Masterflex SE — Investor Presentation 2013

Sep 4, 2013

Masterflex SE ^M

Germany / Industrial Products & Plastics Primary exchange: Frankfurt	H1 2013 Results	RATING PRICE TARGET	BUY €7.10
Bloomberg: MZX GR		Return Potential	26.6%
ISIN: DE0005492938		Risk Rating	High

BACK ON THE GROWTH PATH DUE TO INTERNATIONALISATION

Masterflex published its H1 2013 results on 12 August. After a stuttering start to the current fiscal year (Q1/13 sales: -1.2% y/y), the company was back on the growth path in Q2 2013 (sales +6.4% y/y). However, operating income in H1 2013 fell short of our expectations due mainly to higher rampup costs associated with the company's internationalisation strategy. Guidance for FY 2013 has been confirmed. Masterflex continues to predict an increase in sales and a double-digit EBIT margin (H1/13: -2.8pp y/y to 11.4%). Based on slightly revised estimates, our DCF model yields an unchanged price target of EUR7.10. We reiterate our Buy recommendation.

Higher than expected operating costs Masterflex' ("MZX") H1 2013 sales of EUR28.97m (H1/12: EUR28.26m) were in line with our forecast (FBe: EUR28.77m). As mentioned before, the company was back on the growth path in Q2 2013. CFO Becks mentioned during the H1 conference call on 12 August, that growth came primarily from Asia, the US and Brazil. However, H1 2013 EBIT of EUR3.30m (H1/12: EUR4.01m) were lower than we had anticipated (FBe: EUR3.56m) due mainly to higher than predicted personnel costs (EUR11.00m vs. FBe of EUR10.66m; H1/12: EUR9.87m). Thus, net income of EUR1.47m (FBe: EUR1.96m; H1/12: EUR1.94m) or EUR0.17 (FBe: EUR0.22; H1/12: EUR0.22) per share fell short of our expectations.

Further improved equity ratio H1 2013's operating cash flow improved to EUR2.92m (H1/12: EUR0.52m) due mainly to more restrictive working capital management. Net cash flow came in at EUR1.37m (H1/12: EUR-1.78m).

Liquid funds at the end of June 2013 (dragged-down by currency-related adjustments in MZX' cash position amounting to EUR-0.22m) were EUR3.98m (end of FY12: EUR2.82m). Financial debt (short- and long-term) remained almost unchanged at the December 2012 level (EUR23.55 at the end of H1/13 vs. EUR23.00m at the end of FY12).

(p.t.o.)

FINANCIAL HISTORY & PROJECTIONS

	2010	2011	2012	2013E	2014E	2015E
Revenue (€m)	46.06	53.00	54.98	57.64	61.01	65.83
Y-o-y growth	n.a.	15.1%	3.7%	4.8%	5.9%	7.9%
EBIT (€m)	6.45	7.50	7.56	6.44	7.56	9.12
EBIT margin	14.0%	14.2%	13.7%	11.2%	12.4%	13.9%
Net income (€m)	-2.33	3.88	4.44	3.51	4.36	5.49
EPS (diluted) (€)	-0.49	0.44	0.50	0.40	0.50	0.63
DPS (€)	0.00	0.00	0.00	0.00	0.00	0.17
FCF (€m)	2.65	2.10	1.03	3.11	3.26	3.98
Net gearing	192.9%	123.3%	100.9%	43.7%	27.8%	13.9%
Liquid assets (€m)	14.40	4.54	2.82	5.03	5.99	0.15

RISKS

Risks to our price target include debt servicing, dependency on raw material prices and burdened profitability due to regional expansion.

COMPANY PROFILE

Masterflex SE focuses on developing and manufacturing high grade connection and hose systems made of innovative high-tech plastics. The firm is a global market leader in high-tech hose systems.

MARKET DATA	As of 03 Sep 2013
Closing Price			€ 5.61
Shares outstanding		8.73m
Market Capitalisation		€ 48.97m
52-week Range		€ 4.78 / 5.85
Avg. Volume (12 Months)		6,856
Multiples	2012	2013E	2014E
P/E	11.4	14.4	11.6
EV/Sales	1.3	1.2	1.2
EV/EBIT	9.3	10.9	9.3
Div. Yield	0.0%	0.0%	0.0%

STOCK OVERVIEW

COMPANY DATA	As of 30 Jun 2013
Liquid Assets	€ 3.98m
Current Assets	€ 23.51m
Intangible Assets	€ 4.21m
Total Assets	€ 54.92m
Current Liabilities	€ 11.50m
Shareholders' Equity	€ 21.71m
SHAREHOLDERS
SVB GmbH & Co. KG/Schmidt	19.9%
Familienmitglieder Bischoping	4.2%
BBC GmbH	6.1%
Other	8.1%

Free Float 61.7%

With regard to its financial debt position, Masterflex announced at the beginning of May that it successfully re-financed its current syndicated loan, which would have been expired in 2015. MZX managed to replace the former loan by means of a new syndicated loan with better financing conditions (three tranches, duration until June 2018) and a volume of EUR40m. The loan also includes a "possible transaction" tranche of almost EUR20m (see our comment dated 15 May).

