Advanced Vision Technology

Transcription

1 FIRST BERLIN Equity Research Advanced Vision Technology Ltd RATING Israel / Machine Vision Technology Q3/16 Primary exchange: Frankfurt PRICE TARGET / $12.70 Bloomberg: VSJ GR Results Return Potential 21.2% ISIN: IL Risk Rating High NEW GROWTH ENGINES DRIVE GROWTH IN Q3 Ellis Acklin, Tel. +49 (0) A dv ADD Third quarter revenues grew 15% Y/Y to $14.2m (Q3/15: $12.3m), thanks to robust order booking in previous quarters and the rollout of new solutions. This topped our estimate of $13.8m and was a continuation of the strong Q2 performance. The top line performance helped offset the higher operating costs stemming from the quadrennial Drupa trade show. AVT generated operating cash flow of $-2.1m owing chiefly to the seasonal increase in working capital, which we expect to normalise in Q4. Given the recent upswing in sales performance coupled with new products, we have increased our near term revenue forecasts. We now see fair value at 11.70/share (previously: 10.40). Our rating remains Add. Revenue growth continues in third quarter Following a strong second quarter in which sales increased 18% Y/Y and operating income surged by some 90%, AVT recorded another quarter of solid growth. Q3 revenues totalled $14.2m (Q3/15: $12.3m, FBe: $13.8m). The performance was primarily spurred by strong order bookings in the past quarters and the introduction of new solutions. On a nine month basis, revenues totalled $42.1m (9M/15: $38.4m, +10% Y/Y). Q3/16 gross margin stood at 51.5% compared to 51.8% in Q3/15. The slight decline can be traced to product mix and some mild price erosion in the Asian and Latin American markets that surfaced in Q2. Order backlog remains strong despite slower booking to sales ratio AVT announced new orders totalling $14.5m. This corresponded to an order booking to sales ratio of 102% compared to 111% in Q2/16. The company noted strong bookings in the label segment while winning some important orders for its metal sheet inspection product. New bookings replenished the backlog, which totalled $25.8m at the end of Q3/16 compared to $23.6m at the end of H1/16. This also represents an increase of 34% Y/Y (Q3/15: $19.3m). Management expect some 30% 40% of the current backlog to be converted into sales in Q4/16 with the balance spread across the subsequent three to four quarters. COMPANY PROFILE AVT develops, manufactures, markets and supports an advanced video-based print inspection system that automatically detects defects in printing processes as well as closed loop colour control systems and remote digital ink fountain control systems to leading commerical printers and press manufacturers worldwide. AVT is based in Israel, with offices in the US, Europe and China. MARKET DATA As of 14 Nov 2016 Closing Price 9.65 Shares outstanding 6.10m Market Capitalisation 58.86m 52-week Range 7.81 / Avg. Volume (12 Months) 3,850 Multiples E 2017E P/E EV/Sales EV/EBIT Div. Yield 7.8% 5.2% 5.2% STOCK OVERVIEW Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov Advanced Vision Technology DAXsector Industrials FINANCIAL HISTORY & PROJECTIONS E 2017E 2018E Revenue ($m) Y-o-y growth 5.2% 7.2% -4.8% 10.1% 11.5% 13.0% EBIT ($m) EBIT margin 11.4% 11.0% 7.9% 8.4% 10.8% 12.7% Net income ($m) EPS (diluted) ($) DPS ($) FCF ($m) Net gearing -76.0% -75.5% -54.1% -61.8% -62.7% -64.6% Liquid assets ($m) COMPANY DATA As of 30 Sep 2015 Liquid Assets $ 14.21m Current Assets $ 38.19m Intangible Assets $ 2.52m Total Assets $ 47.30m Current Liabilities $ 13.90m Shareholders Equity $ 28.56m SHAREHOLDERS Union Investment 44.8% Free Float 55.2% RISKS The main risks include a downturn in the world economy and the reluctance of printers to invest in modern technology. There are also exchange rate risks relating to the US Dollar, Euro and Israeli Shekel. Analyst: Ellis Acklin, Tel. +49 (0)

