February 08, 2017 Information Analysis Analysts: Daniel Großjohann, Dr. Roger Becker, CEFA +49 69 71 91 838-42, -46 daniel.grossjohann@bankm.de, roger.becker@bankm.de Evaluation result Fair value HOLD 2.45 (previous: HOLD) (previous: 2.45) Find BankM Research on Bloomberg, CapitalIQ, Factset, ResearchPool, Thomson Reuters, vwd and www.bankm.de Strategic investor injects growth capital On February 3, 2017 PA Power Automation AG announced a capital increase without subscription rights, at a price well above the average share price for the preceding trading days. This paves the way for a number of key steps: 1) the net proceeds of approx. 3.3 million can be used to invest in growth; 2) the investor (Techmation) is also a business partner, especially in Asia, offering a complementary product portfolio; 3) the two companies have signed an Investment Agreement to drive forward sales of the PA9000 in Asia. In addition, there are plans to develop a joint control module for the Asian market. Although all three factors should strengthen PA's growth in the medium term, we are not altering our estimates at present. We have merely factored in the direct impact of the capital increase into our model. Sector Industry Software WKN 692440 ISIN DE0006924400 Bloomberg/Reuters PPA GR/PPA.DE Accounting standard HGB Financial year Dec 31 FY 2016 May 18, 2017 Market segment Open Market Transparency standard Entry Standard Financial ratios 2016e 2017e 2018e Investor pays a premium The investor subscribed to the capital increase at a price of 2.56 (nominal value). In other words, the price amounted to a premium of around 20% for the 19.88% stake. Nevertheless, the purchase price was favorable compared with the investor's own valuation: shares in Ningbo Techmation Co. Ltd. are currently trading on an EV/sales multiple of just under 8 (2017e). The investment was probably driven principally by expectations that the alliance will speed up both companies growth. Not competitors We do not expect the new investor to cause problems with existing partners (in Asia). Its product portfolio does not compete with PA's. Growth held back by long payment terms PA often had/has to swallow long payment terms. Although the situation has improved, according to the management, the capital tied up in this way holds back growth. The new funds should enable PA to better utilize its growth potential as they are to be invested in R&D and in sales and marketing. EV/Sales 1.4 1.2 1.0 EV/EBITDA 8.6 4.5 3.1 EVEBIT 13.3 5.6 3.6 P/E adj. 20.0 7.0 4.4 Price/Bookvalue 1.3 0.8 0.7 Price/FCF 5.0 14.7 6.1 ROE (in %) 6.5 14.0 16.8 Dividend yield (in %) 0.0 0.0 0.0 Number of shares outs. (in mln) 6.430 MarketCap / EV (in mln) Free float (in %) Ø daily trading vol. (3M, in ) 10.85 / 10.35 39.0 8,769 12 months high/low 3.02 / 1.99 Price Feb 7, 2017 2.11 Performance 1M 6M 12M absolute (in %) 0.2% -10.3% -8.5% relative (in %) -1.5% -17.6% -27.9% Benchmark DAXsubsector Software Key data / Earnings Year Sales EBITDA EBIT EBT adj. NP ( mln) adj. EPS ( ) EBIT margin adj. net margin 2015a 8.8 2.2 1.8 1.7 1.3 0.31 20.9% 15.3% 2016e 7.3 1.2 0.8 0.6 0.5 0.11 10.6% 7.4% 2017e 8.8 2.3 1.9 1.7 1.5 0.24 21.2% 17.6% 2018e 10.1 3.4 2.9 2.7 2.5 0.39 28.7% 24.3% 2019e 11.6 4.4 3.9 3.7 3.4 0.53 33.8% 28.9% 140 130 120 110 100 90 80 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 PA Power Automation AG (XETRA) (red/light) vs. DAXsubsector Software Performance (black) Source: Bloomberg This document has been prepared due to a service agreement with the respective issuer. BankM Repräsentanz der biw AG is the designated sponsor of the company s stock and in this function as a designated sponsor regularly holds a trading stock or long or short positions in the company s stock. Equity investments generally involve high risks. Potential investors should take into account that share prices may fall and rise and that income from an investment may fluctuate considerably. Investors may lose some or all of the money invested. Investors make their decisions at their own risk. biw Bank für Investments und Wertpapiere AG, Frankfurt, is responsible for the preparation of this document.
