CANCOM SE — Investor Presentation 2014

Mar 13, 2014

(TecDAX, Software/IT)

		Value Indicators:	EUR	Share data:		Description:
Buy		DCF:	42.00	Bloomberg:	COK GR	One of the three largest independent
		FCF-Value Potential 15e:	37.00	Reuters:	COKG	system houses in Germany
EUR 42.00	(EUR 39.00)			ISIN:	DE0005419105
		Market Snapshot:	EUR m	Shareholders:		Risk Profile (WRe):	2013e
		Market cap:	547.8	Freefloat	96.0 %	Beta:	1.2
Price	EUR 37.48	No. of shares (m):	14.6	Klaus Weinmann (CEO)	2.0 %	Price / Book:	3.9 x
Upside	12.1 %	EV:	491.1	S. Kober (Superv. Board)	2.0 %	Equity Ratio:	52 %
		Freefloat MC:	525.9			Net Fin. Debt / EBITDA:	-2.7 x
		Ø Trad. Vol. (30d; EUR):	3.70 m			Net Debt / EBITDA:	-2.7 x

Opportunities in the U.S. / Impressions from the CeBIT

During a call that was held at the beginning of this week, CEO Weinmann provided further details regarding the acquisition of HPM Networks, a Californian value-added reseller (VAR), in the cloud infrastructure environment. The reason for the regional expansion was also based on the fact that the big clouds are mainly being established in the U.S. (and are then moving to Europe). As HPM's customers include Twitter and Workday, the acquired target has renouned reference customers which will help them to win further big deals. HPM's business model will be moved from an agent model to a reseller model. This will help to increase its gross profit margin and boost revenues. In 2014, HPM will strengthen its cloud expertise (i.e. employ further staff, therefore the EBITDA estimate is maintained unchanged), implement CANCOM's AHP (see below) at its headquarters and is supposed to win at least one AHP customer. Estimates are being adjusted.

At the CeBIT fair we have also seen interest by a number of visitors that approached the CANCOM's AHP booth. Along with its own booth, the company also presented together with IBM as well as HP. This underpins the statement that big cloud providers should not be seen as competitors as they mainly address big enterprises with at least 5,000 or even 20,000 seats. CANCOM mainly targets mid-sized companies with approx. 500-5,000 seats. Our deeper understanding of the product suggests that e.g. Citrix or VmWare should also be able to provide a single log-on solution in a fully virtualised IT cloud environment which includes a customer's legacy software (AHP is based on this standard software). However, CANCOM's AHP Private Cloud solution consolidates the "cockpit view" for the IT departments by adding an additional layer. As a result, they will only have to deal with one instance instead of six (e.g. Citrix, NetApp, VMware etc.). On top, many applications are already preconfigured and CANCOM also offers a billing and provisioning engine. This helps to lower implementation and maintenance costs when moving to a private/hybrid cloud environment by approx. 20% compared to a dynamic infrastructure (virtualised and standardised servers and desktops). Given these cost advantages as well as the fact that AHP has been developed over more than a decade, investors have been asking why AHP accounts for only 15% of CANCOM's 2013 EBITDA. From our perspective this is due to a lack of focus in the past and a lack of critical mass. Both looks set to change as management increased efforts and the recent acquisitions (HPM and Pironet) which will boost "cloud"-related EBITDA to >EUR 17m in 2014. On top, customer behaviour is changing. We are maintaining the Buy rating and increase the PT from EUR 39 to EUR 42 as from our perspective the HPM acquisition is value enhancing.

Changes in Estimates:							Comment on Changes:
FY End: 31.12. in EUR m	2013e (old)	+ / -	2014e (old)	+ / -	2015e (old)	+ / -	In 2013, HPM Networks generated revenues of USD 55m (approx. EUR 40m). The EBITDA, adjusted for one-off effects, was USD 4.5m in 2013
Sales EBITDA	593.0 33.3	3.4 % 0.0 %	720.7 51.5	5.6 % 0.1 %	745.0 57.5	6.7 % 9.1 %	(approx. EUR 3.3m). PPA amortisations will negatively impact the bottom line PPA amortisations (Pironet, HPM are expected to make a stronger than
EBIT EPS	24.4 1.39	0.0 % 0.0 %	33.5 1.53	-2.8 % -3.3 %	40.5 1.87	13.6 % 13.9 %	expected impact on the bottom line) The purchase consists of a one-off payment equal to twice the adjusted EBITDA for 2013, in addition to an earn-out component for four years.

