Vitec. Focus on the margin. Equity Research - 17 October :00 CET. Performance. Reason: Preview of results

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1 Equity Research - 17 October :00 CET Vitec Reason: Preview of results Focus on the margin Strong momentum for recurring revenue Limited newsflow during Q3 Valuation slightly lower since our previous update Sales growth mainly driven by acquisitions For Q3e we expect net sales of SEK 246m, corresponding to y-o-y growth of 12%, mainly driven by the three acquisitions which were carried out in Q2. We think that Q3 will be the last quarter with a weakened y-o-y EBIT margin, because the fast migration from license revenue to recurring subscription-based revenue is almost complete. We expect Q3e EBIT to reach SEK 23.7m, corresponding to a margin of 9.6% (9.9%). On a segment level, Finance & Insurance still faces tough comps. For most of the other segments we assume strengthened EBIT margins y-o-y, which we also believe should be a focus area in the company s Q3 report, due on 18 October. ABGSCe unchanged, newsflow has dried up We are keeping our estimates unchanged, because no major news has been communicated during the quarter. The most notable news was the agreement with Skanska, confirming that Vitec s Real Estate segment is well-positioned. That does not affect our estimates, however, as we already expect healthy growth from the segment in the coming quarters. Vitec has underperformed against the OMX STH PI of late Vitec s valuation has decreased since our previous update, in light of its weak performance. It now trades at EV/EBIT 20.9x (22.1x) and 18.4x (19.4x) for 19e and 20e, respectively. As we stated after Q2, higher than normal leverage should mean that management will be a bit more cautious with further acquisitions. We would not be surprised if a new deal is presented in Q4, however, because Vitec recently refinanced its acquisition loan facility, adding SEK 50m in the process. Lead analyst: Stefan Knutsson Estimate changes (%) 2018e 2019e 2020e Sales 0.0% 0.0% 0.0% EBIT (rep) 0.0% 0.0% 0.0% EPS (rep) 0.0% 0.0% 0.0% Source: ABG Sundal Collier Share price (SEK) 16/10/2018 IT Consulting & Other Services, Sweden VITB.ST/VITB SS Performance 78.2 MCap (SEKm) 2,307 MCap (EURm) Net debt (EURm) 44 No. of shares (m) 29.5 Free float (%) Av. daily volume (k) 11.9 Next event Q3 report: 18 Oct Oct 15 Dec 15 Feb 16 Apr 16 Jun 16 Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 Aug 17 Oct 17 Dec 17 Feb 18 Apr 18 Jun 18 Aug 18 Vitec OMX STH PI 1m 3m 12m Absolute (%) OMX STH PI (%) Source: FactSet SEKm e 2019e 2020e Sales ,021 1,045 EBITDA EBITDA margin (%) EBIT adj EBIT adj margin (%) Pretax profit EPS rep EPS adj Sales growth (%) EPS growth (%) e 2019e 2020e P/E (x) P/E adj (x) P/BVPS (x) EV/EBITDA (x) EV/EBIT adj (x) EV/sales (x) ROE adj (%) Dividend yield (%) FCF yield (%) Net IB debt/ebitda Please refer to important disclosures at the end of this report This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II.

2 Opportunities Engaging in vertical market software, the opportunity for Vitec to find further possible targets is still good and the fast acquisition pace is likely to continue. Previous targets have been acquired at lower and attractive multiples pv something we believe could still drive further growth. Furthermore, changing internal software is difficult for Vitec s customers to do in their niche markets, making Vitec s offering sticky and enabling it to generate stable revenue streams ahead. Risks There is a risk of larger customers developing their own software due to weak maintenance and development from Vitec s side. As software becomes easier to develop, a future risk is found in start-ups developing similar software that could be easier for customers to implement. Additionally, some of the markets in which Vitec operates are experiencing lower growth, potentially dampening the organic growth for the group. Geographical breakdown 2017, sales, SEKm Business area breakdown 2017, sales, SEKm Sweden Denmark Finland Norway Real Estate Health & Education Auto Finance & Insurance Sales Sales EPS estimate changes, 2018e, SEK EPS estimate changes, 2019e, SEK ABGSC FactSet Consensus Mean Source: ABG Sundal Collier, FactSet Quarterly sales and adj. EBIT, SEKm ABGSC Source: ABG Sundal Collier, FactSet FactSet Consensus Mean Company description Vitec's business idea is to acquire and develop market leading, vertical software companies in niche markets. These are normally restricted to certain geographies as the software can be hard to sell in some areas. The business strategy is a combination of making use of the M&A arbitrage from buying unlisted companies, rationalization and maximisation of current business, as well as geographical and market diversification. The company rather than the niche in which it operates is in focus when Vitec makes an acquisition. quarterly sales quarterly adj. EBIT 17 October 2018 ABG Sundal Collier 2

