SESA. MTA after strong. Buy (maintained) Company Update. 27 September Sector of the company: IT services

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1 Company Update Buy (maintained) MARKET PRICE: EUR11.39 TARGET PRICE: EUR14.95 (from EUR12.55) Sector of the company: IT services Data Shares Outstanding (m): Market Cap. (EURm): 157 Enterprise Value (EURm): 150 Free Float (%): 33.56% Av. Daily Trad. Vol. (m): Main Shareholder: I.T.H. Srl 66.4% Reuters/Bloomberg: SESA.MI SES IM 52-Week Range (EUR) Performance 1m 3m 12m Absolute 5.5% 8.8% 15.2% Rel. to FTSE IT 4.9% 15.6% 15.9% Graph area Absolute/Relative 12 M MTA after strong results In advance of Consob s approval of the migration of the stock from the AIM to the MTA segment, which is expected to become effective by year-end and which will improve the liquidity of the stock, we confirm our BUY rating and increase our target price by 19% to EUR14.95 as a result of revised estimates and the sector re-rating. SeSa generated Value of Production of EUR832 million in FY12/13 (year-end 30 April) with a 7.0% increase in EBITDA to EUR44.2 million (7% above our estimates). In 1Q13/14 the VoP grew 9% to EUR216 million and EBITDA increased ca 12% to EUR11.4 million. This significant top line growth was partially inflated by an exceptional positive trend in VAD. Taking increasing efforts to focus on value added services into account, we are cutting our revenue estimates by 2.6% in 2013/14E and 4.6% in 2015/16E but we are increasing our EBITDA forecasts by 6.3% in 2013/14E and 5.1% in 2014/ /15E. The stock is trading at 7.3xEPS2013/14E compared to 10x for its peers, which is extremely attractive considering: (1) its established relations with leading global vendors and high entry barriers in the market for distribution of Value Added IT solutions, where Sesa has a market share of 36%; (2) the outstanding track record of 36% CAGR in 2010/11A-2012/13A net profit; (3) the healthy financial structure, which improved further due to EUR25 million positive cash flow arising from the merger between Made in Italy 1 and the formerthe group to benefit from Sesa SpA. The additional cash available could allow better credit conditions from vendors, enhance group turnover and potentially acquire margin accretive companies or business units in Italy and the EU. > Sesa s revenues rose 2.5% in the 2012 financial year (year end April 2013), outperforming the domestic IT market (-3.8%, Source: Sirmi) and it achieved its target of EUR20 million net profit. Dividend was set at EUR0.45/share (in line) equal to a 32% pay-out. Next event 15/01/2014 1H13/14 results Oriana Cardani, CFA oriana.cardani@ubibanca.it Tel Website: Financials Revenues (EURm) EBITDA (EURm) EBITDA margin (%) 5.3% 5.6% EBIT (EURm) EPS (EUR) CFPS (EUR) / /14E 2014/15E 2015/16E DPS (EUR) Source: Company Data, UBI Banca Estimates Fiscal year ends at end-april > For 2013/14E we assume VoP up 3% and EBITDA margin of 5.6%. Net cash could exceed EUR30 million by April 14E after EUR5.5 million estimated CAPEX. In the medium term we are incorporating CAGR in sales 2012/13E-2015/16E of 3% with a CAGR in EBITDA of 5.3%. > Our TP of EUR14.95 per share derives from a DCF (WACC of 10.1%, g of 0.7%) and a relative valuation and corresponds to a 9.5xEPS14E. Upside could come from a higher than expected contribution from the development of cloud computing and new contracts with new vendors. Downside risk relates to the lack of improvement in the domestic IT market and in potential deflation of the sector % 5.7% Ratios P/E(x) 7.9 P/CF(x) 6.6 P/BV(x) / /14E 2014/15E 2015/16E Dividend Yield 3.9% 4.7% 5.1% 5.3% EV/EBITDA(x) 3.4 Debt/Equity (x) Debt/EBITDA (x) Source: Company Data, UBI Banca Estimates Fiscal year ends at end-april 1

