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Aura Smart Air Ltd
Investor Presentation • May 22, 2023
6662_rns_2023-05-22_883890ba-0dfc-4f1e-9150-d4583533c207.pdf
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INDEPENDENT EQUITY RESEARCH
AURA SMART AIR LTD – UPDATE REPORT
22.05.2023
A merger deal in the American market and a shift to focus on sales to the institutional market; improved lab results from experiment in California lab; received permission to file a patent in the company's name in the US; price target remains unchanged.
Aura Smart Air Ltd. (TASE: AUSA) was established in 2018 to provide an international standard and technology platform to manage air quality in enclosed spaces. The company develops, markets, distributes, and operates platforms for internal air purification in Israel and abroad. The company currently employs approximately 25 employees in Israel, the United States, and India. The technology developed by the company provides a complete solution to the problem of air purification and disinfection in enclosed spaces. The company has intellectual property in registration processes in the form of patents, design, and trademarks.
Highlights in Q1 2023 and recent months:
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Signed a full merger agreement in exchange of shares with the Molekule group, which is traded on Nasdaq under the ticker MKUL. After the completion of the merger process, the company will be delisted from the Tel Aviv Stock Exchange and become a private company fully owned by the Molekule group. A merger of 2 leading companies which pushes the group towards competition with Tier1 companies.
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Demonstrated additional effectiveness of air purification system in reducing RSV virus.
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Received permission to register a patent in the company's name at the United States Patent and Trademark Office (USPTO) for its air quality management device, control system, and method.
Strategy – Recall that Aura Smart Air offers hardware and software for air quality management to its customers, focusing on (i) product sales; (ii) services, including spare parts and software; and (iii) data collection and analysis. The company's focus is mainly on the education and transportation segments with an emphasis on the US.
Bottom line, the company presented an efficiency plan against the backdrop of significantly reduced revenues and a change in strategic focus on customers. Also, the interest rate environment is very challenging for young companies and mainly an increase in the uncertainty of continued business growth. Another business challenge is shifting the conversation from the corona virus to general air pollution and other pollutants that cause health damage and death. On the other hand, in the background, positive trends support continued growth (increased density and air pollution, war in Ukraine is expected to support the "green" trend, as is the carbon tax imposed in Europe). In light of this, the price target remains unchanged.
AURA SMART AIR LTD
22.05.2023
Key events in the passing months and Q1 2023:
- On January 3, 2023, the company updated the results of an experiment conducted at the Innovative Bioanalysis laboratory facilities in California, USA, which showed that the company's unique air purification system is able to reduce the presence of the airborne RSV virus by 99.997% within 60 minutes under the experimental conditions.
- o These findings confirm the effectiveness of the system in neutralizing tested viruses, which is consistent with previous studies carried out by the Sheba Medical Center, the Spanish Ministry of Defense, the Biological Institute of the University of Campinas in Brazil and the laboratory.
- o The company plans to submit the trial results for AMAR licensing to the Israeli Ministry of Health.
- On February 5, Ora Smart Air received permission to register a patent in its name at the US Patent and Trademark Office (USPTO) for its air quality management device, air quality control system and air quality control method.
- On February 26, Ora Smart Air signed a merger agreement with Molekule Group Inc. As part of it, Molecule will purchase all of the issued capital of Aura Smart Air, and its shareholders will receive Molecule shares in return.
- o The transaction will be for a maximum of 3,519,105 ordinary shares of Molecule (10.37% of its share capital). Employee options and blocked stock units will be canceled. Mizrahi Bank's rights to purchase shares will also be canceled in the shares allocated to the bank at a cost of USD 500 thousand.
- o A reverse triangular merger with Avatar Merger Sub Ltd, an Israeli subsidiary of Molekule, will combine the two companies with Aura Smart Air becoming a subsidiary of Molekule.
Investment Thesis
Indoor air purifiers and monitors are gaining widespread popularity due to their effect in reducing asthma and other breathing-related ailments. The impact of COVID-19 has added momentum to the already growing market. Though manufacturers did not expect a manifold growth in 2020, they agree that the growth will be significantly higher than before. The global air purifier market was valued at \$10.38 billion in 2020 and is expected to reach \$21.15 billion by 2027 with a CAGR of 10.7%1 .