3 Estimates per division Finance & Insurance still expected to burden on group margin Sales per division Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18e Q4 18e e 2019e 2020e Estate Agent Real Estate Energy Finance & Insurance Health & Education Auto Waste Management Group EBIT per division Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18e Q4 18e e 2019e 2020e Estate Agent EBIT margin -0.3% 12.8% 2.3% 0.3% 14.9% 17.4% 3.0% 2.0% 4.0% 9.7% 4.0% 6.0% Real Estate EBIT margin 19.0% 17.1% 17.7% 14.0% 20.9% 17.2% 18.5% 19.0% 16.9% 18.9% 19.0% 19.0% Energy EBIT margin 32.8% 21.9% 32.2% 37.1% 40.9% 31.3% 33.0% 35.0% 31.1% 35.1% 35.0% 35.0% Finance & Insurance EBIT margin 22.8% 23.0% 11.9% 22.9% 11.7% 8.3% 8.0% 15.0% 20.4% 10.8% 14.0% 17.0% Health & Education EBIT margin 1.3% 6.3% 3.5% 11.8% -3.6% -2.6% 4.0% 10.0% 7.1% 3.0% 9.0% 9.5% Auto EBIT margin 12.4% 15.1% 13.3% 9.1% 14.9% 22.8% 13.5% 15.0% 12.4% 16.6% 15.5% 16.0% Waste Management EBIT margin 18.3% 18.4% 7.4% 5.4% 8.6% 9.6% 7.0% 8.0% 12.7% 8.4% 10.0% 12.0% Group EBIT margin 13.7% 16.1% 9.9% 12.6% 12.3% 12.4% 9.6% 12.8% 13.0% 11.8% 12.8% 13.8% Source: ABG Sundal Collier, company data 17 October 2018 ABG Sundal Collier 3

4 Income Statement (SEKm) Q Q Q Q Q Q Q3 2018e Q4 2018e Sales COGS Gross profit Other operating items EBITDA Depreciation on tangibles Depreciation on intangibles EBITA Goodwill impairment charges Other impairment and amortisation EBIT Interest Net Other financial items Associated income Other EO items Pretax profit Tax Net profit Minority interest Net profit discontinued Net profit to shareholders EPS EPS Adj Total extraordinary items after tax Tax rate (%) Gross margin (%) EBITDA margin (%) EBITA margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) Growth rates Y/Y Q Q Q Q Q Q Q3 2018e Q4 2018e Sales growth (%) EBITDA growth (%) EBIT growth (%) Net profit growth (%) EPS growth (%) Adj earnings numbers Q Q Q Q Q Q Q3 2018e Q4 2018e EBITDA Adj EBITDA Adj margin (%) EBITA Adj EBITA Adj margin (%) EBIT Adj EBIT Adj margin (%) Pretax profit Adj Net profit Adj Net profit to shareholders Adj Net Adj margin (%) October 2018 ABG Sundal Collier 4

5 Income Statement (SEKm) e 2019e 2020e Sales ,021 1,045 COGS Gross profit ,021 1,045 Other operating items EBITDA Depreciation on tangibles Depreciation on intangibles EBITA Goodwill impairment charges Other impairment and amortisation EBIT Interest Net Other financial items Associated income Other EO items Pretax profit Tax Net profit Minority interest Net profit discontinued Net profit to shareholders EPS EPS Adj Total extraordinary items after tax Tax rate (%) Gross margin (%) EBITDA margin (%) EBITA margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) Growth rates Y/Y e 2019e 2020e Sales growth (%) na EBITDA growth (%) high EBIT growth (%) high Net profit growth (%) high EPS growth (%) high Profitability e 2019e 2020e ROE (%) ROE Adj (%) ROCE (%) ROCE Adj(%) ROIC (%) ROIC Adj (%) Adj earnings numbers e 2019e 2020e EBITDA Adj EBITDA Adj margin (%) EBITA Adj EBITA Adj margin (%) EBIT Adj EBIT Adj margin (%) Pretax profit Adj Net profit Adj Net profit to shareholders Adj Net Adj margin (%) October 2018 ABG Sundal Collier 5

