SFC Energy AG — Management Reports 2015

Aug 26, 2015

Equity flash – Trading Update Alternative Energy

BUY (BUY) | Target EUR 6.60 (EUR 6.60) Price (last closing price) : EUR 4.42 | Upside : 49%

Est. change 2015e 2016e EPS – –

Sales agreements improve strategic position

C apital
F3C GY F3CG.DE
M arket Cap (EURm)			38
Enterprise value (EURm)			40
Extrema 12 months		6.65	4.33
Free Float (%)			56.9%
P erfo rmance (%)	1m	3m	12m
Absolute	-8.5	-13.4	-28.7
Perf. rel. " sector"	-2.0	-4.4	-28.2
Perf. rel. CDAX	1.6	-1.8	-33.8
P &L	12/15e	12/16e	12/17e
Sales (EURm)	60.3	70.0	77.9
EBITDA (EURm)	0.9	2.8	3.8
EBIT (EURm)	-1.9	-0.1	1.9
Attr. net profit (EURm)	-2.5	-0.7	1.1
EPS (EUR)	-0.29	-0.09	0.13
Dividend (EUR)	0.00	0.00	0.00
P/E (x)	n.m	n.m	33.2
P/B (x)	1.5	1.6	1.5
Dividend Yield (%)	0.0	0.0	0.0
FCF yield (%)	-0.7	0.0	2.2
EV/Sales (x)	0.7	0.6	0.5
EV/EBITDA (x)	44.7	14.3	10.5
EV/EBIT (x)	n.m.	n.m.	20.7
Gearing (%)	n.m	n.m	n.m
Net Debt/EBITDA(x)	n.m	n.m	n.m
N ext Events
Q3 reporting:			10. Nov 15

Wednesday, 26 August 2015 Project delays burdened H1 2015

As several larger orders were postponed, SFC's H1 2015 figures were overall down yoy. Despite a challenging market environment, Oil & Gas segment sales topped the record H1 2014 level by 3%. All in all, though, group sales were down 5%, mainly on lower sales in the Security & Industry segment, where delayed projects took their toll. Sales in the Consumer division were basically flat yoy. Group EBITDA came in at € -2.7m (€ -2m underlying, i.e. adjusted from non-recurring effects relating to the Simark acquisition and staff-related measures) after € -1.1m and € -0.5 respectively in H1 2014.

Outlook confirmed

Despite lower sales and higher losses in H1 2015, the company confirmed its full year 2015 outlook as follows: sales of € 55-65m, improved EBITDA, and improved EBIT. We regard these targets as realistic, as H2 2015 should benefit from the completion of a cost-cutting programme in Oil & Gas likely leading to annual savings of CAN\$ 1m or CAN\$ 0.5m in H2 2015e. Additionally, the normal seasonality should lift H2 2015 results, driven in particular by a strong Q4e. Looking at the individual segments, we expect the positive performance in H2 will be predominantly driven by the Security & Industry division. The reaffirmed guidance is broadly in line with our estimates.

Sales agreements have improved SF's strategic position

Although SFC's H1 2015 figures were somewhat disappointing, going forward the company should benefit from the improved strategic position of its Oil & Gas division: i) The cooperation between SFC's Canadian subsidiary Simark Controls and Schneider Electric will provide substantial cross-selling opportunities for the EFOY series and should broaden SFC's customer base in North America. ii) Based on Simark Controls' sales agreement with Gentherm Global Power Technologies (GPT), GPT will sell the EFOY Pro series into the US market. In a second step, GPT will expand sales of EFOY Pro to its international customers, especially in Asia and South America.

The Security & Industry segment should also be positively impacted by the latest geopolitical challenges, which should drive structural demand for security systems in Europe, e.g. in border control applications.

Assessment

After the recent weakness in equity markets, our unchanged valuation model suggests an upside for the SFC share of 49%. As triggers to drive the share price towards our PT we see the following: i) likely strong H2 2015 reporting, ii) benefits emerging from the abovementioned sales agreements, and iii) additional orders (following the lead of the flagship order of Deutsche Bundeswehr/German armed forces) in the Security & Industry segment, such as the latest contract with an international defence force for the JENNY 1200.

