ELANA AGROCREDIT INDUSTRY: FINANCIAL LEASING/AGRICULTURE HOLD STEADY, SOUND, PREDICTABLE EQUITY RESEARCH BULGARIA DATE: NOVEMBER 7, 2018

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1 in BGN millions EQUITY RESEARCH BULGARIA ELANA AGROCREDIT INDUSTRY: FINANCIAL LEASING/AGRICULTURE STEADY, SOUND, PREDICTABLE WITH INVESTMENTS OF CA. BGN 6M SINCE INCEPTION AND FAVORABLE LEASING CONDITIONS, ELANA AGROCREDIT S LEAN BUSINESS MODEL IS SUCCESSFULLY FINANCING SMALL FARMERS. WITH STRONG DEMAND FOR LAND AND EXPECTED ONGOING LAND APPRECIATION IN BULGARIA, IT IS SET FOR GROWTH, AT THE SAME TIME DELIVERING HIGHER THAN MARKET S AVERAGE YIELDS FOR ITS INVESTORS. HOLD ONE YEAR PRICE TARGET: BGN 1.4 CURRENT PRICE: BGN 1.17 LEAN BUSINESS MODEL operates a lean business model extending lease financing to local small to mid-sized farmers for agricultural land purchases. Leases are due up to 1 years, with % down payment, the acquired land serving as collateral. The latter limits default rates downsides as land is disposed of straight away in case of default with the down payment acting as a loss cushion. The Company also extends short-term working capital loans, thus profiting on its clients ongoing farming needs (fertilizers, seeds, etc.). GROWING MARKET AND DEMAND FOR LAND Current market is driven by demand from farmers as land prices are appreciating much faster compared to rents, making land purchase a preferred option for farmers. Additionally, intensive farming and return to forgotten, yet traditional for Bulgaria crops such as etheric and bean crops (areas dominated mainly by smaller farmers), will further drive s growth in the upcoming years. FRESH CAPITAL TO FINANCE GROWTH With business expanding fast and with invested funds verging ca. BGN 6m as at Q3 18 end, successfully raised BGN 19.5m in an SPO in Apr 18, to further its development as planned. The fresh capital will enable the Company to boost its growth, with proceeds to be fully invested by mid-19. Looking ahead, it is to follow a lean financing scheme with debt financing backing up growth till 1 before the next capital hike. Management guidance points to financing deals for BGN 15-18m per year until 3. DELIVERING HIGHER THAN MARKET S AVERAGE RETURN FOR SHAREHOLDERS s structure mirrors REIT, ensuring a guaranteed annual dividend return, distributing 9% of annual profits. Paying average BGN.7 per share, the Company is in top 3 in terms of dividend yield, delivering 7.7% dividend yield in 17, and 4.7% on average for the past 5 years. After having almost doubled its capital, the Company is expected to distribute ca. BGN.54 DPS in 18, with projections for 19 and pointing to BGN.69 and BGN.88 DPS, which at current quotes yields 6% to 7%. EXPERIENCED MANAGEMENT TEAM The Company is managed by the experienced team of the biggest land REIT in Bulgaria ELARG that yielded 18% average annual return at liquidation. VALUATION/RISKS VALUATION: We decrease our previous valuation from BGN 1.3 to BGN 1.4 per share based on an equally weighted DDM and RI models. This entails about 6% upside to current quotes which give us comfort to reiterate our HOLD recommendation. RISKS: Weather conditions to impact farmers credit quality; New players entering the market; Lack of high quality land supply. EXCHANGE RATES EUR/BGN (FIXED): USD/BGN: MARKET DATA Shares Outstanding: 36.6 m Share Capital: 36.6 m Free-float: 69% Market Cap.: BGN 43m Avg. Daily Vol.: BGN 19, 5 Weeks Range: BGN BSE Ticker EA Bloomberg Ticker EA BU 6% CAGR OF NET INCOME OVER THE NEXT 5 YEARS ACHIEVABLE Source: Company Data, Elana Trading estimates in kbgn, excl. ratios F 19F OUTPACING THE MARKET Revenues Net profit Total Assets Financed land (ha) Total Debt Equity ROE 5.% 8.56% 7.9% 4.5% 95 Debt/Equity 88% 19% 61% 81% Net profit margin 5% 43% 44% 46% 9 EPS DPS P/B Payout ratio 9% 9% 9% 9% Dividend yield 5.37% 7.4% 4.6% 5.85% Source: Bloomberg F 19F Revenues EA BU Net income SOFIX Index ELANA TRADING DOES AND SEEKS TO DO BUSINESS WITH COMPANIES COVERED IN ITS RESEARCH REPORTS. AS A RESULT, INVESTORS SHOULD BE AWARE THAT ELANA TRADING MAY HAVE A CONFLICT OF INTEREST THAT COULD AFFECT THE OBJECTIVITY OF THIS REPORT. INVESTORS SHOULD CONSIDER THIS REPORT AS ONLY A SINGLE FACTOR IN MAKING THEIR INVESTMENT DECISION. PLEASE SEE DISCLOSURE INFORMATION ON P.1 OF THIS RESEARCH. Analysts Contacts: Natalie Ilcheva Research Team ilcheva@elana.net research@elana.net