2 Key Financials (EURm) 2012/ /14E 2014/15E 2015/16E Revenues EBITDA EBIT NOPAT Free Cash Flow Net Capital Employed Shareholders Equity Net Financial Position Key Profitability Drivers 2012/ /14E 2014/15E 2015/16E Net Debt/Ebitda (x) Net Debt/Equity (x) Interest Coverage (%) Free Cash Flow Yield (%) 1.2% 11.1% 12.3% 12.7% ROE (%) 15.6% 16.5% 15.8% 15.1% ROI (%) 31.9% 32.4% 33.0% 33.0% ROCE (%) 22.2% 21.4% 21.9% 21.8% Key Valuation Ratios 2012/ /14E 2014/15E 2015/16E P/E (x) P/BV (x) P/CF (x) Dividend Yield (%) 3.9% 4.7% 5.1% 5.3% EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) EV/CE (x) Key Value Drivers (%) 2012/ /14E 2014/15E 2015/16E Payout 31.1% 33.8% 34.6% 33.6% Cost of Equity 10.1% 10.1% 10.1% 10.1% WACC 10.1% 10.1% 10.1% 10.1% NWC/Sales 7.7% 8.0% 8.3% 8.8% Capex/Sales -1.5% -0.6% -0.6% -0.6% 2

3 Recent Developments > The merger of SeSa SpA (an Italian company established in late 1973, which distributes Value Added IT solutions for major companies including IBM, Cisco, Oracle and Microsoft and supplies systems integration services to mid and small enterprises) and Made in Italy, the Italian special purpose acquisition company (SPAC), became effective on 1 February > On 22 February, the EGM approved a buy-back program for up to 150,000 shares (1.1% of capital) expiring in 18 months. The program is to limit the dilutive impact of exercise of the warrants. The company began buying shares in May 2013 and has expended EUR513k so far. Treasury shares amounted to 55,950 (0.407% of the capital) as at 23 September > On 19 July, the BoD of Sesa approved the following results for FY12/13 (year-end 30 April): Value of Production (VoP) up 2.5% to EUR832 million with EBITDA rising 7% to EUR44.2 million, representing a 5.36% margin (+20 bps). Net profit was EUR19.9 million (+18% YoY) taking shareholders equity to EUR130 million. Net cash was EUR20.7 million. > Under the framework agreement signed by Made in Italy (now Sesa) and ITH Srl on 15 October 2012, following achievement of EUR20 million net profit as at April 2013, the BoD approved the automatic conversion of 1 million redeemable shares owned by ITS Srl into ordinary shares with no change in the total number of shares. > On 26 July, Sesa applied to the Italian Stock Exchange for admission of the ordinary shares and the warrants to the MTA. Approval is expected by year end. > On 23 September the BoD approved the following 1Q13/14 results: VoP up 9.3% to EUR216 million due to an improvement in the Systems Integration business and exceptional sales of hardware distribution in the quarter. EBITDA rose to EUR11.4 million (+11.6% YoY) representing an EBITDA margin of 5.3% (+10bps). Pre-tax profit was EUR6.6 million (+20.8% YoY). Net debt was EUR35 million compared to EUR20.7 million net cash at end-april 2013 and EUR103 million net debt at end-july The results of the quarter were impacted by a seasonal negative change in working capital. Sesa s VoP in FY12/13 exceeded EUR830 million (+EUR20 million YOY) lifting EBITDA above EUR44 million (+EUR3 million YoY) despite an 11.6% rise in personnel costs (+4.5 million YoY) which was mainly due to the reinforcement of the commercial and technical offer (+47 employees to 888 by the end of April). EBIT was EUR35 million after amortization charges of EUR6 million and bad debt provisions of EUR3.1 million. Net interest charges amounted to EUR5.6 million including EUR2.8 million cost for factoring fees. The tax rate fell from 38.7% to 30.4% due to an exceptional repayment of IRAP related to the so-called Save- Italy Decree (Italian Legislative Decree 201/2011). Overall net profit jumped by 18% to EUR19.9 million. During the year the net financial position improved from EUR4.1 million net debt to EUR20.7 million net cash due to EUR25 million positive cash flow arising from the merger between Made in Italy 1 SpA and the former-sesa SpA. The operating cash flow generated by the Group financed the EUR15 million of CAPEX of which EUR8 million was devoted to the building of 1,400 mq datacenter in Empoli for cloud computing tailor made solutions. 3

