ISRA Vision (CDAX, Technology) Analyst Andreas Wolf [email protected]+49 40 309537 - 140 C OMMENT Published 01.03.2018 08:15 1 Hold EUR 205.00 Price EUR 199.80 Upside 2.6 % Value Indicators: EUR Share data: Description: DCF: 207.78 FCF-Value Potential 20e: 111.46 Bloomberg: ISR GR Reuters: ISRG ISIN: DE0005488100 Machine vision systems, optical robot guidance systems. Market Snapshot: EUR m Shareholders: Risk Profile (WRe): 2017/18e Market cap: 875.0 No. of shares (m): 4.4 EV: 850.8 Freefloat MC: 612.5 Ø Trad. Vol. (30d): 2.96 m Freefloat 70.0 % CEO 25.2 % ISRA VISION Management 4.8 % Fidelity 9.0 % Beta: 1.2 Price / Book: 4.0 x Equity Ratio: 69 % Q1: ISRA runs like clockwork Stated Figures Q4/2016/17: Comment on Figures: Industrial Automation: Despite high comparables which were created by growth of >40% in Q1 last year, ISRA has achieved attractive growth of 10% in this segment. In this segment, ISRA serves a broad customer base of international car manufacturers - including renowned premium manufacturers - as well as industry leaders from other sectors. Surface Vision continues to grow at its typical pace of nearly 10%. Regions: Growth was especially strong in Europe as well as Asia while the Americas have room for improvement. ISRA’s Q1 figures have marked a solid start to the year. Revenue growth of 10% was evenly split between both segments. At a pace of 11% EBT grew slightly higher than proportionally. Both figures are in line with the full year guidance which anticipates double-digit organic growth with at least stable margins – the same target as in previous years. While the order book declined by some EUR 7m yoy to EUR 83m, management has highlighted its expectation of larger orders in the near future. Especially for inspection solutions for smart phone and tablet touch screens supplemented with new developments for the quality assurance of modern display designs, ISRA is currently expecting further orders entries. These will feed the revenue development in the Industrial Automation segment contributing to double-digit growth rates at group level. Free cash flow reached approx. EUR 1.1m (vs. EUR -1.3m in Q1 last year) supporting ISRA’s net cash creation: at the end of 2017 ISRA has entered the net cash territory. This development was supported by ISRA’s ongoing efficiency gains and working capital optimisation. Flanked by this progress, ISRA will propose a higher dividend of EUR 0.59. On the call management has confirmed its medium-term revenue target of EUR 200m which might be reached within three years confirming our estimates. Acquisitions might accelerate growth. A recent example of a takeover was Polymetric which should accelerate business in the medical vertical. While the company is relatively small given annual revenues of approx. EUR 1-2m, it will also trigger additional sales of ISRA products. Furthermore, ISRA can leverage its worldwide salesforce to scale Polymetric’s outstanding technology in areas such as 3D scanning. Thus, newsflow should remain intact. As ISRA shares are trading close to our PT, the Hold rating is being confirmed. in EUR m Q 1/ 18 Q 1/ 17 yo y 2 0 18 e 2 0 17 yo y Sales 3 1.2 28.5 9.8% 159.2 143.0 11.3% EBITDA 10.0 9.1 9.7% 46.8 42.8 9.3% margin 31.8% 31.9% 29.4% 30.0% EBT 6.2 5.6 11.3% 33.7 28.0 20.3% margin 19.9% 19.6% 21.2% 19.6% Industrial Automation 7.8 7.1 9.9% 43.5 37.2 17.0% Surface Vision 23.4 21.3 9.9% 115.6 105.8 9.3% FY End: 30.9. in EUR m CAGR (16/17-19/20e) 2013/14 2014/15 2015/16 2016/17 2017/18e 2018/19e 2019/20e Sales 12.0 % 102.5 112.2 128.8 143.0 159.2 178.6 200.8 Change Sales yoy 14.4 % 9.5 % 14.8 % 11.0 % 11.3 % 12.2 % 12.4 % Gross profit margin 55.2 % 55.8 % 56.4 % 56.6 % 57.8 % 58.0 % 58.0 % EBITDA 11.4 % 36.5 32.4 37.7 42.8 46.8 52.2 59.2 Margin 35.7 % 28.9 % 29.3 % 30.0 % 29.4 % 29.3 % 29.5 % EBIT 17.3 % 20.1 22.6 25.6 28.3 33.9 38.7 45.7 Margin 19.6 % 20.1 % 19.9 % 19.8 % 21.3 % 21.7 % 22.7 % Net income 14.7 % 13.0 14.8 17.6 20.5 22.9 26.2 30.9 EPS 14.7 % 2.98 3.39 4.01 4.68 5.23 5.99 7.07 EPS adj. 14.7 % 2.98 3.39 4.01 4.68 5.23 5.99 7.07 DPS 5.9 % 0.39 0.41 0.48 0.59 0.65 0.70 0.70 Dividend Yield 0.9 % 0.8 % 0.7 % 0.5 % 0.3 % 0.4 % 0.4 % FCFPS 3.03 -0.52 4.26 4.66 2.43 6.43 5.12 FCF / Market cap 6.7 % -1.0 % 6.4 % 3.7 % 1.2 % 3.2 % 2.6 % EV / Sales 2.2 x 2.4 x 2.5 x 3.9 x 5.3 x 4.6 x 4.0 x EV / EBITDA 6.3 x 8.5 x 8.4 x 13.0 x 18.2 x 15.8 x 13.6 x EV / EBIT 11.5 x 12.2 x 12.4 x 19.7 x 25.1 x 21.3 x 17.7 x P / E 15.2 x 15.9 x 16.7 x 27.0 x 38.2 x 33.4 x 28.3 x P / E adj. 15.2 x 15.9 x 16.7 x 27.0 x 38.2 x 33.4 x 28.3 x FCF Potential Yield 8.9 % 5.6 % 6.1 % 4.3 % 2.8 % 3.3 % 3.9 % Net Debt 31.6 38.1 23.2 4.6 -24.1 -49.4 -68.7 ROCE (NOPAT) 8.8 % 8.9 % 9.9 % 11.5 % 12.2 % 13.4 % 15.5 % Guidance: 2017/18: Revenue growth of approx. 10%, at least stable margins Rel. Performance vs CDAX: 1 month: 8.5 % 6 months: 36.0 % Year to date: -2.9 % Trailing 12 months: 58.0 % Company events: 28.03.18 AGM 30.05.18 Q2 31.08.18 Q3 14.12.18 Prel. FY 2017/18