Stephan Wulf (Analyst) +49 (0)69 920 54-830 Stephan.Wulf@oddoseydler.com

Please notice the information on the preparation of this document, the disclaimer, the advice regarding possible conflicts of interests, and the mandatory information required by § 34b WpHG (Securities Trading Law) at the end of this document. This financial analysis in accordance with § 34b WpHG is exclusively intended for distribution to individuals that buy or sell financial instruments at their own account or at the account of others in connection with their trading activities, occupation, or employment.

Quarterly key figures with YOY comparison

SFC Energy AG Wednesday, 26 August 2015

	IFRS	EURm	2Q 2015	2Q 2014	1H 2015	1H 2014
Total sales YOY grow th			12.2 -8%	13.2 112%	24.8 -5%	26.2 93%
Oil & Gas as % of total sales			7.2 59%	7.4 56%	14.4 58%	14.0 54%
Security & Industry as % of total sales			3.8 31%	4.7 35%	8.0 32%	9.7 37%
Consumer as % of total sales			1.1 9%	1.1 9%	2.3 9%	2.4 9%
EBITDA as % of sales			-1.8 -14.9%	-0.6 -4.2%	-2.7 -10.9%	-1.1 -4.1%
Adjusted EBITDA as % of sales			-1.4 -11.6%	-0.3 -2.0%	-2.0 -8.0%	-0.5 -1.9%
EBIT as % of sales			-2.4 -19.9%	-1.2 -9.3%	-3.9 -15.9%	-2.4 -9.3%
Underlying EBIT as % of sales			-1.7 -14.2%	-0.7 -4.9%	-2.7 -10.7%	-1.3 -5.0%

Profit and loss account

IFRS EURm	2011	2012	2013	2014	2015E	2016E	2017E
Sales	15.43	31.26	32.41	53.63	60.30	70.00	77.85
YoY grow th	15.7%	102.6%	3.7%	65.5%	12.4%	16.1%	11.2%
Cost of sales	-10.06	-18.50	-21.77	-37.97	-41.33	-47.74	-53.02
as % of sales	-65.2%	-59.2%	-67.2%	-70.8%	-68.5%	-68.2%	-68.1%
Gross profit	5.37	12.76	10.64	15.66	18.97	22.26	24.84
as % of sales	34.8%	40.8%	32.8%	29.2%	31.5%	31.8%	31.9%
Research and development expenses	-2.54	-4.26	-6.15	-4.53	-4.56	-4.82	-5.02
as % of sales	-16.4%	-13.6%	-19.0%	-8.4%	-7.6%	-6.9%	-6.5%
Selling expenses	-4.90	-5.86	-8.23	-10.54	-11.39	-12.17	-12.30
as % of sales	-31.7%	-18.8%	-25.4%	-19.7%	-18.9%	-17.4%	-15.8%
General and administrative expenses	-2.68	-3.55	-3.86	-4.87	-4.98	-5.31	-5.61
as % of sales	-17.4%	-11.4%	-11.9%	-9.1%	-8.3%	-7.6%	-7.2%
Other operating income	0.20	0.75	1.04	0.17	0.22	0.22	0.28
as % of sales	1.3%	2.4%	3.2%	0.3%	0.4%	0.3%	0.4%
Other operating expenses	-2.07	-0.36	-1.71	-0.16	-0.17	-0.25	-0.26
as % of sales	-13.4%	-1.2%	-5.3%	-0.3%	-0.3%	-0.4%	-0.3%
Restructuring expenses	0.00	0.00	-0.57	0.00	0.00	0.00	0.00
as % of sales	0.0%	0.0%	-1.7%	0.0%	0.0%	0.0%	0.0%
EBIT	-6.61	-0.52	-8.84	-4.27	-1.90	-0.06	1.93
as % of sales	-42.9%	-1.7%	-27.3%	-8.0%	-3.2%	-0.1%	2.5%
Underlying EBIT	-4.08	-0.96	-4.22	-1.22	0.37	1.03	2.32
as % of sales	-26.5%	-3.1%	-13.0%	-2.3%	0.6%	1.5%	3.0%
Net financial result	0.39	0.08	-0.13	-0.30	-0.30	-0.30	-0.30
EBT (Earnings before income taxes)	-6.22	-0.44	-8.96	-4.57	-2.20	-0.36	1.63
as % of sales	-40.4%	-1.4%	-27.7%	-8.5%	-3.7%	-0.5%	2.1%
Income taxes	0.01	0.02	0.05	-0.26	-0.26	-0.38	-0.48
as % of EBT	-0.1%	-4.3%	-0.6%	5.7%	11.6%	107.4%	-29.7%
Group net income including minorities	-6.22	-0.43	-8.91	-4.83	-2.46	-0.74	1.15
as % of sales	-40.3%	-1.4%	-27.5%	-9.0%	-4.1%	-1.1%	1.5%
Minority interests	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Net income attributable to shareholders	-6.22	-0.43	-8.91	-4.83	-2.46	-0.74	1.15
Shares outstanding (m)	7.16	7.50	7.68	8.07	8.61	8.61	8.61
Basic earnings per share (EUR)	-0.87	-0.06	-1.16	-0.60	-0.29	-0.09	0.13
Underlying EBITDA	-2.69	0.83	-2.20	0.38	2.08	2.80	3.79
as % of sales	-17.4%	2.7%	-6.8%	0.7%	3.4%	4.0%	4.9%
EBITDA	-4.64	0.73	-4.47	-1.18	0.89	2.80	3.79
as % of sales	-30.1%	2.3%	-13.8%	-2.2%	1.5%	4.0%	4.9%