4 Figure 1. SeSa - Results FY12/13 review EURm apr-12 apr-13 Chg. YoY VoP % EBITDA % EBITDA margin 5.1% 5.3% EBIT % EBIT margin 4.3% 4.2% Net Income % Source: Company data Sesa Group has two main Business Units: - Value Added Distribution (VAD IT) which operates through the subsidiary Computer Gross Italia S.p.A. (CGI). It has 7,000 software houses and systems integrators throughout the country, and generates ca. 89% of total revenues. CGI is the first Italian vendor of IBM, Cisco and Oracle for the software segment and is one of the major vendors of Microsoft. - Systems Integration (ST) which operates through Var Group S.p.A. as systems integrator and supplier of IT services to 10,000 mid and small companies (not retail) in several industrial sectors. It accounts for ca. 19% of total revenues. Sesa also has a small business unit (ICT Logistica SpA) specialized in the provision of services and solutions for logistics. This is controlled by SeSa through Var Group and CGI, which both have a stake of 33.3%. The VAD Sesa segment revenues grew by 2.7% to EUR743 million in FY12/13 mainly due to higher sales of value added solutions by the software enterprise and increased market share. The SI line rose 7.3% to EUR154 million on the wave of both sales of hardware and increasing systems integration services. Figure 2. SeSa Breakdown of the revenues EURm apr-12 apr-13 Chg. YoY Value Added Distribution % Software and System Integration % Corporate and Logistics % Adjustments % Total revenues % % Breakdown Value Added Distribution 89.1% 89.3% Software and System Integration 17.7% 18.6% Corporate and Logistics 1.7% 1.6% Adjustments -8.5% -9.4% Total revenues 100.0% 100.0% Source: Company data 4

5 The main growth driver of EBITDA in FY12/13 was the rise in the Software and Systems Integration business, which generated EUR10.2 million EBITDA compared to EUR7.4 million in 2011/2012. The Value Added Distribution remains the major division generating 72% of consolidated EBITDA. Figure 3. SeSa Results by business division EURm apr-12 apr-13 Chg. YoY Value Added Distribution VoP % EBITDA % EBITDA margin 4.3% 4.3% Software and System Integration VoP ,5 7.3% EBITDA ,2 37.3% EBITDA margin 5.2% 6.6% Corporate and Logistics VoP % EBITDA % EBITDA margin 18.8% 10.9% Source: Company data Over the past 19 years, the group has consistently outperformed its core market (CAGR of ca %). Growth has been primarily organic augmented by small acquisitions and mergers of competitors, all effectively integrated into the group. Figure 4. SeSa 1993/ /13 sales growth From 1993/94 to 2012/13 the groupês growth has been largely organic EURm Source: Company data; all data use ITA GAAP up to 2010 and IFRF since

6 CAGR10/11-12/13 in sales was 7.5%. Over this period, the average annual growth in net profit exceeded 36%. Figure 5. SeSa Net profit and net margin over the past four years Over the past three years, the CAGR in net profit was ca. 36%. The company has so far always reinvested the profit in the company. 3,0% 2,4% 25 2,5% 2,0% 1,5% 1,0% 0,5% 1,2% 7,9 1,5% 11,47 1,9% 16,8 19, EURm 0,0% Net Profit Net margin Source: Company data; all data use ITA GAAP up to 2010 and IFRS standard since 2010 Figure 6. SeSa - EBITDA and EBITDA margin over the past four years Margin growth was achieved mainly through the increase in the gross margin, the containment of operating costs and higher volumes. 6,0% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% 5,1% 5,4% 4,6% 41,3 44,2 3,5% 34,4 23, ,0 45,0 40,0 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 EURm EBITDA EBITDA margin Source: Company data; all data use ITA GAAP up to 2010 and IFRS standard since 2010 Sesa reported EUR216 million VoP and EUR11.4 million EBITDA (+11.6% YoY) for 1Q13/14. Pre-tax profit was EUR6.6 million (+20.8% YoY). Net debt fell by EUR67.6 million compared to last year; the positive effect of the merger with Made in Italy 1 amounted to EUR25 million. 6