2 EXECUTIVE SUMMARY WE KEEP OUR HOLD RECOMMENDATION AND DECREASE OUR ONE YEAR PRICE TARGET TO BGN 1.4 PER SHARE WHICH PROVIDES ABOUT 6% UPSIDE OVER THE NEXT 1 MONTHS. THE COMPANY (the Company) is the first and so far the only company in Bulgaria specialized in financial leasing for agricultural land acquisition. It was created in 13 by the team at ELANA that in 5 started the first and biggest of its time REIT for agricultural land in Bulgaria ELARG. ELARG was liquidated in 13, yielding an 18% average annual return. is registered as a joint stock company but is run as a REIT. The Company s Articles of Association stipulate it will distribute 9% of profits, thus offering the most lucrative REIT feature current income. Business Model: Elana Agrocredit operates a lean business model financing farmers to buy rather than rent arable land. It is a leasing company focused on financing farmers to buy land and fund their operations. It taps on the local farmers goal to increase the land they own as farming in Bulgaria enters a new more sustainable level of development due to the steady land price appreciation, increased EU funding for the sector and firmer orientation towards intensive farming. The Company extends long term lease contracts (up to 1 years) at a fixed interest, % down payment and a fixed annual BGN 5 per decare management fee paid by the lessees. keeps the land as collateral, thus significantly limiting the default rate negatives as it can easily dispose of the collateral with a % buffer to the disposal price. The Company targets smaller to mid-sized farmers (5 to 15 ha) as they would be able and willing to get financing to purchase more land. Current 14- EU agricultural funding scheme targets smaller and younger farmers as well as overlooked agricultural products thus encouraging the former to buy rather than rent land. In addition, the 14- funding is twice the 7-13 subsidies. Post-, the Common Agriculture Policy envisions a triple decrease in the ceiling for subsidies received by one farmer, the latter allowing higher number of small farmers to tap into subsidies and finance their land needs, among others. Furthermore, started extending short term (1 year) working capital loans for fertilizers, seeds and other necessities the farmers need during the agricultural year. Working capital loans per farmer are limited to the principal payments on their leases thus, tapping additional interest income on the recycled investment funds. Since inception, the Company has invested ca. BGN 6m at an average price of BGN 8 per dca with its portfolio ensuring collateral of 84k dca of land (8.3k ha). The company more than 6 deals with average deal size of BGN 6k and average 3 dca per deal. Its working capital loan portfolio stood at BGN 8.8m as at the end of Q3 18. All leasing and credit activity are especially arranged to be in line with agricultural year allowing farmers to pay interest and principal once per annum at the end of the agricultural year mid September. Funding: finances its activities by both equity and debt, with an obligation to keep a maximum :1 debt-toequity ratio. Since inception is has raised BGN 5.1m in an Initial Public Offering on the Bulgarian stock Exchange in Nov.13 and another BGN 14m in a secondary capital raise in Apr 15. The European Bank for Reconstruction and Development has also extended a EUR 1m loan on four equal tranches of EUR.5m each with all tranches having been invested as at the end of Sep 18. In addition, Societe General extended a BGN 1m revolving credit facility. In 17, the Company also issued a 63-month EUR 5.6m at 3.% bond. In Apr 18, it successfully raised BGN 19.5m which will cover the Company s financing needs by mid-19. is registered with the Bulgarian National Bank as a leasing company. It has good corporate governance, publishes financial reports and monthly newsletters in English. Distributes 9% of profits. THE COUNTRY AND THE MARKET Bulgaria is under a currency board and the Bulgarian Lev is pegged to the Euro at fixed rate of Joining the Eurozone is a midterm strategic goal. The current political situation is stable, with no political surprises expected in the short term, yet mid to long term turbulences are possible as structural reforms remain on the agenda. The Bulgarian economy booked 3.6% y/y real