CANCOM SE — Earnings Release 2011

Aug 2, 2011

CANCOM

(old: Buy)
(old: 13.00)
EUR 9.70
COK GR
COKG
Software/IT

One of the three largest independent Germany system houses

Change	2011E			2012E	2013E
	old	Δ%	old	Δ%	old	Δ%
Sales	570	-6.3	566	-1.3	591	-1.3
EBIT		17.8 -14.3 17.3		0.7	17.9	3.9
EPS	1.13	0.9	1.12	0.9	1.16	4.3

Analysis:	Warburg Research
Date of publication:	01.08.2011
Analyst:
Andreas Wolf	+49 (0)40-309537-140
	awolf@warburg-research.com

Good Q2 figures / PT raised

CANCOM has published a strong set of Q2 figures.

CANCOM - Q2 2011
Figures in EUR m	Q2/11	Q2/11e	Q2/10	yoy	6M/11	6M/10	yoy
Sales	126.9	143.6	106.5	19.2%	251.5	204.4	23.0%
EBITDA	6.1	4.7	2.8	117.9%	10.8	5.9	83.1%
margin	4.8%	3.3%	2.6%		4.3%	2.9%
EBIT	2.9	2.9	1.8	61.1%	-3.3	3.7	-
margin	2.3%	2.0%	1.7%		-1.3%	1.8%

Sources: CANCOM (historical data), Warburg Research (estimates)

Good IT environment: revenues grew by 19.2% yoy to EUR 126.9m and reflect the good economic environment. As a result of the solid operating development of the majority of CANCOM's medium-sized customers (revenue share in excess of 50%) they increasingly invest in IT, thus eliminating the investment backlog built up over the past years.

The deviation of sales from the estimate is mainly due to a change in accounting of Home of Hardware (reported as discontinued operation contrary to expectations). Furthermore, CANCOM has made UK business (revenues of ca. EUR 20m p.a.) available for sale which likewise leads to it being reported as discontinued operation.

Cloud solutions support rise in margins: the noticeable increase in EBITDA does not only reflect the reduced price pressure in the good economic environment but also underpins CANCOM's success in the central provisioning of applications and desktops via the customer's private cloud. This lowers the customer's IT operating costs and reduces the complexity of the IT infrastructure. Within one year CANCOM has roughly quadrupled the number of customers using the AHP private cloud solution.

Growing cloud market potential: CANCOM is presently engaged in various Citrix projects which often are the predecessors for CANCOM's AHP private cloud solution. At the same time, the market potential for the private cloud is increased by the ongoing modernisation cycle, as the centralisation and virtualisation of servers are the basis for CANCOM's private cloud solutions.

Share of recurring revenues is increased: thanks to the intensified sale of cloud solutions the share of services is also boosted while at the same time the share of recurring revenues is increased. As a result, more than 50% of the gross profit is already recurring. This does not only increase the visibility of earnings but also justifies a higher valuation multiple.

Model adjustment: the model was revised (taking account of the impacts of Home of Hardware and the UK business while simultaneously raising the operating earnings estimates). The final figures are due to be published on August 11.

The PT was increased to EUR 13.50 (old: 13.00). Unchanged: Buy.

Fiscal year ending: 31.12. in EUR m	2007	2008	2009	2010	2011E	2012E	2013E
Sales	278	364	423	549	534	559	584
Change Sales yoy	4.7 %	31.2 %	16.0 %	30.0 %	-2.8 %	4.6 %	4.5 %
Gross profit	81.0	106	117	148	161	168	176
Gross margin	29.2 %	29.1 %	27.6 %	26.9 %	30.1 %	30.1 %	30.1 %
EBITDA	7.6	8.8	10.4	19.2	22.2	24.5	25.6
EBITDA-margin	2.7 %	2.4 %	2.5 %	3.5 %	4.2 %	4.4 %	4.4 %
EBIT	5.9	5.4	7.0	13.7	15.2	17.5	18.6
EBIT-margin	2.1 %	1.5 %	1.6 %	2.5 %	2.9 %	3.1 %	3.2 %
Net income	4.7	2.7	5.1	7.8	11.7	11.7	12.4
EPS	0.45	0.26	0.49	0.76	1.14	1.13	1.21
Free Cash Flow per share	0.12	0.97	0.58	0.86	0.85	1.02	1.05
Dividend	0.00	0.00	0.15	0.27	0.30	0.35	0.35
Dividend Yield	n.a.	n.a.	1.5 %	2.8 %	3.1 %	3.6 %	3.6 %
EV/Sales	0.4	0.3	0.2	0.2	0.2	0.2	0.1
EV/EBITDA	13.1	11.4	9.7	5.2	4.2	3.5	3.0
EV/EBIT	17.0	18.6	14.4	7.3	6.1	4.8	4.2
PER	21.5	37.3	19.8	12.8	8.5	8.6	8.0
ROCE	11.5 %	9.2 %	10.9 %	18.5 %	17.8 %	18.6 %	18.0 %
Adj. Free Cash Flow Yield	3.6 %	6.0 %	6.1 %	11.8 %	19.3 %	21.3 %	24.4 %

Source: CANCOM

Source: CANCOM

Company background

CANCOM is the third largest manufacturer-independent system house in Germany.

The range of offers comprises the sale of hardware and software of all major manufacturers as well as IT services. The IT services offered include the conception and integration of IT systems as well as operation of the systems.