7 Figure 7. SeSa Results1Q13/14 review EURm jul-12 jul-13 Chg. YoY VoP % EBITDA % EBITDA margin 5.2% 5.3% Pre-tax profit % Net debt Source: Company data The successful story of growth of Sesa is explained by the following points of strength: i) Established relationships with leading global vendors. SeSa works with ca. 50 vendors. The top five account for ca. 60% of the business. ii) High market share. Computer Gross Italia has a market share of ca. 36% in Italy and is the second main distributor after Esprinet but top value-added distributor of IT software and solutions. Var Group, which supplies several customers in the industrial and services sector, has a market share of 2.9%. iii) Diversified clients and low exposure to banks and PA. SeSa supplies about 22k customers including systems integrators and small and mid sized Italian companies operating in the industrial and services market. iv) High barriers to entry (financial, commercial and marketing barriers). Vendors, who generally grant credit lines to distributors, have a maximum of three distributors per country and require the existence and maintenance of technical skills. In addition, vendors frequently require distributors to have the capacity to arrange events with retailers for customers. vi) Strong balance sheet. SeSa, prior to the merger, reported net debt (calculated using IFRS) of EUR4 million in FY11/12 (year-end 30 April). vi) Stable ownership. The owners of SeSa are directly involved in managing the business. We believe that further opportunities could come from: i) Additional growth from existing contracts and the acquisition of new contracts. The group expects that the improved financial structure could lead to additional credit facilities from vendors which would augment group turnover. ii) Potential growth in the field of cloud computing. The group, which intends to invest to establish itself as a leading player in cloud computing, already has a data centre for the Italian market and is increasingly working to develop cloud computing services in partnership with major IT international vendors bringing their IAAS and SAAS solutions (CGI) and developing IAAS and SAAS for their clients. iii) Acquisition of margin accretive companies or business units in the 7

8 field of distribution of systems integration in Italy and the EU. We believe that that the company could develop the potential of this business area as early as iv) New products from vendors which could lead to an increase in sales despite the worsening economic scenario. We believe that sales could grow at a CAGR12/13-14/15E of ca. 4.5% even though the economic scenario remains challenging. All these would overcome the following points of weakness: i) Exclusive exposure to the IT Italian market, which declined 3.8% in 2012 (source: Sirmi) and which, in 2013, could fall a further 2%. ii) Persistent price pressure. The entire IT industry has been subject to continuous price pressure over the past few years, jeopardizing the profitability of many IT companies. iii) High exposure to small and midsized companies. We believe this could represent a weakness as SMEs are more vulnerable in a weak economic scenario. Sesa is exposed to the following potential threats: i) Sharp deterioration in the macro economic scenario. We are concerned that economic uncertainty could impact on IT spending decisions or on the spending capacity of small and midsized companies in particular. ii) Payment delays. A possible credit crunch coupled with an unfavourable macro economic outlook could compel small and midsized companies to seek longer payment terms with a consequent increase in NWC for the merged entity. However the company has experienced no payment problems so far. ii) Shortfall of contracts. As ca. 60% of the business comes from the distribution of software and solutions of five brands, we believe that any crisis affecting one of these major suppliers could represent a risk for the company, although this is currently unlikely given the length of the relationships with the main vendors and the high level of loyalty achieved. 8