6 Cash Flow Statement (SEKm) e 2019e 2020e EBITDA Net financial items Paid tax Non-cash items Cash flow before change in WC Change in WC Operating cash flow CAPEX tangible fixed assets CAPEX intangible fixed assets Acquisitions and disposals Free cash flow Dividend paid Share issues and buybacks Other non cash items Decrease in net IB debt Balance Sheet (SEKm) e 2019e 2020e Goodwill Indefinite intangible assets Definite intangible assets Tangible fixed assets Other fixed assets Fixed assets ,178 1,156 1,131 Inventories Receivables Other current assets Cash and liquid assets Total assets ,097 1,262 1,466 1,473 1,474 Shareholders equity Minority Total equity Long-term debt Pension debt Convertible debt Deferred tax Other long-term liabilities Short-term debt Accounts payable Other current liabilities Total liabilities and equity ,097 1,262 1,466 1,473 1,474 Net IB debt Net IB debt excl. pension debt Capital invested Working capital EV breakdown e 2019e 2020e Market cap. diluted (m) ,238 2,253 2,596 2,363 2,363 2,363 Net IB debt Adj Market value of minority Reversal of shares and participations Reversal of conv. debt assumed equity EV ,412 2,550 2,936 2,813 2,735 2,644 Capital efficiency (%) e 2019e 2020e Total assets turnover (%) Capital invested turnover (%) Capital employed turnover (%) Inventories/sales (%) Customer advances/sales (%) Payables/sales (%) Working capital/sales (%) Financial risk and debt service e 2019e 2020e Net debt/equity (%) Net debt/market cap (%) Equity ratio (%) Net IB debt adj./equity (%) Current ratio (%) EBITDA/net interest (%) 2, , , , , , , , , ,670.2 Net IB debt/ebitda (%) Interest cover (%) 1, , , , , , October 2018 ABG Sundal Collier 6

7 Valuation and Ratios (SEKm) e 2019e 2020e Shares outstanding adj Fully diluted shares Adj EPS Dividend per share Adj EPS Adj BVPS BVPS Adj Net IB debt / share Share price Market cap. (m) ,205 2,219 2,558 2,333 2,333 2,333 Valuation e 2019e 2020e P/E EV/sales EV/EBITDA EV/EBITA EV/EBIT Dividend yield (%) FCF yield (%) P/BVPS P/BVPS Adj P/E Adj EV/EBITDA Adj EV/EBITA Adj EV/EBIT Adj EV/cap. employed Investment ratios e 2019e 2020e Capex/sales Capex/depreciation Capex tangibles/tangible fixed assets Capex intangibles/definite intangibles Depreciation on intangibles/definite intan Depreciation on tangibles/tangibles October 2018 ABG Sundal Collier 7

