METKA. New projects overshadow soft margins. GREECE EQUITY RESEARCH INDUSTRIALS November 21, 2013 Q REVIEW

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1 GREECE EQUITY RESEARCH INDUSTRIALS Q REVIEW METKA New projects overshadow soft margins Q review The EPC contractor reported a 4.7% increase in revenues in the third quarter to EUR115.5mn, reflecting solid contract execution across different geographies such as Romania, Turkey, Algeria and Jordan. EBITDA stood at EUR19.0mn, up 2.0% yoy on slightly softer margins yoy (by 43 bps), but improved over Q2. As was the case in Q2, this is at due to a negative impact in the two projects in Turkey (losses of EUR4.7mn in the quarter at the pre-tax level compared to profits of EUR2.4mn during the same period last year). This is a typical phenomenon, since many unexpected factors may affect profitability margins of a specific project as it approaches completion, and we expect it will smooth out by year-end. Working capital improved considerably compared to the end of 2012, owing to a significant reduction in receivables as well as inventories. Although improved since Dec. 12, working capital deteriorated on a quarterly basis and as a result, the group reported an operational outflow of EUR19.0mn in the quarter, which led to a net cash decline of EUR20.8mn to EUR162.6mn. New project in Algeria METKA recently signed a new contract with Société Algérienne de Production de l Electricité (SPE Spa), in consortium with General Electric. The contract relates to the engineering, procurement, installation and commissioning of a dual fuel (natural gas/diesel) open cycle power plant of 591MW installed capacity in Hassi R mel, Algeria. It is budgeted at EUR372mn and will be completed within a period of 16.5 months. This is the 4th project in Algeria for METKA, which participates with a 47% stake in the consortium. Earnings revision We have re-visited our model for METKA to include the new project in Algeria. We have made practically no changes to our assumptions for 2013e, since we assume contract execution will begin in early 2014e. In this sense, we raise our 2014e-2015e forecasts by 15% on avg and note that the change is frontloaded, since we assume this is a fast-track project. We increase our EBITDA accordingly assuming a margin close to METKA s other projects in Algeria. Valuation - Following our earnings upgrade, we raise our group valuation accordingly. We also rolled-over our numbers to 2014e and altered slightly our multiples-based approach (looking into 2015e). All in all, we raise our target price to EUR15.0 from EUR13.40 previously. Despite the limited upside, we highlight that the stock trades at a more attractive 3.4x 2014e EV/EBITDA than the rest of our universe (the non-financials in our focuslist trade at a 7.5x 2014e EV/EBITDA multiple). For this reason, we retain our Buy recommendation and also maintain METKA in our Top picks portfolio, taking into account the potential for significant cash flow generation and dividend capacity. We also highlight that our valuation errs on the downside since we have not yet included any impact from the EUR1.0bn Iraqi contract as many factors affecting our valuation of the project have yet to be determined. Estimates EUR mn 2011a 2012a 2013e 2014e 2015e Revenues 1, EBITDA Net Profit EPS DPS Valuation 2011a 2012a 2013e 2014e 2015e P/E EV/EBITDA EBIT/Interest expense Yield 5.6% 1.9% 5.7% 5.6% 5.0% ROE 33.9% 18.9% 15.9% 19.1% 15.1% Recommendation BUY Target Price Prior Target Price Closing Price (20/11) Market Cap (mn) Expected Return 11.1% Expected Dividend 5.7% Expected Total Return 16.8% METKA Share Price Nov-12 Jan-13 Apr-13 Jun-13 Aug-13 Nov-13 Stock Data Reuters RIC Bloomberg Code MTKr.AT METTK GA 52 Week High (adj.) Week Low (adj.) 7.45 Abs. performance (1m) -2.1% Abs. performance (YTD) 37.9% Number of shares 52.0mn Avg Trading Volume (qrt) 49.4k Est. 3yr EPS CAGR 0.8% Free Float 43% Analysts Katerina Zaharopoulou Equity Analyst Tel: kzaharopoulou@eurobankequities.gr John Kalantzis Head of Research Tel: jkalantzis@eurobankequities.gr Head of Research Tel: Sales Tel: Trading Tel: /110 See Appendix for Analyst Certification and important disclosures

