ESTIMATES REVISION. Fair Value: 3.87 (Prev. 3.31) From Brazilian Integration to MTA Migration! Healthcare Goods and Services

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1 August 2, 2017 ESTIMATES REVISION Fair Value: 3.87 (Prev. 3.31) Kevin TEMPESTINI Giancarlo DI VONA Fabio COZZI Healthcare Goods and Services From Brazilian Integration to MTA Migration! Brazilian minorities acquisition. On July 30 th, Bomi announced the full integration of its Brazilian minorities through the acquisition of the remaining 45% of Biomedical Distribution Mercosur Ltda. The structure of the operation is as follows: a) the acquisition price was 48mn Reais or 12.9mn; b) Biomedical Distribution Mercosur will pay to the selling shareholders, in the next 12 months, an extraordinary cash dividend of 11mn Reais or 2.9mn; c) the selling shareholders have also entered into a non-competition agreement, and will receive 15mn Reais or 4mn in five yearly tranches, the first tranche being paid at the deal closing. Bomi valued its Brazilian minorities at almost 5.0x 2016 EBITDA and 12.9x 2016 Net Profit. 2017: taking full control of the group earning power. Brazilian minorities integration is a game-changer in the Bomi equity story and is consistent with the group strategy of taking full control of its earnings and cash flow power. In fact, during 2017, Bomi bought back its minorities in Carrai & C Srl, now fully consolidated, in RITMO Holding, which is now controlled at 85%, and in Biocarrier Colombia S.A.S., which is now controlled at 80%. We expect, therefore, that the minorities impact on the group Net Income will decrease, on a pro forma basis, from 68% in 2016 to 5% in 2017 and onwards. BOMI Relative Performance Chart Volume BOMI ITALIA S.P.A. FTSE AIMItalia Jan-17 Mar-17 May-17 Jul-17 Market Data: Close Price ( ) Wk Low/High ( ) Day Average Trading Volume 27,317 Price Change: 1 wk 3.21% Price Change: 1 m 0.08% Price Change YTD 51.09% P/E Ratio (FY1) 15.58x 400, ,000 0 Estimates revision. We increased our Net Income expectation to take into account the Brazilian minorities acquisition and the company guidance, provided in the July 30 th press release. We increased our pro-forma 2017 Bomi s Net Income estimate by almost 1.6x from 0.96mn to 2.52mn, in line with the company guidance. We increased Bomi s 2018 and 2019 Net Income by 1.7x from 1.31mn to 3.51mn and by 95% from 2.16mn to 4.21mn, respectively. Our 2018 and 2019 Net Income expectations are lower than the company guidance, since we factored in the financial costs related to the Brazilian acquisition and the non-competition expenses. Fair value upgraded at We note that Bomi is trading at 5.55x EV/EBITDA 2017E and 4.62x EV/EBITDA 2018E and 15.58x PE2017E and 11.19x PE2018E: these multiples show a discount of 39-60% relative to the peer average. We have carried out a valuation based on both multiples and DCF analysis, the average of which leads to a fair value of 3.87 per share, which is 50% above the current market price. Our AIM Italia PIR pick. The debut of the Individual Savings Plans (PIRs) had a positive effect on Bomi s stock performance; with respect to our previous report, the stock is up by 21%. We consider the Brazilian deal a game-changer that will bring a possible MTA migration closer and we expect the stock to start trading as a growing MTA stock. Million Total Revenues EBITDA EBITDA Margin EBIT Bomi Net Profit Net Margin EPS 2014A % % n.a. 2015A % % A % % E PF % % E % % 0.23 Source: Company data, KT&P 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 Current price ( ) Target Price ( ) Sector Free Float (%) Healthcare and Services Per Share Data 2014A 2015A 2016A 2017E 2018E Total