The company has more than 2,000 employees at over 30 sites in Germany, Austria and the UK. More than half of the staff is employed in the field of services.

Competitive quality

The German system house market is highly competitive and strongly fragmented. As one of the largest system houses in Germany CANCOM enjoys competitive advantages over mostly smaller market participants...

• § ...favourable purchasing conditions.
• § ...the broad one-stop offer of products and services.
• § ...the presence at more than 30 sites in Germany contributing to the local high service quality.

Acquisitions are part of the company strategy. They help to improve the purchasing conditions and to expand the regional presence and the range of offers.

Consolidated Profit & Loss CANCOM

in EUR m	2007	2008	2009	2010	2011E	2012E	2013E
Sales	278	364	423	549	534	559	584
Increase / decrease in inventory	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Own work capitalised	0.9	0.3	1.0	1.3	0.7	0.8	0.8
Total sales	278	365	423	551	535	559	585
Material Expenses	197	258	307	403	374	391	409
Gross profit	81.0	106	117	148	161	168	176
Personnel expenses	56.3	73.0	82.8	100	110	115	120
Other operating income	1.5	1.7	2.7	3.4	2.1	2.8	2.9
Other operating expenses	18.6	26.1	26.1	31.7	30.4	31.3	33.3
Unfrequent items	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EBITDA	7.6	8.8	10.4	19.2	22.2	24.5	25.6
Depreciation of fixed assets	1.2	1.4	2.4	4.2	4.2	4.2	4.2
EBITA	6.4	7.4	7.9	15.0	18.0	20.3	21.4
Amortisation of intangible fixed assets	0.5	1.0	0.9	0.0	2.8	2.8	2.8
Impairment charges and amortisation of goodwill	0.0	1.0	0.1	1.3	0.0	0.0	0.0
EBIT	5.9	5.4	7.0	13.7	15.2	17.5	18.6
Interest income	0.1	0.3	0.2	0.1	0.0	0.0	0.0
Interest expenses	0.8	1.6	1.5	2.1	1.0	0.9	0.9
Financial result	-0.7	-1.3	-1.3	-2.0	-1.0	-0.9	-0.9
Recurring pretax income from cont. operations	5.2	4.0	5.7	11.6	14.3	16.6	17.7
Extraordinary income/loss	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EBT	5.2	4.0	5.7	11.6	14.3	16.6	17.7
Taxes total	0.0	1.3	0.6	3.7	4.4	4.9	5.2
Net income from continuing operations	5.2	2.8	5.1	7.9	9.9	11.7	12.4
Income from discontinued operations (net of tax)	0.0	-0.1	0.0	0.0	1.8	0.0	0.0
Net income before minorities	5.2	2.7	5.1	7.9	11.7	11.7	12.4
Minority interest	0.5	0.0	0.0	0.1	0.0	0.0	0.0
Net income	4.7	2.7	5.1	7.8	11.7	11.7	12.4

Consolidated Profit & Loss CANCOM

in % of Sales	2007	2008	2009	2010	2011E	2012E	2013E
Sales	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %
Increase / decrease in inventory	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Own work capitalised	0.3 %	0.1 %	0.2 %	0.2 %	0.1 %	0.1 %	0.1 %
Total sales	100.3 %	100.1 %	100.2 %	100.2 %	100.1 %	100.1 %	100.1 %
Material Expenses	71.1 %	70.9 %	72.6 %	73.4 %	70.1 %	70.1 %	70.0 %
Gross profit	29.2 %	29.1 %	27.6 %	26.9 %	30.1 %	30.1 %	30.1 %
Personnel expenses	20.3 %	20.1 %	19.6 %	18.2 %	20.6 %	20.6 %	20.6 %
Other operating income	0.6 %	0.5 %	0.6 %	0.6 %	0.4 %	0.5 %	0.5 %
Other operating expenses	6.7 %	7.2 %	6.2 %	5.8 %	5.7 %	5.6 %	5.7 %
Unfrequent items	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
EBITDA	2.7 %	2.4 %	2.5 %	3.5 %	4.2 %	4.4 %	4.4 %
Depreciation of fixed assets	0.5 %	0.4 %	0.6 %	0.8 %	0.8 %	0.8 %	0.7 %
EBITA	2.3 %	2.0 %	1.9 %	2.7 %	3.4 %	3.6 %	3.7 %
Amortisation of intangible fixed assets	0.2 %	0.3 %	0.2 %	0.0 %	0.5 %	0.5 %	0.5 %
Impairment charges and amortisation of goodwill	0.0 %	0.3 %	0.0 %	0.2 %	0.0 %	0.0 %	0.0 %
EBIT	2.1 %	1.5 %	1.7 %	2.5 %	2.9 %	3.1 %	3.2 %
Interest income	0.1 %	0.1 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Interest expenses	0.3 %	0.4 %	0.4 %	0.4 %	0.2 %	0.2 %	0.2 %
Financial result	-0.3 %	-0.4 %	-0.3 %	-0.4 %	-0.2 %	-0.2 %	-0.2 %
Recurring pretax income from cont. operations	1.9 %	1.1 %	1.3 %	2.1 %	2.7 %	3.0 %	3.0 %
Extraordinary income/loss	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
EBT	1.9 %	1.1 %	1.3 %	2.1 %	2.7 %	3.0 %	3.0 %
Taxes total	0.0 %	0.4 %	0.1 %	0.7 %	0.8 %	0.9 %	0.9 %
Net income from continuing operations	1.9 %	0.8 %	1.2 %	1.4 %	1.9 %	2.1 %	2.1 %
Income from discontinued operations (net of tax)	0.0 %	0.0 %	0.0 %	0.0 %	0.3 %	0.0 %	0.0 %
Net income before minorities	1.9 %	0.7 %	1.2 %	1.4 %	2.2 %	2.1 %	2.1 %
Minority interest	0.2 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Net income	1.7 %	0.7 %	1.2 %	1.4 %	2.2 %	2.1 %	2.1 %