2 Table 1: Third quarter performance vs estimates All figures in USD '000 Q Q3 2016E % delta Q % delta 9M M 2015 % delta Revenue 14,210 13, % 12, % 42,081 38, % Gross profit 7,324 7, % 6, % 21,646 20, % Margin (%) 51.5% 52.2% % % 53.0% - EBIT¹ 1,314 1, % % 3,232 3, % Margin (%) 9.2% 9.0% - 6.6% - 7.7% 8.0% - Net income % % 2,418 2, % EPS diluted ($) % % % ¹includes adjustment to earn out liability Source: First Berlin Equity Research; AVT Operating expenses (OpEX) continue to reflect Drupa costs Selling and Marketing (S&M) expenses totalled $2.9m in Q3/16 compared to $2.3m in the prior year period and $2.8m in Q2/16. The increase is attributable mainly to the Drupa trade fair, which was held in Q2, and agent commissions in the Asian and Latin American markets. General and Administration (G&A) costs in Q3/16 were 9% higher Y/Y at $1.5m (Q3/15: $1.3m), traced mainly to legal fees associated with a lawsuit in the US. R&D climbed 14% Y/Y to $2.2m (Q3/15: $1.9m), due primarily to increased personnel associated with investments into new areas of growth. Figure 1: Quarterly regional sales developments $18.0m $16.0m $14.0m $12.0m $10.0m $8.0m $6.0m $4.0m $2.0m $0.0m Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 EMEA Americas Asia Pacific Source: First Berlin Equity Research; AVT The rise in OpEx (excluding the $0.6m adjustment for the earn-out liability) was offset by the strong sales performance as well an adjustment to the earn-out liability in conjunction with the acquisition of the inspection activity of E+L last year. This allowed the company to book a solid operating profit of $1.3m translating into an EBIT margin of 9.2% (Q3/15: 6.6%). On an adjusted basis (excluding the earn-out effect), EBIT totalled $0.8m for the quarter. AVT also recorded a net financial result of $-0.1m for the quarter. This is largely traced to changes in the fair value of financial instruments used to hedge against currency fluctuations. Net income for the third quarter totalled $1.0m compared to $0.6m in the previous year period equal to a 71% increase. Page 2/11

3 Figure 2: Quarterly development of costs as percentage of revenues 100% 80% 16.1% 15.6% 16.0% 12.0% 10.9% 9.8% 18.2% 10.5% 14.0% 9.4% 15.5% 10.3% 60% 19.0% 18.7% 18.3% 19.6% 18.1% 20.5% 40% 20% 46.1% 48.2% 48.5% 49.8% 47.7% 48.5% 0% Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Source: First Berlin Equity Research; AVT COGS S&M G&A R&D Operating cash flows impacted by higher working capital in Q3; cash position stable Despite the positive net result, AVT generated operating cash flow of $-2.1m in Q3/16, due mainly to a rise in working capital. This was led by a rise in accounts receivable, which increased to $11.9m compared to $9.8m at the end of Q2/16. DSO (days sales outstanding) at the end of Q2 thus totalled 77 compared to 57 days at the end of Q2/16 and 75 days at the end of Q4/15. The jump in receivables can be traced to the summer holiday period, meaning a high proportion of sales occurred in the final month of the quarter. We expect receivables to return to normal levels in Q4. Cash flow from investing was minor at $-0.2m resulting in free cash flow of $-2.3m for the third quarter. AVT generated operating cash flow of $1.5m and free cash flow of $1.1m for the nine month period. The company exited the third quarter with total current assets of $38.2m including cash of $4.2m and short-term deposits of $10.0m for a total of $14.3m in liquid funds (Q4/15: $17.7m). Shareholders equity totalled $28.6m at the end of Q3 vs $30.2m at the end of This equates to an equity ratio of 60% (Q4/15: 61%). The decline in shareholders equity stems mainly from the dividend paid to shareholders. Table 2: Financial highlights All figures in USD '000 Q3/ delta Cash & liquid assets 4,225 7, % Short-term deposits 10,064 10, % Total assets 47,278 49, % Net cash 12,891 16, % Shareholder's equity 28,561 30, % Equity ratio 60% 61% -1.3% Source: First Berlin Equity Research; AVT Business climate remains strong driven by new solutions Our FY16 top line target moves slightly higher after the stronger Q3 sales performance. We expect Q4 to come in stronger than the seasonally slower third quarter. We have also slightly dialled back our projected operating result after adjusting for higher than expected OpEx. Although the book to bill ratio dipped to 102% in Q3 (Q2/16: 111%), the order backlog has been trending higher over the past quarters (Q3/16: +34% Y/Y) and remains healthy at $25m the highest level over the past three years. We expect this to drive sales in the coming quarters along with the R&D investments. Page 3/11