- 2/6 - Tables February 08, 2017 Tables Income statement Fiscal Year 31.12 (IFRS) 2014a 2015a 2016e 2017e 2018e 2019e 5y - CAGR in T 2014-2018 Total Sales 7,683 8,813 7,315 8,778 10,094 11,608 Growth rate (in %) 1.7 14.7-17.0 20.0 15.0 15.0 10.9 Other operating income 1,439 465 200 0 0 0 Changes in inventory 65-6 0 0 0 0 Income from associated companies 429 437 400 400 400 400 Total Output 9,617 9,708 7,915 9,178 10,494 12,008 Growth rate (in %) 24.5 1.0-18.5 16 14.3 14.4 5.7 Cost of materials 2,326 2,658 1,829 2,194 2,524 2,902 30% 30% 25% 0 25% 25% Personnel expenses 2,510 2,433 2,500 2,625 2,756 2,894 Other operating expenses 2,001 2,385 2,385 2,052 1,852 1,852 EBITDA 2,779 2,232 1,201 2,306 3,362 4,360 Growth rate (in %) 115.7-19.7-46.2 92 45.8 29.7 11.9 Depreciation and amortization 79 392 423 442 464 438 EBIT 2,700 1,839 778 1,863 2,897 3,921 Growth rate (in %) 118.4-31.9-57.7 140 55.5 35.3 9.8 Financial result -235-184 -184-184 -184-184 EBT 2,465 1,655 593 1,679 2,713 3,737 Growth rate (in %) 129.2-32.9-64.2 183 61.6 37.7 11.0 Extraordinary result 0-2 0 0 0 0 Taxes on Income (Exp.+/Inc.-) 302 206 50 131 256 378 Other Taxes 9 2 0 0 0 0 Net Profit 2,154 1,444 543 1,548 2,458 3,359 Growth rate (in %) 108.7-32.9-62.4 185 58.8 36.7 11.7 Minorities 22-99 0 0 0 0 Result after minorities 2,175 1,346 543 1,548 2,458 3,359 Adjustements 1,347 0 0 0 0 0 Adjusted Net Profit 828 1,346 543 1,548 2,458 3,359 Growth rate (in %) -11.5 62.4-59.6 185 58.8 36.7 41.9 No. of shares (Ø outstanding) 3,776 4,404 5,152 6,324 6,324 6,324 Net profit / share (EPS) 0.58 0.31 0.11 0.24 0.39 0.53 Adj. net profit / share (adj. EPS) 0.22 0.31 0.11 0.24 0.39 0.53 P&L margins Margins (in %) 2014a 2015a 2016e 2017e 2018e 2019e Gross Profit margin 69.7 69.8 75.0 75.0 75.0 75.0 EBITDA margin 36.2 25.3 16.4 26.3 33.3 37.6 EBIT margin 35.1 20.9 10.6 21.2 28.7 33.8 EBT margin 32.1 18.8 8.1 19.1 26.9 32.2 adj. Net Profit margin 10.8 15.3 7.4 17.6 24.3 28.9
February 08, 2017 Tables - 3/6 - Cash flow statement Fiscal Year 31.12 (IFRS) 2014a 2015a 2016e 2017e 2018e 2019e in T Net Profit 2,154 1,444 543 1,548 2,458 3,359 + Depreciation and amortization 79 392 423 442 464 438 + Chg. in long-term provisions 497 16 0 0 0 0 + Other non-cash expenses/earnings -248 153 195 0 0 0 + Result from at equity investment -429-437 0 0 0 0 0 0 184 184 184 184 = Cash Earnings 2,053 1,569 1,345 2,174 3,106 3,981 + Change of NWC -2,230-1,041 889-1,338-1,204-1,385 + Change of other balance sheet items 0 0 0 0 0 0 + Net financial result 0 0 0 0 0 0 + Other non-cash items 0 0 0 0 0 0 = Operating Cash Flow -177 528 2,234 836 1,902 2,596 - Capex 234 5,426 81 97 111 117 = Free Cash Flow -411-4,898 2,153 739 1,791 2,479 + Increase in share capital 2,129 4,352 0 3,273 0 0 + Net cash flow from loans -1,161 237-1,561-936 -1,621-436 + Other 0 0-184 -184-184 -184 = Incr. in Cash (+)/Decr. in Cash (-) 557-309 408 2,892-15 1,859 Liquid funds at period end 907 598 1,005 3,897 3,883 5,742