GDP growth in 17, 18 consensus estimates point to 3.8% y/y GDP growth. Unemployment is at its lowest level in 9 years, disposable income rising fast. EU third lowest debt level with government debt in 17 standing at 5.4% of GDP. The land market has been witnessing a steady growth, with CAGR of agricultural land price reaching 18% for the past seven years, with a trend for a more balanced 5-7% CAGR growth to be expected in the upcoming five years. Furthermore, the years of speculative land trading spurred by EU accession and its land subsidies, have already faded away. Currently, we are witnessing strong to stable demand for land on part of small to mid-size farmers. The latter trend is expected to persist in the midterm. THE VALUATION We use the dividend discount and residual income models to value and we arrive at a BGN 1.4 fair value per share or about 6% above the current market quotes. SOME RISKS Extreme unfavorable weather conditions may limit farmers ability to repay leases and demand for land. Lacking supply of high quality land may limit the number of contracted deals. New players entering the market, including existing leasing companies entering the segment which they have overlooked so far due to lack of experience and unsuitable collateral requirements towards potential lessees. - -

3 COMPANY OVERVIEW is so far the only financial institution specialized in extending leases for the acquisition of agricultural land. Local banks provide such financing but at a much more complex model. Contrary to banks, the Company operates via a broker network which works very closely with farmers. Brokers cover 3 of 8 districts in the country. The Company structures leases to reflect farmers business cycle i.e. lease interest and principal is paid once a year in mid-september when farmers have gathered and sold their crops and thus have cash. As at the end of Q3 18, s invested capital amounted to ca. BGN 6m for the acquisition of 84k dca. It has also expanded the geographical allocation of the financed plots from Northern to Southern Bulgaria including overlooked but well subsidized new arable and meadow areas in the country. Expansion was feasible as the new 14- EU agricultural funding scheme kicked in 15 and started subsidizing so far overlooked areas, crops and farming activities. Current subsidies favor smaller farmers as well as broader agricultural products rather than bigger farmers and cereals as it was during the 7-13 EU program period. Post- smaller farmers are expected to remain a priority. In addition, finances the purchase of permanent crops agricultural land. Going forward the Company envisions extending lease financing for other farming investments as new irrigation systems and/or new agricultural machinery and equipment. The only financial institution to target smaller farmers for land purchase SHAREHOLDERS SRUCTURE Following a BGN 19.5m capital increase in Apr 18, almost doubled its capital to 36.6 million shares. The latter are distributed among local institutional and individual investors, with only two entities exceeding 1%. In order to achieve its investment objectives, the Company will perform another capital increase in mid-1, aiming to boost its capital by 5%. Key shareholders (as at the end of Q3 18) are three of the biggest local pension and asset managers in Bulgaria. These include pension funds of Allianz, Doverie and NN Bulgaria. The latter three, together with sophisticated investors own ca. 4% of the share capital. The rest is free float. Chemax Pharma; 6.44% Allianz; 1.3% Doverie; 1.3% NN Bulgaria; 7.98% Outstanding shares: Mandzhukov Ltd; 5.83% Free float; 59.13% MANAGING COMPANY Agromanagement, owned by ELANA Holding, is s managing company. Shareholders have entitled it with a quarterly and an annual fee. The quarterly fee is based on actual funds invested payable in four installments at the end of each quarter calculated as follows: BGN % of the excess of investments over BGN m when invested funds are over BGN m. The annual fee is a performance based fee (success fee) and is equal to % of any profits in excess of a 3% hurdle rate each year (calculated on an earnings-before-taxes-basis). No success fee is owed to Agromanagement if the realized profit before taxes over the Company s base capital is less than 3%. In addition, collects a yearly BGN 5 per dca for servicing leasing contracts, half of which is paid to Agromanagement after a shareholders vote in 17. 