4 Table 3: Adjustments to our forecasts 2016E 2017E 2018E All figures in USD '000 old new % delta old new % delta old new % delta Revenue 55,786 56, % 60,052 63, % 66,887 71, % Gross profit 28,894 29, % 31,347 32, % 35,116 37, % Margin (%) 51.8% 51.6% % 52.2% % 52.5% - EBIT 5,043 4, % 6,798 6, % 8,562 9, % Margin (%) 9.0% 8.4% % 10.8% % 12.7% - Net income 3,847 3, % 5,251 5, % 6,588 6, % EPS diluted ($) % % % Source: First Berlin Equity Research In our view, AVT remains at the forefront of technology advancements as demonstrated by its cloud-based solutions. We believe the company will continue to benefit from its investments into new growth areas and the rollout of new digital solutions showcased at this year s Drupa trade fair (see note of 12 August 2016). On the Q3 conference call, management confirmed that some 50% of the sales can be attributed to new solutions and new growth areas. We believe AVT will continue to gain more traction with its digital, metal, and cloud-based solutions and have thus increased our near term revenue targets as shown in table 3. For 2017, we have also slightly increased our R&D expenses to facilitate the new growth factored into our forecasts. Page 4/11

5 VALUATION MODEL We believe AVT has turned the corner after currency headwinds burdened growth and profitability last year. The company has made solid inroads into new markets with a diversified roster of products and solutions that should support higher gross margins in the future. AVT also boasts a strong balance sheet with an ample net cash position (Q3/16: $12.9m). We have therefore lowered our earnings risk factor in our cost of equity calculation. This produces a new WACC of 13% (previously: 15%). The adjustments to our forecasts and WACC result in a new fair value of (previously: 10.40). Our rating remains Add. All figures in USD ' E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales 56,696 63,216 71,434 78,577 85,649 91,645 97, ,001 NOPLAT 3,705 5,139 6,804 6,895 7,130 7,217 7,213 7,191 + depreciation & amortisation ,020 Net operating cash flow 4,329 5,835 7,590 7,720 7,987 8,133 8,184 8,211 - total investments (CAPEX and WC) 2,350-1,070-1,335-1,481-1,153-1,397-1,357-1,342 Capital expenditures Working capital 2, Free cash flows (FCF) 6,679 4,765 6,255 6,239 6,834 6,737 6,827 6,869 PV of FCF's 6,579 4,154 4,826 4,259 4,129 3,602 3,230 2,876 All figures in thousands PV of FCFs in explicit period ( E) 48,782 PV of FCFs in terminal period 15,659 Enterprise value (EV) 64,440 + Net cash / - net debt 12,891 + Investments / minority interests 0 Shareholder value 77,331 Fair value per share in USD Fair value per share in EUR Terminal growth rate WACC 13.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Cost of equity 13.0% 10.0% Pre-tax cost of debt 5.0% 11.0% Tax rate 25.0% 12.0% After-tax cost of debt 10.0% 13.0% Share of equity capital 100.0% 14.0% Share of debt capital 0.0% 15.0% % *for layout purposes the model shows only to 2023 but runs until 2030 WACC Page 5/11