2 Q Review The EPC contractor reported a 4.7% increase in revenues in the third quarter to EUR115.5mn, reflecting solid contract execution across different geographies such as Romania, Turkey, Algeria and Jordan. Contract execution in Algeria and Iraq was solid; during the quarter, the group booked revenues of EUR24.4mn from the fast-track project in Algeria and another EUR44.8mn from the 1,250MW upgrade in Iraq. Jordan-related revenue reached EUR12.4mn in the quarter. At the same time, the mgt s special measures in Syria continue to deliver positive results and contract execution continued in this quarter as well, despite the social unrest in the area. The group had recorded Syria-related revenues of EUR20.5mn in Q1 and another EUR12.3mn in Q2 while it has recorded revenues of EUR26.0mn in the third quarter. Recall that following a 6-month freeze in operations for safety reasons last year, the mgt took special measures and resumed activities at the Deir Ali plant during Q1. It has established an office in Lebanon (2 ½ hour drive from Damascus) and mgt now has remote control in many operations and is proceeding in a very specific way and with a lot of extra measures. EBITDA stood at EUR19.0mn, up 2.0% yoy on slightly softer margins yoy (by 43 bps), but improved over Q2. As was the case in Q2, this is at due to a negative impact in the two projects in Turkey (losses of EUR4.7mn in the quarter at the pre-tax level compared to profits of EUR2.4mn during the same period last year) which are at the final stages of completion. This is a typical phenomenon, since many unexpected factors may affect profitability margins of a specific project as it approaches completion, and we expect it will smooth out by yearend. We note that the company experienced a similar occurrence close to the completion of its 860MW project in Romania as well. Bottom line profitability stood at EUR15.9mn, down 4.1% yoy, impacted by increased credit and FX-related expenses. On a positive note, working capital improved considerably compared to the end of 2012, standing at EUR186mn from EUR245.2mn in December 2012, owing to a significant reduction in receivables (to EUR367.3mn vs. EUR452.0mn in Q4 2012) as well as inventories (down EUR10.3mn q-o-q). Although improved since the end of 2012, working capital deteriorated on a quarterly basis, standing EUR44.0mn higher and as a result, the group reported an operational outflow of EUR19.0mn in the quarter, which led to a net cash decline of EUR20.8mn to EUR162.6mn. METKA Quarterly Highlights EUR mn Q Q yoy% Sales % EBITDA % EBITDA margin 16.5% 16.9% -43 bps EBT % Net profits % OCF % FCF % Net Debt / (Cash) - adjusted * % Net Debt / (Cash) - reported % Source: Eurobank Equities Research * Since 2012, METKA, through Mytilineos subsidiary Mytilineos Financial Partners participates in the group s cash pooling and in this respect, has proceeded with an investment corporate bonds totaling EUR31.3mn in the quarter (vs. EUR32.4mn in Q and EUR41.3mn at the end of 2012). Although classified under IFRS as a receivable from connected parties, we treat this as a cash equivalent. 2

3 New project in Algeria and update on Iraq The company announced recently that it has signed a new contract with Société Algérienne de Production de l Electricité (SPE Spa), in consortium with General Electric. The contract relates to the engineering, procurement, installation and commissioning of a dual fuel (natural gas/diesel) open cycle power plant of 591MW installed capacity in Hassi R mel, Algeria. It is budgeted at EUR372mn and will be completed within a period of 16.5 months. This is the 4 th project in Algeria for METKA, which participates with a 47% stake in the consortium. It was quite a positive development for METKA, confirming the company s solid track record and competitiveness in international large scale tenders and we have re-visited our model to include this project in our backlog (see page 4 for details). Regarding Iraq, we remind that on July 1 st, 2013, a consortium consisting of METKA S.A. and its subsidiary METKA Overseas signed an agreement with the Ministry of Electricity in Iraq in relation to the engineering, procurement and construction of a EUR1.0bn turnkey CCGT project in the area. The project relates to the construction of a reported 1,642MW CCGT plant in al-anbar and will be carried out during a period of 32 months. According to press reports, apart from METKA, Italian Saipem, South Korean Hyundai Engineering, Turkish Gama and a consortium consisting of Italian Techint Engineering and Turkish Calik were in the shortlist to win the project. The company has also given notice that the project will be carried out in collaboration with Chinese state-controlled construction company SEPCO III, which has acquired METKA Overseas. The final details of the project execution agreement are still under negotiation. Although we have no reason to doubt METKA s ability to complete the project in a successful and timely fashion, given the size of the contract, the largest single project ever won by the company, and the high execution risk due to geopolitical reasons, it does not surprise that METKA sought a partnership as a means to reduce its risk. We remind that in the past METKA has proceeded with a similar action, when it decided to disengage from a project commissioned by PPC (Megalopoli V sale to GEK TERNA) in order to release capital for re-investment. Whatever the company opts to do, we believe there is significant value stemming from the award of the project but since many variables have yet to be determined we do not yet included the project in our numbers. 3