Balance sheet CANCOM

in EUR m	2007	2008	2009	2010	2011E	2012E	2013E
Assets
Intangible assets	25.7	28.3	31.5	42.5	42.7	43.1	43.8
thereof other intangible assets	3.8	4.5	6.7	18.9	19.1	19.5	20.2
thereof Goodwill	21.9	23.8	24.8	23.7	23.7	23.7	23.7
Property, plant and equipment	3.0	5.4	6.5	9.7	9.8	9.6	9.4
Financial assets	0.6	1.1	1.0	3.3	3.3	3.3	3.3
Fixed assets	29.3	34.8	39.1	55.5	55.8	56.0	56.5
Inventories	9.5	11.2	13.6	14.1	13.5	14.1	14.8
Accounts receivable	39.3	44.2	47.2	68.0	64.4	67.3	70.4
Other Assets	10.6	12.2	9.2	8.4	8.4	8.4	8.4
Liquid assets	11.8	18.3	25.8	31.5	31.8	40.3	47.6
Current assets	71.1	85.8	95.9	122	118	130	141
Total assets	100	121	135	177	174	186	198
Liabilities and shareholders' equity
Subscribed capital	10.4	10.4	10.4	10.4	10.4	10.4	10.4
Additional paid-in capital	15.4	15.4	15.4	15.9	15.9	15.9	15.9
Surplus capital	10.7	13.4	18.5	24.8	33.7	42.3	51.1
Other equity components	-0.3	-0.3	-0.4	-0.1	5.0	5.8	5.8
Book value	36.3	38.9	43.9	50.9	65.0	74.3	83.2
Minority Interest	0.0	0.0	0.0	0.1	0.1	0.1	0.1
Total equity	36.3	38.9	43.9	51.0	65.0	74.4	83.3
Provision for pensions and similar obligations	0.2	0.2	0.0	0.1	0.0	0.0	0.0
Provisions	8.1	3.3	4.4	3.3	3.2	3.2	3.2
Financial liabilities	19.6	22.1	22.3	30.6	24.0	24.0	24.0
Accounts payable	30.0	39.3	47.9	64.4	57.1	59.7	62.4
Other liabilities	6.5	17.1	16.5	28.1	24.6	24.8	24.8
Liabilities	64.2	81.8	91.0	126	109	112	114
Total liabilities and shareholders' equity	100	121	135	177	174	186	198

Sources: CANCOM (historical data), Warburg Research (forecasts)

Balance sheet CANCOM

in % of Balance Sheet Total	2007	2008	2009	2010	2011E	2012E	2013E
Assets
Intangible assets	25.6 %	23.5 %	23.4 %	24.0 %	24.6 %	23.2 %	22.2 %
thereof other intangible assets	3.8 %	3.8 %	5.0 %	10.6 %	11.0 %	10.5 %	10.2 %
thereof Goodwill	21.8 %	19.7 %	18.4 %	13.4 %	13.6 %	12.7 %	12.0 %
Property, plant and equipment	3.0 %	4.5 %	4.8 %	5.5 %	5.6 %	5.2 %	4.7 %
Financial assets	0.6 %	0.9 %	0.7 %	1.8 %	1.9 %	1.8 %	1.7 %
Fixed assets	29.2 %	28.9 %	29.0 %	31.3 %	32.1 %	30.1 %	28.6 %
Inventories	9.5 %	9.3 %	10.1 %	7.9 %	7.8 %	7.6 %	7.5 %
Accounts receivable	39.2 %	36.6 %	35.0 %	38.3 %	37.0 %	36.2 %	35.6 %
Other Assets	10.5 %	10.1 %	6.9 %	4.7 %	4.8 %	4.5 %	4.2 %
Liquid assets	11.7 %	15.2 %	19.2 %	17.7 %	18.3 %	21.7 %	24.1 %
Current assets	70.9 %	71.1 %	71.1 %	68.8 %	67.9 %	69.9 %	71.4 %
Total assets	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %
Liabilities and shareholders' equity
Subscribed capital	10.4 %	8.6 %	7.7 %	5.9 %	6.0 %	5.6 %	5.3 %
Additional paid-in capital	15.4 %	12.8 %	11.5 %	9.0 %	9.2 %	8.6 %	8.0 %
Surplus capital	10.7 %	11.1 %	13.7 %	14.0 %	19.4 %	22.7 %	25.9 %
Other equity components	-0.3 %	-0.3 %	-0.3 %	-0.1 %	2.9 %	3.1 %	2.9 %
Book value	36.1 %	32.3 %	32.5 %	28.7 %	37.4 %	40.0 %	42.1 %
Minority Interest	0.0 %	0.0 %	0.0 %	0.1 %	0.1 %	0.1 %	0.0 %
Total equity	36.1 %	32.2 %	32.5 %	28.8 %	37.4 %	40.0 %	42.1 %
Provision for pensions and similar obligations	0.2 %	0.1 %	0.0 %	0.1 %	0.0 %	0.0 %	0.0 %
Provisions	8.0 %	2.7 %	3.2 %	1.9 %	1.9 %	1.7 %	1.6 %
Financial liabilities	19.5 %	18.3 %	16.6 %	17.2 %	13.8 %	12.9 %	12.1 %
Accounts payable	29.9 %	32.5 %	35.5 %	36.3 %	32.8 %	32.1 %	31.6 %
Other liabilities	6.5 %	14.1 %	12.2 %	15.9 %	14.2 %	13.3 %	12.6 %
Liabilities	63.9 %	67.7 %	67.5 %	71.3 %	62.6 %	60.0 %	57.9 %
Total liabilities and shareholders' equity	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %

