MATELAN Research - ISRA VISION AG

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ISRA VISION In-Depth Report Higher margins justify premium Peer group comparison - 8 - in accordance with US GAAP, and secondly, the focus of this analysis should be on EV/EBIT and PE rather than on the EV/EBITDA or EV/Sales multiples. Overview of the use of accounting standards Company Accounting principles Headquarters Listed in ISRA Vision IFRS Germany Germany Basler IFRS Germany Germany Viscom IFRS Germany Germany Cognex US GAAP USA USA Perceptron US GAAP USA USA Orbotech US GAAP Israel USA AVT US GAAP Israel Germany Elexis Source: MATELAN Research IFRS Germany Germany For better comparability, the margins for ISRA are calculated on the basis of net sales only (in contrast to the remainder of the report where we calculate margins as a percentage of total output, i.e. including capitalized items). While growth is roughly in line with the market, we find that ISRA has the second highest margins among the peers, which clearly justifies a premium compared to the other companies. Basler Viscom Cognex Perceptron Orbotech AVT Elexis Average ISRA ISRA (FV) Currency EUR EUR USD USD USD USD EUR EUR EUR FY end Dec 31 Dec 31 Dec 31 June 30 Dec 31 Dec 31 Dec 31 Sept 30 Sept 30 Share price 10.8 7.0 35.4 6.0 11.5 4.9 20.4 17.4 23.6 No of share (m) 3.5 9.0 41.5 8.7 35.4 5.3 9.2 4.3 4.3 Market cap 37.7 63.0 1467.5 51.5 406.6 26.1 187.2 75.4 102.3 Net debt 19.5 -23.6 -33.2 -9.8 -56.8 -10.8 -11.0 26.5 26.5 Pension provisions 0.0 0.3 0.0 0.0 27.5 0.0 8.6 1.9 1.9 Minorities 0.0 0.0 0.0 0.0 1.9 0.0 2.9 0.8 0.8 Participations 0.0 -3.2 -249.9 -10.3 0.0 0.0 -2.8 0.0 0.0 Enterprise Value 57.2 36.6 1184.4 31.5 379.2 15.3 184.9 101.9 128.8 Sales 55.1 52.0 323.0 56.5 574.0 43.4 168.5 74.9 74.9 EBITDA 14.4 9.6 98.4 2.7 n.a. 3.5 27.6 20.8 20.8 Margin 26.1% 18.5% 30.5% 4.8% n.a. 8.1% 16.4% 27.8% 27.8% EBIT 7.4 8.6 84.9 1.6 81.9 2.7 24.1 13.8 13.8 Margin 13.3% 16.6% 26.3% 2.9% 14.3% 6.2% 14.3% 18.5% 18.5% Adj. Net Profit 4.0 6.9 66.7 1.4 67.6 2.9 14.7 8.9 8.9 EV/Sales 1.0 0.7 3.7 0.6 0.7 0.4 1.1 1.2 1.4 1.7 EV/EBITDA 4.0 3.8 12.0 11.7 n.a. 4.4 6.7 7.6 4.9 6.2 EV/EBIT 7.8 4.2 14.0 19.3 4.6 5.7 7.7 9.0 7.4 9.3 PE 9.5 9.2 22.0 37.1 6.0 9.1 12.8 15.1 8.4 11.5 Sales 56.6 58.0 361.0 62.0 622.0 48.5 179.5 82.4 82.4 Growth 2.7% 11.5% 11.8% 9.7% 8.4% 11.6% 6.5% 10.0% 10.0% EBITDA 14.2 9.6 114.0 4.4 n.a. 4.8 29.5 23.7 23.7 Margin 25.1% 16.5% 31.6% 7.1% n.a. 9.9% 16.4% 28.8% 28.8% EBIT 7.0 8.6 101.8 3.4 93.9 3.9 26.0 16.4 16.4 Margin 12.3% 14.9% 24.9% 5.4% 15.1% 8.0% 14.5% 19.9% 19.9% Adj. Net Profit 3.8 6.5 79.1 2.4 78.4 3.6 16.3 10.7 10.7 EV/Sales 1.0 0.6 3.3 0.5 0.6 0.3 1.0 1.1 1.2 1.6 EV/EBITDA 4.0 3.8 10.4 7.1 n.a. 3.2 6.3 6.3 4.3 5.4 EV/EBIT 8.2 4.2 11.6 9.3 4.0 3.9 7.1 6.9 6.2 7.9 PE 9.9 9.7 18.6 21.5 5.2 7.3 11.5 12.0 7.1 9.6 Source: MATELAN Research, Bloomberg, company reports (last FY), closing prices and consensus estimates as of 28/08/11 2011e 2012e
ISRA VISION In-Depth Report Strong discount on PE basis Peer group supports our DCF valuation Elexis transaction shows that our valuation is still not stretched Peers point at additional upside for ISRA Risks to our valuation - 9 - Based on EV/Sales multiples, ISRA trades with a sizable premium compared to its peers. More importantly, ISRA trades at a material discount to its peers, even the close ones, on almost all earnings multiples. We also find that the peer group analysis is perfectly consistent with our DCF calculation. Looking at the multiples that are implied in our DCF valuation, we find that our DCF calculation brings EV / EBITDA and EV/EBIT multiples roughly in line with the industry average and PEs even in line with the close peers. It must also be highlighted that ISRA is currently trading substantially below the transaction multiples that result from the current offer for Elexis. Furthermore, even our DCF valuation arrives at multiples that are not yet aligned with the Elexis offer, in particular on a PE basis. It should be kept in mind that the Elexis offer took place before the recent sell-off in the equity markets and is thus unaffected by the increased risk in the global economic situation. However, even our DCF valuation of ISRA before the risk adjustment would yield PE multiples 14.8% and 9.8% below the respective Elexis multiples for the years 2011 and 2012. In addition, we have applied the peer group multiples shown above to ISRA’s earnings in order to arrive at a share price for ISRA that is consistent with the current valuation of the peers. The following table shows a valuation range for each multiple determined by the second highest and the second lowest value and taking the average of the resulting values in the years 2011 and 2012. We have left out the highest and lowest multiple in order to eliminate outliers. We also show the value determined by the average of the peer group. The chart makes it clear that employing an EV/Sales multiple does not lead to reasonable results, which can be explained by ISRA’s above average profitability. Looking at average values shows a price range of EUR20.8-30.2 for ISRA across the earnings multiples. It should also be remembered that this methodology does not yet take into account the FY and the margin bias. Price ranges for ISRA based on peer group 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 EV / Sales EV / EBITDA EV / EBIT PE Source: MATELAN Research, in EUR per share Finally, it must be pointed out, that although the risk of an economic downturn is already reflected in our DCF (increased risk premium) and our peer group (reduced prices of peers) valuations, a major recession actually materialising would lead to further adjustments. This is a remaining risk to our analysis, though the upside appears to be higher at this point in time.
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MATELAN Research - ISRA VISION AG

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