Balance sheet

IFRS EURm	2011	2012	2013	2014	2015E	2016E	2017E
Assets
Current assets as % of total assets	33.93 68.5%	33.60 70.6%	25.93 54.4%	27.54 58.3%	28.68 61.7%	31.42 65.6%	34.71 68.8%
Inventories and prepayments	4.91	5.81	7.71	7.65	7.78	8.68	9.65
Trade accounts receivable	4.47	3.70	9.26	11.55	12.77	14.79	16.42
Other assets incl. tax and PoC receivables	1.82	1.18	1.54	1.93	2.19	2.33	2.50
Cash and cash equivalents	22.44	22.63	7.14	6.12	5.66	5.34	5.85
Cash and cash equival. with limitation on disposal	0.29	0.29	0.29	0.29	0.29	0.29	0.29
Noncurrent assets	15.61	14.02	21.72	19.71	17.77	16.45	15.76
as % of total assets	31.5%	29.4%	45.6%	41.7%	38.3%	34.4%	31.2%
Intangible assets excl. goodwill	4.89	4.86	7.26	5.73	4.06	2.41	1.82
Goodwill	6.14	6.14	11.80	12.08	12.08	12.08	12.08
Property, plant and equipment	2.75	2.40	2.30	1.60	1.32	1.18	1.04
Other non-current assets	0.05	0.00	0.00	0.00	0.00	0.00	0.00
Deferred taxes	1.77	0.62	0.37	0.30	0.30	0.78	0.82
Total assets	49.54	47.62	47.65	47.26	46.45	47.87	50.47
Current liabilities as % of total equity and liabilities	7.49 15.1%	7.66 16.1%	12.67 26.6%	13.37 28.3%	14.45 31.1%	16.24 33.9%	17.39 34.5%
Provisions	1.58	1.00	0.80	0.69	0.96	1.12	1.25
Advance payments received	0.20	0.01	0.01	0.00	0.01	0.05	0.05
Trade accounts payable	3.17	3.03	5.09	6.87	7.48	8.55	9.44
Financial debt	0.56	0.37	2.19	2.06	2.20	2.20	2.20
Other liabilities	1.98	3.24	4.58	3.75	3.80	4.33	4.46
Noncurrent liabilities	5.26	3.56	5.92	6.30	6.87	7.24	7.54
as % of total equity and liabilities	10.6%	7.5%	12.4%	13.3%	14.8%	15.1%	14.9%
Other noncurrent provisions	1.41	1.39	1.80	1.74	2.29	2.66	2.96
Financial debt	0.20	0.00	2.31	3.13	3.13	3.13	3.13
Other noncurrent liabilities	1.46	1.04	0.07	0.12	0.14	0.14	0.14
Deferred tax liabilities	2.19	1.13	1.73	1.31	1.31	1.31	1.31
Shareholders´ equity as % of total equity and liabilities	36.79 74.3%	36.39 76.4%	29.06 61.0%	27.59 58.4%	25.13 54.1%	24.39 51.0%	25.54 50.6%
Subscribed capital	7.50	7.50	8.02	8.61	8.61	8.61	8.61
Capital reserve	67.88	67.88	69.57	71.95	71.95	71.95	71.95
Other changes in equity not effecting profit or loss	-0.07	-0.04	-0.66	-0.29	-0.29	-0.29	-0.29
Accumulated loss brought forward Net result of the year	-32.31 -6.22	-38.53 -0.43	-38.95 -8.91	-47.86 -4.83	-52.69 -2.46	-55.15 -0.74	-55.88 1.15
Total equity and liabilities	49.54	47.62	47.65	47.26	46.45	47.87	50.47