		FY End: 31.12. in EUR m	CAGR (12-15e)	2009	2010	2011	2012	2013e	2014e	2015e
		Sales	12.5 %	422.5	474.6	544.4	558.1	613.4	760.7	795.0
		Change Sales yoy		16.0 %	12.3 %	14.7 %	2.5 %	9.9 %	24.0 %	4.5 %
		Gross profit margin		27.6 %	29.4 %	29.1 %	29.7 %	31.0 %	31.7 %	32.6 %
		EBITDA	30.7 %	10.4	19.0	25.0	28.1	33.3	51.5	62.7
		Margin		2.5 %	4.0 %	4.6 %	5.0 %	5.4 %	6.8 %	7.9 %
		EBIT adj.	35.1 %	7.0	15.2	18.5	20.7	24.4	40.0	51.0
		EBIT	30.6 %	7.0	15.2	18.5	20.7	24.4	32.5	46.0
		Margin		1.6 %	3.2 %	3.4 %	3.7 %	4.0 %	4.3 %	5.8 %
		Net income	39.5 %	5.1	7.8	11.5	11.5	16.4	21.7	31.1
		EPS	25.0 %	0.49	0.76	1.11	1.09	1.39	1.48	2.13
		DPS	0.0 %	0.15	0.15	0.30	0.35	0.35	0.35	0.35
Rel. Performance vs TecDAX:		Dividend Yield		6.4 %	2.2 %	3.4 %	2.9 %	0.9 %	0.9 %	0.9 %
1 month:	5.7 %	FCFPS		0.58	0.86	1.67	0.34	0.83	3.08	2.69
		EV / Sales		0.0 x	0.1 x	0.1 x	0.2 x	0.7 x	0.6 x	0.6 x
6 months:	54.6 %	EV / EBITDA		2.0 x	3.7 x	2.9 x	3.5 x	13.7 x	9.5 x	7.3 x
Year to date:	14.7 %	EV / EBIT		3.0 x	4.6 x	3.9 x	4.7 x	18.7 x	15.1 x	10.0 x
Trailing 12 months:	113.9 %	EV / EBIT adj.		3.0 x	4.6 x	3.9 x	4.7 x	18.7 x	12.3 x	9.0 x
		P / E		4.8 x	9.0 x	8.0 x	11.0 x	27.0 x	25.3 x	17.6 x
Company events:		FCF Yield Potential		27.0 %	9.1 %	15.7 %	9.8 %	3.8 %	6.7 %	8.6 %
20.03.14	FY 2013	Net Debt		-3.5	-0.8	-20.5	-29.1	-90.3	-74.7	-106.5
13.05.14	Q1	ROE		12.2 %	16.5 %	20.6 %	16.2 %	14.9 %	15.1 %	19.4 %
25.06.14	AGM	ROCE (NOPAT)		15.1 %	24.1 %	29.0 %	29.1 %	33.6 %	32.3 %	36.9 %
07.08.14	Q2	Guidance:	Revenue: EUR 590m; EBITDA EUR 33m

A n a l y s t Andreas Wolf awolf@warburg-research.com +49 40 309537-140

Company Background

• Cancom is the third-largest independent system house in Germany.
• The range of products and services the company offers includes the sale of hardware and software of all the main producers as well as IT-services (conception, integration and operation of IT systems).
• The company employs more than 2,000 people in more than 30 locations in Germany and Austria. More than half of the employees work in the service business areas.

Competitive Quality

• The German system house market is intensely competitive and strongly fragmented. As one of the largest system houses in Germany, Cancom achieves competitive advantages over most of its smaller competitors with…
• …favourable purchasing conditions
• …the wide range of products and services offered as a one-stop-shop supplier
• …its presence in more than 30 locations in Germany, which contributes to a high quality of service on location.
• Acquisitions are a part of the company strategy. These serve to improve purchasing conditions, to build up regional presence and extend the range of products and services on offer.