3% annual hurdle rate for the managing company POTENTIAL CATALYSTS GROWING LAND MARKET: After experiencing a fast land price appreciation around Bulgaria s EU accession (18% CAGR over the last 7 years) due to large speculative land investors, we expect the local land market to continue growing at a conservative 5-7% CAGR until. Land rents increasing slower than land prices will push more farmers to own rather than rent the continuously appreciating asset. Furthermore, the pressing need for improvements in agricultural irrigation systems will not be met until the acquisition of land plots happen. HIGHER FARMERS DEMAND FOR LAND: With practically all available agricultural land currently in use, farmers are betting on investment in better land exploitation, namely intensive farming. The latter can be achieved by long-term planning, which includes investment in land. In addition, new Common Agricultural Policy (CAP) post- would stimulate land demand. The 1-7 CAP envisions a threefold decrease in the ceiling for subsidies received per farmer from EUR 3k to EUR 1k. The latter would further encourage small farmers seeking to acquire plots in order to focus on growing permanent crops. This would boost s deal number and expand top and bottom lines

4 SECTOR OVERVIEW LAND MARKET The land market in Bulgaria underwent a drastic change in the last 5 years. In the 199s, after the fall of the communist regime, it went through a tough restitution process leaving land highly fragmented and in the hands of millions of individual owners who did not have the willingness and/or the ability to cultivate it. Currently, ca. 83% of land holdings in the country are of a ha size or less compared to the EU average of ca. 5%, according to data from the European Commission (EC). At the same time, land prices in Bulgaria are 3x below EU average even after taking into account the huge difference between member-state s land markets. Nevertheless, land prices have been on the rise since Bulgaria started its EU entrance process mainly due to anticipated EU agricultural subsidies. Prices increased more than five-fold for the past 17 years, rising from BGN 137/dca in to BGN 87/dca in 17, registering 11% CAGR, according to national statistics. In the past five years alone, added 5%. Still, official statistics differ significantly from real market prices as official deals are struck below market price to avoid administrative and tax burdens. Additionally, land prices differ much depending on the region s fertility reaching as high as BGN 15/dca in the most fertile region of the country - the Northeast. Land consolidation has also been on an ascent since the beginning of the s, encouraged also by high economic growth, good agricultural output and rising land rents. Accordingly, over the last decade small land holdings declined by half while holdings of 1ha+ have doubled. Still, the latter represent less than % of all land holdings, data further reveals. Historically land demand came from local farmers which took part in 9-95% of the land transactions. Speculative institutional investors became active in the years right before and just after Bulgaria joined the EU in 7 accumulating large land portfolios of K+ ha at attractive prices. This wave drove up both the number of transactions and the amount of transacted land. As a result, between 5 and 9 the number of deals exceeded 5. Overall, as speculative players accumulated large chunks of land (c.5% of usable agricultural land), they became takeover targets as in the cases of ELARG, Agro Finance REIT and Seres with total land portfolio of 6K+ ha. They were bought out in the period of 1-13 by large local industrial conglomerates driving transaction numbers further up. Gone are the days of speculative agricultural land purchases as local farmers have returned as the major land demand drivers. In the next decade, we expect to see farmers dominating the land market again both in terms of the number and size of land transactions. The number of deals has subdued from the extremes since 13 to a more moderate 15- per year, adding 5% CAGR in the next decade. Still, demand could be expected to remain strong to stable as Bulgarian farmers have a long way to go compared to average EU farmers who own 5% of the