RESEARCH UPDATE. Driving Faster. Fair Value: 4.50 (Prev. 3.87)

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1 December 22, RESEARCH UPDATE Fair Value: 4.50 (Prev. 3.87) Kevin TEMPESTINI Giancarlo DI VONA Mauro IACCINO BOMI Relative Performance Chart Volume FTSE AIM Italia Market Data: BOMI ITALIA S.P.A. Jan-17 Apr-17 Jul -17 Oct Closing Price ( ) Week Low/High ( ) 1.60/ Day Average Trading Volume 27,483 Price Change: 1 w 4.44% Price Change: 1 m -6.93% Price Change YTD 65.40% P/E Ratio (FY17) P/E Ratio (FY18) Healthcare Goods and Services Driving Faster Strengthening in the Italian Market. After the August Brazilian integration, Bomi recently announced the closing of a binding agreement aimed at the 100% acquisition of the Italian company De Salute Srl. The latter operates in the logistic and high value added services sector for the pharmaceutical industry, being one of the top 15 companies in the Italian market. The acquired company will contribute two authorized pharmaceutical workshops totaling 21,000 m 2. De Salute Srl FY16 Total Revenues were equal to 9.3mn with a strong EBITDA of 1.2mn or 13% in terms of margins (app. 270 bps higher than Bomi), thanks to the high value added services offered. The closing price will be around 2.5mn. The company has a NFP which is around 3.1mn, therefore the Enterprise Value is around 5.6mn. The EV/EBITDA multiple of the acquisition (excluding earn-out) is equal to 4.62x, thus 34% lower than Bomi s current trading multiple. The acquisition is expected to be completed by the end of February The main benefits of the acquisition are: a) the strengthening of Bomi s positioning within the Italian market; b) the expansion of Bomi s offer with the provision of high value added services. Consequently, Bomi is expected to achieve attractive synergies in the Italian market. Reducing the exchange rate risk. An additional benefit of the Italian De Salute Srl acquisition is the reduction of Bomi s relative exposure towards the volatile Brazilian currency. Indeed, the relative contribution from Brazilian operations, in terms of Total Revenues, is expected to decrease from 38.2% in 2016 to 34.2% in Estimates revision, improving marginality with interesting synergies. We increased FY17-19 marginality due to the synergies gained from both the Brazilian integration and the De Salute Srl acquisition. We expect that the minorities integration will contribute with labor and service cost optimization with minor effect in 2017, thus we slightly increased FY17 EBITDA margin to 9.2% from 8.9%. The full benefit of the integration, along with the acquisition of De Salute Srl, will boost the FY18 EBITDA margin, which should reach a level of 11.2%. Looking at the bottom line, we maintained, basically unchanged, our FY17 estimate, while increasing FY18 Net Income from 3.69mn to 4.36mn, according to the increase in EBITDA and considering the higher NFP coming from the recent acquisitions. Fair value increase. We increased our fair value by 16% to 4.50 on the back of synergies produced by the Brazilian minorities integration and the De Salute Srl acquisition. Furthermore, on DCF valuation, we reduced the cost of capital following the reduction in the country risk premium related to the improved Italian economic outlook. On multiples valuation, we lowered the liquidity discount thanks to the brilliant performance in terms of liquidity experienced by Bomi s stock in the first ten months of 2017 with respect to the first ten months of 2016 (+1417% YoY). Million Total Revenues EBITDA EBITDA Margin EBIT Bomi Net Profit Net Margin EPS 2015A % % A % % E PF % % E % % E % % 0.29 Source: Company data, KT&Partners estimates KT&Partners Srl Via della Posta, 10 - Piazza Affari, Milano - Italy Tel: Fax: segreteria@ktepartners.com