Aura Smart Air Ltd. (TASE: AUSA) was established in 2018 to provide an international standard and technology platform to manage air quality in enclosed spaces. The Company develops, markets, distributes, and operates platforms for internal air purification all over the world. The technology developed by the Company provides a complete solution to the problem of air purification and disinfection in enclosed spaces. The Company has intellectual property in registration processes in the form of patents, designs, and trademarks. The Company's product line includes the Aura Air, Aura Air Mini, filters, and software (a B2B dashboard for fleet management, API capabilities, and analytic tools to the end-users). The unique Aura Air technology provides air purification to both indoor and outdoor pollution. It removes harmful indoor particles and outdoor pollution concerns, including industrial emissions (VOC, PM 2.5, PM10, NO, NOX), global warming (CO, O3 – ozone, temperature, humidity), as well as plants and allergens (grass, pollen).
The Company is built on three main pillars:
1. Air monitoring, purification, and disinfection, using a set of unique technologies that collect pollutants and actively eliminate airborne bacteria, mold spores, fungal spores, and viruses.
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Artificial intelligence developed to function with a wide variety of building management systems that allow independent automated operations to be performed according to Aura Air's data-based insights.
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Predictive analysis of indoor and outdoor air quality in real-time based on algorithmic models.
Aura Smart Air offers hardware and software to its customers, with its business divided into three main areas: (a) selling products; (b) services, including spare parts and software; (c) data collection and analysis. Aura Smart Air is distinguished from its competitors due to its low cost, ease of guidance and maintenance, its air quality management platform, and its engineering structure.
1 https://www.prnewswire.com/news-releases/global-air-purifier-market-size-is-projected-to-usd-21-15-bn-by-2027-saysbrandessence-market-research-301432392.html
1. Company Overview
General
Aura Smart Air Ltd. (TASE: AUSA) was established in 2018 to provide an international standard and technology platform to manage air quality in enclosed spaces. The Company develops, markets, distributes, and operates platforms for internal air purification in Israel and abroad. Below is a timeline of the Company's development:
The Company currently employs approximately 50 employees in Israel, the United States, and India. The technology developed by the Company provides a complete solution to the problem of air quality in enclosed spaces by providing 4 unique and patented stages of purification and disinfection. The Company has intellectual property in registration processes in the form of patents, designs, and trademarks.
In order to address various factors of air pollution and the accompanying problems, the Company has developed a platform for managing air quality in enclosed spaces that works to monitor the indoor air quality, filter, and purify it while destroying pests and the various air pollutants. The system, which is automatically synchronized to smart building management systems, is able to effectively filter and purify all pollutants in the enclosed space while monitoring real-time air quality data in order to provide insights and smart recommendations to system users, whether they are private, business, or institutional customers. In addition, the system can provide information and data through the system management software that the Company develops. The Company uses a unique technology that allows it to achieve impressive air purification results by using substances and components that have been found to be effective in neutralizing bacteria, viruses, and parasites that destroy, among other things, the proteins on the cell membrane.
Pillars of the Company
The Company is built on three main pillars:
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- Air monitoring, purification, and disinfection, using a set of unique technologies that collect pollutants and actively eliminate airborne bacteria, mold spores, fungal spores, and viruses.
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- Artificial intelligence developed to function with a wide variety of building management systems that allow independent automated operations to be performed according to Aura Air's data-based insights.
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- Predictive analysis of indoor and outdoor air quality in real-time based on algorithmic models.
