Allgeier SE

Investor Presentation • Jul 30, 2015

Allgeier SE

BUY (BUY) | Target 22.00 EUR (17.00 EUR) Price (last closing price) : 17.25 EUR| Upside : 28%

Back to growth from 2015

2Q15 report 06. Aug 15

Henning Steinbrink (Senior Analyst) +49 (0)69 92054 817

henning.steinbrink@oddoseydler.com

Equity flash – Trading Update IT Service

E.st. change	15e	16e
EPS	-12%	+10%

Thursday, 30 July ²⁰¹⁵ Management finished its homework

Management still sees a discrepancy between its current market cap of € 155m and the intrinsic value of its business segments. Therefore, the company recently discussed options with us as to how it can become more attractive for institutional investors. AEI's business model follows the classical holding company blueprint. The number of companies that AEI consolidates under its holding structure has meanwhile grown to ~62. Many market observers attribute the company's operational underperformance in 2013 and 2014 to what may be a sub-optimal management structure. With regard to this point, AEI made clear that they have already done their homework by realigning management capacities towards i) deeper integration/merger of acquired companies, and ii) improved targeting of business segments with significant growth and market leadership potential. Furthermore, management also wants to improve its external communication i.e. financial reporting and guidance by including i) detailed FX reporting and ii) constant currency comparisons.

Adjusted estimates

We have adjusted our estimates for AEI in view of i) the recent acquisitions, ii) the currently improving business performance within its segments, and iii) the guidance given by management. After 2 years of restructuring and underperformance, we now expect all of AEI's business segments to significantly improve their results on both the top and bottom lines. For the Solutions segment we estimate revenues to increase by 10% p.a. on the back of its improved project pipeline and execution. The Solutions EBITDA margin should thereby improve from currently 5% towards 8% in 2017e. For the Experts segment we estimate revenues to increase organically by 5% p.a. Adjusting for the May 2015 "networker" acquisition, total segment revenue should increase by 15% in 2015e and 10% in 2016e. In the process, the Experts EBITDA margin should improve from 5% towards 6% within the next 3 years on our estimates. For the Projects segment we estimate revenues and profits to increase at a rate of ~20% p.a. mainly due to the significantly increasing demand for "Nagarro's" high-end software application development.

Attractive risk/reward profile

Based on a pure sum-of-the-parts valuation AEI's market cap could be roughly double its current level. The necessary catalyst for a revaluation in our view would be consistent proof that the company's enhanced management structure can indeed successfully cope with its still-growing number of acquired companies. Based on our revised estimates our DCF valuation derives a new 12 month target price of € 22 (€17) equating to 0.45x EV/sales and 6.9x EV/EBITDA. These valuation ratios would still incorporate significant discounts of 18% and 50% relative to current EV/EBITDA and EV/sales multiples of the corresponding IT service sector/industry. AEI is currently trading at the lower end of the IT service sector valuation bandwidth of 0.3 to 1.2 for NTM EV/sales and 5 to 12 for NTM EV/EBITDA. In view of AEI's expected business turn-around, its currently bottoming valuation levels provide an attractive risk/ reward profile. We therefore recommend Buying the stock.

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.