4 METKA Fundamentals and prospects Strong prospects for EPC contractors remain in place Electricity demand across the world is on the rise and it is clear that a mixture of energy sources is required both now and in the future to safeguard electricity generation. Over the past decade, there has been increased use of combined cycle plants for power generation, due to high efficiencies achieved from such plants, short execution times and relatively low investment costs. An increasingly important driver for CCGT demand is the growing percentage of RES envisaged on the grid going forward. Wind and solar energy are not continuously available and it is imperative that high availability and reliability power generating alternatives be put in place to compensate for volatile renewables. With the introduction of new technologies that bring forward the potential for fast cycling and fast start-up, now more than ever, CCGT is becoming increasingly important since it proves to be the best alternative to back up electricity production from renewable energy sources. Given its strong track record and good relationship with key suppliers, we believe Metka is in a position to benefit from demand for such projects. On our estimates, the company is closely eying projects with a total capacity of over 3,500MW in Africa, South-East Europe, the Middle East and Africa, and we assume is preferred bidder / short listed in a number of them. Source: Company 4

5 Estimates revision We have re-visited our model for METKA to include the recently awarded project in Algeria. We have made practically no changes to our assumptions for 2013e, since we assume contract execution will begin in early 2014e. In this sense, we raise our 2014e-2015e forecasts by 15% on average and note that the change is frontloaded, since it is our understanding that this is a fast-track project. In terms of profitability, we increase our EBITDA accordingly (by 21% in 2013e and 8% in 2015e), assuming a margin close to METKA s other projects in Algeria. We highlight that so far this year, sales in Algeria have accounted for c. 30% of total, with a quite attractive pre-tax margin of > 30% (vs. 13.4% for the group). We leave our working capital assumptions unchanged and as a result of the new project, raise our cash flow estimates for 2014e and increase our net cash forecasts accordingly. Since our estimates revision is frontloaded, the impact is milder for 2015e. METKA Estimates Revision EUR mn 2013e 2014e 2015e old est. new est. Revision old est. new est. Revision old est. new est. Revision Sales % % % EBITDA % % % EBITDA Margin 17.0% 16.9% -5 bps 16.9% 16.9% 2 bps 16.9% 16.9% 1 bps Net Profit % % % DPS % % % Group Free Cash Flow * % % % Net Debt / (Cash) * % % % Source: Eurobank Equities Research 5

6 Valuation Following our earnings upgrade owing to the new contract in Algeria, we raise our group valuation accordingly. At the same time. we have rolled over our numbers to 2014e and alter slightly our multiples-based approach (looking into 2015e). All in all, we raise our target price to EUR15.0 from EUR13.40 previously. Our valuation implies a decent upside from current levels following the stock s quite strong performance recently (c. +45% since lows recorded in late March). Despite that, we highlight that the stock trades at a more attractive 3.4x 2014e EV/EBITDA than the rest of our universe (the non-financials in our focuslist trade at a 7.5x 2014e EV/EBITDA multiple). For this reason, we retain our Buy recommendation and also maintain METKA in our Top picks portfolio, taking into account the potential for significant cash flow generation and dividend capacity. We also highlight that our valuation errs on the downside since we have not yet included any impact from the Iraqi project as many factors affecting our valuation of the project have yet to be determined. We remind that we have reached to our target price using a blended valuation methodology applying a 50% weight to our DCF and a 50% weight to an assumed exit multiple of 2015e EV/EBITDA of 5.6x, which is in line with 2015e EV/EBITDA multiple of its global peers. On our target price, the group trades at a 9.3x 2014e PE and a 4.1x EV/EBITDA multiple (and 4.7x 2015e EV/EBITDA) and offers a c. 13% cash flow yield. METKA Blended Valuation Weight Target Equity Value Target Value Per Share (EUR) Prior Value Per Share (EUR) DCF Valuation 50% Multiples Valuation 50% Target Valuation Upside / Downside 11.4% Source: Eurobank Equities Research Relative Valuation Our selected universe of EPC contractors 1 currently trades at 6.4x 2014e and 5.6x 2015e EBITDA multiples. On our numbers, METKA trades at a heavy >30% discount relative to its global peers on 2014e-2015e EV/EBITDA multiples. METKA Relative Valuation EV/EBITDA 2013e 2014e 2015e EPC Contractors (BBG Consensus) 2 7.5x 6.4x 5.6 METKA (Eurobank Est.) 5.2x 3.4x 4.0x Premium / (Discount) -29.8% -46.5% -27.9% Source: Eurobank Equities Research, Bloomberg 6 1 Average of JGC, Petrofac, Samsung Engineering, Hyundai Engineering & Construction, AMEC, Jacobs Engineering, AKER Solutions, KBR, GS Engineering & Construction, Daelim Industrial, McDermott, Tecnicas Reunidas, Foster Wheeler, Duro Felguera, Kvaener and Kentz.

