MATELAN Research - ISRA VISION AG

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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.
ISRA VISION In-Depth Report Double-digit sales and earnings growth continues in Q3 Industrial automation driven by demand from automotive industry - 33 - Free cash flow development 25 20 15 10 5 0 -5 -10 -15 -20 Source: MATELAN Research, in EURm Q3 SENDS POSITIVE SIGNALS FOR 2012 The third quarter showed net sales increasing by 18%, which was better than we had anticipated (e: +15%). Gross margin decreased slightly from last year’s high level due to a different product mix, but gross profit nevertheless remained slightly above our forecast. The contiuned implementation of the cost optimization programme more than compensated the negative effect from the product mix and led to an over-proportionate y-o-y growth of EBT (+24%), which remained marginally ahead of our expectation. Due to a slightly higher than anticipated tax payment, net income (EUR2.2m/+24%) then came in fully in line with our forecast. Q3 review 09/10 10/11e 11/12e Cash earnings Changes in NWC Investments Free Cash Flow (r.s.) Q3 10/11 Q3 09/10 % FY 10/11e % Mgmt outlook € m estimated reported new old Net sales 18.5 19.0 16.1 18.2% 74.9 71.4 4.9% significantly above EUR70m Capitalized items 2.0 1.8 1.9 -3.0% 8.0 9.3 -13.8% Total Output 20.5 20.9 18.0 16.0% 82.9 80.7 2.7% Gross profit 12.3 12.4 10.8 14.9% 49.3 47.8 3.0% Gross margin 59.9% 59.6% 60.1% 59.4% 59.3% EBITDA 5.1 5.2 4.4 17.7% 20.8 21.1 -1.5% EBITDA margin 24.7% 24.8% 24.4% 25.1% 26.2% EBIT 3.3 3.4 2.8 22.6% 13.8 14.2 -2.7% EBIT margin 16.3% 16.5% 15.7% 16.7% 17.6% EBT 3.2 3.3 2.6 24.3% 13.0 13.2 -1.6% EBT margin 15.5% 15.6% 14.5% 15.7% 16.4% approx. 15.7% Net income 2.2 2.2 1.8 23.6% 9.0 9.1 -1.6% Net margin 10.7% 10.6% 9.9% 10.8% 11.3% EPS 0.51 0.51 0.42 22.2% 2.06 2.09 -1.6% Source: MATELAN Research, ISRA VISION (reported figures and outlook) Top line growth was driven by solid demand from all regions, with Europe (+45%) and Asia (+36%) remaining the main pillars. Sales from the Americas (+60%) benefitted strongly from ISRA’s increased sales and marketing efforts in this region. The segment reporting in the table below shows that both sales and earnings growth were higher in the industrial automation unit, which profited from an increasing demand from the automotive industry for ISRA’s 3D solutions, though from a low base. The surface vision unit also grew sales at a double-digit rate (+16%), but EBIT growth developed underproportionately (+6.5%). Mgmt stated that this was due to the mix of systems delivered in Q3 and that inter-annual margin flucuation even out over the quarters. 12/13e 13/14e 14/15e 10 8 6 4 2 0 -2 -4 -6 -8
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MATELAN Research - ISRA VISION AG

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