Recommendation: HOLD (HOLD) Risk: HIGH (HIGH) Meeting with the management Price Target: EUR 5.00 (5.00) Equity story recap growth prospects intact We recently met the management of STEICO SE in order to become a better feeling about the company s strategy after the year 2011. For FY 2012, STEICO did not publish any detailed financial guidance what reflects the cautious approach of the company. We hope to see a more detailed guidance published with the half year figures that are supposed to be disclosed in mid-september. Overall, we assume that the company s top line will see further upside as well as we will see a consolidation of the profitability. We expect revenues in 2Q12E to amount to EUR 42m (PY: EUR 38.3m, +10% yoy). We assume EBITDA to be at EUR 5.4m (PY: EUR 5.2m) in 2Q12E. EBIT is expected to be only marginally below 2Q11 amounting to EUR 3.0m (PY: EUR 3.2m). Even though STEICO s profitability suffered in 2011, we believe that the long-term growth story of STEICO is intact. The company addresses a niche market with its wood fibre insulation. We believe that wood fibre insulation has become an established product in the conventional insulation market, corresponding to a market share of ~3-5% of the overall market. Natural insulation products such as wood fibre are gaining popularity in the building sector and are more and more in consideration when it comes to renovation work on an exist. and new buildings. Especially in German speaking countries the product awareness has improved during the last years. We expect the market share of wood fibre at the overall market can be surpassed by up to 10%. Overall insulation market grows at ~5-7% compared to double-digit growth rates in the wood fibre segment. Backed by the promising growth prospects of STEICO s end markets and its market position as European market leader for wood fibre insulation, we believe that the company will be able to deliver ongoing top line growth going forward. The crucial point that should be borne in mind will be, if STEICO can translate the top line growth into an improvement on the margin side. For the time being, we will leave our estimates unchanged as we wait for the half year figures to be published. The company has disappointed in 2011 and needs to deliver some solid quarterly results in order to convince the market that the worst will thus be overcome. Therefore we stick to our HOLD recommendation with an unchanged price target of EUR 5.00/share. However, we stress an upside potential to our current estimates. FY 12/31, EUR m 2009 2010 2011 2012E 2013E 2014E Sales 109.6 130.2 144.8 161.0 171.0 180.0 EBITDA 16.0 18.1 14.8 17.1 19.4 21.5 EBIT 9.4 10.9 7.1 9.0 10.8 12.2 Net result 4.9 6.2 5.9 5.4 6.4 7.3 EPS 0.38 0.48 0.46 0.42 0.50 0.57 DPS 0.00 0.10 0.12 0.13 0.15 0.17 Gross margin 39.8% 37.9% 34.8% 36.0% 36.5% 37.0% EBIT margin 8.6% 8.4% 4.9% 5.6% 6.3% 6.8% ROE 5.5% 6.5% 6.3% 5.6% 6.4% 6.9% ROA 4.0% 4.4% 4.1% 3.6% 4.1% 4.5% EV/EBITDA 4.8 4.2 5.1 4.4 3.9 3.5 EV/EBIT 8.1 7.0 10.8 8.5 7.1 6.2 P/E 11.6 9.1 9.6 10.4 8.8 7.7 Source: CBS Research AG, STEICO SE Shares outstanding (m): 17 August 2012 Ø daily trading volume (3 m., no. of shares): Absolute performance (12 months): Relative performance vs. CDAX: 1 month 3 months 6 months 12 months Shareholders: Schramek GmbH Swisscanto UBS Julius Baer Free float Financial calendar: 1H 2012 report Author: Close Brothers Seydler Research AG Felix Parmantier (Analyst) Phone: +49 (0) 69-977 84 56 0 Email: Share price (dark) vs. CDAX Source: CBS Research AG, Bloomberg, STEICO SE Change 2012E 2013E 2014E new old new old new old Sales - 161.0-171.0-180.0 EBIT - 9.0-10.8-12.2 EPS - 0.42-0.50-0.57 Internet: www.steico.com WKN: A0LR93 Reuters: ST5G.DE Short company profile: Sector: Building supplier ISIN: DE000A0LR936 Bloomberg: ST5 GY STEICO SE is the European market leader in the manufacture and sale of environmentally friendly wood fiber insulation materials. Share data: Share price (EUR, latest closing price): 4.41 10.0 Market capitalisation (EUR m): 44.3 Enterprise value (EUR m): 76.2 Performance data: 13,417 High 52 weeks (EUR): 9.10 Low 52 weeks (EUR): 2.88-8.0% 1.3% -24.9% research@cbseydlerresearch.ag www.cbseydlerresearch.ag -50.7% -58.0% 67.2% 4.8% 2.5% 1.3% 24.2% Mid-September 2012 Please notice the information on the preparation of this document, the disclaimer, the advice regarding possible conflicts of interests, and the mandatory information required by 34b WpHG (Securities Trading Law) at the end of this document. This financial analysis in accordance with 34b WpHG is exclusively intended for distribution to individuals that buy or sell financial instruments at their own account or at the account of others in connection with their trading activities, occupation, or employment.
