2014 E 2015 E 2016 E 2017 E

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1 Equity Research 4 December 2014 Interpump Group Hydraulics M&A may power growth Rating BUY Target price EUR13 Interpump is up 25% since the beginning of the year, bolstered by strong interim results and subsequent upward earnings revisions coupled with positive momentum from new acquisitions in the hydraulics space. We update our model after the Q3 release and confirm our Buy rating with a target price of EUR13 per share. External M&A the bridge to 2017 Earlier this year the company stated that external growth would help reach its goal of EUR1bn in revenues by 2017 on an investment of about EUR200m. A proven M&A track record leads us to believe management is committed to accomplishing this objective; we expect a new hydraulics deal soon. Valuable business mix Q3 results have reinforced our confidence in the company s valuable business mix. The hydraulics sector now accounts for 59% of sales (up from 52% last year after the full consolidation of Hydrocontrol and IMM Hydraulics) and is expected to reach 70% by External growth has driven hydraulics EBITDA margin above 18% (from 14% last year), compared with 24% for the waterjetting division. This recovery is set to continue, in our view. We confirm our EUR13 target price: Buy In our 20 March report we raised our target price from EUR10.5 to EUR13 on expectations of improved operating margin backed by integration of acquisitions and synergies from rationalisation of production. We also assumed that M&A would be a key driver in reaching EUR1bn sales by With these two catalysts (M&A and margin recovery) continuing to underpin our investment case, we expect the stock to continue to outperform the market. Buy. Luigi Padula luigi.padula@ hammer-partners.com Pan-European Sales Desk sales@ hammer-partners.com Key Financial&ratios (EUR/m) 2014 E 2015 E 2016 E 2017 E Total revenue Revenue Growth % 18.5% 22.4% 19.1% 4.5% EBITDA EBITDA margin % 20.2% 22.4% 21.9% 21.8% EPS P/E (x) EV/EBITDA (x) Net Debt/EBITDA (x) Closing price EUR11.23 Market cap EUR1.2bn Bloomberg IP IM 1

2 Our DCF without M&A: target price EUR12 In our first exercise we assume that Interpump fails to implement its external growth strategy, but that it can continue to drive and maintain EBITDA margin above 20% by pursuing the efficiencies and cost-containment delivered in recent quarters. In this case we assume a 4% sales CAGR and 5% for EBITDA over our forecast horizon to account for organic growth only. We derive a target price of EUR12 using a 1.5% perpetual growth rate and a 8.70% WACC calculated as follow: Cost of debt Cost of equity x Pre-Tax Cost ST Debt 2.04% x Country Premium 10.6% x Pre-Tax Cost LT Debt 5.50% Beta ST Debt 82 + Equity Risk Premium 7.71% + LT Debt 112 Risk Free Rate 2.0% Total Debt 194 Cost of Equity 9.74% After tax Cost Of Debt 2.50% Capital Structure WACC components Mkt Cap 1, % total debt % 8.70% Interpump DCF model without M&A Years 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E 2021 E 2022 E 2023 E 2024 E Cagr EBIT % Taxes (42) (47) (47) (49) (51) (52) (54) (56) (57) (59) 3.9% EBIT after tax % Minority Interests % D&A % Total Capex (24) (24) (25) (22) (20) (20) (20) (20) (20) (20) -1.8% Change in working capital (7.0) (4.7) (14.2) (8.8) (7.8) 3.2 (6.0) (3.1) 2.9 (2.5) -10.7% FCFF % Discount Factor NPV WACC 8.74% Terminal Growth rate 1.50% WACC g 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% PV of forecast FCF % 1,405 1,387 1,369 1,352 1,336 1,320 1,305 Terminal Value % 1,450 1,432 1,414 1,397 1,380 1,364 1,349 Implied EV 1, % 1,500 1,482 1,464 1,447 1,430 1,415 1,399 Net Debt FY % 1,557 1,539 1,521 1,504 1,488 1,472 1,456 Equity Value 1, % 1,623 1,604 1,587 1,570 1,553 1,537 1,522 No. Of Shares % 1,699 1,680 1,663 1,646 1,629 1,613 1,598 Target Price % 1,788 1,770 1,752 1,735 1,719 1,703 1,687 Last price upside/downside 6% 2