lands they farm. For Bulgaria this percentage is below %. The new EU funding for the agricultural sector for the period 14- will reach EUR 5.6bn which is twice the money for direct agricultural payments in the previous 7-13 program period. In the upcoming -7 period, EU subsidies are about to be cut in most of the European countries. However, the decrease for Bulgaria is estimated to be below 1%, thus expected subsidies for the country would most probably stay close to the same level - ca. EUR 8m per year throughout 1-7 period. A positive change will be the expected cut in the ceiling for received subsidy per farmer. The current EUR 3 per year per farmer ceiling is proposed to drop to EUR 1 per year per farmer in the next programming period. More than 8% of land holdings are less than ha in size 11% CAGR of land prices in the past 17 years Exhibit 1: Land prices to enter a steadier 5% annual growth period with land demand dominated by farmers Exhibit : Number of land transactions are stabilizing to prespeculative wave levels of 1k to 3k % 43% 4% 37% 35% 3% 5% % 15% 15% 15% 1% 6% 9% 7% 5% 5% 4% 5% % F 19F Source: National Statistics Institute (NSI) Source: NSI - 4 -

5 in BGN in EUR millions Exhibit 3: Agricultural direct payments for Bulgaria expected to keep close to current level post- Exhibit 4: Land consolidation is on the increase, both in terms of land and economic output % 1.33% 1.44% 3.3% 4.1% 6.84% < EUR >= < 4 EUR >= 4 < 8 EUR >= 8 < 15 EUR % 17.39% 5.18% >= 15 < 5 EUR >= 5 < 5 EUR >= 5 < 1 EUR >= 1 < 5 EUR >= 5 EUR Source: European Parliament Source: Ministry of Agriculture, Food and Forestry (MAFF), 16 data Exhibit 5: Land prices in most fertile districts in Northeastern Bulgaria exceeding the country average NW-Northwestern Bulgaira; NC-Northcentral; NE-Northeastern; SE-Southeastern; SW-Southwestern; SC-Southcentral Average agricultural land price by municipalities in 17, BGN per dca Source: NSI, 17 data Exhibit 6: Return on investment in agricultural land steadily decreasing Exhibit 7: as rents growth is lagging behind growth in price per dca (in BGN) % 8.4% % % 38 7.% % 5.74% % 6.% 6.% 5.8% 6.4% 3 5.% 4.% 3.%.% 1.%.% % 4% 35% 3% 5% % 15% 1% 5% % Average rent per dca (in BGN) Average return on investment in agricultural land Average price per dca y/y growth in price per dca Average rent per dca y/y growth in rent per dca Source: NSI Source: NSI ELANA AGROCREDIT S MARKET PRESENCE s presence on the Bulgarian land market is sensible with ca. BGN 6m invested in 6+ deals for 8.4k ha of land as well as on the financial market with a current portfolio exceeding BGN 5m of both land leasing (8% of portfolio) and short-term loans (18% of portfolio). On the land market, the company targets smaller farmers but also finances secondary market deals between farmers and the major speculative players with 3K+ ha of land each mostly SPVs as Advance Terrafund (6A6 BU) but also major industrial groups (i.e. Rompharm Company, Agrion Invest, etc.). As a first comer and with the previous management experience on the market, ELANA Agrocredit has also a considerable advantage to big financial institutions and leasing companies in building an extensive lease portfolio. Experience with farmers and landlords allows the Company to be fast and flexible and work out a deal in a day. Thus, it competes Niche, fast and flexible financial player, developing own market - 5 -

6 in BGN millions in thousand hectares with banks only on price. Banks will be slow to eat out market share due to bureaucracy and higher collateral requirements towards smaller to mid-sized farmers that they also consider riskier. Competition has entered the market from major land owners who want to tap on higher returns with selling land with deferred payments. Advance Terrafund (6A6 BU) started leasing its land in 15 but less favorable requirements on leases so far limit their realized deal volumes. Since the beginning of 18, however, Advance Terrafund has registered very few deals, selling a total of 16 dca of agricultural land. Exhibit 8: Invested capital delivering an average ROIC of 5% Exhibit 9: as land financing is steadily on the increase 5 7.% % 5.98% 6.% 5.% 4.75% 4.% 3.36% 3.%.% 1.%.