Equity story recap We recently met the management of STEICO SE in order to evaluate the company s strategy. For FY 2012, STEICO did not publish any detailed financial guidance yet what reflects the cautious approach of the company. We hope to see a more detailed guidance published with the half year figures that are supposed to be disclosed in mid-september. Meeting with the management Long-term equity story Even though STEICO s profitability suffered in FY 2011, we believe that the longterm growth story of STEICO is intact. The company addresses a niche market with its wood fibre insulation. We believe that wood fibre insulation has become an established product in the conventional insulation market, corresponding to a market share of around 3-5% of the overall market. The largest share is represented by organic foams (i.e. polystyrene rigid foam - Styropor) with around 40-45%, glass fibre insulation and stone wool (rock wool) insulation both have a share of around 25-30%. Addressing a niche market Natural insulation products such as wood fibre are gaining popularity in the building sector and are more and more in consideration when it comes to renovation work on an existing building as well as in new buildings. Especially in German speaking countries the product awareness has improved during the last years. We expect the market share of wood fibre at the overall market can be surpassed by up to 10% reviewing the long term perspective. Wood fibre gains popularity According to STEICO, the growth prospects remain promising. Overall insulation market grows at around 5-7% compared to double-digit growth rates in the wood fibre segment. Double digit growth of wood fibre insulation The strong development of wood fibre insulation is also underlined by the strong and growing competition in the field. In 2H11 STEICO faced a strong pricing pressure due to over capacities which evolved from competitor s expansion. Furthermore, Pavatex, one of the strongest competitors of STEICO, is going to open a new production plant in France. The expansion of many players in the market reflects the growing demand for wood fibre insulation in the years to come. New capacities on the market through competitors Preview 2Q 2012 STEICO will release its 2Q12 figures in mid-september 2012. Overall, we assume that the company s top line will see further upside as well as we will see a consolidation of the profitability. We expect revenues in 2Q12E to amount to EUR 42m (PY: EUR 38.3m), corresponding to ~10% yoy growth. After EUR 5.2m in 2Q11, we assume EBITDA to be at EUR 5.4m in 2Q12E. Assuming higher depreciation mostly due to significant high CAPEX in 2011, EBIT is expected to be only marginally below 2Q11 amounting to EUR 3.0m (PY: EUR 3.2m). Preview 2Q12E upside on top line & consolidation on profitability Summary STEICO is the European market leader for wood fibre and is in a good position to expand in that market environment. The company already extended its production capacities through new production plants in 2011 in order to react to higher demand for wood fibre products. The pricing pressure that came mostly from smaller competitors will not have a bigger impact on STEICO due to the fact that the company has further excess capacities and takes measures to enhance efficiency of its production plants. STEICO in a good position www.cbseydlerresearch.ag Close Brothers Seydler Research AG 2