Clinical trial and collaboration with Sheba Tel Hashomer hospital
A report published by Sheba Tel Hashomer hospital in February 2021 confirms the high purification capabilities of the Company's technology. The results of the study illustrate that the Company's devices are capable of killing a coronavirus (IBV) that is similar in its characteristics to the SARS-CoV-2 virus that leads to an epidemic with an impressive 99.9% efficiency. The results are illustrated in the table below:
| Filter | Coronavirus Reduction Ratio (%) |
|---|---|
| HEPA | 99.72% |
| SCF | 99.97% |
| Sterionizer LP" | 99.96% |
| Sterionizer HP® | 99.94% |
| UVC LED | 99.96% |
Source: Aura Air
More recently, in October 2021, the Company reported positive results on the purification of indoor air with the SAR-COV-2 virus in a trial conducted in the Innovative Bioanalysis laboratory in California. The trial showed that the Aura Smart Air's purification system destroyed 99.998% of the virus in an enclosed space of 2.5 meters by 2.5 meters and 3 meters high. The Company reported that 30 minutes after the start of the trial, the system had destroyed 87.37% of the virus in the air. News of these findings caused the Company's share price to jump 25%, giving the Company a market cap of NIS 225 million.2
Company strategy
Aura Smart Air offers hardware and software to its customers, with its business split into 3 main areas: (i) HW & SW product sales; (ii) services, including parts and updates; and (iii) data. Aura Smart Air is differentiated from its competition due to its lower cost, ease of installation and maintenance, and engineering structure. The Company's customers include:
- B2B, e.g., office buildings, co-working spaces, multi-family housing units, hotels, pharmacies, nursing homes, shopping centers, elevators
- B2G, e.g., hospitals, educational institutions, public transportation, government offices and buildings
- D2C, e.g., parents, young families, older population, people with respiratory problems or allergies, smart homes
In the U.S., Aura Smart Air intends to begin targeting B2B customers, then transition to B2B2C with brands that sell to private customers, control and automation companies that work with businesses, and distributors of semi-medical products for hospitals and nursing homes. From that point, the Company intends to enter into direct-to-consumer sales. In Europe, Asia, and Australia, the Company plans to focus on municipal and government centers and repurchases from distributors. Following success stories in a number of segments, they will plan to enter new segments, finally establishing themselves as the local standard. In India, the Company is currently setting a foundation and building relationships with distributors, after which it plans to sell directly to business customers.
2. Products & Technology Overview
Aura Air
Aura Air applies four unique steps of air purification and disinfection: pre-filtration, ray-filtration, sterionization, and UVC. Aura's Air technology is proven to disinfect 99.9% of viruses, bacteria, volatile organic compounds (VOCs) and allergens.
- 1. Pre-filter removes big particles of airborne dust, such as dust, pollen, animal hair.
- 2. Ray-Filter™ consists of 3 unique antibacterial layers: (i) HEPA, a 99.98% effective particle filter of 330 microns, (ii) a carbon layer that absorbs Volatile Organic Compounds (VOC) and bad odors, and (iii) a smart copper fabric that filters viruses, bacteria, and more. The trademark is in the process of registration.
- 3. Sterionizer™ component based on bipolar ionization technology that produces positive and negative ions. It completes the purification and disinfection processes. The charged oxygen molecules O2+ and O2- with high chemical activity react with water molecules in the air, forming OH radicals and H2O2 (Hydrogen Peroxide). With this chemical reaction, the oxidants break down the protein structure of pollutants and make them harmless.
- 4. UVC LEDs Effective in neutralizing bacteria, viruses, and parasites by destroying proteins on the cell membrane.
Source: Aura Ai
Aura Air Mini
This portable air purifier provides protection from harmful air pollutants using the Sterionizer™ ionization technology. It distributes positive and negative ions into the air and destroys the protein structures of pest cells. It is a portable device with a powerful and rechargeable battery, small enough to be carried in a personal bag. This product provides significant potential for a dire need in taxis.
The Indoor/Outdoor Pollution Technology
The unique Aura Air technology provides air purification to both indoor and outdoor pollution. It removes harmful indoor particles origin from cooking (smoke, CO), cleaning products (VOC), pets (PM10, CO2, PM 2.5), furniture (VOC) and the environment (humidity). The purification dedicated to outdoor pollution concerns industrial emissions (VOC, PM 2.5, PM10, NO, NOX), global warming (CO, O3 – ozone, temperature, humidity), as well as plants and allergens (grass, pollen).
Data Center
The system includes a platform for management, control, and monitoring for business customers with many products and allows the product to operate autonomously. The platform interfaces with building management systems (BMS), air conditioning systems, and other information systems. The system includes an application that enables smart and accurate management and customization for the end-user.
Regulation
Aura Air's products meet the requirements of the U.S. Environmental Protection Agency (EPA), are in the process of receiving product approval from the U.S. Food and Drug Administration (FDA), and are in discussions at government levels regarding the issue of air quality regulations in enclosed spaces.