Statement of Cash Flows CANCOM

in EUR m	2007	2008	2009	2010	2011E	2012E	2013E
Net income	5.2	3.0	5.6	11.6	11.7	11.7	12.4
Depreciation of fixed assets	1.2	1.4	2.4	4.2	4.2	4.2	4.2
Amortisation of goodwill	0.0	1.0	0.1	1.3	0.0	0.0	0.0
Amortisation of intangible assets	0.5	1.0	0.9	0.0	2.8	2.8	2.8
Increase/decrease in long-term provisions	0.0	0.7	-0.2	0.3	-0.1	0.0	0.0
Other costs affecting income / expenses	-0.8	-0.3	-0.9	-1.0	0.0	0.0	0.0
Cash Flow	6.1	6.9	7.8	16.4	18.7	18.7	19.4
Increase / decrease in inventory	1.9	0.9	-0.9	0.3	0.6	-0.6	-0.7
Increase / decrease in accounts receivable	-4.8	4.4	0.8	-15.2	3.6	-2.9	-3.1
Increase / decrease in accounts payable	2.7	4.3	2.7	17.1	-7.3	2.6	2.7
Increase / decrease in other working capital positions	-0.7	-3.4	0.2	-1.7	0.0	0.0	0.0
Increase / decrease in working capital	-0.9	6.2	2.9	0.5	-3.1	-0.9	-1.1
Cash flow from operating activities	5.2	13.1	10.7	16.9	15.5	17.8	18.3
CAPEX	-3.9	-3.0	-4.7	-8.1	-6.8	-7.2	-7.5
Payments for acquisitions	-4.5	-3.0	1.4	-9.7	-1.0	0.0	0.0
Financial investments	0.1	0.0	0.0	0.0	0.0	0.0	0.0
Income from asset disposals	3.7	4.8	0.7	0.5	2.0	1.0	0.1
Cash flow from investing activities	-4.7	-1.2	-2.6	-17.3	-5.8	-6.2	-7.4
Change in financial liabilities	4.8	-4.4	0.3	8.3	-6.6	0.0	0.0
Dividends paid	0.0	0.0	0.0	-1.6	-2.8	-3.1	-3.6
Purchase of own shares	0.0	0.0	-0.2	0.6	0.0	0.0	0.0
Capital measures	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Others	-0.8	-0.1	-1.2	-1.5	0.0	0.0	0.0
Cash flow from financing activities	4.0	-4.5	-1.1	5.9	-9.4	-3.1	-3.6
Change in liquid funds	4.5	7.4	6.9	5.5	0.3	8.5	7.3
Effects of exchange rate changes on cash	0.0	-0.3	0.0	0.1	0.0	0.0	0.0
Liquid assets at end of period	11.8	18.9	25.8	31.5	31.8	40.3	47.6