7 Group Financial Statements Balance Sheet EUR mn 2011a 2012a 2013e 2014e 2015e Non-current Assets Property, Plant & Equipment (net) Set-up Expenses (net) Goodwill (net) Investments Deferred Tax Asset Total Non-current Assets Inventories Trade Receivables Other receivables Cash & Equivalents * Current Assets Total Assets Share Capital & Premium Reserves Minority Interest Total Equity LT Loans Provisions Deferred Tax Liability Other Non-current liabilities Long Term Liabilities ST Loans Trade Payables Other Payables Current Liabilities Total Equity & Liabilities Source: Company, Eurobank Equities Research * In 2012, METKA, through the group s subsidiary Mytilineos Financial Partners proceeded with an investment in 3-month and 6-month corporate bonds totaling EUR41.3mn (3-month Euribor +6.15% and 4.5% respectively). Although classified under IFRS as a receivable from connected parties, we treat this as a cash equivalent. 7

8 P&L EUR mn 2011a 2012a 2013e 2014e 2015e Turnover 1, change 72.7% -45.4% 3.1% 33.7% -15.8% Gross Profit (excl. depreciation) Gross margin 19.1% 21.5% 21.7% 20.5% 21.1% Selling, Administrative & Other Expenses Fees EBITDA change 59.3% -42.6% 3.1% 33.6% -16.1% EBITDA margin 16.1% 16.9% 16.9% 16.9% 16.9% Depreciation EBIT change 62.1% -43.8% 3.8% 35.0% -16.7% EBIT margin 15.6% 16.1% 16.2% 16.3% 16.2% Net Financial Expense / Income Adjustments Earnings Before Tax change 18.7% -43.3% 0.6% 34.0% -14.4% EBT margin 14.8% 15.4% 15.1% 15.1% 15.4% Income Tax Greek levies Effective Tax Rate 21.8% 16.0% 26.0% 26.0% 26.0% Earnings After Tax Minorities Net Profit change 32.2% -39.1% -11.0% 34.3% -14.5% Net Profit margin 11.5% 12.8% 11.1% 11.1% 11.3% EPS DPS (regular & special gross) Source: Company, Eurobank Equities Research 8

9 Cash Flow Statement EUR mn 2011a 2012a 2013e 2014e 2015e Net Profit Depreciation of Fixed Assets Changes in Working Capital Other Adjustments Net Inflows (Outflows) from Operating Activities Capex Other Net Inflows (Outflows) from Investing Activities Free Cash Flow - adjusted Purchase of bonds * Free Cash Flow - reported Source: Company, Eurobank Equities Research *In 2012, METKA, through the group s subsidiary Mytilineos Financial Partners proceeded with an investment in 3-month and 6-month corporate bonds totaling EUR41.3mn (3-month Euribor +6.15% and 4.5% respectively), recorded under investments (other) for cash flow purposes. Although classified under IFRS as a receivable from connected parties, we treat this as a cash equivalent. Ratios 2011a 2012a 2013e 2014e 2015e P/E P/BV P/Sales EV/EBITDA EV/Sales EBIT/Interest expense * Net Debt/EBITDA Dividend Yield (gross) 5.6% 1.9% 5.7% 5.6% 5.0% ROE 33.9% 18.9% 15.9% 19.1% 15.1% Cash Flow Yield 16.7% -2.9% 20.8% 14.9% 7.0% Payout Ratio 33.9% 18.5% 64.0% 47.0% 49.0% Source: Company, Eurobank Equities Research * Interest expense refers to LoCs cost. 9

