Template for HA Research Notes - ISRA VISION AG

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ISRA Vision Valuation • Adjusted FCFY points to a fair value between € 21.40 and € 27.60 per share. • DCF yields a fair value of € 26.00 per share. • A peer group comparison is not very meaningful. US competitor Cognex is c. 2x larger in terms of sales compared to ISRA Vision and has a different product mix which also includes key components and is much more focused on the electronics and semiconductor industry. As a result, margins are higher compared to ISRA Vision (of 26.1% EBIT margin in 2010 vis-à-vis ISRA Vision 2009/10 EBIT margin of 17.7%). AVT’s and Perceptron’s earnings forecasts, which are based on very few analyst estimates, suggest that both are going to generate artificially low profits in the coming two years following several years of operating losses in the recent past. ISRA Vision always generated 2-digit EBIT margins, even in crisis years, pointing to a higher competitive quality. • The price target of € 25 per share is based on adjusted FCFY half way between 2010/11E and 2011/12E. Theme • Managements’ plans to carry out further acquisitions looks set to draw attention to the stock. The main rationale is to gain market share and industry-specific expertise. Unless it is a major target, the deals are expected to be financed by additional debt rather than equity. • Company founder and CEO Enis Ersü is major shareholder. CEO Mr Ersü owns 25% of the shares, aligning his interests with that of other shareholders. • Guidance for the current year reiterated. 2010/11 sales are expected clearly be above € 70m, EBIT margin to remain at least stable. By 2013/14, management is targeting a € 100m sales volume based on organic growth. Acquisitions would come on top. • Return to growth and higher margins. After sales troughed in Q4 2008/09, the return to the growth path of 2-digit sales growth (+28% yoy, +15% yoy, +25% yoy) in the recent three quarters was stunning. 12 Hauck & Aufhäuser Institutional Research
ISRA Vision ISRA Vision - Quarterly sales and gross margins 25 20 15 10 5 0 Q1 '07/08 Q2 '07/08 Q3 '07/08 Q4 '07/08 Q1 '08/09 Q2 '08/09 Source: Company data, Hauck & Aufhäuser Q3 '08/09 Q4 '08/09 Q1 '09/10 Q2 '09/10 Q3 '09/10 Q4 '09/10 Sales (€ m, left scale) Gross margin (%) Q1 '10/11 Q2 '10/11 Adjusted for seasonality, the recovery becomes more apparent When factoring out seasonality by looking at four quarters moving average figures, the improving growth and margin development becomes apparent. ISRA Vision - Quarterly sales and gross margins (moving average) 40% 30% 20% 10% 0% -10% -20% Q4 '07/08 Q1 '08/09 Q2 '08/09 Q3 '08/09 Source: Company data, Hauck & Aufhäuser Q4 '08/09 Q1 '09/10 Q2 '09/10 Q3 '09/10 Q4 '09/10 Q1 '10/11 Q2 '10/11 Sales growth (% yoy, 4Q MA, left scale) Gross margin (4Q MA, right scale) • Positive press statements of peers and customers. Recent press statements of automation industry players and customers point to high growth momentum in the sector. • Cognex, a competitor, on May 2, 2011, presented Q1 results and said it is expecting to report strong sequential growth on both the top and bottom line for the second quarter, based on the current level of bookings. 56% 55% 54% 53% 52% 51% 50% 49% 48% 47% 55% 54% 54% 53% 53% 52% 52% 51% 51% 50% 13 Hauck & Aufhäuser Institutional Research
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