% Invested capital ROIC Land financed in previous years New portfolio for the year Source: Company data Source: Company data FINANCIAL ANALYSIS AND VALUATION s lean model has helped it more than quintuple in size (portfolio and lending volume) as at mid-18 and could easily achieve another doubling by 3 as more debt and equity financing are planned to fuel its increasing growth, at the same time keeping leverage in check, staying within the maximum band of :1 debt to equity ratio. The Company s unique structure, simple and flexible operations allow it to reap more than twice the interest income achieved by local financial institutions much bigger than ELANA Agrocredit in size. At the same time the mandatory dividend distribution provides a lucrative, steady and predictable regular investor return. Thus, offers an attractive investment opportunity for long term investors looking for steady dividend returns and modest capital gains. Currently, the stock is traded above its book value, at BGN Lucrative, steady, predictable return via dividends ANALYSIS OF FINANCIAL PERFORMANCE Since inception and IPO-ing in mid-13, went through a couple of capital increases in 15 and 18. Additionally, using some leverage from EBRD and Societe Generale, as at the end of H1 18 it has invested a total of ca. BGN 6m in land leases, in 6+ deals for 8.4k ha of land. Post-15 the Company started diversifying via short term working capital loans to existing credible clients. Since its 15 capital increase, the Company has been growing by taking on debt drawing EUR 1m from EBRD, using a BGN 1m revolving credit facility from Societe Gebnerale and issuing a 63-month EUR 5.6m at 3.% bond. After growing its investments at more than 5% CAGR for the past three years by considerable amount of debt, in the beginning of 18, conducted a second capital increase raising BGN 19.5m. The latter is in accordance with the Company s business plan to keep a maximum debt-to-capital ratio of :1. The proceeds from the SPO are expected to be fully invested by the end of Apr 19. After that, we expect ELANA Agrocredit to take on additional leverage in order to accelerate its lending activity and fall within its debt-to-equity bounds. As a result, a considerable increase in D/E ratio is to be expected, the latter verging on 1% as at end of before a new equity issue is seen through in mid-1. In 17, revenues added 6% y/y to BGN 4.m, with to BGN 3.7m or 88% coming from interest income earned on leasing contracts. The other 1% was generated from management fees on land fixed at BGN 5 per dca annually. During 17, managed to effectively collect 98.4%, which entails only 1.6% default rate. Single digit lease defaults can be expected as a norm going forward. However, we do not incorporate it in our valuation as any defaults would affect the Company more on the upside due to the % down payment on all leases that limits the downside Interest income from both leasing and short-term loan activity to drive revenue - 6 -

7 in BGN millions in thousands of hectares risk. Any lease payment late 3 days+ is considered defaulted and the Company can sell the land left as collateral. The % down payment acts as a buffer at disposal vs. market prices thus adding to profitability. Interest income to remain key revenue source both on leasing and working capital loans. The Company s lean model allows it to tap x the average interest margin of 4% of local financial institutions based on experience and well specified target. We expect interest margin to stay in the 8% to 6% range. The company started operations by extending an approximately BGN m leasing portfolio at 1% interest on low D/E. In 15, it started lowering the rate charged on leasing and loans. As of 16 it charges 8.5% for all new leasing contracts. This should allow it to strike an approximately 6% interest income margin over the next couple of years even with additional smaller downward pressure on rates. Prepayment risk currently remains low considering the smaller deal size and the fact that the Company targets small farmers who may not be able to prepay their debt. Still, to diminish any prepayment risk, the Company has 3% charge on the remaining principal. We base our forecasts on the assumption that going forward competition will be active which will force to lower the interest it charges farmers. In 14 and 15 it build a BGN m portfolio at 1% fixed interest rate but competition and interest environment led to the Company lowering rates in late 15. Currently, charges 