- 4/6 - Tables February 08, 2017 Balance sheet Fiscal Year 31.12 (IFRS) 2014a 2015a 2016e 2017e 2018e 2019e in T Assets Total Fixed Assets 1,596 7,048 6,562 6,216 5,863 5,541 Tangible assets 247 234 186 190 187 215 Intangible assets 49 5,076 4,638 4,288 3,938 3,589 t/o Goodwill 0 36 36 36 36 36 t/o prepayments 46 143 0 0 0 0 Financial assets 1,300 1,738 1,738 1,738 1,738 1,738 Total Current Assets 6,255 9,247 8,676 12,995 14,264 17,600 Inventories 886 747 620 744 856 984 Accounts receivable 3,979 7,367 6,514 7,817 8,990 10,338 Total liquid funds 907 597 1,005 3,897 3,882 5,741 Other current assets 483 537 537 537 537 537 Accruals 34 51 0 0 0 0 Balance Sheet Total 7,885 16,346 15,238 19,211 20,127 23,142 Shareholder's Equity / Liabilities Shareholders Equity 2,522 8,069 8,612 13,433 15,891 19,249 Subscribed capital 10,309 13,172 13,172 16,445 16,445 16,445 Share premium 4,410 5,899 5,899 5,899 5,899 5,899 Retained earnings/accumulated deficit -11,588-9,994-9,450-7,903-5,445-2,087 Currency reserve -169-329 -329-329 -329-329 Minorities -440-679 -679-679 -679-679 Long Term Liabilities 2,017 5,083 4,147 3,211 2,275 1,839 Long term debt 2,017 5,083 4,147 3,211 2,275 1,839 Short Term Liabilities (< 1 year) 3,344 3,195 2,479 2,567 1,962 2,054 Acc. payable & prepayments 850 534 443 531 611 703 Short term debt 1,441 1,591 966 966 281 281 Provisions 1,053 1,070 1,070 1,070 1,070 1,070 Total Liabilities 5,361 8,277 6,625 5,778 4,237 3,892 Balance Sheet Total 7,885 16,346 15,238 19,211 20,127 23,142 Balance Sheet Ratios In % of Balance Sheet Total 2014a 2015a 2016e 2017e 2018e 2019e Total Fixed Assets 20 43 43 32 29 24 Total Current Assets 79 57 57 68 71 76 Inventories 11 5 4 4 4 4 Trade receivables 50 45 43 41 45 45 Total liquid funds 12 4 7 20 19 25 Shareholder's Equity 32 49 57 70 79 83 Long Term Liabilites 26 31 27 17 11 8 Short Term Liabilities 42 20 16 13 10 9 Total Liabilities 68 51 43 30 21 17
February 08, 2017 Important information, disclosures and disclaimer - 5/6 - Important information, disclosures and disclaimer A. Important information Equity investments generally involve high risks. Investors may lose some or all of the money invested. Potential investors should take into account that share prices may fall and rise and that income from an investment may fluctuate considerably. Past performance is no guarantee for future results. Investors make their decisions at their own risk. B. Disclosures according to Section 34b of the German Securities Trading Act (WpHG) and the Ordinance on the Analysis of Financial Instruments (FinAnV): I. Information about author, company held accountable, regulatory authority: Responsible for the content of this document: biw Bank für Investments und Wertpapiere AG (biw AG), Frankfurt, Germany. Authors: Daniel Großjohann, Dr. Roger Becker, CEFA, Analysts. Regulatory authority for biw AG is the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Graurheindorfer Straße 108, 53117 Bonn, Germany and Lurgiallee 12, 60439 Frankfurt am Main, Germany. Issuer of the analysed instruments is PA Power Automation AG. Notice according to sec. 4. 4 N o 4 FinAnV (previous publications regarding the issuer within the last 12 months): Analyst Date Evaluation Result Fair Value Daniel Großjohann, Dr. Roger Becker Nov 18, 2015 Buy 5.37 Daniel Großjohann, Dr. Roger Becker June 02, 2016 Buy 3.19 Daniel Großjohann, Dr. Roger Becker July 01, 2016 Buy 3.04 Daniel Großjohann, Dr. Roger Becker September 30, 2016 Buy 2.80 Daniel Großjohann, Dr. Roger Becker November 25, 2016 Hold 2,45 II. Additional Information: 1. Sources of information: Main sources of information for the compilation of this document are publications in national and international media and information services (e.g. Reuters, VWD, Bloomberg, dpa-afx, ACMR-IBIS World and others), financial newspapers and magazines (e.g. Börsenzeitung, Handelsblatt, Frankfurter Allgemeine Zeitung, Economist and others), specialist media, published statistics, rating agencies as well as publications by peer group companies and the company itself. Furthermore talks with the management of the issuer have been held. This document was made available to the issuer before publication to ensure the accuracy of the information provided. This resulted in no changes in content. 