9 Financial Projections > We expect Sesa to continue to outperform the domestic IT market due to its strong financial position which should reinforce partnerships with vendors. > However, following FY2012/13 results and given increasing efforts to select value added clients, we are cutting our revenue forecasts by 2.6% in 2013/14E and by 4.6% in 2014/15E but increasing our EBITDA estimates by 6.3% in 2013/14E and by 5.1% in 2014/15E. > Our net profit estimates remain unchanged to reflect more conservative assumptions about provisions and financial charges. > Our model incorporates a CAGR in sales 12/13-15/16 of 3.0% with a CAGR in EBITDA of 5.3%. Net cash could be about EUR60 million in following CAPEX of EUR5.5 million per year and a 32% dividend pay-out. A survey by Sirmi indicates that the Italian IT market fell 3.8% YoY in 2012 to ca. EUR19.7 billion. The decline was attributed to lower demand for hardware (-7% YoY to EUR7 billion) and services (-3% YoY) with only software demand rising modestly (+0.5% YoY to EUR3.75 billion). Cloud computing generated turnover of EUR706 million in About 50% of demand is generated by Top Clients (ca users); 30% comes from SMEs, while the remaining 20% is generated by SoHo and consumers (retailers). Figure 8. SeSa The Italian IT market in 2011 and 2012 EURm 2011A 2012A Chg. YoY Hardware % Development service % Management service % Software % Total % Source: Sirmi SPA, July 2013 The market fell by 3.5% to EUR9.77 billion in the first six months of 2013 with hardware down 6.1% to EUR3.4 billion (Source: Sirmi, July 2013). The decline in 2Q13 (-2.5% YoY) was lower than that in 1Q13 (-4.4% YoY) due to the stabilisation of the software market and the improvement in hardware (-4% YoY in 2Q13 vs -8% YoY in 1Q13) is expected to remain negative (-2.4% YoY, Source Sirmi - July 2013) with a recovery in 2014 (+1.5% our assumptions). This forecast implies a 1.3% fall in 2H13 for the total market. Cloud computing is expected to rise 18% YoY in 2013 despite the macro weakness. 9

10 Figure 9. SeSa The Italian IT market forecast for 2013 EURm 2012A 2013E Chg. YoY Hardware % Development service % Management service % Software % Total % Source: Sirmi SPA, July 2013 We believe that SeSa could continue to outperform the market (we estimate sales growth of 3% in 2013/14E and 3.3% in 2014/15E) due to two major strengths i) existing partnerships with major vendors, which we believe could protect top line growth from significant pressure, and, ii) the ability to tailor innovative solutions, designed for large corporations, to the needs of SMEs. In addition, Sesa can count on the positive uptake of the offer of its cloud computing solution. These assumptions are slightly below previous estimates as a consequence of Sesa s decision to focus on value added clients. Nevertheless, we have increased our EBITDA forecasts by 6.3% in 2013/14E and by 5.1% in 2014/15E. EBITDA is expected to grow faster than revenues. We estimate a CAGR12/13-15/16E of 5.3% with a margin of 5.73% in FY15/16E, up from 5.36% in the fiscal year ended April Our net profit forecast remains unchanged as we now conservatively assume EUR1.5 million of bad debt provisions in both years and higher net financial charges, which incorporate factoring costs of ca EUR3 million. We estimate net profit of EUR24 million in FY13/14E, rising to ca EUR26 million in FY14/15E and EUR27 million in FY15/16E. Figure 10. Sesa Revised estimates and extension to April /13 2/13A 13/14 3/14E 14/15 4/15E 15/16 5/16E (EURm) Old New Old New New VoP % change -2.6% -4.6% EBITDA % change +6.3% +5.1% EBIT % change +3.6% +2.1% Net profit % change -0.4% -0.5% EPS % change -0.4% -0.5% Source: Company data, UBI Banca estimates 10