3. Market Overview
Indoor Air Quality (IAQ) Systems Market Segmentation
Indoor air quality (IAQ) systems include products that monitor and purify pollutants and other air conditions in a closed environment. Indoor air purification is defined as the elimination or reduction of air impurities to safe levels in a built environment through the use of a device (or multiple devices), thereby improving or maintaining a healthy indoor climate for human occupancy. The IAQ systems market is segmented as Indoor Air Quality Monitors & Indoor Air Purifiers; Humidifiers/De-humidifiers; and Software & Analytic Services.
Figure 8: Indoor Air Quality Systems Market Segmentation
Source: Frost & Sullivan
The vertical or end-user segmentation includes Commercial (Office, Retail, Hospitality – restaurants and hotels); Institutional (K-12, colleges, healthcare buildings); Residential; and Others (Government Buildings, Museums, Transport (Flights, Buses, Cars), Airports, Railway/Metro Stations). Regional segmentation of the IAQ systems market includes North America, Europe, Asia-Pacific (APAC), and Rest-of-World (RoW; comprises Middle East, Africa, and Latin America).
Market Drivers & Restraints
Frost & Sullivan analyzes market prospects and potential based on force field analysis using key market drivers and restraints. The shortlisted drivers are then ranked based on the intensity of their impact (low–medium– high) over the intervals of the forecast period.
The leading market drivers include rising pollution levels and deteriorating air quality in major cities, in addition to increased consumer awareness about poor air quality. Closely following these is rising concern over the growing incidence of airborne diseases, especially in light of the severe impact of COVID-19.
A decline in prices of air purifiers due to the market entry of consumer-appliance brands is also expected to drive the demand further. Seasonal demand in several countries serves as the peak demand periods – examples are the stubble burning in Punjab and Haryana during winters in India, bushfires in Australia during peak summer, and the wildfires in California spanning two seasons.
The uppermost restraint is the high capital investment, and high maintenance costs are also a major deterrent for the purchase of air purifiers, especially in the residential segment. In addition, there are few enabling regulations encouraging adoption.
| Drive | 1-2 Years | 3-4 Years | 5-7 Years |
|---|---|---|---|
| Increasing pollution levels and deteriorating air quality in major cities, as well as rising consumer awareness about poor air quality |
High | High | High |
| Rising concerns regarding increasing airborne diseases, especially after the severe impact of COVID-19 |
High | Medium | Medium |
| Improving air quality in commercial buildings, especially offices, to ensure a safe workplace and the focus on well being of employees |
High | Medium | Medium |
| Use of IAQ systems to monitor occupancy and achieve energy efficiency of HVAC systems |
Medium | High | High |
| Smart cities, WELL Building Standard, and Green Building initiatives |
Medium | Medium | High |
| Increase in disposable income and improving standard of living in several developing countries |
Low | Low | Medium |
Figure 10: Indoor Air Quality Systems Market: Growth Drivers, Global, 2020–2026
Source: Frost & Sullivan
Figure 11: Indoor Air Quality Systems Market: Growth Restraints, Global, 2020–2026
| Drive | 1-2 Years | 3-4 Years | 5-7 Years |
|---|---|---|---|
| High capital investment an high maintenance costs are a major deterrent for the purchase of air purifiers, especially in the residential segment. While price are going down, the average cost of air purifier is \$320, with is still considered expensive. |
High | High | Medium |
| Lack of enabling regulations to drive adoption, There are several recommendations by government and environmental agencies, but there are no mandates as of now. |
High | Medium | Low |
| Some air purifiers produce hazardous by-products such as ozone or nitrous oxide that pose a severe threat to the occupants. |
Medium | Medium | Low |
Source: Frost & Sullivan
Market Growth Opportunity Analysis
- The global air purifier market was valued at \$10.38 billion in 2020 and is expected to reach \$21.15 billion by 2027 with a CAGR of 10.7%3 .
- Partnerships with building management system (BMS) and heating, ventilation, and air condition (HVAC) solution providers; affordable pricing; ability to track and contain multiple pollutants; and a multi-channel growth strategy are the top success factors in this market.
- Indoor air purifiers and monitors are gaining widespread popularity due to their effect in reducing asthma and other breathing-related ailments. The impact of COVID-19 has added momentum to the already growing market. Though manufacturers did not expect a manifold growth in 2020, they agree that the growth will be significantly higher than before.
- Institutional building segments comprising schools and hospitals will witness massive growth during the forecast period, followed by transport and public buildings. Offices are likely to increase spending on improving air quality while the residential segment will maintain its current growth.