2. Summary of the valuation principles and methods used to prepare this document: BankM Repräsentanz der biw Bank für Investments und Wertpapiere AG (BankM) uses a 3-tier absolute rating model. The ratings are the evaluation results and refer to a fair value pricing reflecting a time-horizon of up to 12 months. BUY: The calculated fair value of the company s stock is at least 15 % higher than the current market price at the time of the compilation of this document. HOLD: The calculated fair value of the company s stock lies between 15% and +15 % of the current market price at the time of the compilation of this document. SELL: The calculated fair value of the company s stock is at least 15 % lower than the current market price at the time of the compilation of this document. The following valuation methods are being used: Multiple-based models (Price/Earnings, Price/Cash-flow, Price/Book value, EV/Sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, historical valuation approaches, discount models (DCF, DDM), break-up value and sum-of-the-parts-approaches, assetbased evaluation methods or a combination of the above. The used valuation models depend on macroeconomic factors, such as interest rates, exchange rates, raw materials and on basic assumptions about the economy. Additionally, market sentiment affects the valuation of companies. The valuation is also based on expectations that might change rapidly and without notice, depending on developments specific to individual industries. Rendered evaluation results and fair values derived from the models might therefore change respectively. The evaluation results in general relate to a 12-month horizon. However, evaluation results are subject to changing market conditions and represent only the situation at a given point of time. The evaluation results and fair value prices may in fact be achieved more quickly or slowly than expected by the analysts. Also, the evaluation results and fair value prices might need to be revised upward or downward. 3. Date of first publication of this document: February 8, 2017 4. Date and time of prices of the instruments quoted in this document: Closing prices of February 7, 2017 5. Updates: A specific date or time for an update of this document has not been set. The information given in this document reflects the author s judgement on the date of this publication and is subject to change without notice; it may be incomplete or condensed and it may not contain all material information concerning the company covered. It is in the sole responsibility of BankM to decide on a potential update of this document. III. Disclosures about potential conflicts of interest: 1. BankM s business model is based on economic relationships with issuers and equity transactions to be performed relating to the issuer s stock. BankM has entered into an agreement about the preparation of this document with the issuer that is, or whose financial instruments are, the subject of this document.