shares outstanding (mn) n.a EPS n.a Dividend per share (ord) Dividend pay out ratio (%) 0% 34% 35% 20% 20% Profit and Loss (EUR thousand) Revenues 67,004 78, , , ,241 EBITDA 7,970 8,250 8,747 10,589 12,734 EBIT 5,911 5,668 5,291 6,465 8,410 EBT 3,093 2,918 2,534 4,142 5,766 Taxes - 1,434-1,045-1,080-1,491-2,076 Tax rate -46% -36% -43% -36% -36% Net profit attributable to minority Net profit after minorities 739 1, ,518 3,506 Balance Sheet (EUR thousand) Total fixed assets 17,932 23,218 32,731 31,107 42,183 Net Working Capital (NWC) 2,667 4,196 2,855 4,630 5,222 Provisions ,855-1,633-2,847-3,433 Other asset and liabilities 1,752 1,590 1,061 1,145 1,214 Total Net capital employed 21,489 27,148 35,014 34,036 45,186 Net financial position (NFP) 14,316 9,632 15,953 12,485 24,349 Group Shareholder's Equity 5,021 14,881 15,440 17,796 17,898 Minorities 2,151 2,633 3,621 3,753 3,938 Total Shareholder's Equity 7,172 17,514 19,061 21,549 21,836 Cash Flow (EUR thousand) Net operating cash flow 6,536 7,205 7,323 10,066 11,272 Change in NWC - 2,204-1,529-1, Capital expenditure - 2,929-10,754-2,500-15,400-3,000 Other cash items/uses of funds , Free cash flow - 1,866-1,035 3,623-6,394 7,172 Enterprise Value (EUR thousand) Market Cap n.a. 39,287 58,890 58,890 58,890 Minorities 2,151 2,633 3,621 3,753 3,938 Net financial position 14,316 9,632 15,953 12,485 24,349 Enterprise value n.m. 51,553 78,465 75,129 87,177 Ratios (%) EBITDA margin 11.9% 10.5% 8.7% 8.9% 9.8% EBIT margin 8.8% 7.2% 5.2% 5.4% 6.5% Gearing - Debt/equity 285.1% 64.7% 103.3% 70.2% 136.0% Interest cover on EBIT 25.5% 32.5% 23.0% 17.4% 18.8% NFP/EBITDA 179.6% 116.8% 182.4% 117.9% 191.2% ROCE 27.5% 20.9% 15.1% 19.0% 18.6% ROE 14.7% 7.9% 3.0% 14.2% 19.6% EV/Sales n.m EV/EBITDA n.m P/E n.m Free cash flow yield n.m. -2.6% 6.2% -10.9% 12.2% Growth Rates (%) Sales 2.6% 18.0% 29.1% 17.0% 9.3% EBITDA 28.8% 3.5% 6.0% 21.1% 20.3% EBIT 31.2% -4.1% -6.7% 22.2% 30.1% Net profit -3.9% 12.9% -22.4% 82.4% 39.2% Source: Company data, KT&Partners estimates August 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). FY Estimates Revision We increased our Net Income expectation to take into account the Brazilian minorities acquisition and the company guidance, provided in the July 30 th press release. We increased our pro-forma 2017 Net Income estimate for Bomi by almost 1.6x from 0.96mn to 2.52mn, in line with the company guidance. We increased Bomi s 2018 and 2019 Net Income by 1.7x from 1.31mn to 3.51mn and by 95% from 2.16mn to 4.21mn, respectively. Our 2018 and 2019 Net Income expectations are lower than the company guidance, since we factored in the financial costs related to the Brazilian acquisition and the noncompetition expenses. On the CAPEX side, excluding M&A, we expect investments of 2.50mn in 2017 and 3.00mn in Our CAPEX estimates are higher than company guidance due to higher investments related to the Mexico start-up and investments for synergy exploitation. We increased our 2018E Net Financial Position estimate to 24.35mn from 9.42mn in order to take into account the Brazilian minorities acquisition and the extraordinary dividend payment related to this transaction. 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). Table 2: new forecasts thousand FY16A FY17E old FY17EPF new % FY18E old FY18E new % FY19E old FY19E new % Total Revenues % % % EBITDA % % % EBITDA margin% 9.1% 8.9% 9.8% 9.8% 10.2% 10.2% EBIT % % % EBIT margin% 5.6% 5.4% 6.1% 6.5% 7.3% 7.1% Net Income % % % Net Income margin% 1.8% 2.2% 2.2% 2.8% 3.1% 3.0% Bomi's Net Income % % % Bomi's Net Income margin% 0.8% 2.1% 1.0% 2.7% 1.5% 3.0% CAPEX % % % Net Financial Position % % n.m. Source: KT&Partners elaboration August 2,