3 https://www.prnewswire.com/news-releases/global-air-purifier-market-size-is-projected-to-usd-21-15-bn-by-2027-saysbrandessence-market-research-301432392.html
5. Valuation Method & Approach
The valuation of a startup company in its early stages can be challenging due to limited cash flow (if any) and uncertainty regarding the future. As part of a Discounted Cash Flow (DCF), the accepted method used in financial valuations, there are several modifications to a startup company's valuation. In general, there are three primary methods within the DCF method:
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- Real Options valuation method designated for programs/companies where the assessment is binary during the initial phases and based upon science-regulatory assessment only (binomial model with certain adjustments).
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- Pipeline assessment valuation method used for programs/companies before the market stage. The Company's value is the total discounted cash flow, plus allocated costs and assessment of the future technological basis. The assessment of the future technological basis is established based on the Company's ability to "produce" new projects and their feed rate potential.
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- DCF valuation similar to companies not operating in the life sciences field, this method applies to companies with products that have a positive cash flow from operations.
Company Financial Overview
Aura Smart Air's revenue amounted to USD 3.78 million in 2020, solely from its Aura Air product. In the first half of 2021, the Company reported USD 6.38 million in revenue, with the Aura Air accounting for 96.1% of sales and Aura Air Mini accounting for 3.9%. The Company mainly sells to distributors, which comprise 91% of their sales. In 2020, North America accounted for 38% of the Company's sales, with the stated goal of reaching 70% by 2023.
Aura Smart Air's equity as of June 31, 2021, is USD 14.84 million according to its balance sheet and has USD 9.9 million in cash, according to the Company's management. The Company's R&D costs amounted to 24.6% of its revenues, which is in line with standard R&D expenditures for startup companies. However, Aura Smart Air projects that its R&D costs will decrease dramatically in terms of its percentage of revenues, converging to 8% by 2026. Sales and marketing (S&M) and general and administration (G&A) expenses account for 13.2% and 19.8%, respectively. The Company forecasts that these costs will decrease to 10% and 2.5%, respectively, by 2026. For FY 2020, the Company recorded an EBIT of USD -1.34 million but expects that to grow, based on the aforementioned decreased expenses, to grow to USD 20.58 million by 2026. The Company reported a net loss of USD 2.82 million in the first half of 2021.
Revenue Model
Aura Smart Air offers three products: the Aura Air, the Aura Air Mini, and Aura Air replacement filters. The Company has ascertained that the filters need to be replaced twice a year. It has also determined that the Aura Air and Aura Air Mini have a life span of 3 years, after which they predict 50% of customers will purchase
replacement devices. Based on these assumptions, below are the projected sales and revenues (in \$ thousands) through FY 2026 for each product:
Figure 1: Revenue projections from Aura Air, 2020 - 2026
| Price per unit: \$350 | A2020 | E2021 | 2022 | 2023 | 2024 | 2025 | 2026 |
|---|---|---|---|---|---|---|---|
| Units exp. sold | 10,800 | 23,556 | 102,804 | 271,800 | 285,390 | 299,660 | 314,642 |
| Follow-up purchases | 11,778 | 51,402 | 135,900 | ||||
| Total Aura Air units sold | 23,556 | 102,804 | 271,800 | 297,168 | 351,062 | 450,542 | |
| Revenue | \$ 3,780 |
\$ 8,245 |
\$ 35,981 |
\$ 95,130 |
\$ 104,009 |
\$ 122,872 |
\$ 157,690 |
Figure 2: Revenue projections from Aura Air Mini, 2020 - 2026
| Price per unit: \$100 | A2020 | E2021 | 2022 | 2023 | 2024 | 2025 | 2026 |
|---|---|---|---|---|---|---|---|
| Units exp. sold | 2,617 | 11,423 | 30,200 | 31,710 | 33,296 | 34,960 | |