8 w ssss Vitec Analyst certification I/We, Stefan Knutsson, the author(s) of this report, certify that not withstanding the existence of any such potential conflicts of interests referred to below, the views expressed in this report accurately reflect my/our personal view about the companies and securities covered in this report. Analyst valuation methods ABG Sundal Collier analysts may publish valuation ranges for stocks covered under Company Sponsored Research. These valuation ranges rely on various valuation methods. One of the most frequently used methods is the valuation of a company by calculation of that company's discounted cash flow (DCF). Another valuation method is the analysis of a company's return on capital employed relative to its cost of capital. Finally, the analysts may analyse various valuation multiples (e.g. the P/E multiples and the EV/EBITDA multiples) relative to global industry peers. In special cases, particularly for property companies and investment companies, the ratio of price to net asset value is considered. Valuation ranges may be changed when earnings and cash flow forecasts are changed. They may also be changed when the underlying value of a company's assets changes (in the cases of investment companies, property companies or insurance companies) or when factors impacting the required rate of return change. Important Company Specific Disclosure The following disclosures relate to the relationship between ABG Sundal Collier and its affiliates and the companies covered by ABG Sundal Collier referred to in this research report. 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ABG Sundal Collier has undertaken a contractual obligation to issue this report and receives predetermined compensation from the company covered in this report. mo ABG Sundal Collier is engaged in providing liquidity in Vitec s securities at the time of this report s publication. mo ABG Sundal Collier is not aware of any other actual, material conflicts of interest of the analyst or ABG Sundal Collier of which the analyst knows or has reason to know at the time of the publication of this report. Production of report: 17/10/ :00 CET. All prices are as of market close on 16 October, 2018 unless otherwise noted. Disclaimer This document has been prepared by ABG Sundal Collier which is the marketing name referring to all or any of ABG Sundal Collier ASA, ABG Sundal Collier AB or ABG Sundal Collier Partners LLP and any of their affiliated or associated companies and their directors, officers, representatives and employees. 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10 ABGSC Research Department Joint Global Head of Research John Olaisen Christer Linde Head of Introduce /Company-sponsored research Arash Hakimi Fard Strategy Christer Linde, Quant/Technical Derek Laliberte Bengt Jonassen Capital Goods Anders Idborg Olof Cederholm Karl Bokvist Chemicals Martin Melbye Bengt Jonassen Petter Nyström Glenn Kringhaug Construction & Real Estate Tobias Kaj Bengt Jonassen Philip Hallberg Glenn Kringhaug Laurits Louis Kjaergaard Consumer Goods Andreas Lundberg Petter Nyström Michael Vitfell-Rasmussen Ludvig Kapanen Credit Research Alexander Jost Rikard Magnus Braaten Andreas Johannessen Haakon Amundsen Eric Wahlström Financials Magnus Andersson Mads Thinggaard Patrik Brattelius Jan Erik Gjerland Jonas Bru Lien Food & Beverages Michael Vitfell-Rasmussen Healthcare Morten Larsen Sten Gustafsson Christopher W. Uhde Daniel Thorsson Andrew Carlsen Glenn Kringhaug lnvestment Companies Derek Laliberte IT Aksel Øverland Engebakken Daniel Thorsson Andrew Carlsen Simon Granath Metals & Mining Martin Melbye Bengt Jonassen Petter Nyström Oil & Gas John Olaisen Karl Fredrik Schjøtt-Pedersen Oil Service John Olaisen Haakon Amundsen Lukas Daul Karl Fredrik Schjøtt-Pedersen Online Gaming Aksel Øverland Engebakken Erik Moberg Stefan Knutsson Pulp & Paper Martin Melbye Glenn Kringhaug Øystein Elton Lodgaard Renewable Energy Casper Blom Petter Nyström Retail Andreas Lundberg Ludvig Kapanen Seafood Vidar Strat Services Andreas Lundberg Michael Vitfell-Rasmussen Victor Forssell Shipping & Transport Dennis Anghelopoulos Casper Blom Lukas Daul Telecom Operators Peter Kurt Nielsen Utilities Martin Melbye Petter Nyström Small Caps Andrew Carlsen Arash Hakimi Fard Emmi Östlund Daniel Thorsson Johan Nilsson Wall Laurits Louis Kjaergaard Media Aksel Øverland Engebakken Derek Laliberte Andreas Lundberg Norway Sweden Denmark United Kingdom USA Germany Singapore Pb Vika Box 7269 Forbindelsesvej 12, 10 Paternoster Row, 5th fl 850 Third Avenue, Suite 9-C Schillerstrasse 2, 5. OG 10 Collyer Quay NO-0115 OSLO Norway SE STOCKHOLM Sweden DK-2100 COPENHAGEN Denmark LONDON EC4M 7EJ UK NEW YORK, NY USA DE FRANKFURT Germany Ocean Financial Center #40-07, Singapore Tel: Tel: Tel: Tel: Tel Tel Tel Fax: Fax: Fax: Fax: Fax Fax October 2018 ABG Sundal Collier 10