Financial Ratios CANCOM

	2007	2008	2009	2010	2011E	2012E	2013E
Operational Efficiency
Total Operating Costs / Sales	97.6 %	97.7 %	97.8 %	96.7 %	96.0 %	95.8 %	95.8 %
Sales per Employee	221,966	229,312	237,748	267,949	248,372	253,893	259,422
EBITDA per Employee	6,084	5,511	5,830	9,360	10,337	11,120	11,359
EBIT-margin	2.1 %	1.5 %	1.6 %	2.5 %	2.9 %	3.1 %	3.2 %
EBITDA / Operating Assets	36.2 %	44.7 %	56.6 %	74.3 %	76.5 %	82.2 %	83.4 %
ROA	16.0 %	7.7 %	13.0 %	14.1 %	21.0 %	20.9 %	22.0 %
Efficiency of Capital Employment
Plant Turnover	91.9	67.4	64.7	56.8	54.6	58.3	62.2
Operating Assets Turnover	13.2	18.6	23.1	21.3	18.4	18.8	19.0
Capital Employed Turnover	5.0	5.9	6.4	6.7	6.0	5.7	5.4
Return on Capital
ROCE	11.5 %	9.2 %	10.9 %	18.5 %	17.8 %	18.6 %	18.0 %
EBITDA / Avg. Capital Employed	14.8 %	14.9 %	16.3 %	25.9 %	26.0 %	26.1 %	24.9 %
ROE	12.9 %	6.9 %	11.5 %	15.3 %	18.0 %	15.7 %	15.0 %
Net Profit / Avg. Equity	13.4 %	7.2 %	12.2 %	16.5 %	20.2 %	16.7 %	15.8 %
Recurring Net Profit / Avg. Equity	15.0 %	7.3 %	12.3 %	16.7 %	17.1 %	16.7 %	15.8 %
ROIC	8.1 %	4.1 %	6.8 %	8.3 %	10.0 %	10.8 %	10.6 %
Solvency
Net Debt	7.8	3.9	-3.5	-0.9	-7.9	-16.4	-23.7
Net Gearing	21.5 %	9.9 %	-8.0 %	-1.8 %	-12.1 %	-22.0 %	-28.4 %
Book Value of Equity / Book Value of Debt	185.2 %	175.8 %	196.4 %	166.9 %	271.6 %	310.7 %	347.6 %
Current ratio	1.8	1.4	1.4	1.2	1.3	1.4	1.5
Acid Test Ratio	1.3	1.1	1.1	1.1	1.1	1.2	1.3
EBITDA / Interest Paid	9.0	5.6	7.1	9.1	23.4	27.2	28.4
Interest Cover	8.4	4.3	5.3	6.9	16.0	19.4	20.6
Cash Flow
Free Cash Flow	1.2	10.1	6.0	8.8	8.7	10.6	10.8
Free Cash Flow / Sales	0.5 %	2.8 %	1.4 %	1.6 %	1.6 %	1.9 %	1.9 %
Adj. Free Cash Flow Adj. Free Cash Flow / Sales	3.6 1.2 %	6.0 0.9 %	6.1 1.0 %	11.8 1.1 %	17.9 2.0 %	18.0 2.2 %	18.8 2.2 %
Free Cash Flow / Net Profit	26.7 %	374.7 %	118.4 %	113.1 %	74.6 %	90.6 %	87.1 %
Interest Received / Avg. Cash	1.5 %	2.0 %	0.7 %	0.5 %	0.0 %	0.0 %	0.0 %
Interest Paid / Avg. Debt	5.2 %	7.5 %	6.6 %	8.0 %	3.5 %	3.8 %	3.8 %
Dividend Payout Ratio	0.0 %	0.0 %	30.5 %	35.3 %	31.2 %	30.9 %	29.0 %
Fund Management
Investment ratio	1.4 %	0.8 %	1.1 %	1.5 %	1.3 %	1.3 %	1.3 %
Maint. Capex / Sales	1.3 %	0.7 %	1.0 %	1.3 %	1.1 %	1.2 %	1.2 %
Capex / Dep	222.3 %	87.6 %	136.9 %	146.3 %	97.1 %	102.9 %	107.1 %
Avg. Working Capital / Sales	6.5 %	4.4 %	3.1 %	2.5 %	3.3 %	3.5 %	3.6 %
Trade Creditors / Trade Debtors	131.1 %	112.5 %	98.6 %	105.6 %	112.8 %	112.7 %	112.8 %
Inventory turnover (days)	12.5	11.2	11.7	9.4	9.2	9.2	9.2
Receivables collection period (DSOs)	51.7	44.3	40.8	45.2	44.0	44.0	44.0
Payables collection period (days)	39.4	39.3	41.3	42.8	39.0	39.0	39.0
Cash conversion cycle (days)	23.7	14.2	10.2	10.7	13.2	13.2	13.3
Valuation
Dividend Yield	n.a.	n.a.	1.5 %	2.8 %	3.1 %	3.6 %	3.6 %
P/B	2.8	2.6	2.3	2.0	1.5	1.4	1.2
EV/sales	0.4	0.3	0.2	0.2	0.2	0.2	0.1
EV/EBITDA	13.1	11.4	9.7	5.2	4.2	3.5	3.0
EV/EBIT	17.0	18.6	14.4	7.3	6.1	4.8	4.2
EV/FCF	80.1	9.9	16.7	11.3	10.6	8.0	7.1
P/E	21.5	37.3	19.8	12.8	8.5	8.6	8.0
P/CF	16.6	14.7	13.0	6.1	5.4	5.4	5.2
Adj. Free Cash Flow Yield	6.1 %	6.9 %	7.8 %	16.4 %	20.1 %	22.1 %	25.2 %

Free Cash Flow Yield - CANCOM Figures in EUR m 2007 2008 2009 2010 2011e 2012e 2013e Net Income 4.7 2.7 5.1 7.8 11.7 11.7 12.4 + Depreciation + Amortisation 1.7 3.4 3.4 5.5 7.0 7.0 7.0 - Net Interest Income -0.7 -1.3 -1.3 -2.0 -1.0 -0.9 -0.9 + Taxes 0.0 1.3 0.6 3.7 4.4 4.9 5.2 - Maintenance Capex 3.5 2.7 4.2 7.3 6.1 6.5 6.8 + Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 = Adjusted Free Cash Flow 3.6 6.0 6.1 11.8 17.9 18.0 18.8 Adjusted Free Cash Flow Yield 3.6% 6.0% 6.1% 11.8% 19.3% 21.3% 24.4% Hurdle rate 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% = Enterprise Value 100.0 100.0 100.0 100.0 93.0 84.5 77.2 = Fair Enterprise Value 35.6 60.3 61.2 118.4 179.0 179.8 188.1 - Net Debt (Cash) -0.9 -0.9 -0.9 -0.9 -7.9 -16.3 -23.7 - Pension Liabilities 0.1 0.1 0.1 0.1 0.0 0.0 0.0 - Others 0.1 0.1 0.1 0.1 0.1 0.1 0.1 = Fair Market Capitalisation 36.4 61.1 62.0 119.1 186.8 196.1 211.6 No. of shares (m) 10.4 10.4 10.4 10.4 10.4 10.4 10.4 = Fair value per share (EUR) 3.50 5.88 5.97 11.46 17.98 18.87 20.37 premium (-) / discount (+) in % -63.9% -39.4% -38.5% 18.3% 85.4% 94.6% 110.1% Sensitivity Fair value per Share (EUR) 13.0% 2.71 4.54 4.61 8.84 14.00 14.88 16.19 12.0% 2.93 4.91 4.98 9.57 15.11 15.99 17.35 11.0% 3.19 5.35 5.43 10.43 16.41 17.30 18.72 10.0% 3.50 5.88 5.97 11.46 17.98 18.87 20.37 9.0% 3.88 6.52 6.62 12.73 19.89 20.79 22.38 8.0% 4.35 7.33 7.44 14.31 22.28 23.20 24.89 7.0% 4.97 8.36 8.49 16.35 25.36 26.29 28.13 Hurdle rate

