RESEARCH UPDATE. Ready for the American Dream? Fair Value: 4.55 (Prev. 4.50)

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1 February 2, 2018 RESEARCH UPDATE Fair Value: 4.55 (Prev. 4.50) Kevin TEMPESTINI Giancarlo DI VONA Mauro IACCINO BOMI Relative Performance Chart Volume FTSE AIM Italia Feb-17 Jun-17 Oct-17 Market Data: Closing Price ( ) Week Low/High ( ) 1.61/ Day Average Trading Volume BOMI ITALIA S.P.A ,483 Price Change: 1 w 0.85% Price Change: 1 m 29.24% Price Change YTD 30.37% P/E Ratio (FY18) P/E Ratio (FY19) ,000, ,000 0 Ready for the American Dream? Healthcare Goods and Services In 2017 Bomi expanded its position as a leading multinational group, increasing its range of strategic logistic services to the medical device industry while consolidating its presence in Brazil and Italy, and re-entering the Mexican and Asia Pacific markets. Over the coming years, we expect further upside potential from penetration in the last two main markets where the group still has a marginal presence: the USA and Central Europe (Germany) in a nutshell. Bomi undertook two main M&As in 2017, consolidating its positioning in its core markets: Italy and Brazil. The Italian business has been enriched thanks to the acquistion of De Salute Srl, which operates in the high value added service sector for the biotech, pharmaceutical and hi-tech healthcare industry. The acquisition has brought in revenues of around 9.3mn and great improvements in the operating margin thanks to both high value added services and cost synergies. On the side of Brazilian market, the minorities integration gives the group full control over the outstanding cash generation of its subsidiary. Furthermore, the company re-started its own business in APAC and Mexico, and we expect the Mexican market to be a significant contributor to the company s growth, since Bomi already has more than 20 years of experience in the country Business Plan. On January 22, the company released the Business Plan , which is focused on the consolidation of its start-up operations in APAC and Mexico and the optimization of its Brazil subsidiary. Bomi expects revenues to grow by 6.6% CAGR and EBITDA by 10.1% CAGR and EBITDA margins are expected to expand by 1.4% over the period. Estimates Revision. We revised our Brazilian Real/Euro estimates, on the back of the continuing strong appreciation of the Euro against almost every currency in the last month. Currency revision had a significant negative impact on our new estimates of Total Revenues and EBITDA. Moreover, we shifted the start-up of the Mexico and APAC operations to 2018, impacting negatively on FY18 revenues and margin. Therefore we lowered our FY18 Total Revenues and EBITDA to mn (-7.4%) and 12.77mn (-16.5%) respectively. From 2019, the start-up businesses will start making their contributions, partially offsetting the currency effect, thus our new estimates on FY19E Top Line and EBITDA have been lowered by only 6.0%. On the other hand, we lowered our expected 2017 NFP by 6.0mn due to Simest s contribution to the Brazilian minorities integration. We increased our FY19 Net Income estimate by 4.0% to 4.52mn on the back of lower interest expenses and a more favorable tax rate. Fair value fine-tuned. Bomi is currently trading at a significant discount with respect to the Median P/E of its peers for both FY18 (P/E of against 20.53) and FY19 (P/E against 18.49). As a result of our changes in estimates, we suggest a fair value equal to 4.55ps corresponding to a Market Cap equal to 69.28mn. Million Total Revenues EBITDA EBITDA Margin EBIT Bomi Net Profit Net Margin EPS 2015A % % A % % E % % E % % E % % 0.30 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 Per Share Data 2014A 2015A 2016A 2017E 2018E 2019E Total shares outstanding (mn) n.a EPS n.a Dividend per share (ord) Dividend pay out ratio (%) 0% 34% 35% 20% 20% 20% Profit and Loss (EUR thousand) Revenues 67,004 78, , , , ,060 EBITDA 7,618 8,250 8,747 10,414 12,766 15,446 EBIT 5,559 5,668 5,290 6,654 7,790 9,919 EBT 3,093 2,918 2,534 3,841 4,662 7,160 Taxes - 1,434-1,045-1,080-1,383-1,585-2,363 Tax rate -46% -36% -43% -36% -34% -33% Net profit attributable to minority Net profit after minorities 738 1, ,335 2,923 4,557 Balance Sheet (EUR thousand) Total fixed assets 17,932 23,217 32,732 33,073 38,563 38,286 Net Working Capital (NWC) 2,667 4,196 2,855 4,490 4,999 5,933 Provisions ,855-1,633-2,824-3,381-3,989 Other asset and liabilities 1,752 1,590 1,061 1,145 1,214 1,275 Total Net capital employed 21,489 27,147 35,015 35,884 41,395 41,505 Net financial position (NFP) 14,316 9,632 15,953 24,926 27,827 23,724 Group Shareholder's Equity 5,021 14,881 15,440 4,113 6,569 10,542 Minorities 2,151 2,633 3,621 6,844 6,998 7,238 Total Shareholder's Equity 7,172 17,514 19,061 10,957 13,567 17,779 Cash Flow (EUR thousand) Net operating cash flow 4,671 5,239 7,667 10,671 12,150 13,644 Change in NWC - 2,204-1,529 1, Capital expenditure - 1,388-5,635-5,782-10,466-5,250-5,250 Other cash items/uses of funds , Free cash flow - 4,915-3,002-3, ,100 7,594 Enterprise Value (EUR thousand) Market Cap n.a. 39,561 25,765 55,429 55,429 55,429 Minorities 2,151 2,633 3,621 6,844 6,998 7,238 Net financial position 14,316 9,632 15,953 24,926 27,827 23,724 Enterprise value n.m. 51,827 45,340 87,198 90,254 86,391 Ratios (%) EBITDA margin 11.4% 10.5% 8.7% 9.1% 10.1% 11.2% EBIT margin 8.3% 7.2% 5.2% 5.8% 6.2% 7.2% Gearing - Debt/equity 285.2% 64.7% 103.3% 606.0% 423.6% 225.1% Interest cover on EBIT 27.2% 32.5% 23.0% 19.7% 26.5% 20.8% NFP/EBITDA 187.9% 116.8% 182.4% 239.4% 218.0% 153.6% ROCE 25.9% 20.9% 15.1% 18.5% 18.8% 23.9% ROE 14.7% 7.9% 3.0% 56.8% 44.5% 43.2% EV/Sales n.m EV/EBITDA n.m P/E n.m Free cash flow yield n.m. -7.6% -14.2% -1.5% 11.0% 13.7% Growth Rates (%) Sales 2.6% 18.0% 29.1% 12.5% 10.5% 9.0% EBITDA 23.1% 8.3% 6.0% 19.1% 22.6% 21.0% EBIT 23.4% 2.0% -6.7% 25.8% 17.1% 27.3% Net profit -3.9% 13.0% -22.4% 69.1% 25.2% 55.9% Source: Company data, KT&Partners estimates February 2,