DCF model Detailed forecast period Transitional period Term. Value Figures in EUR m 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e Sales 613.4 760.7 795.0 821.2 847.0 872.2 896.9 921.0 944.5 967.4 989.7 1,011.4 1,031.6 Sales change 9.9 % 24.0 % 4.5 % 3.3 % 3.1 % 3.0 % 2.8 % 2.7 % 2.6 % 2.4 % 2.3 % 2.2 % 2.0 % 2.0 % EBIT 24.4 32.5 46.0 48.9 51.7 53.2 54.7 56.2 57.6 59.0 60.4 61.7 62.9 EBIT-margin 4.0 % 4.3 % 5.8 % 6.0 % 6.1 % 6.1 % 6.1 % 6.1 % 6.1 % 6.1 % 6.1 % 6.1 % 6.1 % Tax rate (EBT) 31.0 % 30.5 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % NOPAT 16.9 22.6 32.2 34.2 36.2 37.2 38.3 39.3 40.3 41.3 42.3 43.2 44.0 Depreciation 8.9 19.0 16.7 12.3 12.7 13.1 13.5 13.8 14.2 14.5 14.8 15.2 15.5 in % of Sales 1.5 % 2.5 % 2.1 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % Changes in provisions -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 Change in Liquidity from - Working Capital 5.9 -7.5 -1.3 3.8 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.4 - Capex 9.5 9.7 10.5 13.6 14.0 14.4 14.8 15.2 15.6 16.0 16.3 16.7 17.0 Capex in % of Sales 1.5 % 1.3 % 1.3 % 1.7 % 1.7 % 1.7 % 1.7 % 1.7 % 1.7 % 1.7 % 1.7 % 1.7 % 1.7 % Other 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) 10.2 39.4 39.7 29.1 34.3 35.4 36.4 37.4 38.4 39.4 40.3 41.2 42.1 43 PV of FCF 10.2 36.3 33.6 22.7 24.6 23.3 22.0 20.8 19.7 18.5 17.5 16.4 15.4 234 share of PVs 15.55 % 39.01 % 45.45 % Model parameter Valuation (m) Derivation of WACC: Derivation of Beta: Present values 2025e 281 Terminal Value 234 Debt ratio 8.00 % Financial Strength 1.20 Financial liabilities 15 Cost of debt (after tax) 2.5 % Liquidity (share) 1.20 Pension liabilities 0 Market return 8.00 % Cyclicality 1.20 Hybrid capital 0 Risk free rate 2.50 % Transparency 1.30 Minority interest 18 Others 1.25 Market val. of investments 0 Liquidity 132 No. of shares (m) 14.6 WACC 8.72 % Beta 1.23 Equity Value 614 Value per share (EUR) 41.98

Sensitivity Value per Share (EUR)

	Terminal Growth								Delta EBIT-margin
Beta WACC	1.25 %	1.50 %	1.75 %	2.00 %	2.25 %	2.50 %	2.75 %	Beta WACC	-1.5 pp	-1.0 pp		-0.5 pp +0.0 pp	+0.5 pp	+1.0 pp	+1.5 pp
1.43 9.7 %	36.42	36.77	37.14	37.53	37.95	38.39	38.87	1.43 9.7 %	29.52	32.19	34.86	37.53	40.20	42.87	45.54
1.33 9.2 %	38.27	38.69	39.13	39.60	40.11	40.65	41.23	1.33 9.2 %	31.06	33.91	36.75	39.60	42.45	45.29	48.14
1.28 9.0 %	39.29	39.74	40.23	40.75	41.31	41.91	42.56	1.28 9.0 %	31.91	34.86	37.80	40.75	43.69	46.64	49.58
1.23 8.7 %	40.37	40.87	41.40	41.98	42.60	43.27	43.99	1.23 8.7 %	32.83	35.88	38.93	41.98	45.03	48.08	51.13
1.18 8.5 %	41.53	42.08	42.67	43.31	43.99	44.74	45.55	1.18 8.5 %	33.81	36.98	40.14	43.31	46.47	49.64	52.80
1.13 8.2 %	42.77	43.38	44.03	44.74	45.51	46.34	47.25	1.13 8.2 %	34.88	38.17	41.45	44.74	48.03	51.32	54.60
1.03 7.7 %	45.55	46.30	47.11	47.99	48.95	50.00	51.16	1.03 7.7 %	37.29	40.86	44.42	47.99	51.55	55.12	58.69

In the long term, company growth is expected to match the growth of the German IT market.