11 Improving profitability, low capex of EUR5.5 million per year (0.6xSales), and good net working capital management could result in net cash in FY13/14E of EUR34 million; this could rise to ca. EUR60 million in FY15/16E after incorporating a 34% dividend pay-out. Our forecasts do not incorporate external growth, although SeSA could use at least part of the proceeds of the business combination to acquire Italian distribution or systems integration companies (which are margin accretive) or companies specialised in high margin niche areas abroad. 11

12 Valuation > Given our new estimates and current sector multiples, we have upgraded our target price by 19% to EUR Our target is generated by a DCF and a relative valuation. Our DCF method (WACC of 10.1% g of 0.7%) produces a fair value of EUR14.76 per share while the Relative Valuation (based on a comparison of multiples) gives a fair value of EUR15.68 per share. > We give the DCF fair value a weighting of 80% (vs 20% for the Relative Valuation) due to company specifics as SeSa generates ca. 80% of its revenues from the Value Added Distribution. This valuation weighting also takes into accounts the larger size of the European company included in the peer group which, in our view, makes the multiple valuation less meaningful. Figure 11. SeSa - Valuation map Valuation Fair value (EUR) 1 DCF (80%) Relative valuation (20%) 3.14 Average current market price upside /(downside ) potential 31% Source: UBI Banca estimates DCF valuation Figure 12. SeSa WACC and DCF assumptions Risk-free rate based on the current yield of the 10-year Italian Government Bond 4.5% Market risk premium 4.5% Beta 1.25 Cost of Equity K (E) 10.1% Debt 0% Equity 100% Tax rate 33% Net Cost of Debt K (D) 3.9% Weighted Average Cost of Capital (WACC) 10.1% Perpetuity growth rate 0.7% Source: UBI Banca estimates We are incorporating the maximum number of shares resulting from the conversion of warrants, i.e million. SeSa warrants (5 million) could be converted into new shares at a ratio equal to the difference between the average monthly market price (with a cap of EUR13.3 per share) and a strike price of EUR9.5 divided by the difference of the average monthly market price and EUR0.1 (subscription price for conversion shares). The conversion began on 1 March 2013 and will expire in five years unless the average market price exceeds EUR13.3 per share. 12

13 Figure 13. SeSa DCF valuation Free Cash Flow 2013/14E-2018/19E (EURm) (A) Discounted free cash flow 2013/1 /14E /1 /19E E (EURm) 99.7 Free Cash Flow terminal year (EURm) 20 WACC (%) 10.1% Terminal Value (EURm) (B) Discounted Terminal Value (EURm) Value of Operating activities (A+B) (EURm) 218 Net Financial position FY12/13 (EURm) Pension provisions (EURm) Minorities (EURm) -3.3 Financial investments (treasury) -0.4 Equity Value (EURm) Number of shares ex treasury (m) 15.2 Value per share (EUR) 14.8 Source: UBI Banca estimates Figure 14. SeSa DCF sensitivity TP sensitivity to the terminal value growth rate and the WACC. 0.70% 0.80% 0.90% 1.00% 1.10% 1.20% 1.30% 9.5% % % % % % % Source: UBI Banca estimates Relative valuation We have included the following companies in our market multiple comparison analysis: Ingram Micro (NYSE): an American global wholesale technology distribution company providing information technology supply-chain management, mobile device lifecycle services and logistics solutions. It is a high volume distributor. Arrow Electronics (NYSE): an American global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions. It is not present in Italy. Avnet (NYSE): an American industrial distributor of electronic components, enterprise computer and storage products and embedded subsystems. It is not present in Italy. Engineering (MTA): the leading Italian systems integrator. Its market segment includes banks, insurance firms, service industries, telecommunications, utility firms and public bodies. Reply (MTA): a top domestic provider of information technology consultancy services, application management and business process outsourcing. Exprivia (MTA): is involved in Internet and Intranet software development. Its 13