8.5% on new lease contract. In our valuation we incorporate another rate decline by 5 bps further on as the Company already slashed rates considerably. Accordingly, we also expect cost of debt to start increasing from 19 given current European and local macro conditions. Profitability in 17 settled at 43% net income margin and we expect it to steadily increase in the next couple of years, averaging 5%. We also expect earnings per share to average at BGN.85 over the next five year period and dividends to follow at an average of BGN.75 per share. Accordingly, we expect ROE to be within the bounds of 7% to 9% on average for the forecasted period, considering a third capital hike in mid-1. Net income margin to average around 5% in the mid-term Exhibit 1: We expect revenues and net profit to almost double by compared to Exhibit 11: and land financed to reach 13k ha by F 19F F F 19F F Revenues Net income Land financed in previous years New portfolio for the year Source: Company data, Elana Trading estimates Source: Company data, Elana Trading estimates Exhibit 1: DPS to decrease in 18 due to this year s double capital hike yet surpass previous levels post 19 Exhibit 13: with debt-to-equity ratio slowly increasing towards 1 when next capital hike is planned, while ROE averaging ca. 7% Capital was almost doubled in Apr % 8.% 7.% 6.% 5.% 4.% 3.%.% 1.% 14% 1% 1% 8% 6% 4% % 8.8% 5.% 8.56% 7.6% 8.44% 4.47% 9.% 8.% 7.% 6.% 5.% 4.% 3.%.% 1.% F 19F F.% % F 19F F.% DPS (in BGN) Dividend yield (in %, right axis) Debt/equity ratio ROE (right axis) Source: Company data, Elana Trading estimates Source: Company data, Elana Trading estimates - 7 -

8 VALUATION OF ELANA AGROCREDIT To value we consider the Company s unique feature of distributing 9% of profits among shareholders. Thus, we conduct a dividend discount valuation model (DDM) together with a residual income model (RIM) valuation which we then weigh equally to arrive at a final fair value. Additionally, we value the Company s expected performance over the next five years in which we incorporate another capital hike in 1 as planned by Company s management. To arrive at future dividend payments we base our valuation on the Company s ability to invest on average BGN 16m in new leases which translates into an average of 1 9 ha per year for the next five years. We assume 5-7% annual land price increase over the forecasted period and 8.5% interest on new lease portfolio generated till and 8% interest on new portfolio generation going forward. We have revised downward our cost of equity estimate from 1% to 8% on average over the forecasted period. When running the DDM we also use a 3% terminal year sustainable dividend growth rate. When valuing by RIM, we accept that residual income will not fade in the long term. To arrive at a final fair value per share we combine the values derived from the DDM and the residual income model, assigning each a 5% weight. Thus, we control for the high sensitivity of DDM to terminal growth rate and terminal value s importance in the model. As a result, we value the stock at BGN 1.4 per share. COST OF EQUITY CALCULATION Risk free rate 1.8%.3%.8% 3.3% 3.8% Equity risk premium 7.7% 7.7% 7.7% 7.7% 7.7% Levered beta (in accordance with 's D/E ratio) COST OF EQUITY 6.86% 7.36% 7.86% 8.36% 8.86% DIVIDEND DISCOUNT MODEL (DDM) VALUATION BGN PER SHARE Terminal Year DPS PV of DPS Sum of PV of DPS.38 PV of Continuing Value.964 Fair value per share 1.9 RESIDUAL INCOME MODEL (RIM) VALUATION BGN PER SHARE Book Value Required return on equity 6.86% 7.36% 7.86% 8.36% 8.86% Equity charge EPS Residual income Terminal Year PV value Fair Value per share FINAL VALUATION DDM RIM Fair value per model (BGN) Weight 5% 5% Final fair value per share (BGN)