Allgeier SE: Discounted Cash Flow Model

	2015E	PHASE 1 2016E	2017E	2018E	2019E	2020E	PHASE 2 2021E	2022E	2023E	2024E	PHASE 3 8
Sales	495.9	559.5	617.4	673.0	733.6	792.3	847.7	898.6	943.5	971.8
Y-o-Y grow th	15.8%	12.8%	10.4%	9.0%	9.0%	8.0%	7.0%	6.0%	5.0%	3.0%
EBIT	15.4	22.6	31.2	36.3	41.4	42.8	46.1	48.5	50.6	51.8
EBIT margin	3.1%	4.0%	5.1%	5.4%	5.6%	5.4%	5.4%	5.4%	5.4%	5.3%
Income tax on EBIT	-6.6	-9.1	-13.0	-15.3	-17.5	-18.2	-19.7	-20.7	-21.6	-22.2
Depreciation and amortisation	13.2	14.0	14.2	13.4	12.9	15.5	16.6	17.7	18.7	19.5
Change in net working capital	0.4	-0.6	0.3	3.0	2.1	0.7	0.7	0.6	0.5	0.3
Net capital expenditure	-17.4	-11.7	-13.0	-14.1	-22.7	-24.6	-26.3	-27.9	-29.2	-30.1
Free cash flow	5.1	15.1	19.8	23.3	16.1	16.2	17.5	18.3	18.9	19.3
Present values	4.9	13.4	16.1	17.4	11.1	10.3	10.2	9.8	9.3	8.7	119.0
Present value Phase 1	34.4				Risk free rate		2.50%		Target equity ratio		80.0%
Present value Phase 2	76.8				Equity risk premium		6.00%		Beta		1.20
Present value Phase 3	119.0				Debt risk premium		3.00%		WACC		8.42%
Total present value	230.2				Tax shield (Phase 3)		40.0%		Terminal growth		1.00%
+ Excess cash/Non-operating assets	99.1							Sensitivity analysis
- Financial debt	-128.7				Terminal growth rate
							0.0%	0.5%	1.0%	1.5%	2.0%
Fair value of equity	200.6					7.42%	24.05	25.16	26.45	27.96	29.75
						7.92%	22.21	23.15	24.22	25.46	26.90
Number of shares (m)	9.0				WACC	8.42%	20.60	21.39	22.28	23.31	24.49
						8.92%	19.16	19.84	20.59	21.45	22.43
Fair value per share (in EUR)	22.28					9.42%	17.88	18.46	19.10	19.83	20.65

Source: Oddo Seydler Bank AG

Profit and loss account

IFRS EURm	2011A	2012A	2013A	2014A	2015E	2016E	2017E
Net sales YoY grow th	378.8	422.8 11.6%	421.3 -0.4%	428.2 1.6%	495.9 15.8%	559.5 12.8%	617.4 10.4%
Chg. inventory & other work cap.	0.3	0.7	0.6	-0.2	0.2	1.0	1.0
Total output	379.1	423.5	422.0	428.0	496.1	560.5	618.4
as % of sales	100.1%	100.2%	100.2%	100.0%	100.0%	100.2%	100.2%
Cost of materials	-220.24	-218.84	-190.33	-170.56	-195.54	-215.02	-230.61
as % of sales	-58.1%	-51.8%	-45.2%	-39.8%	-39.4%	-38.4%	-37.3%
Personnel expense	-108.98	-149.01	-169.70	-191.76	-221.39	-250.42	-277.91
as % of sales	-28.8%	-35.2%	-40.3%	-44.8%	-44.6%	-44.8%	-45.0%
Other operating income	-27.59	-34.90	-35.74	-42.23	-50.60	-58.50	-64.50
as % of sales	-7.3%	-8.3%	-8.5%	-9.9%	-10.2%	-10.5%	-10.4%
Other operating expenses	-1.63	-0.81	-0.12	0.01	0.00	0.00	0.00
as % of sales	-0.4%	-0.2%	0.0%	0.0%	0.0%	0.0%	0.0%
EBITDA	20.69	19.97	26.07	23.50	28.59	36.57	45.42
as % of sales	5.5%	4.7%	6.2%	5.5%	5.8%	6.5%	7.4%
Depreciation and amortization	-10.33	-13.65	-11.33	-12.79	-13.19	-14.00	-14.17
as % of sales	-2.7%	-3.2%	-2.7%	-3.0%	-2.7%	-2.5%	-2.3%
EBIT	10.36	6.31	14.74	10.71	15.40	22.57	31.25
as % of sales	2.7%	1.5%	3.5%	2.5%	3.1%	4.0%	5.1%
Net financial results	-0.86	0.00	-0.79	-5.55	-2.04	-2.34	-2.33
as % of sales	-0.2%	0.0%	-0.2%	-1.3%	-0.4%	-0.4%	-0.4%
EBT	9.50	6.12	10.36	6.22	13.37	20.23	28.92
as % of sales	2.5%	1.4%	2.5%	1.5%	2.7%	3.6%	4.7%
Income tax	-4.19	-2.38	-7.07	-5.10	-6.59	-9.10	-13.01
as % of EBT	-44.1%	-38.9%	-68.3%	-82.0%	-49.3%	-45.0%	-45.0%
Net income	5.31	3.74	3.29	1.12	6.78	11.13	15.91
Minority interests	-0.93	-0.44	-0.12	-0.64	-0.70	-0.80	-0.90
Net income attributable to shareholders	4.38	3.30	3.16	0.48	6.08	10.33	15.01
as % of sales	1.2%	0.8%	0.8%	0.1%	1.2%	1.8%	2.4%
Adjustements (Non-IFRS)	1.29	0.18	3.12	2.25	2.03	1.10	1.10
Adjusted net income (Non-IFRS)	5.67	3.48	6.28	2.72	8.11	11.43	16.11
as % of sales	1.5%	0.8%	1.5%	0.6%	1.6%	2.0%	2.6%
Shares outstanding (in m)	8.38	8.38	8.44	9.00	9.0	9.0	9.0
Earnings per share in EUR	0.52	0.39	0.37	0.05	0.68	1.15	1.67
Adjusted EPS in EUR (Non-IFRS)	0.68	0.42	0.74	0.30	0.90	1.27	1.79