CANCOM Figures

DCF Model - CANCOM
Figures in EUR m	2011e	2012e	2013e	2014e	2015e	2016e	2017e	2018e	2019e	2020e	2021e	2022e	2023e	2024e
Sales	534.0	558.6	583.7	604.1	624.2	643.9	663.3	682.2	700.6	718.7	736.2	753.3	768.4	783.8
Change	-2.8%	4.6%	4.5%	3.5%	3.3%	3.2%	3.0%	2.9%	2.7%	2.6%	2.4%	2.3%	2.0%	2.0%
EBIT	15.2	17.5	18.6	18.1	18.4	18.6	18.7	18.9	19.0	19.1	19.2	19.2	19.2	19.6
EBIT-Margin	2.9%	3.1%	3.2%	3.0%	2.9%	2.9%	2.8%	2.8%	2.7%	2.7%	2.6%	2.6%	2.5%	2.5%
Tax rate	30.5%	29.5%	29.5%	29.5%	29.5%	29.5%	29.5%	29.5%	29.5%	29.5%	29.5%	29.5%	29.5%	29.5%
NOPAT	10.6	12.3	13.1	12.8	12.9	13.1	13.2	13.3	13.4	13.5	13.5	13.6	13.5	13.8
Depreciation	7.0	7.0	7.0	4.2	4.4	4.5	4.6	4.8	4.9	5.0	5.2	5.3	5.4	5.5
in % of Sales	1.3%	1.3%	1.2%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%
Change in Liquidity from
- Working Capital	-3.1	-0.9	-1.1	2.5	-0.6	-0.6	-0.6	-0.6	-0.6	-0.6	-0.5	-0.5	-0.5	-0.5
- Capex	-6.8	-7.2	-7.5	-4.2	-4.4	-4.5	-4.6	-4.8	-4.9	-5.0	-5.2	-5.3	-5.4	-5.5
Capex in % of Sales	1.3%	1.3%	1.3%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%	0.7%
Other	-0.1	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Free Cash Flow (WACC-Model)	7.6	11.2	11.5	15.3	12.3	12.5	12.6	12.7	12.8	12.9	13.0	13.0	13.1	13.3

Model parameter				Valuation (mln)
Debt ratio	17.00%	Beta	1.30	Present values 2024e	93.0
Costs of Debt	4.0%	WACC	9.19%	Terminal Value	54.1
Market return	9.00%			Liabilities	-30.6

Model parameter				Valuation (mln)
Debt ratio	17.00%	Beta	1.30	Present values 2024e	93.0
Costs of Debt	4.0%	WACC	9.19%	Terminal Value	54.1
Market return	9.00%			Liabilities	-30.6
Risk free rate	4.00%	Terminal Growth	2.00%	Liquidity	26.5	No. of shares (mln)	10.39
				Equity Value	143.0	Value per share (EUR)	13.76

Sensitivity Value per Share (EUR)

Terminal Growth								Delta EBIT-margin
WACC	1.25%	1.50%	1.75%	2.00%	2.25%	2.50%	2.75%	WACC	-1.5 pp	-1.0 pp	-0.5 pp	0.0	+0.5 pp	+1.0 pp	+1.5 pp
10.19%	11.73	11.84	11.95	12.07	12.20	12.33	12.47	10.19%	4.84	7.25	9.66	12.07	14.48	16.89	19.30
9.69%	12.45	12.58	12.72	12.86	13.01	13.18	13.35	9.69%	5.15	7.72	10.29	12.86	15.43	18.00	20.57
9.44%	12.85	12.99	13.14	13.29	13.46	13.65	13.84	9.44%	5.32	7.98	10.64	13.29	15.95	18.61	21.27
9.19%	13.27	13.42	13.58	13.76	13.95	14.15	14.37	9.19%	5.50	8.25	11.01	13.76	16.51	19.26	22.02
8.94%	13.71	13.88	14.06	14.26	14.46	14.69	14.93	8.94%	5.70	8.55	11.40	14.26	17.11	19.96	22.81
8.69%	14.19	14.38	14.57	14.79	15.02	15.27	15.54	8.69%	5.91	8.87	11.83	14.79	17.75	20.71	23.67
8.19%	15.24	15.47	15.72	15.98	16.27	16.59	16.93	8.19%	6.37	9.58	12.78	15.98	19.19	22.39	25.60

Source: Warburg Research

CAPEX and Cash Flow - CANCOM Balance Sheet Quality - CANCOM

Sources: CANCOM (historical data), Warburg Research (forecasts) Sources: CANCOM (historical data), Warburg Research (forecasts)

§ §

§ § CAPEX expected to be only slightly higher than maintenance capex ...for inorganic growth

§ §

§ §

§ §

§ ...saw a reversal in 2009 caused by crisis

2007: asset deals make CAPEX rise In spite of numerous acquisitions: low net debt leaving head room...