4 Valuation Basis Based on our estimates, we have carried out a valuation based on multiples and DCF analysis and have taken the average price provided by these two models. This has led to a value of 3.87 per share. Our fair value takes the average of the following methods: P/E multiple, with a 15% discount, which returns a value of 3.62 per share. DCF analysis based on WACC of 9.6% and 1.5% perpetual growth, which returns a value of 4.12 per share. Multiples Valuation To value Bomi, we identified a series of comparables (see Appendix). We have chosen our peers by taking into consideration the business activity and the services provided. Following the Brazilian acquisition, we valued Bomi on a PE 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 15% size and liquidity discount to the 2017E and 2018E PE peers average: this discount has been reduced to 15% from 20% in order to take into account: a) the improved liquidity level reached by BOMI s stocks after PIR approval, and b) the expectation that the company may migrate to the MTA market in Table 3: Multiples Valuation M ultiples valuation P/E liquidity/size discount 15% 15% P/E post discount Net Income Equity Value Bomi Italia SpA number of shares Value per share Fair Value 3.62 Source: Company data, KT&Partners estimates August 2,

5 Table 4: Peer Group Valuation Table 2017 Multiples Company Name Exchange Market Cap Source: KT&Partners elaboration on Factset data Table 5: Peer Group Valuation Table 2018 Multiples EV/SALES 2017 EV/EBITDA 2017 EV/EBIT 2017 P/E 2017 DSV A/S OMX Copenhagen 10, Kuhne & Nagel International AG SIX Swiss 17, United Parcel Service, Inc. Class B NYSE 80, Deutsche Post AG XETRA 40, Owens & Minor, Inc. NYSE 1, UDG Healthcare Plc London 2, Average peer group 25, Median peer group 14, BOMI Italia S.p.A. Milan Company Name Exchange Market Cap EV/SALES 2018 EV/EBITDA 2018 EV/EBIT 2018 P/E 2018 DSV A/S OMX Copenhagen 10, Kuhne & Nagel International AG SIX Swiss 17, United Parcel Service, Inc. Class B NYSE 80, Deutsche Post AG XETRA 40, Owens & Minor, Inc. NYSE 1, UDG Healthcare Plc London 2, Average peer group 25, Median peer group 14, BOMI Italia S.p.A. Milan Source: KT&Partners elaboration on Factset data August 2,

6 DCF Valuation We performed a DCF analysis, in addition to the multiples valuation, to highlight the company s positive and visible cash flow generation for the forthcoming years. Our DCF analysis is based on a 9.6% WACC and a terminal growth rate of 1.5%. We computed the Terminal Value calculation based on an adjusted (excluding Non-recurring items) FCFO. This results in an equity value of 62.71mn or 4.12 per share. Table 6: Cash Flow Estimates million 2017E 2018E 2019E 2020E 2020E ADJ EBIT Taxes D&A Change in Net Working Capital Net Operating Cash Flow Capex Nonrecurring items FCFO g 1.5% Wacc 9.6% FCFO (discounted) Discounted Cumulated FCFO 9.02 TV TV (discounted) Enterprise Value NFP FY Equity Value Current number of shares Value per share ( ) 4.12 Source: KT&Partners August 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 July 13 th, 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 August 28 th, 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. August 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 trial 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. August 2,

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