Masterflex SE — Investor Presentation 2013

May 15, 2013

Masterflex SE ^M

Germany / Industrial Products & Plastics Primary exchange: Frankfurt	Q1 2013 Results	RATING PRICE TARGET	BUY €7.10
Bloomberg: MZX GR		Return Potential	33.3%
ISIN: DE0005492938		Risk Rating	High

INTERNATIONALISATION: A DELICATE PLANT KEEPS GROWING

Masterflex published Q1 2013 results on 7 May. Sales were in line with our estimates, whereas income was lower than we had anticipated. Operating development was once more characterised by investments associated with the company's internationalisation strategy, which according to management begins to bear fruit. Masterflex confirmed guidance for the current fiscal year and predicts an increase in sales as well as a doubledigit EBIT margin. We reiterate our Buy recommendation based on an unchanged price target of EUR7.10.

International sales gain momentum In Q1 2013 sales decreased slightly by 1.2% to EUR14.34m (FBe: EUR14.41m; Q1/12: EUR14.51m). According to Masterflex ("MZX") the sales decrease in Europe was almost compensated for by revenues generated in Asia, the US and Russia. Given the higher than expected costs associated with MZX' internationalisation strategy (e.g. personnel expenses: +11% y/y to EUR5.46m), EBIT of EUR1.75m (FBe: EUR2.01m; Q1/12: EUR2.12m) fell short of our expectations. At the net level, MZX reported income of EUR0.95m (FBe: EUR1.14m; Q1/12: EUR1.06m) or EUR0.11 (FBe: EUR0.13; Q1/12: EUR0.12) per share.

Further improved balance sheet Despite the decrease in net income and increased capital expenditures amounting to EUR0.58m (Q1/11: EUR0.38m), net cash flow (excluding currency effects) improved to EUR-0.56m (Q1/11: EUR-1.67m) - due mainly to an improved operating cash flow of EUR0.11m (Q1/11: EUR-1.01m) and lower financing costs.

Including currency effects amounting to EUR0.31m, liquid funds decreased only slightly q/q to EUR2.57m (end of FY12: EUR2.83m). Financial debt (short- and long-term) was EUR23.22m (end of FY12: EUR23.00m) at the end of Q1 2013. Based on MZX' positive net income, the firm's equity position improved to EUR21.80m (end of FY12: EUR20.52m), which corresponds to an equity ratio of 40.8% (end of FY12: 39.1%).

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	7.19	8.17	9.58
EBIT margin	14.0%	14.2%	13.7%	12.5%	13.4%	14.6%
Net income (€m)	-2.33	3.88	4.44	4.01	4.76	5.80
EPS (diluted) (€)	-0.49	0.44	0.50	0.46	0.55	0.66
DPS (€)	0.00	0.00	0.00	0.00	0.00	0.17
FCF (€m)	2.65	2.10	1.03	3.63	3.69	4.30
Net gearing	192.9%	123.3%	100.9%	41.1%	24.2%	10.1%
Liquid assets (€m)	14.40	4.54	2.82	5.56	6.94	0.62

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 14 May 2013
Closing Price		€ 5.33
Shares outstanding		8.73m
Market Capitalisation		€ 46.50m
52-week Range		€ 4.44 / 5.40
Avg. Volume (12 Months)		6,863
Multiples	2012	2013E	2014E
P/E	10.2	11.3	9.5
EV/Sales	1.2	1.2	1.1
EV/EBIT	9.1	9.5	8.4
Div. Yield	0.0%	0.0%	0.0%

STOCK OVERVIEW

As of 31 Mar 2013
€ 2.57m
€ 21.90m
€ 4.18m
€ 53.45m
€ 12.32m
€ 21.23m
19.9%

Familienmitglieder Bischoping	5.3%
BBC GmbH	4.6%
Other	8.1%
Free Float	62.1%

Successful re-financing 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 loan by means of a new syndicated loan (three tranches, duration until June 2018) with a volume of EUR40m. In addition to the fact that the company has reduced the number of consortium banks from six to four, the firm has also managed to negotiate better financing conditions given MZX' increased credit rating. Based on the company's current financial debt position (see above), the loan also includes a "possible transaction" tranche of almost EUR20m. Even though we do not expect an acquisition in the near-term future (numerous requirements with regard to takeover targets in terms of technology, product range, regional markets, etc.), the existence of such a transaction tranche should accelerate management's decisions in case of arising investment opportunities since financing will be secured.

Guidance confirmed MZX confirmed guidance for the current fiscal year. The firm continues to predict an increase in sales and a double-digit EBIT margin. Based on its twintrack growth strategy of innovation and regional expansion, Masterflex repeated that it plans to outgrow GDP of the regional markets it operates in.

Adjustments to our forecasts We have adjusted our forecasts for the current fiscal year to the lower than anticipated profitability in Q1 2013 and exceptional items associated with the firm's re-financing. Adjustments to our forecasts are shown in table 2 below.

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.

Our updated DCF model yields an unchanged price target of EUR7.10. We reiterate our Buy recommendation.

All figures in €m	Q1-2013A	Q1-2013E	Delta	Q1-2012A	Delta
Sales	14.34	14.41	-0.5%	14.51	-1.2%
EBIT	1.75	2.01	-12.7%	2.12	-17.5%
margin	12.2%	13.9%	-	14.6%	-
Net income*	0.95	1.14	-17.3%	1.06	-11.1%
margin	6.6%	7.9%	-	7.3%	-

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
All figures in €m	Old	New	Delta	Old	New	Delta	Old	New	Delta
Sales	57.64	57.64	0.0%	61.01	61.01	0.0%	65.83	65.83	0.0%
EBIT	8.03	7.19	-10.4%	8.72	8.17	-6.3%	9.58	9.58	0.0%
margin	13.9%	12.5%	-	14.3%	13.4%	-	14.6%	14.6%	-
Net income	4.57	4.01	-12.2%	5.13	4.76	-7.1%	5.80	5.80	0.0%
margin	7.9%	7.0%	-	8.4%	7.8%	-	8.8%	8.8%	-
EPS (diluted)	0.52	0.46	-12.2%	0.59	0.55	-7.1%	0.66	0.66	0.0%

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
27	↓	↓	↓	↓
8	21 November 2012	€4.88	Buy	€7.50
9	11 March 2013	€5.08	Buy	€7.50
10	26 April 2013	€5.03	Buy	€7.10
11	Today	€5.33	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

First Berlin's research reports are for qualified institutional investors only.

This report is not constructed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer would be illegal. We are not soliciting any action based upon this material. This material is for the general information of clients of First Berlin. It does not take into account the particular investment objectives, financial situation or needs of individual clients. Before acting on any advice or recommendation in this material, a client should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only; such opinions are subject to change without notice.

Copyright © 2012 First Berlin Equity Research GmbH. All rights reserved. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without First Berlin's prior written consent. The research is not for distribution in the USA or Canada. When quoting please cite First Berlin as the source. Additional information is available upon request.