MATELAN Research - ISRA VISION AG

ISRA VISION In-Depth Report
Earning cost of capital
despite working capital
needs and high goodwill
Balance sheet still shows
low gearing
ISRA uses options to
invest in the business
Free cash flow assumed
from current year
onwards
- 32 -
High working capital needs as well as high goodwill are the main constituents
of ISRA’s capital employed. This leads to a return on capital employed that
was somewhat below the industry average in the past financial year. Stripping
out intangibles already shows a much more favourable picture for ISRA.
Further progress on the working capital side would turn ISRA’s above
average sales margin into an industry leading return on capital employed. We
had already pointed out in the valuation section of this report that even on
the base of our conservative assumptions the company will earn its cost of
capital in the current financial year by a margin and will continue to do so
throughout our estimation period.
Comparison of capital employed
ISRA AVT Basler Viscom Cognex Perceptron Elexis Orbotech
Intangibles 80.4 1.4 11.3 2.3 105.3 0.0 24.1 78.4
PPE 2.8 1.4 21.3 1.2 29.6 5.9 18.1 24.8
Net Working Capital 53.9 10.2 13.1 20.6 61.5 19.5 34.3 239.8
Capital employed 137.1 13.1 45.6 24.2 196.4 25.5 76.5 343.1
EBIT 11.5 0.4 6.7 7.1 75.7 -3.4 4.0 57.7
RoCE 8.4% 2.7% 14.6% 29.5% 38.6% -13.5% 5.2% 16.8%
RoCE (excl. Goodwill) 20.2% 3.0% 19.4% 32.6% 83.1% -13.5% 20.1% 21.8%
Source: Company reports of last financial year, in local currency (m)
Looking at equity and liabilities we find that more than half of ISRA’s balance
sheet was covered by equity during the past financial year. This fits well into
the industry context, though some companies show even ratios in excess of
80%. As a result of the recent acquisitions, ISRA’s goodwill is almost as high
as equity and the company is one of two companies listed here that do not
possess a net cash position. Still, net debt comes to just 30% of equity.
Comparison of equity and debt
ISRA AVT Basler Viscom Cognex Perceptron Elexis Orbotech
BS Total 160.9 30.7 58.9 62.2 533.1 64.7 132.4 628.3
Equity 88.3 17.5 25.5 53.7 473.3 53.5 69.1 349.6
Equity ratio 54.8% 57.1% 43.4% 86.3% 88.8% 82.7% 52.2% 55.6%
Cash 8.0 10.8 9.1 26.1 33.2 9.8 31.7 184.8
Financial Debt 34.5 0.0 28.7 2.5 0.0 0.0 20.7 128.0
Net debt (-net cash) 26.5 -10.8 19.5 -23.6 -33.2 -9.8 -11.0 -56.8
Gearing 0.3 -0.6 0.8 -0.4 -0.1 -0.2 -0.2 -0.2
Source: Company reports of last financial year, in local currency (m)
BACK TO POSITIVE FREE CASH FLOWS
Despite the company’s high working capital needs, operating cash flow in the
past financial year was significantly positive. Moreover, the following table
illustrated that the industry left the companies sufficient room to produce
free cash flow. ISRA was only negative on the free cash flow side due to the
Graphikon acquisition, which shows that ISRA has still options to invest in
the business, as is Cognex.
Comparison of cash flows
ISRA AVT Basler Viscom Cognex Perceptron Elexis Orbotech
Operating Cash Flow 7.7 0.0 11.8 4.7 76.3 -1.5 14.4 49.1
Investments -10.0 -0.3 -6.1 -4.4 -176.5 -9.9 -3.4 -7.0
Free Cash Flow -2.2 -0.3 5.8 0.3 -100.1 -11.5 11.0 42.2
Source: Company reports of last financial year, in local currency (m)
As we are not pricing in any potential future acquisitions, we see free cash
flows rising over the forecast period. As already mentioned, this is only the
result of rather conservative growth and margin assumptions and not yet
pricing in any further working capital improvements.