Given the positive income development, MZX' equity position improved to EUR21.71m (end of FY12: EUR20.52m), which corresponds to an equity ratio of 39.5% (end of FY12: 39.1%).

Guidance confirmed Masterflex confirmed guidance for the current fiscal year. The firm continues to predict an increase in sales and a double-digit EBIT margin.

Adjustments to our forecasts We have adjusted our estimates for current fiscal year's profitability to the higher than anticipated costs associated with the firm's internationalisation strategy and the hence lower than anticipated EBIT margin (previous FY13 FBe: 12.5%; MZX' H1/13 EBIT margin: 11.4%; Q2/13: 10.6%). We have also adjusted our income forecasts for subsequent years.

However, we stick to our medium- and long(er)-term assumptions. Given the growth prospects especially in Asia, but also in South America, we expect that sales growth will accelerate after MZX has established its activities in these regional markets. Since the firm's operating development is currently burdened by ramp-up costs associated with regional expansion, we also continue to model a gradual improvement in profitability. Changes to our estimates are shown in table 2 below.

Our updated DCF model yields an unchanged price target of EUR7.10 due mainly to the firm's improved net debt position. We reiterate our Buy recommendation.

All figures in €m	H1-2013A	H1-2013E	Delta	H1-2012A	Delta
Sales	28.97	28.77	0.7%	28.26	2.5%
EBIT	3.30	3.56	-7.3%	4.01	-17.7%
margin	11.4%	12.4%	-	14.2%	-
Net income*	1.47	1.96	-25.1%	1.94	-24.2%
margin	5.1%	6.8%	-	6.9%	-
EPS (in €, diluted)*	0.17	0.22	-25.1%	0.22	-24.2%

Table 1: Estimates vs. reported figures

*net income including discontinued operations

Source: First Berlin Equity Research, Masterflex SE

Table 2: Changes to estimates

	2013E			2014E			2015E
Old	New	Delta	Old	New	Delta	Old	New	Delta
57.64	57.64	0.0%	61.01	61.01	0.0%	65.83	65.83	0.0%
7.19	6.44	-10.4%	8.17	7.56	-7.4%	9.58	9.12	-4.8%
12.5%	11.2%	-	13.4%	12.4%	-	14.6%	13.9%	-
4.01	3.51	-12.5%	4.76	4.36	-8.5%	5.80	5.49	-5.3%
7.0%	6.1%	-	7.8%	7.1%	-	8.8%	8.3%	-
0.46	0.40	-12.5%	0.55	0.50	-8.5%	0.66	0.63	-5.3%

Source: First Berlin Equity Research

FIRST BERLIN RECOMMENDATION & PRICE TARGET HISTORY

Report No.:	Date of publication	Previous day closing price	Recommendation	Price target
Initial Report	5 December 2011	€4.61	Buy	€7.10
28	↓	↓	↓	↓
9	11 March 2013	€5.08	Buy	€7.50
10	26 April 2013	€5.03	Buy	€7.10
11	15 May 2013	€5.33	Buy	€7.10
12	Today	€5.61	Buy	€7.10

Jens Hasselmeier

First Berlin Equity Research GmbH

Mohrenstraße 34 10117 Berlin

Tel. +49 (0)30 - 80 93 96 83 Fax +49 (0)30 - 80 93 96 87

info@firstberlin.com www.firstberlin.com

FIRST BERLIN POLICY

In an effort to assure the independence of First Berlin research neither analysts nor the company itself trade or own securities in subject companies. In addition, analysts' compensation is not directly linked to specific financial transactions, trading revenue or asset management fees. Analysts are compensated on a broad range of benchmarks. Furthermore, First Berlin receives no compensation from subject companies in relation to the costs of producing this report.

ANALYST CERTIFICATION

I, Jens Hasselmeier, certify that the views expressed in this report accurately reflect my personal and professional views about the subject company; and I certify that my compensation is not directly linked to any specific financial transaction including trading revenue or asset management fees; neither is it directly or indirectly related to the specific recommendation or views contained in this research. In addition, I possess no shares in the subject company.

INVESTMENT RATING SYSTEM

First Berlin's investment rating system is five tiered and includes an investment recommendation and a risk rating. Our recommendations, which are a function of our expectation of total return (forecast price appreciation and dividend yield) in the year specified, are as follows:

STRONG BUY: Expected return greater than 50% and a high level of confidence in management's financial guidance BUY: Expected return greater than 25%

ADD: Expected return between 0% and 25%

REDUCE: Expected negative return between 0% and -15%

SELL: Expected negative return greater than -15%

Our risk ratings are Low, Medium, High and Speculative and are determined by ten factors: corporate governance, quality of earnings, management strength, balance sheet and financing risk, competitive position, standard of financial disclosure, regulatory and political uncertainty, company size, free float and other company specific risks. These risk factors are incorporated into our valuation models and are therefore reflected in our price targets. Our models are available upon request to First Berlin clients.

Up until 16 May 2008, First Berlin's investment rating system was three tiered and was a function of our expectation of return (forecast price appreciation and dividend yield) over the specified year. Our investment ratings were as follows: BUY: expected return greater than 15%; HOLD: expected return between 0% and 15%; and SELL: expected negative return.

ADDITIONAL DISCLOSURES

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