2 Table 1: BOMI Italia S.p.A. - Key Figures Current price ( ) Fair Value ( ) Sector Free Float (%) Healthcare and Services Per Share Data 2014A 2015A 2016A 2017E 2018E Total shares outstanding (mn) n.a EPS n.a Dividend per share (ord) Dividend pay out ratio (%) 0% 34% 35% 20% 20% Profit and Loss (EUR thousand) Revenues 67,004 78, , , ,712 EBITDA 7,618 8,250 8,747 10,737 15,296 EBIT 5,559 5,668 5,290 6,780 9,708 EBT 3,093 2,918 2,534 4,191 6,819 Taxes - 1,434-1,045-1,080-1,509-2,455 Tax rate -46% -36% -43% -36% -36% Net profit attributable to minority Net profit after minorities 738 1, ,548 4,146 Balance Sheet (EUR thousand) Total fixed assets 17,932 23,217 32,732 46,675 51,555 Net Working Capital (NWC) 2,667 4,196 2,855 4,616 5,875 Provisions ,855-1,633-2,834-3,436 Other asset and liabilities 1,752 1,590 1,061 1,145 1,214 Total Net capital employed 21,489 27,147 35,015 49,602 55,208 Net financial position (NFP) 14,316 9,632 15,953 30,921 32,672 Group Shareholder's Equity 5,021 14,881 15,440 14,925 18,562 Minorities 2,151 2,633 3,621 3,755 3,973 Total Shareholder's Equity 7,172 17,514 19,061 18,680 22,535 Cash Flow (EUR thousand) Net operating cash flow 4,671 5,239 7,468 11,582 13,415 Change in NWC - 2,204-1,529-1,760-1, Capital expenditure - 1,388-5,635-17,900-10,466-5,250 Other cash items/uses of funds , Free cash flow - 4,915-3,002-11, ,065 Enterprise Value (EUR thousand) Market Cap n.a. 39,561 25,765 42,942 42,942 Minorities 2,151 2,633 3,621 3,755 3,973 Net financial position 14,316 9,632 15,953 30,921 32,672 Enterprise value n.m. 51,827 45,340 77,618 79,587 Ratios (%) EBITDA margin 11.4% 10.5% 8.7% 9.2% 11.2% EBIT margin 8.3% 7.2% 5.2% 5.8% 7.1% Gearing - Debt/equity 285.2% 64.7% 103.3% 207.2% 176.0% Interest cover on EBIT 27.2% 32.5% 23.0% 20.5% 18.8% NFP/EBITDA 187.9% 116.8% 182.4% 288.0% 213.6% ROCE 25.9% 20.9% 15.1% 13.7% 17.6% ROE 14.7% 7.9% 3.0% 17.1% 22.3% EV/Sales n.m EV/EBITDA n.m P/E n.m Free cash flow yield n.m. -7.6% -45.1% 0.1% 16.5% Growth Rates (%) Sales 2.6% 18.0% 29.1% 14.8% 16.9% EBITDA 23.1% 8.3% 6.0% 22.7% 42.5% EBIT 23.4% 2.0% -6.7% 28.2% 43.2% Net profit -3.9% 13.0% -22.4% 84.5% 62.7% Source: Company data, KT&Partners estimates December 22,