Furthermore, the company is convincing through its innovative ideas: 1) STEICO intends to substantially improve the existing product portfolio, 2) focusing several global markets where it expects market opportunities, 3) entering into new market segments (i.e. furniture industry), 4) investments in efficiency (i.e. extend production capacities), 5) improving the distribution network and sales structures and 6) STEICO still eyes on attractive value-add acquisitions or mergers. Growth triggers Another focal point of STEICO s equity story is the attractive investment approach for value and growth investors. In our view STEICO has an appealing investment story as the company combines promising growth prospects (i.e. high growth end markets) with a sustainable dividend policy. Thus the equity story delivers growth with value investment characteristics. Investment approach Backed by the promising growth prospects of STEICO s end markets and its market position as European market leader for wood fibre insulation, we believe that the company will be able to deliver ongoing top line growth going forward. The crucial point that should be borne in mind will be, if STEICO can translate the top line growth into an adequate improvement on the margin side. Crucial point will be margin upside For the time being, we will leave our estimates unchanged as we wait for the half year figures to be published in mid-september. The company has disappointed in FY 2011 and needs to deliver some solid quarterly results in order to convince the market that the worst will thus be overcome. Therefore we stick to our HOLD recommendation with an unchanged price target of EUR 5.00/share. However, we stress an upside potential to our current estimates. Recommendation remains HOLD with PT EUR 5.00/share www.cbseydlerresearch.ag Close Brothers Seydler Research AG 3
STEICO SE Profit and loss account IFRS EURm 2009 2010 2011 2012E 2013E 2014E Sales 109.6 130.2 144.8 161.0 171.0 180.0 YoY grow th 6.2% 18.8% 11.2% 11.2% 6.2% 5.3% Chg. of finished goods and WIP -2.0 0.2-1.8 0.0 0.0 0.0 Other own work capitalized 0.0 0.1 2.3 0.0 0.0 0.0 Cost of sales -64.0-81.0-94.9-103.0-108.6-113.4 in % of sales -58.4% -62.2% -65.6% -64.0% -63.5% -63.0% Gross profit 43.6 49.4 50.4 58.0 62.4 66.6 in % of sales 39.8% 37.9% 34.8% 36.0% 36.5% 37.0% Personnel expenses -16.8-19.1-20.5-23.8-25.0-26.1 in % sales -15.3% -14.6% -14.1% -14.8% -14.6% -14.5% Other operating income 6.2 5.1 5.7 6.4 7.2 7.7 in % sales 5.6% 3.9% 3.9% 4.0% 4.2% 4.3% Other operating expenses -17.0-17.3-20.8-23.4-25.2-26.7 in % sales -15.5% -13.3% -14.4% -14.6% -14.7% -14.9% EBITDA 16.0 18.1 14.8 17.1 19.4 21.5 in % of sales 14.6% 13.9% 10.2% 10.6% 11.4% 11.9% Depreciation & Amortisation -6.5-7.2-7.8-8.1-8.7-9.3 in % sales 38.9% 37.7% 37.9% 34.1% 34.7% 35.5% EBIT 9.4 10.9 7.1 9.0 10.8 12.2 in % of sales 8.6% 8.4% 4.9% 5.6% 6.3% 6.8% Financial result -1.3-1.2-1.4-1.5-1.6-1.8 Exceptional items -0.6-0.1 0.2 0.0 0.0 0.0 EBT 8.1 9.8 5.7 7.5 9.2 10.4 in % of sales 7.4% 7.5% 3.9% 4.7% 5.4% 5.8% Taxes -3.3-3.6 0.2-2.1-2.8-3.1 as % of EBT -40.1% -36.6% 3.6% -28.0% -30.0% -30.0% Net income including minorities 4.9 6.2 5.9 5.4 6.4 7.3 Minority interests 0.0 0.0 0.0 0.0 0.0 0.0 Net income attributable to shareholders 4.9 6.2 5.9 5.4 6.4 7.3 in % of sales 4.5% 4.8% 4.0% 3.4% 3.8% 4.1% Shares outstanding (in millions) 12.8 12.8 12.8 12.8 12.8 12.8 Earnings per share (EUR) 0.38 0.48 0.46 0.42 0.50 0.57 Source: CBS Research AG, STEICO SE www.cbseydlerresearch.ag Close Brothers Seydler Research AG 4
Research Schillerstrasse 27-29 60313 Frankfurt am Main Phone: +49 (0)69 977 8456-0 Roger Peeters +49 (0)69-977 8456-12 Member of the Board Roger.Peeters@cbseydlerresearch.ag Martin Decot +49 (0)69-977 8456-13 Igor Kim +49 (0)69-977 8456-15 Martin.Decot@cbseydlerresearch.ag Igor.Kim@cbseydlerresearch.ag Anna von Klopmann +49 (0)69-977 8456-10 Gennadij Kremer +49 (0)69 977 8456-23 Anna.Klopmann@cbseydlerresearch.ag Gennadij.Kremer@cbseydlerresearch.ag Daniel Kukalj +49 (0)69 977 8456-21 Ralf Marinoni +49 (0)69-977 8456-17 Daniel.Kukalj@cbseydlerresearch.ag Ralf.Marinoni@cbseydlerresearch.ag Manuel Martin +49 (0)69-977 8456-16 Felix Parmantier +49 (0)69-977 8456-22 Manuel.Martin@cbseydlerresearch.ag Felix.Parmantier@cbseydlerresearch.ag Marcus Silbe +49 (0)69-977 8456-14 Veysel Taze +49 (0)69-977 8456-18 Marcus.Silbe@cbseydlerresearch.ag Veysel.Taze@cbseydlerresearch.ag Ivo Višić +49 (0)69-977 8456-19 Ivo.Visic@cbseydlerresearch.ag Institutional Sales Schillerstrasse 27 29 60313 Frankfurt am Main