6 INCOME STATEMENT All figures in USD ' A 2014A 2015A 2016E 2017E 2018E Revenues 50,498 54,110 51,489 56,696 63,216 71,434 Cost of goods sold 23,370 25,819 24,394 27,421 30,217 33,931 Gross profit 27,128 28,291 27,095 29,275 32,999 37,503 S&M 8,983 9,605 9,547 10,853 11,695 12,930 G&A 5,092 5,083 5,430 5,581 5,753 6,143 R&D 7,287 7,655 8,057 8,626 8,699 9,358 Earn-out adjustment Operating income (EBIT) 5,766 5,948 4,061 4,772 6,853 9,072 Net financial result Pre-tax income (EBT) 5,702 5,976 3,515 4,230 7,056 9,294 Income taxes 882-1, ,764-2,324 Minority interests Net income / loss 6,584 4,625 2,778 3,609 5,292 6,971 Diluted EPS (in $) EBITDA 6,731 6,831 5,105 5,596 7,748 10,058 Ratios Gross margin 53.7% 52.3% 52.6% 51.6% 52.2% 52.5% EBIT margin on revenues 11.4% 11.0% 7.9% 8.4% 10.8% 12.7% EBITDA margin on revenues 13.3% 12.6% 9.9% 9.9% 12.3% 14.1% Net margin on revenues 13.0% 8.5% 5.4% 6.4% 8.4% 9.8% Tax rate -15.5% 22.6% 21.0% 25.0% 25.0% 25.0% Expenses as % of revenues S&M 17.8% 17.8% 18.5% 19.1% 18.5% 18.1% G&A 10.1% 9.4% 10.5% 9.8% 9.1% 8.6% R&D 14.4% 14.1% 15.6% 15.2% 13.8% 13.1% Y-Y Growth Revenues n.a. 7.2% -4.8% 10.1% 11.5% 13.0% Operating income n.a. 3.2% -31.7% 17.5% 43.6% 32.4% Net income/ loss n.a % -39.9% 29.9% 46.6% 31.7% Page 6/11

7 BALANCE SHEET All figures in USD ' A 2014A 2015A 2016E 2017E 2018E Assets Current assets, total 43,581 44,203 39,935 38,260 42,321 48,490 Cash and cash equivalents 12,378 15,048 7,665 8,268 10,116 13,401 Short-term deposits 14,252 11,168 10,025 10,025 10,025 10,025 Receivables 7,937 8,170 10,657 9,631 10,738 12,134 Inventories 5,594 6,077 7,136 6,425 7,080 8,001 Other current assets 3,420 3,740 4,452 3,912 4,362 4,929 Non-current assets, total 7,397 6,426 9,475 11,098 11,619 12,300 Property, plant & equipment 1,189 1,269 1,466 1,523 1,586 1,657 Goodwill & other intangibles ,622 3,395 3,142 2,857 Severence pay fund 3,320 2,811 2,488 3,912 4,362 4,929 Deferred taxes 2,521 2,233 1,899 2,268 2,529 2,857 Total assets 50,978 50,629 49,410 49,358 53,940 60,790 Shareholders' equity & debt Current liabilities, total 13,070 13,525 14,135 14,661 16,310 18,430 Short-term debt Accounts payable 1,903 3,110 2,873 2,868 3,161 3,572 Employees and payroll accruals 2,619 2,696 3,123 2,835 3,161 3,572 Customer advances 3,613 2,690 2,148 3,685 4,109 4,643 Other current liabilities 4,935 5,029 5,991 5,273 5,879 6,643 Long-term liabilities, total 4,805 4,186 5,040 5,177 5,633 6,208 Long-term debt Accrued severance pay 4,805 4,186 3,832 3,969 4,425 5,000 Other liabilities 0 0 1,208 1,208 1,208 1,208 Shareholders' equity 33,103 32,918 30,235 29,520 31,997 36,152 Total consolidated equity and debt 50,978 50,629 49,410 49,358 53,940 60,790 Ratios Current ratio (x) Quick ratio (x) Net cash 25,145 24,841 16,346 18,236 20,077 23,355 Net gearing -76% -75% -54% -62% -63% -65% Return on equity (ROE) 19.9% 14.1% 9.2% 12.2% 16.5% 19.3% Capital employed (CE) 5, , , , , ,354.5 Return on capital employed (ROCE) 106% 102% 33% 51% 70% 88% Page 7/11