Sources: CANCOM (historical data), Warburg Research (forecasts) Sources: CANCOM (historical data), Warburg Research (forecasts)

Ups and downs in FCF in particular due to... Capital mainly tied to working capital

...ups and downs in working capital Risen share of services has reduced working capital ratio

Operating Leverage - CANCOM ROCE Development - CANCOM

Sources: CANCOM (historical data), Warburg Research (forecasts) Sources: CANCOM (historical data), Warburg Research (forecasts)

2004-2007: continuous decline in operating expenses ratio... Economies of scale contribute to ROCE being above cost of capital

Legal Disclaimer

This research report was prepared by the Warburg Research GmbH, a subsidiary of the M.M.Warburg & CO KGaA. It contains selected information and does not purport to be complete. The report bases on publicly available information and data ("the Information") believed to be accurate and complete. Warburg Research GmbH neither does examine the Information to be accurate and complete, nor guarantees its accuracy and completeness. Possible errors or incompleteness of the Information do not constitute grounds for liability, neither with regard to indirect nor to direct or consequential damages. In particular, neither M.M.Warburg & CO KGaA nor the Warburg Research GmbH are liable for the statements, plans or other details contained in the Information concerning the examined companies, their associated companies, strategies, economic situations, market and competitive situations, regulatory environment, etc. Although due care has been taken in compiling this research report, it cannot be excluded that it is incomplete or contains errors. M.M.Warburg & CO KGaA and Warburg Research GmbH, their shareholders and employees are not liable for the accuracy and completeness of the statements, estimations and the conclusions derived from the Information contained in this document. Provided any research report is being transmitted in connection with an existing contractual relationship, i.e. financial advisory or similar services, the liability of M.M.Warburg & CO KGaA and Warburg Research GmbH shall be restricted to gross negligence and willful misconduct. Only in case of failure in essential tasks, M.M.Warburg & CO KGaA and Warburg Research GmbH are liable for normal negligence. In any case, the liability of M.M.Warburg & CO KGaA and Warburg Research GmbH is limited to typical, expectable damages and the liability for any indirect damages is excluded. This research report does not constitute an offer or a solicitation of an offer for the purchase or sale of any security. Partners, directors or employees of M.M.Warburg & CO KGaA or Warburg Research GmbH may serve on the board of directors of companies mentioned in a report. Opinions expressed in this report are subject to change without notice. All rights reserved.

Copyright Notice

This work including all its parts is protected by copyright. Any use beyond the limits provided by copyright law without permission is prohibited and punishable. This applies, in particular, to reproductions, translations, microfilming, and storage and processing on electronic media of the entire content or parts thereof.

Disclosure according to Section 34b of the German Securities Trading Act and FinAnV

Section 34 b of the German Securities Trading Act in combination with the FinAnV requires an enterprise preparing a securities analysis to point out possible conflicts of interest with respect to the company that is the subject of the analysis. In this connection, we point out that:

• M.M.Warburg & CO KGaA or Warburg Research GmbH is party to an agreement with this company relating to the production of research recommendations.
• M.M.Warburg & CO KGaA M and affiliates are regularly trading securities issued by this company or securities based on these issues.

This report has been made accessible to the company analysed and was modified thereafter

The valuation underlying the rating of the equity security analysed in this report is based on generally accepted and widely used methods of fundamental valuation, such as DCF model, Peer group comparison and – where applicable – a Sum-of-the-parts model.

M.M.Warburg & CO KGaA and Warburg Research GmbH have set up effective organisational and administrative arrangements to prevent and avoid possible conflicts of interest and, where applicable, to disclose them.

Valuations, ratings and target prices for the companies analysed by M.M.Warburg & CO KGaA and Warburg Research GmbH are subject to constant reviews and may therefore change, if any of the fundamental factors underlying these items do change.

All share prices given in this equity analysis are closing prices, except where stated otherwise.

Neither M.M.Warburg & CO KGaA's analysts nor Warburg Research GmbH's analysts do receive any payments directly or indirectly from any affiliates' investment banking activity.

M.M.Warburg & CO KGaA and Warburg Research GmbH are under supervision of the BaFin – German Federal Financial Supervisory Authority.

Investment recommendation: expected direction of the share price development for equity security up to the given Target price in the opinion of the analyst who covers the issue.

• B Buy: The price of the analysed equity security is expected to rise over the next 12 months.
• H Hold: The price of the analysed equity security is expected to remain mostly flat over the next 12 months.
• S Sell: The price of the analysed equity security is expected to fall over the next 12 months.
• "-" Rating suspended: The available information does not currently permit an evaluation of the company.