| Follow-up purchases | 1,309 | 5,712 | 15,100 | ||||
| Total Aura Air units sold | 2,617 | 11,423 | 30,200 | 33,019 | 39,008 | 50,060 | |
| Revenue | \$ 262 |
\$ 1,142 |
\$ 3,020 |
\$ 3,302 |
\$ 3,901 |
\$ 5,006 |
Figure 3: Revenue projections from Filters, 2020 - 2026
| Price per unit: \$55 | A2020 | E2021 | 2022 | 2023 | 2024 | 2025 | 2026 |
|---|---|---|---|---|---|---|---|
| Aura Air units in ciruclation - Y1 10,800 | 23,556 | 102,804 | 271,800 | 297,168 | 351,062 | 450,542 | |
| Aura Air units in ciruclation - Y2 | 23,556 | 102,804 | 271,800 | 297,168 | 351,062 | ||
| Aura Air units in ciruclation - Y3 | 23,556 | 102,804 | 271,800 | 297,168 | |||
| Total units by customers | 23,556 | 126,360 | 398,160 | 671,772 | 920,030 | 1,098,772 | |
| Average units by customers | 23,556 | 74,958 | 262,260 | 534,966 | 795,901 | 1,009,401 | |
| Revenues from filters | \$ 2,591 |
\$ 8,245 |
\$ 28,849 |
\$ 58,846 |
\$ 87,549 |
\$ 111,034 |
Figure 4: Total Aura Smart Air revenues projections, 2020 - 2026
| Year | A2020 | E2021 | 2022 | 2023 | 2024 | 2025 | 2026 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Aura Air | \$ | 3,780 | \$ | 8,245 | \$ | 35,981 | \$ | 95,130 | \$ | 104,009 | \$ | 122,872 | \$ | 157,690 |
| Aura Air Mini | \$ | 262 | \$ | 1,142 | \$ | 3,020 | \$ | 3,302 | \$ | 3,901 | \$ | 5,006 | ||
| Filters | \$ | 2,591 | \$ | 8,245 | \$ | 28,849 | \$ | 58,846 | \$ | 87,549 | \$ | 111,034 | ||
| Total | \$ | 3,780 | \$ | 11,097 | \$ | 45,369 | \$ | 126,999 | \$ | 166,157 | \$ | 214,322 | \$ | 273,730 |
As shown above, we project that Aura Smart Air's revenues will increase dramatically over the coming years, based on the Company's early success with Aura Air, along with the increasing demand for air purification due to COVID-19. On the chart below, we display the estimated increase in revenues during the period:
Operating expenses
We evaluated Aura Smart Air's equity value based on the Company's three product offerings, taking into account the research & development (R&D), sales & marketing (S&M), and general & administration (G&A) expense projections. In the graph below, we depict the Company's operating expenses forecast through 2026:
Figure 6: Aura Smart Air operating expenses forecast, 2020 – 2026
Figure 7: Aura Smart Air operating income forecast, 2020 – 2026 (in \$ Millions)
R E S E A R C H & C O N S U L T I N G L T D.
Additional points:
- Tax we use statutory tax rates.
- WC we assume 30 net days of working capital needs.
- CAPM we use 16.71% based on our CAPM model (see appendix A)
- Non-operational assets and liabilities the Company has USD 9.9 million and no loans as of 30/09/2021.
Below is our equity value breakdown:
| Parameters | (000, \$) |
|---|---|
| Enterprise Value | 67,721.031 |
| Cash | 9,900.000 |
| Equity value (000, \$) | 77,621.03 |
| Equity value (000, NIS) | 250,715.93 |
Based on the above parameters, we evaluate the Company's equity value at NIS 250.7 million.
Sensitivity Analysis
The table below presents Aura Smart Air's share price target concerning the capitalization rate. We set a range of 0.5% change from our CAPM model (see Appendix B). The Company has 24.44 million shares as of October 11, 2021.
| Cap rate | Price target |
|---|---|
| 16.21% | 9.8 |
| 16.71% | 10.26 |
| 17.21% | 10.75 |
We estimate the price target to be in the range of NIS 9.8 to NIS 10.75 with a mean of NIS 10.26.
Appendix #1: Capital Asset Pricing Model (CAPM)
Cost of equity capital (ke) represents the return required by investors. The capitalization rate is calculated using the CAPM (Capital Asset Pricing Model). It is based on a long-term 30-year T-bond with a market risk premium and is based on Professor Aswath Damodaran's (NYU) commonly used sample (www.damodaran.com). As of January 8, 2021, the Israeli market risk is estimated at 5.4%.
The three-year market regression Beta is 0.81, according to a sample of 86 firms (at various stages), representing the environmental and waste services sector (www.damodaran.com). We also add specific risk premiums to the Company as a large part of its sales are conducted outside of Israel with different regulatory risks.