14 services include: Systems Integration, Project, Consultancy, and Outsourcing and Application Management. Capgemini (Euronext): a leading provider of systems integration and consulting services. Figure 15. SeSa P/E of peer group IT competitors have varying business profiles. Some of them are involved in the distribution business while others are systems integrators. (x) 2013E P/E 2014E 2015E Ingram Micro Arrow Electronics Avnet Engineering Reply Exprivia Capgemini Median Source: UBI Banca estimates for SeSa and Exprivia, Factset for peers Figure 16. SeSa Multiple valuation (based on a P/E comparison) 2013E 2014E Average price P/E (x) Annualized EPS (EUR) Fair Value (EUR) Source: UBI Banca estimates for SeSa and Exprivia, Factset for peers. 14

15 Income Statement (EURm) 2012/ /14E 2014/15E 2015/16E Net Revenues EBITDA EBITDA margin 5.3% 5.6% 5.6% 5.7% EBIT EBIT margin 4.2% 4.7% 4.8% 4.8% Net financial income /expense Associates & Others Profit before taxes Taxes Minorities & discontinuing ops Net Income Balance Sheet (EURm) 2012/ /14E 2014/15E 2015/16E Net working capital Net Fixed assets M/L term funds Capital employed Shareholders' equity Minorities Shareholders' funds Net financial debt/(cash) Cash Flow Statement (EURm) 2012/ /14E 2014/15E 2015/16E NFP Beginning of Period Group Net Profit Minorities D&A Change in Funds & TFR Gross Cash Flow Change In Working Capital Other Operating Cash Flow Net Capex Other Investments Free Cash Flow Dividends Paid Other & Chg in Consolid. Area Chg in Net Worth & Capital Incr Change in NFP NFP End of Period

16 Financial Ratios (%) 2012/ /14E 2014/15E 2015/16E ROE 15.6% 16.5% 15.8% 15.1% ROI 31.9% 32.4% 33.0% 33.0% Net Fin. Debt/Equity (x) Net Fin. Debt/EBITDA (x) Interest Coverage NWC/Sales 7.7% 8.0% 8.3% 8.8% Capex/Sales -1.5% -0.6% -0.6% -0.6% Pay Out Ratio 31.1% 33.8% 34.6% 33.6% Per Share Data (EUR) 2012/ /14E 2014/15E 2015/16E EPS DPS Op. CFPS Free CFPS BVPS Stock Market Ratios (x) 2012/ /14E 2014/15E 2015/16E P/E P/OpCFPS P/BV Dividend Yield (%) 3.9% 4.7% 5.1% 5.3% Free Cash Flow Yield (%) 1.2% 11.1% 12.3% 12.7% EV (EURm) EV/Sales EV/EBITDA EV/EBIT EV/Capital Employed Growth Rates (%) 2012/ /14E 2014/15E 2015/16E Growth Group Net Sales 2.5% 3.0% 3.3% 2.8% Growth EBITDA 7.0% 8.0% 4.5% 3.3% Growth EBIT 1.1% 14.5% 5.1% 3.7% Growth Net Profit 18.2% 19.9% 7.1% 6.5% 16