Phone: +49 (0)69 9 20 54-400 Raimar Bock +49 (0)69-9 20 54-115 Head of Sales Raimar.Bock@cbseydler.com Rüdiger Eich +49 (0)69-9 20 54-119 Sule Erkan +49 (0)69-9 20 54-107 (Germany, Switzerland) Ruediger.Eich@cbseydler.com (Sales-Support) Sule.Erkan@cbseydler.com Dr. James Jackson +49 (0)69-9 20 54-113 Klaus Korzilius +49 (0)69-9 20 54-114 (UK) James.Jackson@cbseydler.com (Benelux, Germany) Klaus.Korzilius@cbseydler.com Stefan Krewinkel +49 (0)69-9 20 54-118 Markus Laifle +49 (0)69-9 20 54-120 (Execution, UK) Stefan.Krewinkel@cbseydler.com (Execution) Markus.Laifle@cbseydler.com Michael Laufenberg +49 (0)69-9 20 54-112 Bruno de Lencquesaing +49 (0)69-9 20 54-116 (Germany) Michael.Laufenberg@cbseydler.com (Benelux, France) Bruno.deLencquesaing@cbseydler.com Christopher Seedorf +49 (0)69-9 20 54-110 Janine Theobald +49 (0)69-9 20 54-106 (Sales-Support) Christopher.Seedorf@cbseydler.com (Austria, Germany) Janine.Theobald@cbseydler.com Bas-Jan Walhof +49 (0)69-9 20 54-105 (Benelux) Bas-Jan.Walhof@cbseydler.com www.cbseydlerresearch.ag Close Brothers Seydler Research AG 5
Disclaimer and statement according to 34b German Securities Trading Act ( Wertpapierhandelsgesetz ) in combination with the provisions on financial analysis ( Finanzanalyseverordnung FinAnV) This report has been prepared independently of the company analysed by Close Brothers Seydler Research AG and/ or its cooperation partners and the analyst(s) mentioned on the front page (hereafter all are jointly and/or individually called the author ). None of Close Brothers Seydler Research AG, Close Brothers Seydler Bank AG or its cooperation partners, the Company or its shareholders has independently verified any of the information given in this document. Section 34b of the German Securities Trading Act in combination with the FinAnV requires an enterprise preparing a security analysis to point out possible conflicts of interest with respect to the company that is the subject of the analysis. Close Brothers Seydler Research AG is a majority owned subsidiary of Close Brothers Seydler Bank AG (hereafter CBS ). However, Close Brothers Seydler Research AG (hereafter CBSR ) provides its research work independent from CBS. CBS is offering a wide range of Services not only including investment banking services and liquidity providing services (designated sponsoring). CBS or CBSR may possess relations to the covered companies as follows (additional information and disclosures will be made available upon request): a. CBS holds more than 5% interest in the capital stock of the company that is subject of the analysis. b. CBS was a participant in the management of a (co)consortium in a selling agent function for the issuance of financial instruments, which themselves or their issuer is the subject of this financial analysis within the last twelve months. c. CBS has provided investment banking and/or consulting services during the last 12 months for the company analysed for which compensation has been or will be paid for. d. CBS acts as designated sponsor for the company's securities on the basis of an existing designated sponsorship contract. The services include the provision of bid and ask offers. Due to the designated sponsoring service agreement CBS may regularly possess shares of the company and receives a compensation and/ or provision for its services. e. The designated sponsor service agreement includes a contractually agreed provision for research services. f. CBSR and the analysed company have a contractual agreement about the preparation of research reports. CBSR receives a compensation in return. g. CBS has a significant financial interest in relation to the company that is subject of this analysis. In this report, the following conflicts of interests are given at the time, when the report has been published: d, e CBS and/or its employees or clients may take positions in, and may make purchases and/ or sales as principal or agent in the securities or related financial