%	-7.2% -2.5%	-14.8% -11.8%	-19.2% -15.2%	-14.2% -10.9%	-13.9% -10.5%
DEBT RATIOS	12/10	12/11	12/12	12/13	12/14	12/15e	12/16e	12/17e
Gearing	-71%	-64%	-92%	-16%	-9%	-6%	-6%	-5%
Net Debt / Market Cap Net debt / EBITDA	-0.30 ns	-0.30 ns	-0.86 ns	-0.07 ns	-0.04 ns	-0.12 14.70	-0.10 ns	-0.08 ns
EBITDA / net financial charges	-10.6	-8.2	-2.8	-3,787.0	-6.6	0.7	-9.1	-5.8

Telegate AG Wednesday 02 December 2015

Recommendation and target price changes history over the last 12 months for the company analysed in this report

Date	Reco	Price Target (EUR)	Price (EUR)
02.12.15	Neutral	1.50	1.15
07.08.15	Neutral	2.50	1.30
13.05.15	Buy	13.00	2.15
07.05.15	Neutral	3.50	2.25
16.04.15	Buy	13.00	2.40
20.03.15	Neutral	3.50	2.81
04.02.15	Buy	15.00	3.00
06.11.14	Neutral	4.00	3.60

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