Source: Company Data, Oddo Seydler Bank AG

Allgeier SE Thursday, 30 July 2015

Allgeier SE Thursday, 30 July 2015

Balance Sheet

EURm	2011A	2012A	2013A	2014A	2015E	2016E	2017E
							152.0
	46.1%	49.6%	46.1%	42.0%	41.2%	39.8%	38.4%
	23.6	25.0	20.3	18.0	17.0	12.4	9.7
	79.2	103.4	100.8	104.8	107.7	107.7	107.7
	1.8	2.5	3.1	3.6	4.1	4.7	5.3
Long-term investments (incl. Financial assets)	0.0	3.9	0.2	4.4	4.4	10.0	16.2
							13.1
							244.0
	53.9%	50.4%	53.9%	58.0%	58.8%	60.2%	61.6%
							6.2
							111.1
							13.0
	33.1	39.9	53.3	99.1	98.7	103.3	113.8
							396.0
	88.2	93.4	94.7	100.7	103.0	108.8	120.1
	36.4%	32.3%	32.7%	30.5%	29.7%	29.5%	30.3%
	9.1	9.1	9.1	9.1	9.1	9.1	9.1
	74.7	79.8	83.2	87.5	89.8	95.3	106.1
	4.5	4.5	2.4	4.1	4.2	4.4	4.9
							28.7
	13.4%	11.7%	8.0%	4.7%	5.1%	6.1%	7.3%
	1.0	2.2	2.3	1.9	2.2	2.5	2.8
	22.2	21.4	12.2	4.8	5.5	8.4	12.3
							13.6
							247.2
	50.2%	56.1%	59.3%	64.8%	65.2%	64.3%	62.4%
	43.1	76.3	76.6	126.8	126.8	126.8	126.8
	41.3	40.0	39.8	34.7	40.2	45.9	52.5
	37.2	46.2		52.2	59.5	64.3	67.9
		111.6 7.0 130.6 3.0 87.4 7.1 242.1 32.3 9.2 121.6	143.5 8.7 146.1 4.9 94.5 6.8 289.6 33.8 10.2 162.4	133.5 9.1 155.8 4.4 89.2 9.0 289.3 23.0 8.5 171.6 55.2	138.6 7.9 191.2 3.2 78.6 10.3 329.8 15.6 8.9 213.6	142.9 9.6 204.3 5.0 89.3 11.4 347.2 17.7 9.9 226.5	146.5 11.7 221.9 5.6 100.7 12.3 368.4 22.6 11.7 237.0