instruments discussed in this analysis. CBS may provide investment banking, consulting, and/ or other services to and/ or serve as directors of the companies referred to in this analysis. No part of the authors compensation was, is or will be directly or indirectly related to the recommendations or views expressed. Recommendation System: Close Brothers Seydler Research AG uses a 3-level absolute share rating system. The ratings pertain to a time horizon of up to 12 months: BUY: The expected performance of the share price is above +10%. HOLD: The expected performance of the share price is between 0% and +10%. SELL: The expected performance of the share price is below 0%. Recommendation history over the last 12 months for the company analysed in this report: Date Recommendation Price at change date Price target 17 August 2012 HOLD EUR 4.41 EUR 5.00 08 May 2012 HOLD EUR 4.27 EUR 5.00 28 November 2011 HOLD EUR 5.99 EUR 7.50 22 September 2011 BUY EUR 7.95 EUR 10.00 Risk-scaling System: Close Brothers Seydler Research AG uses a 3-level risk-scaling system. The ratings pertain to a time horizon of up to 12 months: www.cbseydlerresearch.ag Close Brothers Seydler Research AG 6
LOW: The volatility is expected to be lower than the volatility of the benchmark MEDIUM: The volatility is expected to be equal to the volatility of the benchmark HIGH: The volatility is expected to be higher than the volatility of the benchmark The following valuation methods are used when valuing companies: Multiplier models (price/earnings, price/cash flow, price/book value, EV/Sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer group comparisons, historical valuation approaches, discounting models (DCF, DDM), break-up value approaches or asset valuation approaches. The valuation models are dependent upon macroeconomic measures such as interest, currencies, raw materials and assumptions concerning the economy. In addition, market moods influence the valuation of companies. The figures taken from the income statement, the cash flow statement and the balance sheet upon which the evaluation of companies is based are estimates referring to given dates and therefore subject to risks. These may change at any time without prior notice. The opinions and forecasts contained in this report are those of the author alone. Material sources of information for preparing this report are publications in domestic and foreign media such as information services (including but not limited to Reuters, VWD, Bloomberg, DPA-AFX), business press (including but not limited to Börsenzeitung, Handelsblatt, Frankfurter Allgemeine Zeitung, Financial Times), professional publications, published statistics, rating agencies as well as publications of the analysed issuers. Furthermore, discussions were held with the management for the purpose of preparing the analysis. Potentially parts of the analysis have been provided to the issuer prior to going to press; no significant changes were made afterwards, however. Any information in this report is based on data considered to be reliable, but no representations or guarantees are made by the author with regard to the accuracy or completeness of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Possible errors or incompleteness of the information do not constitute grounds for liability, neither with regard to indirect nor to d irect or consequential damages. The views presented on the covered company accurately reflect the personal views of the author. All employees of the author's company who are involved with the preparation and/or the offering of financial analyzes are subject to internal compliance regulations. The report is for information purposes, it is not intended to be and should not be construed as a recommendation, offer or solicitation to acquire, or dispose of, any of the securities mentioned in this report. Any re ference to past performance should not be taken as indication of future performance. The author does not accept