3 DCF including M&A: target price EUR15 Assuming, in line with guidance, EUR200m of debt-financed acquisitions (EUR100m each in 2015 and 2016) at about 8x EV/EBITDA, we obtain a DCF fair value of EUR15 per share. In this case we project a 15% sales CAGR and 18% for EBITDA from , the result of mid-single-digit organic and double-digit external growth rates. Interpump DCF model with M&A Years 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E 2021 E 2022 E 2023 E 2024 E Cagr EBIT % Taxes (47) (58) (59) (61) (64) (66) (68) (70) (72) (74) 5.2% EBIT after tax % Minority Interests % D&A % Total Capex (27) (32) (33) (31) (30) (30) (29) (30) (30) (31) 1.2% Change in working capital (39.3) (36.9) (18.4) (11.9) (10.4) 4.3 (8.0) (4.1) 3.9 (3.3) -23.9% FCFF % Discount Factor NPV WACC 8.74% Terminal Growth rate 1.50% WACC g 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% PV of forecast FCF % 1,742 1,718 1,696 1,674 1,654 1,634 1,614 Terminal Value 1, % 1,798 1,775 1,753 1,731 1,711 1,691 1,671 Implied EV 1, % 1,863 1,839 1,817 1,796 1,775 1,755 1,735 Net Debt FY % 1,936 1,912 1,890 1,869 1,848 1,828 1,808 Equity Value 1, % 2,020 1,996 1,974 1,952 1,932 1,912 1,892 No. Of Shares % 2,117 2,094 2,071 2,050 2,029 2,009 1,990 Target Price % 2,231 2,208 2,186 2,164 2,143 2,123 2,104 Last price upside/downside 35% Conclusion We conclude that the group has in the past generated value with M&A and sustainably managed to increase ROCE after fully consolidating acquisitions, and we therefore believe they will continue to deliver on this front in future. Our current EUR13 target price can be seen as the average of the two cases above, assigning a two-thirds probability to no-m&a and the remaining one-third to management succeeding in its external growth campaign. 3

4 ENTERPRISE VALUE 2013 A 2014 E 2015 E 2016 E 2017 E Market Capitalization Cash & Equivalents Preferred Equity Minority Interest Total Debt Enterprise Value Current market price EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) EPS BVPS Price P/E P/B DPS Dividend pay out 43% 30.0% 28.0% 29.0% 30.0% Dvd Yld 0.5% 1.6% 1.9% 2.1% 2.7% Non Adjusted Net Debt/EBITDA PROFIT & LOSS 2013 A 2014 E 2015 E 2016 E 2017 E Revenue total Sales growth 5.5% 18.5% 6.5% 6.0% 4.5% EBITDA EBITDA growth -1.1% 31.2% 10.7% 10.2% 4.0% EBITDA margin 18.2% 20.2% 21.0% 21.8% 21.7% Depreciation & Amortization EBIT EBIT margin % 14.0% 16.4% 17.2% 18.1% 17.4% Interest Expense Net Non-Operating Losses (Gains) Foreign Exchange Losses (Gains) Pretax Income Income Tax Expense Tax rate 38% 37% 37% 37% 37% Income Before XO Items Extraordinary Loss Net of Tax Minority Interests NET INCOME Dividends Paid Dividend pay out 42.9% 30% 28% 29% 30% RETAINED EARNINGS BALANCE SHEET 2013 A 2014 E 2015 E 2016 E 2017 E Cash & Near Cash Items Accounts & Notes Receivable Inventories Other Current Assets Total Current Assets Total Long-Term Assets Total Assets Accounts Payable Short-Term Borrowings Other Short-Term Liabilities Total Current Liabilities Long-Term Borrowings Other Long-Term Liabilities Total Long-Term Liabilities Total Liabilities Total Liabilities & Equity Working capital Capital employed Financed by: Net Debt Group's Net Equity Shareholders Funds Minority Interest

5 CASH FLOW 2013 A 2014 E 2015 E 2016 E 2017 E Net income Minorities Depreciation & Amortisation Other non cash (9) FFO Change in working capital 5 (39) (7) (5) (14) Cash From Operations Total Capex (27) (28) (24) (24) (25) Disposal of Fixed Assets 1 Financial Investments net Other Investing Activities 0-65 Cash From Investing Activities (65) (135) (24) (24) (25) Dividends Paid -19 (19) (20) (23) (24) Increase in Capital Stocks Decrease in Capital Stocks Net Increase in Long-Term Borrowings -20 Change in Short-Term Borrowings 0 Other Financing Activities -1 0 Cash from Financing Activities (18) (39) (39) (43) (44) Net Changes in Cash - 20 (124) NET DEBT DISCLAIMER This report has been prepared by Hammer Partners S.A. This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient's individual circumstances or otherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except with respect information concerning Hammer Partners S.A., nor is intended to be a complete statement or summary of the securities, markets or developments referred to in the report. Hammer Partners does not undertake that investors will obtain profits, nor will it share with investors any investment profits nor accept any liability for any investment losses. Investments involve risks and investors should exercise prudence in making their investment decisions. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed in this report are subject to change without notice. Research will initiate, update and cease coverage solely at the discretion of Hammer Partners S.A. The analysis contained herein is based on several assumptions and different assumptions could result in materially different results. Hammer Partners is under no obligation to update the information contained herein. Analyst compensation is not based on investment banking revenues. Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments. There is no representation that any transaction can or could have been effected at those prices and any prices do not reflect Hammer Partners theoretical model-based valuations. This report is for distribution to institutional investors only Hammer Partners specifically prohibits the redistribution of this material in whole or part without the written permission of Hammer Partners. Hammer Partners accepts no liability whatsoever for the actions of third parties. Copyright Hammer Partners S.A