- 6/6 - Important information, disclosures and disclaimer February 08, 2017 BankM (incl. subsidiaries and affiliates), the authors of this document as well as other persons that were involved in the compilation of this document or affiliated parties: do not have a major shareholding (shareholding exceeding 5%) of the share capital of the issuers have not, within the past twelve months, participated in leading a consortium for the issue via public offer of the financial instruments that are, or whose issuers are, the subject of this document, have, within the past twelve months, not been party to an agreement on the provision of investment banking services with the issuer that is, or whose financial instruments are the subject of this document, and have not received or will not receive a compensation under the terms of such an agreement during the same period, have no other significant economic interests relating to the issuer that is, or whose financial instruments are, the subject of this analysis. 2. In the function as a designated sponsor, BankM manages the financial instruments that are, or whose issuers are, the subject of the financial analysis on a market by placing buy or sell orders and will regularly hold a trading stock or long or short positions in the issuer s stock. 3. BankM s internal organisation is aligned with the prevention of conflict of interests in producing and distributing research reports. Possible conflicts of interests will be treated adequately. In particular, physical and non-physical boundaries were installed to keep analysts from gaining access to information that possibly could constitute a conflict of interest for the bank. Insiders dealings according to 12 WpHG in conjunction with Art. 14 directive (EU) 596/2014 categorically are prohibited. All staff members of biw AG and BankM that have access to inside information categorically have to disclose all dealings in financial instruments to the internal compliance department. The compliance of legal requirements and supervisory regulations is subject to continuous supervision and control of the compliance department of biw AG. In this regard, the right to restrict employees dealings in financial instruments is reserved. 4. The remuneration of the analysts mentioned above is not dependent on any investment banking transactions of BankM or its affiliates. The analysts that compiled this document did not receive or acquire shares in the issuer that is, or whose financial instruments are, the subject of this document at any time. The analysts mentioned above herby certify that all of the views expressed accurately reflect their personal views about the issuer and that no part of their compensation was, is or will be, directly or indirectly, related to the specific evaluation result or views expressed by the analyst in this document. 5. Updated information according to sec. 5 para. 4 N o. 3 FinAnV is is available at: http://www.bankm.de/webdyn/138_cs_gesetzliche+angaben.html. C. Disclaimer: This document was compiled by BankM solely for informational purposes and for the personal use by persons in Germany that are interested in the company and who purchase or sell transferable securities for their own account or the account of others in the context of their trade, profession or occupation. This document neither constitutes a contract nor any kind of obligation. This document and its content, in whole or in part, may not be reproduced, distributed, published or passed on to any other person without the prior written consent of BankM. This publication is for distribution in or from the United Kingdom only with the prior written consent of BankM and 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(5) of the Financial Services and Markets Act 2000 (financial promotion) order 2005 (the order) respectively in the version as amended from time to time and is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Neither this document nor any copy of it may be taken or transmitted into the United States of America, Canada, Japan or Australia or distributed, directly or indirectly, in the United States of America, Canada, Japan or Australia or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons who are in possession of this document have to inform themselves about any such restrictions and observe any such restrictions. This document is not intended to be an offer, or the solicitation of any offer to buy or sell the securities referred to herein. This document is intended to provide information to assist institutional investors in making their own investment decisions, not to provide investment advice to any specific investor. Potential investors should seek professional and individual advice before making their investment decisions. Investment decisions must not be based on this document. The information within this document has been obtained from sources believed by BankM to be reliable, but BankM does not examine the information to be accurate and complete, nor guarantees its accuracy and completeness. Although due care has been taken in compiling this document, it cannot be excluded that the information given is incomplete or the document contains errors. The liability of BankM shall be restricted to gross negligence and wilful misconduct. All opinions expressed in this document are those of BankM respectively the authors and subject to change without notice. Possible errors or incompleteness of this document may be corrected by BankM and do not constitute grounds for liability, neither with regard to indirect nor to direct or consequential damages. Only in case of failure in essential tasks, BankM is liable for simple negligence. In addition BankM does not accept any liability or responsibility for any loss arising from any use of this publication or its contents or otherwise arising in connection herewith. In any case, the liability of BankM is limited to typical, foreseeable damages and the liability for any indirect damages is excluded. By accepting this document, the reader/user of this document agrees to be bound by all of the foregoing provisions and this disclaimer. Moreover, the user agrees not to distribute this document to unauthorized persons. The user of this document shall indemnify BankM for any damages, claims, losses, and detriments resulting from or in connection with the unauthorized use of this document. This document is subject to the laws of the Federal Republic of Germany. Place of jurisdiction is Frankfurt am Main, Germany. Should certain specifications of this disclaimer not be legally binding or become legally non-binding, this will have no impact on the legally binding character of this disclaimer and its other legal specifications. This document is not intended for use by persons resident in any jurisdiction that regulates access to such documents by applicable laws. Investment decisions must not be based on any statement in this document. Persons in possession of this document should inform themselves about possible legal restrictions and observe them accordingly. In case of uncertainty persons should not access and/or consider the content of this document in any decisions. This document is not intended for use by persons that are classified as US-persons under the United States Securities Act. 2017 BankM - Repräsentanz der biw Bank für Investments und Wertpapiere AG, Mainzer Landstraße 61, D-60329 Frankfurt. biw Bank für Investments und Wertpapiere AG, Rotfeder-Ring 7, 60327 Frankfurt am Main. All rights reserved. This document is the English version of the legally binding German original research published and dated February 8, 2017.