M.M.Warburg & CO KGaA and Warburg Research GmbH research universe by rating:

Rating	Number of stocks	% of Universe
Buy	121	68%
Hold	50	28%
Sell	6	3%
Rating suspended	1	1%
Total	178

M.M.Warburg & CO KGaA and Warburg Research GmbH research universe by rating, looking only at companies for which a disclosure according to section 34b German Securities Trading Act has to be made:

Rating	Number of stocks	% of Universe
Buy	106	71%
Hold	40	27%
Sell	3	2%
Rating suspended	1	1%
Total	150

The charts have markings if Warburg Research GmbH changed its rating in the last 12 months. Every marking represents the date and closing price on the day of the rating change.

Warburg Research GmbH

Hermannstraße 9 | 20095 Hamburg | www.warburg-research.com Tel.: +49 40 309537-0 | Fax: +49 40 309537-110 | info@warburg-research.com

Christian Bruns	+49 40 309537-253	Henner Rüschmeier	+49 40 309537-270
Head of Research	cbruns@warburg-research.com	Head of Research	hrueschmeier@warburg-research.com
Felix Ellmann	+49 40 309537-120	Jochen Reichert	+49 40 309537-130
	fellmann@warburg-research.com		jreichert@warburg-research.com
Jörg Philipp Frey	+49 40 309537-258	Christopher Rodler	+49 40 309537-290
	jfrey@warburg-research.com		crodler@warburg-research.com
Ulrich Huwald	+49 40 309537-255	Malte Schaumann	+49 40 309537-170
	uhuwald@warburg-research.com		mschaumann@warburg-research.com
Thilo Kleibauer	+49 40 309537-257	Susanne Schwartze	+49 40 309537-155
	tkleibauer@warburg-research.com		sschwartze@warburg-research.com
Torsten Klingner	+49 40 309537-260	Oliver Schwarz	+49 40 309537-250
	tklingner@warburg-research.com		oschwarz@warburg-research.com
Eggert Kuls	+49 40 309537-256	Marc-René Tonn	+49 40 309537-259
	ekuls@warburg-research.com		mtonn@warburg-research.com
Frank Laser	+49 40 309537-235	Björn Voss	+49 40 309537-254
	flaser@warburg-research.com		bvoss@warburg-research.com
Andreas Pläsier	+49 40 309537-246	Andreas Wolf	+49 40 309537-140
	aplaesier@warburg-research.com		awolf@warburg-research.com
Thomas Rau	+49 40 309537-220	Stephan Wulf	+49 40 309537-150
	trau@warburg-research.com		swulf@warburg-research.com
Björn Blunck	+49 40 309537-160	Markus Pähler	+49 40 309537-221
Business Support	bblunck@warburg-research.com	Business Support	mpaehler@warburg-research.com
Daniel Bonn	+49 40 309537-205	Katrin Wauker	+49 40 309537-200
Business Support	dbonn@warburg-research.com	Business Support	kwauker@warburg-research.com
Annika Boysen	+49 40 309537-202	Claudia Vedder	+49 40 309537-105
Business Support	aboysen@warburg-research.com	Business Support	cvedder@warburg-research.com

M.M. Warburg & CO KGaA

Ferdinandstraße 75 | 20095 Hamburg | www.mmwarburg.com Tel.: +49 40 3282-0 | Fax: +49 40 3618-1000 | info@mmwarburg.com

Oliver Merckel Head of Sales Trading Thekla Struve Sales Trading Gudrun Bolsen Sales Trading Bastian Quast Sales Trading Patrick Schepelmann Sales Trading Jörg Treptow Sales Trading

Andrea Carstensen Sales Assistance Kerstin Tescherner Sales Assistance Katharina Bruns Roadshow / Marketing

+49 40 3282-2634 omerckel@mmwarburg.com +49 40 3282-2668 tstruve@mmwarburg.com +49 40 3282-2679 gbolsen@mmwarburg.com +49 40 3282-2701 bquast@mmwarburg.com +49 40 3282-2700 pschepelmann@mmwarburg.com +49 40 3282-2658 jtreptow@mmwarburg.com

+49 40 3282-2632 acarstensen@mmwarburg.com +49 40 3282-2703 ktescherner@mmwarburg.com +49 40 3282-2694 kbruns@mmwarburg.com Holger Nass Head of Equity Sales Christian Alisch Equity Sales Cynthia Chavanon Equity Sales Robert Conredel Equity Sales Matthias Fritsch Equity Sales Michael Kriszun Equity Sales Marc Niemann Equity Sales Dirk Rosenfelder Equity Sales Marco Schumann Equity Sales Julian Straube

Equity Sales Philipp Stumpfegger Equity Sales Andreas Wessel Equity Sales

+49 40 3282-2669 hnass@mmwarburg.com +49 40 3282-2667 calisch@mmwarburg.com +49 40 3282-2630 cchavanon@mmwarburg.com

+49 40 3282-2633 rconredel@mmwarburg.com +49 40 3282-2696 mfritsch@mmwarburg.com +49 40 3282-2695 mkriszun@mmwarburg.com +49 40 3282-2660 mniemann@mmwarburg.com +49 40 3282-2692

drosenfelder@mmwarburg.com +49 40 3282-2665 mschumann@mmwarburg.com

+49 40 3282-2666 jstraube@mmwarburg.com +49 40 3282-2635 pstumpfegger@mmwarburg.com +49 40 3282-2663 awessel@mmwarburg.com