Working capital requirements are low despite reseller activities.

Minorities are related to the 25% free float share in Pironet.

Free Cash Flow Value Potential

Warburg Research's valuation tool "FCF Value Potential" reflects the ability of the company to generate sustainable free cash flows. It is based on the "FCF potential" - a FCF "ex growth" figure - which assumes unchanged working capital and pure maintenance capex. A value indication is derived by discounting the "FCF potential" of a given year with the weighted costs of capital. The fluctuating value indications over time add a timing element to the DCF model (our preferred valuation tool).

in EUR m	2009	2010	2011	2012	2013e	2014e	2015e
Net Income before minorities	5.1	7.9	11.7	11.6	16.4	22.3	31.8
+ Depreciation + Amortisation	3.4	3.8	6.6	7.4	8.9	19.0	16.7
- Net Interest Income	-1.3	-1.8	-1.6	-1.8	-0.7	-0.5	-0.5
- Maintenance Capex	4.2	7.2	8.5	11.3	8.6	8.7	9.5
+ Other	0.0	0.0	0.0	0.0	0.0	0.0	0.0
= Free Cash Flow Potential	5.6	6.4	11.3	9.5	17.4	33.0	39.6
Free Cash Flow Yield Potential	27.0 %	9.1 %	15.7 %	9.8 %	3.8 %	6.7 %	8.6 %
WACC	8.72 %	8.72 %	8.72 %	8.72 %	8.72 %	8.72 %	8.72 %
= Enterprise Value (EV)	20.8	69.8	72.2	97.3	457.5	491.1	459.4
= Fair Enterprise Value	64.3	72.9	129.9	109.0	199.9	378.9	454.0
- Net Debt (Cash)	-29.2	-29.2	-29.2	-29.2	-90.4	-74.8	-106.5
- Pension Liabilities	0.1	0.1	0.1	0.1	0.0	0.0	0.0
- Other	0.0	0.0	0.0	0.0	0.0	0.0	0.0
- Market value of minorities	0.0	0.0	0.0	0.0	0.0	18.1	18.1
+ Market value of investments	0.0	0.0	0.0	0.0	0.0	0.0	0.0
= Fair Market Capitalisation	93.4	102.0	159.0	138.1	290.3	435.6	542.5
No. of shares (total) (m)	14.6	14.6	14.6	14.6	14.6	14.6	14.6
= Fair value per share (EUR)	6.39	6.98	10.88	9.45	19.86	29.81	37.11
premium (-) / discount (+) in %					-47.0 %	-20.5 %	-1.0 %
Sensitivity Fair value per Share (EUR)
11.72 %	5.26	5.70	8.60	7.54	16.36	23.17	29.16
10.72 %	5.57	6.05	9.22	8.06	17.31	24.97	31.32
9.72 %	5.94	6.47	9.97	8.68	18.45	27.14	33.92
WACC 8.72 %	6.39	6.98	10.88	9.45	19.86	29.81	37.11
7.72 %	6.96	7.62	12.03	10.42	21.63	33.16	41.14
6.72 %	7.70	8.46	13.53	11.67	23.93	37.52	46.36
5.72 %	8.70	9.59	15.54	13.36	27.04	43.40	53.41

Business model with low capex requirements and high FCF...

…provides scope for acquisitions and pay-outs to shareholders.

Valuation
	2009	2010	2011	2012	2013e	2014e	2015e
Price / Book	0.6 x	1.4 x	1.5 x	1.6 x	3.9 x	3.3 x	2.9 x
Book value per share ex intangibles	1.19	0.81	2.03	3.72	9.19	4.36	6.33
EV / Sales	0.0 x	0.1 x	0.1 x	0.2 x	0.7 x	0.6 x	0.6 x
EV / EBITDA	2.0 x	3.7 x	2.9 x	3.5 x	13.7 x	9.5 x	7.3 x
EV / EBIT	3.0 x	4.6 x	3.9 x	4.7 x	18.7 x	15.1 x	10.0 x
EV / EBIT adj.*	3.0 x	4.6 x	3.9 x	4.7 x	18.7 x	12.3 x	9.0 x
P / FCF	4.0 x	8.0 x	5.3 x	35.1 x	46.8 x	12.2 x	13.9 x
P / E	4.8 x	9.0 x	8.0 x	11.0 x	27.0 x	25.3 x	17.6 x
P / E adj.*	4.8 x	8.9 x	8.0 x	11.0 x	27.0 x	25.3 x	17.6 x
Dividend Yield	6.4 %	2.2 %	3.4 %	2.9 %	0.9 %	0.9 %	0.9 %
Free Cash Flow Yield Potential	27.0 %	9.1 %	15.7 %	9.8 %	3.8 %	6.7 %	8.6 %
*Adjustments made for: -