Source: Company Data, Oddo Seydler Bank AG

Allgeier SE Thursday, 30 July 2015

Cash flow statement

IFRS EURm	2011A	2012A	2013A	2014A	2015E	2016E	2017E
Net income	5.3	3.7	3.3	1.1	6.8	11.1	15.9
Loss (profit) asset disposals	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Depreciation and amortisation	10.3	13.7	11.3	12.8	13.2	14.0	14.2
In-/(De)crease in long term provisions		-0.8	-9.2	-7.5	0.8	2.8	4.0
Cash flow		16.6	5.4	6.4	20.7	28.0	34.0
(In-)/Decrease in inventories		-1.9	0.6	1.2	-1.8	-0.6	-0.6
(In-)/Decrease in trade acc. receivable		-7.1	5.3	10.5	-10.6	-11.4	-10.4
(In-)/Decrease in other assets, prep. exp.		0.4	-2.2	-1.3	-1.1	-0.9	-0.7
In-/(De)crease in trade accounts payable		-1.3	-0.2	-5.1	5.5	5.7	6.6
In-/(De)crease in short-term provisions		1.0	-1.7	0.4	1.1	1.8	1.8
In-/(De)crease in other liabilities		9.0	9.0	-3.0	7.4	4.8	3.6
Change in Working Capital		0.0	10.8	2.7	0.4	-0.6	0.3
CAPEX		-41.7	-5.0	-13.7	-17.4	-11.7	-13.0
Financial investments		-3.9	3.7	-4.2	0.0	-5.6	-6.2
In-/(De)crease in pension provisions		1.2	0.1	-0.4	0.3	0.3	0.3
In-/(De)crease in long-term debt		69.4	-1.3	39.8	0.0	0.0	0.0
In-/(De)crease in short-term debt		-36.3	1.7	10.4	0.0	0.0	0.0
Proceeds from capital increase		0.0	0.0	0.0	0.0	0.0	0.0
Dividend payment		-4.2	-4.2	-4.2	-4.5	-5.7	-5.1
Change of cash by other items		26.3	0.0	41.3	-4.2	-11.0	-11.0
Total change in cash and cash equivalents		1.2	11.1	36.8	-0.4	4.7	10.5
Cash and cash equivalents at start of period		33.1	39.9	53.3	99.1	98.7	103.3
Cash and cash equivalents at end of period	33.1	39.9	53.3	99.1	98.7	103.3	113.8

Source: Company Data, Oddo Seydler Bank AG

Page 6/7

Disclaimer and statement according to § 34b German Securities Trading Act ("Wertpapierhandelsgesetz") in combination with the provisions on financial analysis ("Finanzanalyseverordnung" FinAnV)

This report has been prepared independently of the company analysed by Oddo Seydler Bank AG and/ or its cooperation partners and the analyst(s) mentioned on the front page (hereafter all are jointly and/or individually called the 'author'). None of Oddo Seydler Bank AG or its cooperation partners, the Company or its shareholders has independently verified any of the information given in this document.

Section 34b of the German Securities Trading Act in combination with the FinAnV requires an enterprise preparing a security analysis to point out possible conflicts of interest with respect to the company that is the subject of the analysis.