17 Disclaimer Analyst Declaration The analyst who prepared this report, and whose name and role appear on the front page, certifies that: a. the views expressed on the Company mentioned herein accurately reflects his personal views. It does not represent the views or opinions of the management of UBI Banca or any other company in or affiliated to the UBI Banca Group. It is possible that individuals employed by UBI Banca, or any other company in or affiliated to the UBI Banca Group, may disagree with the views expressed in this report; b. no direct or indirect compensation has been or will be received in exchange for any views expressed; c. the analyst does not own shares of the Company; d. neither the analyst nor any member of the analyst s household serves as an officer, director or advisory board member of the Company; e. the analyst does not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions. About UBI Banca This document has been prepared by UBI Banca, a bank authorized by the Bank of Italy to provide investment services pursuant to Article 1, Paragraph 5, letter a), b), c), c-bis), e) and f) of Legislative Decree, 24 February 1998, n 58. General warning This document is for information purposes only. This document (i) is not, nor may it be construed, to constitute, an offer for sale or subscription of or a solicitation of any offer to buy or subscribe for any securities issued or to be issued by the Company, (ii) should not be regarded as a substitute for the exercise of the recipient s own judgement. In addition, the information included in this document may not be suitable for all recipients. Therefore the recipient should conduct his own investigations and analysis of the Company and securities referred to in this document and make his own investment decisions without undue reliance on its contents. Neither UBI Banca, nor any other company of the UBI Banca Group, nor any of its directors, managers, officers or employees, accepts any liability whatsoever (in negligence or otherwise), and accordingly no liability whatsoever shall be assumed by, or shall be placed on, UBI Banca, or any other company of the UBI Group, or any of its directors, managers, officers or employees, for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. The information provided and the opinions expressed in this document are based upon information and data provided to the public by the Company or news otherwise public and refers to the date of publication of the document. The sources (press publications, financial statements, current and periodic release, as well as meetings and telephone conversations with Company representatives) are believed to be reliable and in good faith, but no representation or warranty, express or implied, is made by UBI Banca as to their accuracy, completeness or correctness. Past performance is not a guarantee of future results. Any opinions, forecasts 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 such opinions, forecasts or estimates. Any information herein is subject to change, update or amendment without notice by UBI Banca subsequent to the date of this document, with no undertaking by UBI Banca to notify the recipient of this document of such change, update or amendment. Organizational and administrative arrangements to prevent conflicts of interests UBI Banca maintains procedures and organizational mechanisms (physical and non-physical barriers designed to restrict the flow of information between Business Analysis Unit and the other areas/departments of UBI Banca) to prevent and professionally manage conflicts of interest in relation to investment research. For further information please see Meccanismi organizzativi ed amministrativi posti in essere per prevenire ed evitare conflitti di interesse in rapporto alle Ricerche. Disclosure of potential conflicts of interest The outcome of the checks carried out is reported below: > UBI Banca acts as Nomad and Sponsor for Sesa Spa > UBI Banca holds an equity participation in Sesa SpA. Frequency of updates UBI Banca aims to provide continuous coverage of the companies in conjunction with the timing of periodical accounting reports and any exceptional event that occurs affecting the issuer s sphere of operations and in any case at least twice per year. The companies for which UBI Banca acts as Sponsor or Specialist are covered in compliance with regulations of the market authorities. Valuation methodology UBI Banca s analysts value the Company subject to their recommendations using several methods among which the most prevalent are: the Discounted Cash Flow method (DCF), the Economic Value Added method (EVA), the Value map method, the Multiple comparison method. For further information please refer to Ranking system UBI Banca s analysts use an absolute rating system, not related to market performance. The explanation of the rating system is listed below: Buy: if the target price is 10% higher than the market price. Hold: if the target price is 10% below or 10% above the market price. Sell: if the target price is 10% lower than the market price. Target price: the market price that the analyst believes that the share may reach within a one-year time horizon. 17

18 Market price: closing price on the day before the issue date of the report, appearing on the first page. Distribution This document is intended for distribution only by electronic and ordinary mail to Professional Clients and Qualified Counterpartiesas defined in Consob Regulation n dated This document may be distributed in the USA by a United States Securities and Exchange Commission ( SEC ) registered broker dealer. This document may not be distributed in Canada, Japan or Australia. Copyright This document is being supplied solely for the recipient s information and may not be reproduced, redistributed or passed on, directly or indirectly to any other person or published, in whole or in part, for any purpose without prior written consent by UBI Banca. The copyright and intellectual property rights on the data are owned by UBI Banca Group, unless otherwise indicated. The data, information, opinions and valuations contained in this document may not be subject to further distribution or reproduction, in any form or via any means, even in part, unless expressly consented by UBI Banca. By accepting this document the recipient agrees to be bound by all of the forgoing provisions. Distribution of ratings For further information regarding quarterly rating statistics and descriptions, please refer to Historical ratings and target prices Date Rating Target Price (EUR) Market Price (EUR) 07/03/2013 BUY 12,55 10,21 18