any liability whatsoever for any direct or consequential loss arising from any use of material contained in this report. The report is confidential and it is submitted to selected recipients only. The report is prepared for professional investors only and it is not intended for private investors. Consequently, it should not be distributed to any such persons. Also, the report may be communicated electronically before physical copies are available. It may not be reproduced (in whole or in part) to any other investment firm or any other individual person without the prior written approval from the author. The author is not registered in the United Kingdom nor with any U.S. regulatory body. It has not been determined in advance whether and in what intervals this report will be updated. Unless otherwise stated current prices refer to the closing price of the previous trading day. Any reference to past performance should not be taken as indication of future performance. The author maintains the right to change his opinions without notice, i.e. the opinions given reflect the author s judgment on the date of this report. This analysis is intended to provide information to assist institutional investors in making their own investment decisions, not to provide investment advice to any specific investor. By accepting this report the recipient accepts that the above restrictions are binding. German law shall be applicable and court of jurisdiction for all disputes shall be Frankfurt am Main (Germany). This report should be made available in the United States solely to investors that are (i) "major US institutional investors" (within the meaning of SEC Rule 15a-6 and applicable interpretations relating thereto) that are also "qualified institutional buyers" (QIBs) within the meaning of SEC Rule 144A promulgated by the United States Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act") or (ii) investors that are not "US Persons" within the meaning of Regulation S under the Securities Act and applicable interpretations relating thereto. The offer or sale of certain securities in the United States may be made to QIBs in reliance on Rule 144A. Such securities may include those offered and sold outside the United States in transactions intended to be exempt from registration pursuant to Regulation S. This report does not constitute in any way an offer or a solicitation of interest in any securities to be offered or sold pursuant to Regulation S. Any such securities may not be offered or sold to US Persons at this time and may be resold to US Persons only if such securities are registered under the Securities Act of 1933, as amended, and applicable state securities laws, or pursuant to an exemption from registration. This publication is for distribution in or from the United Kingdom only to persons who are authorised persons or exempted persons within the meaning of the Financial Services and Markets Act 2000 of the United Kingdom or any order made there under or to investment professionals as defined in Section 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. This publication is for distribution in Canada only to pension funds, mutual funds, banks, asset managers and insurance companies. The distribution of this publication in other jurisdictions may be restricted by law, and persons into whose possession this publication comes should inform themselves about, and observe, any such restrictions. In particular this publication may not be sent into or distributed, directly or indirectly, in Japan or to any resident www.cbseydlerresearch.ag Close Brothers Seydler Research AG 7
thereof. Responsible Supervisory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin, Federal Financial Supervisory Authority) Graurheindorferstraße 108 53117 Bonn and Lurgiallee 12 60439 Frankfurt Schillerstrasse 27-29 60313 Frankfurt am Main www.cbseydlerresearch.ag Tel.: 0049 - (0)69-97 78 45 60 www.cbseydlerresearch.ag Close Brothers Seydler Research AG 8