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 revised our Brazilian Real/Euro estimates 1, due to the continuing appreciating trend of the Euro. Indeed, it appreciated considerably against the Brazilian Real (15.34% YoY). We consequently decreased the FY17E Top line by 2.0% (from mn to mn) on the back of the weaker foreign currencies. The exchange rate effect, coupled with the slowdown of the startup in Mexico and APAC, which shifted business operations in 2018, lowered our expected FY18E Total Revenues to mn (-7.4%). Finally, in FY19 the expected positive effect from the above-mentioned start-up counterbalanced the currency pressure on FY19E Total Revenues, bringing the new estimation to mn (-6.0% with respect our previous estimates). We lowered our FY17E EBITDA estimate by 3.0% (from 10.75mn to 10.41mn) due to the currency effect. The adverse currency effect and the shift of the start-up cost of Mexico and APAC to 2018 impacted significantly on our expected FY18 EBITDA. Indeed, our new estimate is down by 16.5% to a level of 12.77mn from the previously expected 15.30mn. The start-up costs previously expected in FY17E and shifted to FY18E almost offset the positive margin contribution from the recent acquisition of De Salute Srl and the integration of Brazilian Minorities. In FY19, we expect a recovery in the EBITDA that should reach a value of 15.45mn (-6.0% on our previous estimate). On the bottom line, we slightly adjusted downwards the estimation for FY17 by 8.3% ( 2.34mn against 2.55mn). Moreover, we lowered our expected 2017 Net Financial Position thanks to the capital injection by Simest, the Italian public company that supports the foreign expansion of Italian enterprises. The total contribution is equal to around 6.0mn and it is mainly related to the acquisition of Brazilian minorities and Mexican start-up operations. Nevertheless, we lowered by 29.5% our expectation of FY18 Net Income. Finally, we forecast a relevant recovery for FY19 Net Income on the back of: 1) expansion in countries with lower tax regimes, 2) initial contribution of the new operations in LATAM, 3) expected positive results from China and from the joint venture in Singapore, and 4) lower interest expenses. It is worth noting that our expectations on CAPEX remained unchanged, despite the company projecting a lower level in its Business Plan. Table 2: new forecasts thousand FY17E old FY17EPF new % FY18E old FY18E new % FY19E old FY19E new % Total Revenues % % % EBITDA % % % EBITDA margin% 9.2% 9.1% 11.2% 10.1% 11.2% 11.2% EBIT % % % EBIT margin% 5.8% 5.8% 7.1% 6.2% 6.9% 7.2% Net Income % % % Net Income margin% 2.3% 2.1% 3.2% 2.4% 3.0% 3.3% Bomi's Net Income % % % Bomi's Net Income 2.2% 2.0% 3.0% 2.3% 3.0% 3.3% margin% CAPEX & M&A % % % Net Financial Position % % % Source: KT&Partners elaboration 1 The BRL-EUR exchange rate applied for FY17 is 3.61, the average daily exchange rate for For FY18, FY19 and FY20, the applied rates are equal to 3.90, 4.04 and 4.18, respectively. February 2,