The Capital Asset Pricing Model (CAPM) is estimated as follows:
$$ER_l = R_f + \beta_l (R_m - R_f)^2$$
The Company's financial structure, based on the CAPM, is as follows:
| s | data | Source | |
|---|---|---|---|
| Long-term (20 years) | R(f) | 2.12% | Israel Bonds - 0142 |
| R(m)- | |||
| Market risk primium | R(f) | 5.40% | based on Damodaran (8/1/2021) - Israel |
| Beta sample - Environmental & Waste Services (Demodaran, 2021), 86 | |||
| Beta unleveraged | β | 0.81 | firms |
| Cost of Capital | R(k) | 6.5% | |
| Size Premium - micro-cap |
8.24% | 10z decimal - Duff & Phelps, 2021 | |
| Additional risk | 2.00% | ||
| CAPM | CAPM | 16.71% |
Appendix #2: About Frost & Sullivan
Frost & Sullivan* is a leading global consulting, and market & technology research firm that employs staff of 1,800, which includes analysts, experts, and growth strategy consultants at approximately 50 branches across 6 continents, including in Herzliya Pituach, Israel. Frost & Sullivan's equity research utilizes the experience and know-how accumulated over the course of 55 years in medical technologies, life sciences, technology, energy, and other industrial fields, including the publication of tens of thousands of market and technology research reports, economic analyses and valuations. For additional information on Frost & Sullivan's capabilities, visit: www.frost.com. For access to our reports and further information on our Independent Equity Research program visit www.frost.com/equityresearch.
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Disclaimers, disclosures, and insights for more responsible investment decisions
Definitions: "Frost & Sullivan" – A company registered in California, USA with branches and subsidiaries in other regions, including in Israel, and including any other relevant Frost & Sullivan entities, such as Frost & Sullivan Research & Consulting Ltd. ("FSRC"), a wholly owned subsidiary of Frost & Sullivan that is registered in Israel – as applicable. "The Company" or "Participant" – The Company that is analyzed in a report and participates in the TASE Scheme; "Report", "Research Note" or "Analysis" – The content, or any part thereof where applicable, contained in a document such as a Research Note and/or any other previous or later document authored by "Frost & Sullivan", regardless if it has been authored in the frame of the "Analysis Program", if included in the database at www.frost.com and regardless of the Analysis format-online, a digital file or hard copy; "Invest", "Investment" or "Investment decision" – Any decision and/or a recommendation to Buy, Hold or Sell any security of The Company. The purpose of the Report is to enable a more informed investment decision. Yet, nothing in a Report shall constitute a recommendation or solicitation to make any Investment Decision, so Frost & Sullivan takes no responsibility and shall not be deemed responsible for any specific decision, including an Investment Decision, and will not be liable for any actual, consequential, or punitive damages directly or indirectly related to The Report. Without derogating from the generality of the above, you shall consider the following clarifications, disclosure recommendations, and disclaimers. The Report does not include any personal or personalized advice as it cannot consider the particular investment criteria, needs, preferences, priorities, limitations, financial situation, risk aversion, and any other particular circumstances and factors that shall impact an investment decision. Nevertheless, according to the Israeli law, this report can serve as a raison d'etre off which an individual/entity may make an investment decision.
Frost & Sullivan makes no warranty nor representation, expressed or implied, as to the completeness and accuracy of the Report at the time of any investment decision, and no liability shall attach thereto, considering the following among other reasons: The Report may not include the most updated and relevant information from all relevant sources, including later Reports, if any, at the time of the investment decision, so any investment decision shall consider these; The Analysis considers data, information and assessments provided by the Company and from sources that were published by third parties (however, even reliable sources contain unknown errors from time to time); the methodology focused on major known products, activities and target markets of the Company that may have a significant impact on its performance as per our discretion, but it may ignore other elements; the Company was not allowed to share any insider information; any investment decision must be based on a clear understanding of the technologies, products, business environments, and any other drivers and restraints of the Company's performance, regardless if such information is mentioned in the Report or not; an investment decision shall consider any relevant updated information, such as the Company's website and reports on Magna; information and assessments contained in the Report are obtained from sources believed by us to be reliable (however, any source may contain unknown errors. All expressions of opinions, forecasts or estimates reflect the judgment at the time of writing, based on the Company's latest financial report, and some additional information (they are subject to change without any notice). You shall consider the entire analysis contained in the Reports. No specific part of a Report, including any summary that is provided for convenience only, shall serve per se as a basis for any investment decision. In case you perceive a contradiction between any parts of the Report, you shall avoid any investment decision before such contradiction is resolved. Frost and Sullivan only produces research that falls under the non-monetary minor benefit group in MiFID II. As we do not seek payment from the asset management community and do not have any execution function, you are able to continue receiving our research under the new MiFiD II regime. This applies to all forms of transmission, including email, website and financial platforms such as Bloomberg and Thomson.