9 in thousands RECOMMENDATION AND PRICE TARGET The lean business model, flexibility, management experience and steady and predictable results support the long-term investment potential of Elana Agrocredit shares. Currently, the Company trades at a P/B of 1.1, but includes expected dividend of BGN.54. We are comfortable to keep our HOLD recommendation with a one year target price of BGN 1.4 for Elana Agrocredit as the Company has proved its ability to earn a steady, sound and predictable return on invested capital. The risk of underperformance as compared to other Bulgarian stocks is low as the Company has already built a sound portfolio. Nevertheless, any price decline below BGN 1.15 per share would be a good entry point for conservative long term investors. In terms of significant investors involved in our stock market, we share the following observations: Bulgarian institutional investors prefer the stock as it offers steady and predictable current income and moderate capital gains despite the reinvestment risk. Local sophisticated and individual investors prefer the stock for its forecasted good dividend income as an alternative to other cash management strategies. Recommendation: HOLD Target Price: BGN 1.4 Upside potential: 6% STOCK PRICE DYNAMICS Volume (# shares, left axis) Last Price (right axis, in BGN) Source: Bloomberg - 9 -

10 FINANCIAL DATA INCOME STATEMENT (IN ' BGN) F 19F F Interest Income Other revenue Total revenue Cost of Materials External services expenses Expenses for remuneration of managing company Depreciation Employee benefits expenses Other expenses Operating profit Financial revenues 7 Financial expenses Interest expense EBT Tax expense Net profit EPS BALANCE SHEET (IN ' BGN) F 19F F Cash & Cash Equivalents Finance lease receivables Loan receivables Other receivables Financial assets Current Assets Machines and equipment Intangible assets Finance lease receivables Non-Current Assets Total Assets Share capital Share premium reserves Legal reserves Retain earnings Total Equity Short-term borrowings (loans) Short-term borrowings (bonds) Tax liabilities Trade payables Advances received Other payables Payables to employees and social security Current Liabilities Long term bank borrowings Long term bond borrowing Noncurrent Liabilities Total Liabilities Total Shareholders Equity & Liabilities MARKET CAP IN BGN - PERIOD END: NUMBER OF SHARES: PRICE IN BGN - PERIOD END: Price as at the end of Q

11 FINANCIAL PERFORMANCE INDICATORS F 19F F Valuation P/B BVPS Profitability EPS Net Income Margin 5% 43% 44% 46% 49% EBIT Margin 68% 7% 71% 74% 7% ROE 5.% 8.56% 7.9% 4.5% 8.48% ROA 4.13% 3.69% 3.31% 3.66% 3.89% Dividend DPS Dividend Yield 5.37% 7.4% 4.6% 5.85% 7.5% Dividend Payout 94% 9% 9% 9% 9.% Liquidity Current Ratio Cash Ratio Credit Debt/Equity 88% 19% 61% 81% 113% Debt/Assets 46.39% 55.93% 37.37% 44.6% 5.43%

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Financial Interest: ELANA trading does and seeks to do business with companies covered in its research reports. This may and includes investment banking services for which ELANA Trading shall be remunerated. ELANA Trading may trade or own shares of the analyzed companies. The research analyst(s) is not holding shares of the analyzed companies, unless otherwise noted. As a result, investors should be aware that ЕLANA trading may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Regulatory Authority: Financial Supervisory Commission, Budapest Street 16, 1 Sofia, Bulgaria Information Disclosure: All reasonable care has been taken to ensure the facts stated are accurate and opinions given are fair and reasonable. 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ELANA Trading reserves the right to express different or contrary recommendations and opinions for different timescales or for other types of investment client. Except as otherwise noted, expected performance over next 1 months vary for different recommendations for Bulgarian stocks as follows: BUY HOLD SELL Target price is more than 1% above current quotes Target price in +/-1% range of the current quotes Target price is more than 1% below the current quotes Frequency of Recommendations: No schedule of recommendations is available. The frequency of recommendations depends on specific factors to individual companies and the opinion of the analyst(s) for the necessity of minor or major changes. Q3 18 Recommendation Review Market Maker Services Recommendation # Share BUY 5 31% SKK BU; 4KX BU HOLD 11 69% SELL % Copyrights: The copyrights of ELANA Trading analyses belong to the Research Department of the brokerage and their content cannot be used for commercial purposes. Replication and redistribution of ELANA Trading analyses content is expressly prohibited without the prior written consent of the appointed contacts listed below. For more information, please contact: Research Analyst Phone: Internet: Natalie Ilcheva ilcheva@elana.net Research Team research@elana.net