MATELAN Research - ISRA VISION AG

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.