8 CASH FLOW STATEMENT All figures in USD ' A 2014A 2015A 2016E 2017E 2018E Net income 6,584 4,625 2,778 3,609 5,292 6,971 Depreciation and amortisation Changes in working capital 4, ,899 2, Other adjustments -2, , Operating cash flow 8,625 5, ,580 5,369 6,873 CapEx Acquisition of inspection activity 0 0-2, Other investments -7,500 2,960 1, Cash flow from investing -7,898 2,503-1, Free cash flow (FCF) 727 7,732-1,206 5,126 4,863 6,301 Dividend paid to shareholders -2,517-5,973-6,060-4,523-3,016-3,016 Employee option exercise 1, Cash flow from financing -1,023-5,062-5,779-4,523-3,016-3,016 Net cash flows ,670-7, ,848 3,286 Cash, start of the year 12,674 12,378 15,048 7,665 8,268 10,116 Cash, end of the year 12,378 15,048 7,665 8,268 10,116 13,401 FCF/share (in $) Y-Y Growth Operating cash flow n.a % -95.6% % -3.8% 28.0% Free cash flow n.a % n.m. n.m. -5.1% 29.6% EBITDA/share n.a % n.m. n.m. -5.1% 29.6% Page 8/11

9 FIRST BERLIN Equity Research FIRST BERLIN RECOMMENDATION & PRICE TARGET HISTORY Report No.: Initial Report Date of publication Previous day closing price Recommendation Price target 20 November Buy August Add August Add November Add Today 9.65 Add Authored by: Ellis Acklin, Analyst Company responsible for preparation: First Berlin Equity Research GmbH Mohrenstraße Berlin Tel. +49 (0) Fax +49 (0) info@firstberlin.com Person responsible for forwarding or distributing this financial analysis: Martin Bailey Copyright 2016 First Berlin Equity Research GmbH No part of this financial analysis may be copied, photocopied, duplicated or distributed in any form or media whatsoever without prior written permission from First Berlin Equity Research GmbH. First Berlin Equity Research GmbH shall be identified as the source in the case of quotations. Further information is available on request. INFORMATION PURSUANT TO SECTION 34B OF THE GERMAN SECURITIES TRADING ACT [WPHG], TO REGULATION (EU) NO 596/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF APRIL 16, 2014, ON MARKET ABUSE (MARKET ABUSE REGULATION) AND TO THE GERMAN ORDINANCE ON THE ANALYSIS OF FINANCIAL INSTRUMENTS [FINANV] First Berlin Equity Research GmbH (hereinafter referred to as: First Berlin ) prepares financial analyses while taking the relevant regulatory provisions, in particular the German Securities Trading Act [WpHG], Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014, on market abuse (market abuse regulation) and the German Ordinance on the Analysis of Financial Instruments [FinAnV] into consideration. In the following First Berlin provides investors with information about the statutory provisions that are to be observed in the preparation of financial analyses. CONFLICTS OF INTEREST In accordance with Section 34b Paragraph 1 of the German Securities Trading Act [WpHG] and Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014, on market abuse (market abuse regulation) financial analyses may only be passed on or publicly distributed if circumstances or relations which may cause conflicts of interest among the authors, the legal entities responsible for such preparation or companies associated with them are disclosed along with the financial analysis. First Berlin offers a range of services that go beyond the preparation of financial analyses. Although First Berlin strives to avoid conflicts of interest wherever possible, First Berlin may maintain the following relations with the analysed company, which in particular may constitute a potential conflict of interest (further information and data may be provided on request): The author, First Berlin, or a company associated with First Berlin holds an interest of more than five percent in the share capital of the analysed company; The author, First Berlin, or a company associated with First Berlin provided investment banking or consulting services for the analysed company within the past twelve months for which remuneration was or was to be paid; The author, First Berlin, or a company associated with First Berlin reached an agreement with the analysed company for preparation of a financial analysis for which remuneration is owed; The author, First Berlin, or a company associated with First Berlin has other significant financial interests in the analysed company; In order to avoid and, if necessary, manage possible conflicts of interest both the author of the financial analysis and First Berlin shall be obliged to neither hold nor in any way trade the securities of the company analyzed. The remuneration of the author of the financial analysis stands in no direct or indirect connection with the recommendations or opinions represented in the financial analysis. Furthermore, the remuneration of the author of the financial analysis is neither coupled directly to financial transactions nor to stock exchange trading volume or asset management fees. If despite these measures one or more of the aforementioned conflicts of interest cannot be avoided on the part of the author or First Berlin, then reference shall be made to such conflict of interest. PRICE TARGET DATES Unless otherwise indicated, current prices refer to the closing prices of the previous trading day. AGREEMENT WITH THE ANALYSED COMPANY AND MAINTENANCE OF OBJECTIVITY The present financial analysis is based on the author s own knowledge and research. The author prepared this study without any direct or indirect influence exerted on the part of the analysed company. Parts of the financial analysis were possibly provided to the analysed company prior to publication in order to avoid inaccuracies in the representation of facts. However, no substantial changes were made at the request of the analysed company following any such provision. Page 9/11