Consolidated profit & loss

In EUR m	2009	2010	2011	2012	2013e	2014e	2015e
Sales	422.5	474.6	544.4	558.1	613.4	760.7	795.0
Change Sales yoy	16.0 %	12.3 %	14.7 %	2.5 %	9.9 %	24.0 %	4.5 %
Increase / decrease in inventory	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Own work capitalised	1.0	1.3	0.9	2.5	1.5	1.2	1.2
Total Sales	423.4	475.8	545.3	560.6	614.9	761.9	796.2
Material Expenses	306.8	336.3	386.6	395.1	424.7	521.1	536.9
Gross profit	116.6	139.5	158.7	165.5	190.2	240.8	259.3
Gross profit margin	27.6 %	29.4 %	29.1 %	29.7 %	31.0 %	31.7 %	32.6 %
Personnel expenses	82.8	97.0	108.0	112.4	130.0	152.0	160.0
Other operating income	2.7	3.4	0.7	0.6	3.1	3.8	4.0
Other operating expenses	26.1	26.9	26.4	25.8	29.9	41.1	40.5
Unfrequent items	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EBITDA	10.4	19.0	25.0	28.1	33.3	51.5	62.7
Margin	2.5 %	4.0 %	4.6 %	5.0 %	5.4 %	6.8 %	7.9 %
Depreciation of fixed assets	2.4	2.1	2.8	4.0	4.5	8.0	8.0
EBITA	7.9	16.9	22.2	24.0	28.8	43.5	54.7
Amortisation of intangible assets	0.9	1.7	3.7	3.4	4.4	11.0	8.7
Goodwill amortization	0.1	0.0	0.0	0.0	0.0	0.0	0.0
EBIT	7.0	15.2	18.5	20.7	24.4	32.5	46.0
Margin	1.6 %	3.2 %	3.4 %	3.7 %	4.0 %	4.3 %	5.8 %
EBIT adj.	7.0	15.2	18.5	20.7	24.4	40.0	51.0
Interest income	0.2	0.1	0.3	0.4	0.3	0.3	0.3
Interest expenses	1.5	2.0	2.2	2.1	1.0	0.8	0.8
Other financial income (loss)	0.0	0.0	0.4	0.0	0.0	0.0	0.0
EBT	5.7	13.3	16.9	18.9	23.7	32.0	45.5
Margin	1.3 %	2.8 %	3.1 %	3.4 %	3.9 %	4.2 %	5.7 %
Total taxes	0.6	3.7	4.9	6.6	7.4	9.8	13.6
Net income from continuing operations	5.1	9.6	12.0	12.3	16.4	22.3	31.8
Income from discontinued operations (net of tax)	0.0	-1.7	-0.3	-0.7	0.0	0.0	0.0
Net income before minorities	5.1	7.9	11.7	11.6	16.4	22.3	31.8
Minority interest	0.0	0.1	0.2	0.1	0.0	0.6	0.7
Net income	5.1	7.8	11.5	11.5	16.4	21.7	31.1
Margin	1.2 %	1.6 %	2.1 %	2.1 %	2.7 %	2.8 %	3.9 %
Number of shares, average	10.4	10.3	10.4	10.6	11.8	14.6	14.6
EPS	0.49	0.76	1.11	1.09	1.39	1.48	2.13
EPS adj.	0.49	0.77	1.11	1.09	1.39	1.48	2.13
*Adjustments made for:

Guidance: Revenue: EUR 590m; EBITDA EUR 33m

Financial Ratios

	2009	2010	2011	2012	2013e	2014e	2015e
Total Operating Costs / Sales	97.8 %	96.3 %	95.6 %	95.4 %	94.8 %	93.4 %	92.3 %
Operating Leverage	1.9 x	9.6 x	1.5 x	4.8 x	1.8 x	1.4 x	9.2 x
EBITDA / Interest expenses	7.1 x	9.7 x	11.2 x	13.1 x	33.3 x	64.4 x	78.4 x
Tax rate (EBT)	9.8 %	28.1 %	28.8 %	35.0 %	31.0 %	30.5 %	30.0 %
Dividend Payout Ratio	30.5 %	16.1 %	25.9 %	30.2 %	25.2 %	23.0 %	16.1 %
Sales per Employee	237,748	248,075	267,377	273,569	278,818	304,280	311,765

Sales, EBITDA in EUR m

Performance per Share

Consolidated balance sheet

In EUR m	2009	2010	2011	2012	2013e	2014e	2015e
Assets
Goodwill and other intangible assets	31.5	42.5	39.6	41.2	30.1	85.1	79.4
thereof other intangible assets	0.7	1.8	3.8	6.1	4.7	35.9	30.2
thereof Goodwill	24.8	23.7	23.7	24.3	24.3	48.0	48.0
Property, plant and equipment	6.5	9.7	12.9	17.6	19.6	18.6	18.1
Financial assets	1.0	3.3	1.4	1.8	1.8	1.8	1.8
Other long-term assets	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Fixed assets	39.1	55.5	53.8	60.6	51.5	105.4	99.2
Inventories	13.6	14.1	15.6	9.4	9.9	10.9	11.4
Accounts receivable	47.2	68.0	72.2	88.3	92.4	104.2	106.7
Liquid assets	25.8	31.5	46.4	44.6	108.3	88.6	120.3
Other short-term assets	9.2	8.4	6.8	5.7	5.7	5.7	5.7
Current assets	95.9	122.0	141.0	148.1	216.3	209.4	244.1
Total Assets	134.9	177.4	194.9	208.6	267.8	314.8	343.3
Liabilities and shareholders' equity
Subscribed capital	10.4	10.4	10.4	11.4	11.4	11.4	11.4
Capital reserve	15.4	15.9	15.9	26.1	26.1	26.1	26.1
Retained earnings	18.5	24.8	34.7	43.1	55.8	73.3	99.3
Other equity components	-0.4	-0.1	-0.3	0.0	45.5	37.9	35.0
Shareholder's equity	43.9	50.9	60.7	80.6	138.8	148.7	171.8
Minority interest	0.0	0.1	0.2	0.2	0.2	17.7	17.7
Total equity	43.9	51.0	60.9	80.8	139.0	166.4	189.5
Provisions	4.4	3.3	7.7	5.2	5.1	5.1	5.1
thereof provisions for pensions and similar obligations	0.0	0.1	0.1	0.1	0.0	0.0	0.0
Financial liabilites (total)	22.3	30.6	25.9	15.4	17.9	13.8	13.8
thereof short-term financial liabilities	0.7	1.2	10.6	3.4	4.5	4.5	4.5
Accounts payable	47.9	64.4	72.9	76.9	75.6	95.9	100.2
Other liabilities	16.5	28.1	27.6	30.3	30.3	33.6	34.6
Liabilities	91.0	126.4	134.0	127.9	128.9	148.4	153.7
Total liabilities and shareholders' equity	134.9	177.4	194.9	208.6	267.8	314.8	343.3

Financial Ratios

	2009	2010	2011	2012	2013e	2014e	2015e
Efficiency of Capital Employment
Operating Assets Turnover	23.1 x	18.4 x	21.0 x	16.1 x	14.4 x	22.3 x	24.6 x
Capital Employed Turnover	10.5 x	9.5 x	13.5 x	10.8 x	12.6 x	8.3 x	9.6 x
ROA	13.0 %	14.1 %	21.4 %	18.9 %	31.8 %	20.6 %	31.4 %
Return on Capital
ROCE (NOPAT)	15.1 %	24.1 %	29.0 %	29.1 %	33.6 %	32.3 %	36.9 %
ROE	12.2 %	16.5 %	20.6 %	16.2 %	14.9 %	15.1 %	19.4 %
Adj. ROE	12.2 %	16.7 %	20.6 %	16.2 %	14.9 %	15.1 %	19.4 %
Balance sheet quality
Net Debt	-3.5	-0.8	-20.5	-29.1	-90.3	-74.7	-106.5
Net Financial Debt	-3.5	-0.9	-20.5	-29.2	-90.4	-74.8	-106.5
Net Gearing	-7.9 %	-1.6 %	-33.6 %	-36.0 %	-65.0 %	-44.9 %	-56.2 %
Net Fin. Debt / EBITDA	-33.8 %	-4.8 %	-82.2 %	-104.1 %	-271.0 %	-145.1 %	-169.9 %
Book Value / Share	4.2	4.9	5.8	7.6	11.7	10.2	11.8
Book value per share ex intangibles	1.2	0.8	2.0	3.7	9.2	4.4	6.3