SFC Energy AG Wednesday, 26 August 2015

Cash flow statement

IFRS EURm	2011	2012	2013	2014	2015E	2016E	2017E
Income/loss before interest and taxes	-6.61	-0.52	-8.84	-4.27	-1.90	-0.06	1.93
Amortisation and impairments of intangible assets	1.46	0.59	3.60	2.10	2.07	2.13	1.09
Depreciation and impairments of PP&E	0.51	0.66	0.76	1.00	0.73	0.72	0.77
Other expenses / income with no effect on liquidity	0.25	0.45	-0.62	0.06	0.00	0.00	0.00
Increase/decrease in inventories, trade receivables, and other assets	-0.99	0.45	-1.05	-2.41	-1.60	-3.06	-2.78
Increase/decrease in trade accounts payable and other liabilities	1.10	-0.37	-1.14	0.40	1.52	2.16	1.45
Cash taxes paid	-0.03	-0.01	-0.03	-0.42	-0.25	-0.86	-0.52
Cash flow from operating activities	-4.32	1.26	-7.31	-3.55	0.55	1.04	1.94
Net cash outflows from the purchase and
retirement of noncurrent assets	-1.13	-0.88	-0.67	-0.63	-0.85	-1.06	-1.13
Bank balances released/pledged	0.29	0.00	0.00	0.00	0.00	0.00	0.00
Interests received	0.43	0.22	0.08	0.01	0.03	0.03	0.03
Purchase of consolidated companies	-6.00	0.00	-6.00	0.00	0.00	0.00	0.00
Cash flow from investing activities	-6.42	-0.66	-6.59	-0.62	-0.82	-1.03	-1.10
Net cash inflow from capital stock increases deducting expenses	-0.05	0.00	0.00	2.98	0.00	0.00	0.00
Net cash flow from financial debt incl. leasing	-0.35	-0.39	-1.47	0.39	0.14	0.00	0.00
Interests paid	0.00	-0.03	-0.10	-0.23	-0.33	-0.33	-0.33
Cash flow from financing activities	-0.40	-0.42	-1.57	3.14	-0.19	-0.33	-0.33
Total change in cash and cash equivalents	-11.14	0.18	-15.47	-1.03	-0.46	-0.32	0.51
Currency effects on cash and cash equivalents	0.01	0.00	-0.01	0.01	0.00	0.00	0.00
Cash and cash equiv. at the start of the period	33.56	22.44	22.63	7.14	6.12	5.66	5.34
Cash and cash equiv. at the end of the period	22.44	22.63	7.14	6.12	5.66	5.34	5.85

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Recommendation System:

Oddo Seydler uses a 3-level absolute share rating system. The ratings pertain to a time horizon of up to 12 months:

BUY: The expected performance of the share price is above +10%. HOLD: The expected performance of the share price is between 0% and +10%. SELL: The expected performance of the share price is below 0%.

This rating system is only a guideline. Therefore, deviations from this system may apply.

Recommendation history over the last 12 months for the company analysed in this report:

Date	Recommendation	Price at change date	Price target
26 August 2015	BUY	EUR 4.42	EUR 6.60
5 May 2015	BUY	EUR 5.27	EUR 6.60
13 April 2015	BUY	EUR 5.18	EUR 6.60
27 March 2015	BUY	EUR 4.90	EUR 6.25
6 February 2015	BUY	EUR 5.14	EUR 6.50

SFC Energy AG Wednesday, 26 August 2015

22 December 2014	BUY	EUR 5.40	EUR 7.00
7 November 2014	BUY	EUR 5.149	EUR 7.50

The following valuation methods are used when valuing companies: Multiplier models (price/earnings, price/cash flow, price/book value, EV/Sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer group comparisons, historical valuation approaches, discounting models (DCF, DDM), break-up value approaches or asset valuation approaches. The valuation models are dependent upon macroeconomic measures such as interest, currencies, raw materials and assumptions concerning the economy. In addition, market moods influence the valuation of companies.

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