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ISRA Vision...ISRA Vision 3 COMMENT Published 01.03.2018 DCF model Detailed forecast period Transitional period Term. Value Figures in EUR m 17/18e 18/19e 19/20e 20/21e 21/22e 22/23e
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Market Snapshot: EUR m Shareholders: Risk Profile (WRe): 2017/18e
Market cap: 875.0
No. of shares (m): 4.4
EV: 850.8
Freefloat MC: 612.5
Ø Trad. Vol. (30d): 2.96 m
Freefloat 70.0 %
CEO 25.2 %
ISRA VISION Management 4.8 %
Fidelity 9.0 %
Beta: 1.2
Price / Book: 4.0 x
Equity Ratio: 69 %
Q1: ISRA runs like clockwork
Stated Figures Q4/2016/17: Comment on Figures: � Industrial Automation: Despite high comparables which were created
by growth of >40% in Q1 last year, ISRA has achieved attractive growth of 10% in this segment. In this segment, ISRA serves a broad customer base of international car manufacturers - including renowned premium manufacturers - as well as industry leaders from other sectors.
� Surface Vision continues to grow at its typical pace of nearly 10%. � Regions: Growth was especially strong in Europe as well as Asia while
the Americas have room for improvement.
� ISRA’s Q1 figures have marked a solid start to the year. Revenue growth of 10% was evenly split between both segments. At a pace of 11%
EBT grew slightly higher than proportionally. Both figures are in line with the full year guidance which anticipates double-digit organic growth
with at least stable margins – the same target as in previous years.
� While the order book declined by some EUR 7m yoy to EUR 83m, management has highlighted its expectation of larger orders in the near
future. Especially for inspection solutions for smart phone and tablet touch screens supplemented with new developments for the quality
assurance of modern display designs, ISRA is currently expecting further orders entries. These will feed the revenue development in the
Industrial Automation segment contributing to double-digit growth rates at group level.
� Free cash flow reached approx. EUR 1.1m (vs. EUR -1.3m in Q1 last year) supporting ISRA’s net cash creation: at the end of 2017 ISRA
has entered the net cash territory. This development was supported by ISRA’s ongoing efficiency gains and working capital optimisation.
Flanked by this progress, ISRA will propose a higher dividend of EUR 0.59.
� On the call management has confirmed its medium-term revenue target of EUR 200m which might be reached within three years confirming
our estimates. Acquisitions might accelerate growth. A recent example of a takeover was Polymetric which should accelerate business in the
medical vertical. While the company is relatively small given annual revenues of approx. EUR 1-2m, it will also trigger additional sales of ISRA
products. Furthermore, ISRA can leverage its worldwide salesforce to scale Polymetric’s outstanding technology in areas such as 3D
scanning. Thus, newsflow should remain intact. As ISRA shares are trading close to our PT, the Hold rating is being confirmed.
in EUR m Q1/ 18 Q1/ 17 yoy 2018e 2017 yoy
Sales 31.2 28.5 9.8% 159.2 143.0 11.3%
EB IT D A 10.0 9.1 9.7% 46.8 42.8 9.3%
margin 31.8% 31.9% 29.4% 30.0%
EB T 6.2 5.6 11.3% 33.7 28.0 20.3%
margin 19.9% 19.6% 21.2% 19.6%
Industria l A uto matio n 7.8 7.1 9.9% 43.5 37.2 17.0%
� Sales growth looks set to remain clearly above GDP growth driven by automation trend and need to increase efficiency.
� EBIT margins are assumed to remain at high levels driven by sales growth and operating leverage.
� Margins look set to erode slightly thereafter assuming increased competitiveness, partly defended by the company’s R&D.
� Working capital requirements are expected to remain at high levels owing to the customer structure.
ISRA Vision
CO M M E N T Publ ished 01 .03 .2018 4
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 via the perpetuity of a given year’s “FCF potential” with consideration of 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 2013/14 2014/15 2015/16 2016/17 2017/18e 2018/19e 2019/20e
Net Income before minorities 13.1 14.8 17.8 20.7 22.9 26.2 30.9
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WARBURG RESEARCH GMBH – ANALYSED RESEARCH UNIVERSE BY RATING
Rating Number of stocks % of Universe
Buy 111 54
Hold 90 44
Sell 5 2
Rating suspended 0 0
Total 206 100
WARBURG RESEARCH GMBH – ANALYSED RESEARCH UNIVERSE BY RATING K
K taking into account only those companies which were provided with major investment services in the last twelve months.
Rating Number of stocks % of Universe
Buy 32 78
Hold 9 22
Sell 0 0
Rating suspended 0 0
Total 41 100
PRICE AND RATING HISTORY ISRA VISION AS OF 01.03.2018
Markings in the chart show rating changes by Warburg Research
GmbH in the last 12 months. Every marking details the date and
closing price on the day of the rating change.
ISRA Vision
CO M M E N T Publ ished 01 .03 .2018 12
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