4 Valuation Basis Based on our estimates, we have carried out our valuation based on multiples and DCF analysis and have taken the average price provided by these two models. This has led to a fair value of 4.55 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 4.26 per share. DCF analysis based on WACC of 8.6% and 1.5% perpetual growth, which returns a value of 4.84 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 2018 and 2019 P/E peers averages. The liquidity discount applied factors in the increase in average daily turnover from 2016 to 2017 (+1348%), which is even better than the result presented by AIM Italia for the same time period (+448%). 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 4.26 Source: Company data, KT&Partners estimates February 2,

5 Table 4: Peer Group Valuation Table 2018 Multiples Company Name Exchange Market Cap Source: KT&Partners elaboration on FactSet data Table 5: Peer Group Valuation Table 2019 Multiples EV/SALES 2018 EV/EBITDA 2018 EV/EBIT 2018 P/E 2018 DSV A/S OMX Copenhagen 12, Kuhne & Nagel International AG SIX Swiss 17, United Parcel Service, Inc. Class B NYSE 89, Deutsche Post AG XETRA 46, Owens & Minor, Inc. NYSE 1, UDG Healthcare Plc London 2, Average peer group 28, Median peer group 14, BOMI Italia S.p.A. Milan Company Name Exchange Market Cap DSV A/S OMX Copenhagen 12, Kuhne & Nagel International AG SIX Swiss 17, United Parcel Service, Inc. Class B NYSE 89, Deutsche Post AG XETRA 46, Owens & Minor, Inc. NYSE 1, 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/SALES 2019 EV/EBITDA 2019 EV/EBIT 2019 P/E 2019 February 2,

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 8.6% WACC (riskfree rate 1.8%, market risk premium of 7.14% based on June 2017 estimates by Damodaran, beta of 1.08, size premium of 2.0% implying a cost of equity of 11.56%, 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 FCFO (without nonrecurring items). This results in an equity value of 73.64mn or 4.84 per share. Table 6: Cash Flow Estimates million 2018E 2019E 2020E 2021E EBIT Taxes D&A Change in Net Working Capital Net Operating Cash Flow Capex Nonrecurring items FCFO g 1.5% Wacc 8.6% FCFO (discounted) Discounted Cumulated FCFO 9.56 TV TV (discounted) Enterprise Value NFP FY Equity Value Current number of shares Value per share ( ) 4.84 Source: KT&Partners elaborations February 2,

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. February 2,

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 trials 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. February 2,

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. February 2,

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