3 Company Description Bomi Group is a leading multinational group that provides a wide range of strategic logistic services to the medical device industry. Bomi has built a strong reputation based on 30 years of relationships with both the most important multinationals in the healthcare sector and the international SMEs active in the biomedical, diagnostic, and biotech sectors.. FY17 Storyline May 2017: Signing of binding agreement to acquire Espadist S.A. de C.V in Mexico. May 2017: Acquisition of the remaining 20% of G. CARRAI & C. SRL. June 2017: Selling the Panama subsidiary and buying 29% of Biocarrier Colombia Sas (BOMI Colombia). June 2017: Acquiring a further 15% of RITMO holding BV (Bomi Netherlands). July 2017: Acquiring the remaining 45% of BIOMEDICAL DISTRIBUTION MERCOSUR LTDA (Bomi Brazil). October 2017: Expansion towards APAC through a Joint Venture with Yang Kee, a local partner. October 2017: Incorporation of Chasqui Srl, Berga Srl, Logit Trans Srl in G. Carrai & C. Srl, company controlled by the group. December 2017: Signing of a binding agreement for the acquisition of 100% of De Salute Srl in Italy. FY Estimates revision We lowered our Total Revenues estimates by 1.9% in 2017, taking into account the Brazilian Real s depreciation 1 driven by the political uncertainty that has surrounded the country since the Car Wash scandal. The investigations were followed by the impeachment of Dilma Rousseff, which allowed Michel Temer to attain the presidency. The subsequent accusations of corruption involving Temer himself, and the arrests and jailing of several top political figures, have introduced additional volatility to the Brazilian currency. On the other hand, despite the currency depreciation, we increased the estimate for FY18 Total Revenues by 5.0% following the De Salute Srl acquisition, which should contribute on the top line with 9.3mn, bringing FY18 Total Revenues to mn. We increased FY17-19 marginality due to the synergy gained from both the Brazilian integration and the De Salute Srl acquisition. We expect that the minorities integration will contribute with labor and service cost optimization with minor effect in 2017, thus we slightly increased FY17 EBITDA margin to 9.2% from 8.9%. The full benefit of the integration, along with the acquisition of De Salute Srl, will boost the FY18 EBITDA margin, which should reach a level of 11.2%. Looking at the bottom line, we maintained, basically unchanged, our FY17 estimate, while increasing FY18 Net Income from 3.69mn to 4.36mn, according to the increase in EBITDA and considering the higher NFP coming from the recent acquisitions. On the CAPEX side, we increased our FY17 expectation by 15.40mn, mainly due to the anticipated closing of the Brazilian integration ( 12.90mn). On the other hand, we reduced the FY18 Capex by 5.43mn, taking into account the closing of the minorities integration that was expected in 2018 but actually occurred in 2017, and the acquisition of the Italian De Salute Srl. We increased our 2017 Net Financial Position estimate to 30.92mn from 12.48mn in order to take into account three main effects: a) the Brazilian minorities acquisition ( 13.9mn); b) extraordinary dividend payments ( 3mn); and c) the higher expected Capex, excluding M&A (+ 1.0mn). Finally, the new estimate of FY17 Net Income is 1.2% higher with respect to the previous one, thanks to the initial synergies from the Brazilian integration. The full benefit of the acquisition of Brazilian minorities along with the acquisition of De Salute Srl is reflected in a higher estimate for FY18 Net Revenues (+18.3%). Table 2: new forecasts thousand FY17E old FY17EPF new % FY18E old FY18E new % FY19E old FY19E new % Total Revenues % % % EBITDA % % % EBITDA margin% 8.9% 9.2% 9.8% 11.2% 10.2% 11.2% EBIT % % % EBIT margin% 5.4% 5.8% 6.5% 7.1% 7.1% 6.9% Net Income % % % Net Income margin% 2.2% 2.3% 2.8% 3.2% 3.0% 3.0% Bomi's Net Income % % % Bomi's Net Income 2.1% 2.2% 2.7% 3.0% 3.0% 3.0% margin% CAPEX & M&A % % % Net Financial Position % % n.m. Source: KT&Partners elaboration 1 The BRL-EUR exchange rate applied for FY17 is 3.58, the average of daily exchange rate for For FY18-FY20, the applied rate is equal to December 22,

4 Valuation Basis Based on our estimates, we have carried out our valuation based on multiple and DCF analysis and have taken the average price provided by these two models. This has led to a fair value of 4.50 per share. Our fair value takes the average of the following methods: P/E multiple, with a 10% liquidity discount, which returns a value of 4.29 per share. DCF analysis based on WACC of 8.5% and 1.5% perpetual growth, which returns a value of 4.70 per share. Multiples Valuation To value Bomi, we identified a series of comparables (see Appendix). We have chosen our peers taking into consideration the business activity and the services provided. Thanks to the Brazilian acquisition, we start to value Bomi on P/E basis in order to better capture the company s earning power. However, we should note that the selected companies are quite different in terms of revenue size. For this reason, we applied a 10% size and liquidity discount to the 2017 and 2018 P/E peers average. We note that, due to the extraordinary performance in terms of liquidity experienced by Bomi, we lowered the liquidity discount from 15%, used in our previous research, to the new level of 10%. The reduction comes on the back of the increase in average daily turnover from 10M16 to 10M17 (+1417%), which is even better than the result presented by AIM Italia for the same time period (+526%). Table 3: Multiples Valuation Multiples valuation P/E liquidity/size discount 10% 10% P/E post discount Net Income Equity Value Bomi Italia SpA number of shares Value per share Fair Value 4.29 Source: Company data, KT&Partners estimates December 22,

5 Table 4: Peer Group Valuation Table 2017 Multiples Company Name Exchange Market Cap EV/SALES 2017 EV/EBITDA 2017 Source: KT&Partners elaboration on FactSet data Table 5: Peer Group Valuation Table 2018 Multiples EV/EBIT 2017 P/E 2017 DSV A/S OMX Copenhagen 12, Kuhne & Nagel International AG SIX Swiss 17, United Parcel Service, Inc. Class B NYSE 86, Deutsche Post AG XETRA 48, Owens & Minor, Inc. NYSE UDG Healthcare Plc London 2, Average peer group 28, Median peer group 14, BOMI Italia S.p.A. Milan Company Name Exchange Market Cap EV/SALES 2018 EV/EBITDA 2018 DSV A/S OMX Copenhagen 12, Kuhne & Nagel International AG SIX Swiss 17, United Parcel Service, Inc. Class B NYSE 86, Deutsche Post AG XETRA 48, Owens & Minor, Inc. NYSE UDG Healthcare Plc London 2, Average peer group 28, Median peer group 14, BOMI Italia S.p.A. Milan Source: KT&Partners elaboration on FactSet data EV/EBIT 2018 P/E 2018 December 22,