Oddo Seydler Bank AG is a subsidiary of Oddo & Cie, Paris (hereafter ´Oddo´, together 'Oddo Group'). However, Oddo Seydler Bank AG (hereafter ´Oddo Seydler´) provides its research work independent from Oddo. Oddo Group is offering a wide range of Services not only including investment banking services and liquidity providing services (designated sponsoring). Oddo Group may possess relations to the covered companies as follows (additional information and disclosures will be made available upon request):

a. Oddo Group holds more than 5% interest in the capital stock of the company that is subject of the analysis.

b. Oddo Group was a participant in the management of a (co)consortium in a selling agent function for the issuance of financial instruments, which themselves or their issuer is the subject of this financial analysis within the last twelve months.

c. Oddo Group has provided investment banking and/or consulting services during the last 12 months for the company analysed for which compensation has been or will be paid for.

d. Oddo Group acts as designated sponsor for the company's securities on the basis of an existing designated sponsorship contract. The services include the provision of bid and ask offers. Due to the designated sponsoring service agreement Oddo Group may regularly possess shares of the company and receives a compensation and/ or provision for its services.

e. The designated sponsor service agreement includes a contractually agreed provision for research services.

f. Oddo Seydler and the analysed company have a contractual agreement about the preparation of research reports. Oddo Seydler receives a compensation in return.

g. Oddo Group has a significant financial interest in relation to the company that is subject of this analysis.

In this report, the following conflicts of interests are given at the time, when the report has been published: -

Oddo Group and/or its employees or clients may take positions in, and may make purchases and/ or sales as principal or agent in the securities or related financial instruments discussed in this analysis. Oddo Group may provide investment banking, consulting, and/ or other services to and/ or serve as directors of the companies referred to in this analysis. No part of the authors compensation was, is or will be directly or indirectly related to the recommendations or views expressed.

Recommendation System:

Oddo Seydler 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
30 July 2015	BUY	EUR 17.25	EUR 22.00
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

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.

It has not been determined in advance whether and in what intervals this report will be updated. Unless otherwise stated current prices refer to the closing price of the previous trading day. Any reference to past performance should not be taken as indication of future performance. The author maintains the right to change his opinions without notice, i.e. the opinions given reflect the author's judgment on the date of this report.

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.

By accepting this report the recipient accepts that the above restrictions are binding. German law shall be applicable and court of jurisdiction for all disputes shall be Frankfurt am Main (Germany).

This report should be made available in the United States solely to investors that are (i) "major US institutional investors" (within the meaning of SEC Rule 15a-6 and applicable interpretations relating thereto) that are also "qualified institutional buyers" (QIBs) within the meaning of SEC Rule 144A promulgated by the United States Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act") or (ii) investors that are not "US Persons" within the meaning of Regulation S under the Securities Act and applicable interpretations relating thereto. The offer or sale of certain securities in the United States may be made to QIBs in reliance on Rule 144A. Such securities may include those offered and sold outside the United States in transactions intended to be exempt from registration pursuant to Regulation S. This report does not constitute in any way an offer or a solicitation of interest in any securities to be offered or sold pursuant to Regulation S. Any such securities may not be offered or sold to US Persons at this time and may be resold to US Persons only if such securities are registered under the Securities Act of 1933, as amended, and applicable state securities laws, or pursuant to an exemption from registration.

This publication is for distribution in or from the United Kingdom only to persons who are authorised persons or exempted per sons within the meaning of the Financial Services and Markets Act 2000 of the United Kingdom or any order made there under or to investment professionals as defined in Section 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and is not intended to be distributed or passed on, directly or indirectly, to any other class of persons.

This publication is for distribution in Canada only to pension funds, mutual funds, banks, asset managers and insurance companies.

The distribution of this publication in other jurisdictions may be restricted by law, and persons into whose possession this publication comes should inform themselves about, and observe, any such restrictions. In particular this publication may not be sent into or distributed, directly or indirectly, in Japan or to any resident thereof.

Responsible Supervisory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin, Federal Financial Supervisory Authority) Graurheindorferstraße 108 53117 Bonn and Marie-Curie-Str. 24-28 60439 Frankfurt

Oddo Seydler Bank AG Schillerstrasse 27 - 29 60313 Frankfurt am Main www.oddoseydler.com Tel.: 0049 - (0)69 - 920 54 800