Consolidated cash flow statement

In EUR m	2009	2010	2011	2012	2013e	2014e	2015e
Net income	5.6	7.9	11.7	11.6	16.4	22.3	31.8
Depreciation of fixed assets	2.4	2.1	2.8	4.0	4.5	8.0	8.0
Amortisation of goodwill	0.1	0.0	0.0	0.0	0.0	0.0	0.0
Amortisation of intangible assets	0.9	1.7	3.7	3.4	4.4	11.0	8.7
Increase/decrease in long-term provisions	-0.2	0.3	0.1	-0.1	-0.1	0.0	0.0
Other non-cash income and expenses	-0.9	2.0	4.6	-1.0	0.0	6.0	0.0
Cash Flow	7.8	14.0	22.9	17.9	25.2	47.3	48.5
Increase / decrease in inventory	-0.9	0.5	-6.3	6.3	-0.5	-1.0	-0.5
Increase / decrease in accounts receivable	0.8	-14.7	-5.2	-16.4	-4.1	-11.8	-2.5
Increase / decrease in accounts payable	2.7	17.2	15.3	8.4	-1.3	20.3	4.3
Increase / decrease in other working capital positions	0.2	0.0	0.0	0.0	0.0	0.0	0.0
Increase / decrease in working capital (total)	2.9	2.9	3.8	-1.8	-5.9	7.5	1.3
Net cash provided by operating activities	10.7	16.9	26.7	16.1	19.3	54.8	49.8
Investments in intangible assets	-1.4	-3.0	-2.8	-1.1	-3.0	-2.7	-3.0
Investments in property, plant and equipment	-3.3	-5.0	-6.6	-11.4	-6.5	-7.0	-7.5
Payments for acquisitions	1.4	-9.7	-3.6	-0.6	0.0	-79.0	-3.0
Financial investments	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Income from asset disposals	0.7	0.5	5.1	2.5	0.5	0.5	0.5
Net cash provided by investing activities	-2.6	-17.3	-7.9	-10.6	-9.0	-88.2	-13.0
Change in financial liabilities	0.3	8.3	-4.3	-13.2	2.5	-4.1	0.0
Dividends paid	0.0	-1.5	-1.6	-3.3	-3.7	-4.1	-5.1
Purchase of own shares	-0.2	0.6	0.0	0.0	0.0	0.0	0.0
Capital measures	0.0	0.0	0.0	11.4	54.6	0.0	0.0
Other	-1.2	-1.5	0.1	-0.3	0.0	0.0	0.0
Net cash provided by financing activities	-1.1	5.9	-5.8	-5.3	53.4	-8.2	-5.1
Change in liquid funds	6.9	5.5	13.0	0.2	63.6	-41.7	31.7
Effects of exchange-rate changes on cash	0.0	0.1	0.0	0.0	0.0	0.0	0.0
Cash and cash equivalent at end of period	25.8	31.5	44.5	44.6	108.3	66.6	120.3