6 DCF Valuation We believe that DCF analysis is an interesting way, in addition to our multiples valuation, to highlight the company s positive and visible cash flow generation for the forthcoming years. Our DCF analysis is based on an 8.5% WACC (riskfree rate 1.8%, market risk premium of 7.14% based on June 2017 estimates by Damodaran, beta of 1.07, size premium of 2.0% implying a cost of equity of 11.44%, and a marginal cost of debt of 5.5%). We set a terminal growth rate of 1.5%. We computed the Terminal Value calculation on an adjusted (without nonrecurring items) FCFO. This results in an equity value of 71.58mn or 4.70 per share. Table 6: Cash Flow Estimates million 2017E 2018E 2019E 2020E EBIT Taxes D&A Change in Net Working Capital Net Operating Cash Flow Capex Nonrecurring items FCFO g 1.5% Wacc 8.5% FCFO (discounted) Discounted Cumulated FCFO 1.44 TV TV (discounted) Enterprise Value NFP FY Equity Value Current number of shares Value per share ( ) 4.70 Source: KT&Partners elaborations December 22,

7 Appendix Peer Description DSV A/S provides transport and logistics solutions. It operates through the following business segments: Air and Sea, Road, and Solutions. The Air and Sea segment specializes in the handling of air and sea freight through a global network. The Road segment offers road freight services including full and part loads, temperature-controlled transport, and other specialized services across Europe. The Solutions segment covers specialized logistics solutions such as freight management, customs clearance, warehousing and distribution, information management, and e-business support. The company was founded on 13 July 1976 and has its headquarters in Hedehusene, Denmark. Kühne & Nagel International AG is engaged in the provision of logistic services. It also offers strategic solutions such as hotel logistics and emergency and relief logistics. It operates through the following segments: Seafreight, Airfreight, Road and Rail Logistics, Contract Logistics, Real Estate, and Insurance Brokers. The company was founded by August Kühne and Friedrich Nagel in 1890 and has its headquarters in Schindellegi, Switzerland. United Parcel Service, Inc. (UPS) is a logistics company which provides global package delivery and supply chain management services. It offers logistics services to the global market, including: transportation; distribution; forwarding; ground, ocean and airfreight; brokerage; and financing. The company operates its business through three segments: U.S. Domestic Package, International Package, and Supply Chain & Freight. UPS was founded by James E. Casey and Claude Ryan on 28 August 1907 and has its headquarters in Atlanta, GA. Deutsche Post AG provides mail and logistics services. It operates through the following business segments: Mail, Express, Global Forwarding Freight, and Supply Chain. The Mail segment, specialized in dialogue marketing, nationwide press distribution services, and all the electronic services associated with mail delivery, provides domestic and international mail and parcels. The Express segment offers courier and express services to business customers. The Global Forwarding Freight segment handles the carriage of goods by rail, road, air and sea. The Supply Chain segment provides warehousing, managed transport, and value-added services at every link in the supply chain for customers in a variety of industries, including life sciences and healthcare. The Retail and Life Sciences & Healthcare sectors accounted for the majority of the Supply Chain gains. In 2014, Supply Chain division revenues amounted to 14.7bn and the contribution of the Life Sciences & Healthcare sector was about 2.9bn (20%). The company was founded in 1995 and has its headquarters in Bonn, Germany. Owens & Minor, Inc. is a healthcare logistics company that connects the world of medical products to the point of care. It provides services to the manufacturers of healthcare products, supplies, and devices in the United States and Europe. The company operates through two segments: Domestic and International. The Domestic segment provides all services in the United States relating to medical supply, while the logistics company serves healthcare providers and manufacturers. The International segment, comprised of the Movianto Group, provides third-party logistics for the pharmaceutical, biotechnology, and medical device services in the European market. Owens & Minor was founded by Otho O. Owens and G. Gilmer Minor in 1882 and has its headquarters in Mechanicsville, VA. December 22,