Risks, valuation, and projections: Any stock price or equity value referred to in The Report may fluctuate. Past performance is not indicative of future performance, future returns are not guaranteed, and a loss of original capital may occur. Nothing contained in the Report is or should be relied on as, a promise or representation as to the future. The projected financial information is prepared expressly for use herein and is based upon the stated assumptions and Frost & Sullivan's analysis of information available at the time that this Report was prepared. There is no representation, warranty, or other assurance that any of the projections will be realized. The Report contains forward-looking statements, such as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions. Undue reliance should not be placed on the forward-looking statements because there is no assurance that they will prove to be correct. Since forwardlooking statements address future events and conditions, they involve inherent risks and uncertainties. Forward-looking information or statements contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different from current projections. Macro level factors that are not directly analyzed in the Report, such as interest rates and exchange rates, any events related to the eco-system, clients, suppliers, competitors, regulators, and others may fluctuate at any time. An investment decision must consider the Risks described in the Report and any other relevant Reports, if any, including the latest financial reports of the Company. R&D activities shall be considered as high risk, even if such risks are not specifically discussed in the Report. Any investment decision shall consider the impact of negative and even worst case scenarios. Any relevant forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E the Securities Exchange Act of 1934 (as amended) are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. TASE Analysis Scheme: The Report is authored by Frost & Sullivan Research & Consulting Ltd. within the framework of the Analysis Scheme of the Tel Aviv Stock Exchange ("TASE") regarding the provision of analysis services on companies that participate in the analysis scheme (see details:
www.tase.co.il/LPages/TechAnalysis/Tase_Analysis_Site/index.html, www.tase.co.il/LPages/InvestorRelations/english/tase-analysis-program.html), an agreement that the Company has signed with TASE ("The Agreement") and the regulation and supervision of the Israel Security Authority (ISA). FSRC and its lead analyst are licensed by the ISA as investment advisors. Accordingly, the following implications and disclosure requirements shall apply. The agreement with the Tel-Aviv Stock Exchange Ltd. regarding participation in the scheme for research analysis of public companies does not and shall not constitute an agreement on the part of the Tel-Aviv Stock Exchange Ltd. or the Israel Securities Authority to the content of the Equity Research Notes or to the recommendations contained therein. As per the Agreement and/or ISA regulations: A summary of the Report shall also be published in Hebrew. In the event of any contradiction, inconsistency, discrepancy, ambiguity or variance between the English Report and the Hebrew summary of said Report, the English version shall prevail. The Report shall include a description of the Participant and its business activities, which shall inter alia relate to matters such as: shareholders; management; products; relevant intellectual property; the business environment in which the Participant operates; the Participant's standing in such an environment including current and forecasted trends; a description of past and current financial positions of the Participant; and a forecast regarding future developments and any other matter which in the professional view of Frost &
Sullivan (as defined below) should be addressed in a research Report (of the nature published) and which may affect the decision of a reasonable investor contemplating an investment in the Participant's securities. An equity research abstract shall accompany each Equity Research Report, describing the main points addressed. A thorough analysis and discussion will be included in Reports where the investment case has materially changed. Short update notes, in which the investment case has not materially changed, will include a summary valuation discussion. Subject to the agreement, Frost & Sullivan Research & Consulting Ltd. is entitled to an annual fee to be paid directly by the TASE. Each participant shall pay fees for its participation in the Scheme directly to the TASE. The named lead analyst and analysts responsible for this Report certify that the views expressed in the Report accurately reflect their personal views about the Company and its securities and that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation or view contained in the Report. Neither said analysts nor Frost & Sullivan trade or directly own any securities in the Company. The lead analyst has a limited investment advisor license for analysis only.
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