10 Eurobank Equities Investment Firm S.A. Member of Athens Exchange, Cyprus Stock Exchange and Eurobank Ergasias S.A. Regulated by the Hellenic Capital Markets Commission Authorisation No: 6/149/ VAT No: , Reg. No Filellinon Street Athens, Greece Telephone: Facsimile: Website: IMPORTANT DISCLOSURES This report has been issued by Eurobank Equities Investment Firm S.A., a member of the Athens Exchange, a member of the Cyprus Stock Exchange and a member of EUROBANK Ergasias S.A. Eurobank Equities Investment Firm S.A.. is regulated by the Hellenic Capital Markets Commission (HCMC) with authorisation number 6/149/ This report may not be reproduced in any manner or provided to any other persons. Each person that receives a copy by acceptance thereof represents and agrees that it will not distribute or provide it to any other person. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell securities mentioned herein. The investments discussed in this report may be unsuitable for investors, depending on their specific investment objectives and financial position. The investments discussed in this report are subject to risks and in respect of some investments there is risk for multiplied losses to be caused in respect to the capital invested. The information contained herein has been obtained from sources believed to be reliable but it has not been verified by Eurobank Equities Investment Firm S.A.. The opinions expressed herein may not necessarily coincide with those of any member of the Eurobank Group. No representation or warranty (express or implied) is made as to the accuracy, completeness, correctness, timeliness or fairness of the information or opinions herein, all of which are subject to change without notice. No responsibility of liability whatsoever or howsoever arising is accepted in relation to the contents hereof by Eurobank Equities Investment Firm S.A. or any of its directors, officers or employees. Eurobank Equities Investment Firm S.A. follows procedures under Eurobank Group policies that set up Chinese Walls, restricting communication between Research and other departments inside the Company or the Group so that Eurobank Equities Investment Firm S.A. complies with regulations on confidential information and market abuse. Eurobank Equities Investment Firm S.A., or any of its related legal persons, does not hold shareholdings exceeding 5% of the total issued share capital in METKA. None of the subject companies mentioned in this report holds shareholdings exceeding 5% of the total issued share capital of Eurobank Equities Investment Firm S.A., or any of its related legal persons. Eurobank Equities Investment Firm S.A., or any of its related legal persons, is not a market maker of METKA. Eurobank Equities Investment Firm S.A., or any of its related legal persons, is not a party to an agreement relating to the production of this report with METKA. EUROBANK Equities Investment Firm S.A, or any of its related investment banking services legal persons, has not received compensation for investment banking services provided within the last twelve months from METKA. Analyst Certification: This report has been written by Katerina Zaharopoulou and John Kalantzis (Equity Analysts). Analyst Compensation: The remuneration of Katerina Zaharopoulou and John Kalantzis are not tied to the investment banking services performed by Eurobank Equities Investment Firm S.A. or any of its related legal persons. Katerina Zaharopoulou and John Kalantzis did not receive or purchase the shares of METKA prior to a public offering of such shares. Katerina Zaharopoulou and John Kalantzis do not have a significant financial interest in one or more of the financial instruments which are the subject of this report or a significant conflict of interest with respect to the subject companies mentioned in this report a) that are accessible or reasonably expected to be accessible to the persons involved in the preparation of this report or b) known to persons who, although not involved in the preparation of this report, had or could reasonably be expected to have access to this report prior to its dissemination to customers or the public. Planned Frequency of Updates: Eurobank Equities Investment Firm S.A. provides daily and monthly updates as well as updates on companies based on company-specific developments or quarterly financial results announcements or any other publicly available information. 12-month Rating History of METKA: Date Rating Stock price Target price 21/11/2013 Buy /08/2013 Buy /05/2013 Buy /03/2013 Buy /01/2013 Buy /11/2012 Buy Eurobank Equities Investment Firm S.A. Rating System: Stock Ratings Coverage Universe Investment Banking Clients Count Total Count Total Buy 8 30% 3 38% Hold 9 33% 2 22% Sell 4 15% 0 0% Restricted 2 7% 1 50% Under Review 4 15% 0 0% Total % Analyst Stock Ratings: Buy: Hold: Sell: Restricted: Under Review: Based on a current 12-month view of total shareholder return (percentage change in share price to projected target price plus projected dividend yield), we recommend that investors buy the stock. We adopt a neutral view on the stock 12-months out and, on this time horizon, do not recommend either Buy or Sell. Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock. Under Eurobank Group policy and / or regulations which do not allow ratings Our estimates, target price and recommendation are currently under review 10