8 UDG Healthcare Plc provides commercialization solutions to international healthcare companies. The company operates through three segments: Supply Chain services, Sharp Packaging services and Ashfield Commercial and Medical services. The Supply Chain services segment combines all the group's healthcare logistics-based businesses. The Sharp Packaging services segment provides outsourced commercial and clinical trial packaging services to healthcare companies. The Ashfield Commercial and Medical services segment provides sales and marketing services, healthcare communications, event management, medical affairs, and regulatory services to healthcare manufacturers. The company was founded in 1948 and has its headquarters in Dublin, Ireland. December 22,

9 DISCLAIMER THIS DOCUMENT WAS PREPARED BY KT&PARTNERS S.R.L., WITH REGISTERED OFFICE AT VIA DELLA POSTA 10, MILAN, ITALY, MILAN COMPANY REGISTER NO , SPECIALIZING IN FINANCIAL RESEARCH AND ANALYSIS (HEREINAFTER, KT&PARTNERS ). KT&PARTNERS PREPARED THIS DOCUMENT ON BEHALF OF BOMI ITALIA SPA ACCORDING TO AN AGREEMENT ENTERED WITH THE SAME AND ON THE BASIS OF THE DATA AND PUBLIC INFORMATION PROVIDED BY THE SAME OR DERIVED FROM SOURCES DEEMED SERIOUS AND RELIABLE ON THE FINANCIAL MARKET BUT WHOSE ABSOLUTE TRUSTWORTHINESS, COMPLETENESS, AND ACCURACY CANNOT BE GUARANTEED. THIS DOCUMENT IS A SOURCE OF INFORMATION ONLY, AND IS NOT PART OF, AND IN NO WAY MUST IT BE CONSIDERED, AN OFFER TO SELL, SUBSCRIBE OR TRADE, OR A SOLICITATION TO PURCHASE, SUBSCRIBE OR TRADE, FINANCIAL INSTRUMENTS/PRODUCTS, OR IN GENERAL TO INVEST, NOR MUST IT BE CONSIDERED ANY FORM OF CONSULTING FOR AN INVESTMENT IN FINANCIAL INSTRUMENTS. THE INFORMATION PROVIDED IN THIS DOCUMENT MUST NOT BE UNDERSTOOD AS A REQUEST OR SUGGESTION TO CONDUCT OR CARRY OUT A SPECIFIC TRANSACTION. EACH INVESTOR MUST FORM HIS/HER OWN OPINION BASED EXCLUSIVELY ON HIS/HER ASSESSMENT OF THE ADVISABILITY OF INVESTING. ANY INVESTMENT DECISION MADE ON THE BASIS OF THE INFORMATION AND ANALYSES IN THIS DOCUMENT IS THE EXCLUSIVE RESPONSIBILITY OF THE RECIPIENTS OF THIS DOCUMENT, WHO MUST CONSIDER THIS DOCUMENT MERELY AS A SOURCE OF INFORMATION AND ANALYSIS TO SUPPORT SUCH DECISION. ANY OPINIONS, FORECAST, OR ESTIMATES CONTAINED HEREIN CONSTITUTE A JUDGEMENT AS AT THE DATE OF THIS DOCUMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUTURE RESULTS OF THE COMPANY AND/OR ANY FUTURE EVENTS WILL BE CONSISTENT WITH ANY OF SUCH OPINIONS, FORECAST OR ESTIMATES. KT&PARTNERS MAKES NO EXPLICIT OR IMPLICIT GUARANTEE WITH RESPECT TO PERFORMANCE OR THE OUTCOME OF ANY INVESTMENT OR PROJECTIONS MADE. THEREFORE, KT&PARTNERS, ITS REPRESENTATIVES AND/OR EMPLOYEES WILL NOT BE LIABLE FOR ANY EFFECT DERIVING FROM THE USE OF THIS DOCUMENT, AND HEREBY DECLINE ALL LIABILITY FOR ANY DIRECT OR INDIRECT DAMAGES, FINANCIAL OR OTHERWISE, DERIVING FROM ANY USE OF THE INFORMATION IT CONTAINS. KT&PARTNERS AIMS TO PROVIDE CONTINUOUS COVERAGE OF THE COMPANY IN CONJUNCTION WITH ANY EXCEPTIONAL EVENT THAT OCCURS AFFECTING THE ISSUER S SPHERE OF OPERATIONS AND IN ANY CASE AT LEAST TWICE PER YEAR. December 22,

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