10 FIRST BERLIN Equity Research ASSET VALUATION SYSTEM First Berlin s system for asset valuation is divided into an asset recommendation and a risk assessment. ASSET RECOMMENDATION The recommendations determined in accordance with the share price trend anticipated by First Berlin in the respectively indicated investment period are as follows: STRONG BUY: An expected favourable price trend of more than 50% combined with sizeable confidence in the quality and forecast security of management. BUY: An expected favourable price trend of more than 25% percent. ADD: An expected favourable price trend of between 0% and 25%. REDUCE: An expected negative price trend of between 0% and -15%. SELL: An expected negative price trend of more than -15%. RISK ASSESSMENT The First Berlin categories for risk assessment are low, average, high and speculative. 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11 FIRST BERLIN Equity Research NO ESTABLISHMENT OF CONTRACTUAL OBLIGATIONS By taking note of this financial analysis the recipient neither becomes a customer of First Berlin, nor does First Berlin incur any contractual, quasi-contractual or pre-contractual obligations and/or responsibilities toward the recipient. In particular no information contract shall be established between First Berlin and the recipient of this information. NO OBLIGATION TO UPDATE First Berlin, the author and/or the person responsible for passing on or distributing the financial analysis shall not be obliged to update the financial analysis. Investors must keep themselves informed about the current course of business and any changes in the current course of business of the analysed company. DUPLICATION Dispatch or duplication of this document is not permitted without the prior written consent of First Berlin. SEVERABILITY Should any provision of this disclaimer prove to be illegal, invalid or unenforceable under the respectively applicable law, then such provision shall be treated as if it were not an integral component of this disclaimer; in no way shall it affect the legality, validity or enforceability of the remaining provisions. APPLICABLE LAW, PLACE OF JURISDICTION The preparation of this financial analysis shall be subject to the law obtaining in the Federal Republic of Germany. The place of jurisdiction for any disputes shall be Berlin (Germany). NOTICE OF DISCLAIMER By taking note of this financial analysis the recipient confirms the binding nature of the above explanations. By using this document or relying on it in any manner whatsoever the recipient accepts the above restrictions as binding for the recipient. QUALIFIED INSTITUTIONAL INVESTORS First Berlin financial analyses are intended exclusively for qualified institutional investors. This report is not intended for distribution in the USA, Canada and/or the United Kingdom (Great Britain). Page 11/11