Financial Ratios

	2009	2010	2011	2012	2013e	2014e	2015e
Cash Flow
Free Cash Flow	6.0	8.9	17.3	3.6	9.8	45.1	39.3
Free Cash Flow / Sales	1.4 %	1.9 %	3.2 %	0.6 %	1.6 %	5.9 %	4.9 %
Free Cash Flow Potential	5.6	6.4	11.3	9.5	17.4	33.0	39.6
Free Cash Flow / Sales	1.4 %	1.9 %	3.2 %	0.6 %	1.6 %	5.9 %	4.9 %
Free Cash Flow / Net Profit	118.4 %	113.4 %	150.3 %	31.4 %	59.5 %	208.0 %	126.3 %
Interest Received / Avg. Cash	0.7 %	0.5 %	0.8 %	0.8 %	0.4 %	0.3 %	0.3 %
Interest Paid / Avg. Debt	6.6 %	7.4 %	7.9 %	10.4 %	6.0 %	5.1 %	5.8 %
Management of Funds
Investment ratio	1.1 %	1.7 %	1.7 %	2.2 %	1.5 %	1.3 %	1.3 %
Maint. Capex / Sales	1.0 %	1.5 %	1.6 %	2.0 %	1.4 %	1.1 %	1.2 %
Capex / Dep	136.9 %	208.3 %	143.6 %	169.0 %	106.7 %	51.1 %	62.9 %
Avg. Working Capital / Sales	3.1 %	2.9 %	2.7 %	2.7 %	3.3 %	2.5 %	1.9 %
Trade Debtors / Trade Creditors	98.6 %	105.6 %	99.0 %	114.8 %	122.2 %	108.7 %	106.5 %
Inventory Turnover	22.6 x	23.9 x	24.8 x	42.0 x	42.9 x	47.8 x	47.1 x
Receivables collection period (days)	41	52	48	58	55	50	49
Payables payment period (days)	57	70	69	71	65	67	68
Cash conversion cycle (Days)	-40	-54	-54	-64	-58	-61	-62

CAPEX and Cash Flow in EUR m

Free Cash Flow Generation

Working Capital

CO M M E N T Published 13.03.2014 8

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This research report was prepared by the Warburg Research GmbH, a subsidiary of the M.M.Warburg & CO KGaA and is passed on by the M.M.Warburg & CO KGaA. It contains selected information and does not purport to be complete. The report is based 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 of M.M.Warburg & CO KGaA or Warburg Research GmbH for damages of any kind whatsoever, and M.M.Warburg & CO KGaA and Warburg Research GmbH are not liable for indirect and/or direct and/or consequential damages. In particular, neither M.M.Warburg & CO KGaA nor Warburg Research GmbH are liable for the statements, plans or other details contained in these analyses concerning the examined companies, their affiliated 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 a 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 wilful misconduct. 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. 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, Warburg Research GmbH or affiliated companies may serve in a position of responsibility, i.e. on the board of directors of companies mentioned in the report. Opinions expressed in this report are subject to change without notice. All rights reserved.

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The valuation underlying the investment recommendation for the company analysed here is based on generally accepted and widely used methods of fundamental analysis, such as e.g. DCF Model, Free Cash Flow Potential, Peer Group Comparison or Sum of the Parts Model. The result of this fundamental valuation is modified to take into consideration the analyst's assessment as regards the expected development of investor sentiment and its impact on the share price.

Independent of the applied valuation methods, there is the risk that the price target will not be met, for instance because of unforeseen changes in demand for the company's products, changes in management, technology, economic development, interest rate development, operating and/or material costs, competitive pressure, supervisory law, exchange rate, tax rate etc. For investments in foreign markets and instruments there are further risks, generally based on exchange rate changes or changes in political and social conditions.

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SOURCES

All data and consensus estimates have been obtained from FactSet except where stated otherwise.

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-1-	… or companies affiliated with this enterprise holds 5% or more of the share capital of the analysed company
-2-	… or companies affiliated with this enterprise were involved in the management of a consortium for a public offering of securities which are or whose issuer is the subject of this report within the last twelve months
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Company	Disclosure	Link to the historical price targets and rating changes (last 12 months)
CANCOM	5, 6	http://www.mmwarburg.com/disclaimer/disclaimer_en/DE0005419105.htm

INVESTMENT RECOMMENDATION

Investment recommendation: expected direction of the share price development of the financial instrument up to the given price target in the opinion of the analyst who covers this financial instrument.

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

WARBURG RESEARCH GMBH – RESEARCH UNIVERSE BY RATING

Rating	Number of stocks	% of Universe
Buy	90	45
Hold	90	45
Sell	16	8
Rating suspended	3	2
Total	199	100

WARBURG RESEARCH GMBH – ANALYSED RESEARCH UNIVERSE BY RATING …

… Looking only at companies for which a disclosure according to § 34b of the Germany Securities Trading Act and the FinAnV has to be made.

Rating	Number of stocks	% of Universe
Buy	73	51
Hold	62	43
Sell	7	5
Rating suspended	2	1
Total	144	100

PRICE AND RATING HISTORY CANCOM AS OF 13.03.2014

The chart has 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.

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