Template for HA Research Notes - ISRA VISION AG

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ISRA Vision Adjusted FCF points to a fair value of € 25.00 per share Smaller companies rarely bear sufficient resemblance to peers in terms of geographical exposure, size or competitive strength and long-term returns often are flawed by the lack of sufficient visibility. Therefore, an Adjusted Free Cash Flow analysis (Adjusted FCF) has additionally been conducted. The main driver of this model is the level of return available to a controlling investor, influenced by the cost of that investors’ capital (opportunity costs) and the purchase price –the enterprise value of the company. Here, the adjusted FCF yield is used as a proxy for the required return and is defined as EBITDA less minority interest, taxes and investments required to maintain existing assets (maintenance capex). Simply put, the model assumes that investors require companies to generate a minimum return on the investor’s purchase price. The fair value based on adjusted FCF in 2011/12E of € 27.60 is significantly higher compared to the fair value based on 2010/11E estimates, driven by earnings growth coupled with reduced net debt, lowering the EV. The price target is derived by valuing the stock half-way between 2010/11E and 2011/12E, which points to a fair value of € 25.00 per share. FCF yield, year end Sept. 30 2010/11E 2011/12E 2012/13E EBITDA 20.7 23.7 27.6 - Maintenance capex 7.1 7.5 8.4 - Minorities 0.0 0.0 0.0 - tax expenses 4.4 5.2 6.3 = Adjusted Free Cash Flow 9.2 11.0 12.9 Actual Market Cap 75.4 75.4 75.4 + Net debt (cash) 22.0 17.7 14.0 + Pension provisions 1.9 1.9 1.9 + Off balance sheet financing 0.0 0.0 0.0 + Adjustments prepayments 0.0 0.0 0.0 - Financial assets -1.2 -1.2 -1.2 - Dividend payment -0.9 -0.9 -1.1 EV Reconciliations 21.9 17.6 13.6 = Actual EV' 97.3 93.0 89.1 Adjusted Free Cash Flow yield 9.4% 11.8% 14.4% Sales 74.1 84.0 97.1 Actual EV/sales 1.3x 1.1x 0.9x Hurdle rate 8.0% 8.0% 8.0% FCF margin 12.4% 13.1% 13.3% Fair EV/sales 1.5x 1.6x 1.7x Fair EV 114.8 137.1 160.8 - EV Reconciliations 21.9 17.6 13.6 Fair Market Cap 93.0 119.6 147.2 No. of shares (million) 4.3 4.3 4.3 Fair value per share 21.4 27.6 34.0 Premium (-) / discount (+) in % 23.2% 58.5% 95.1% Source: Hauck & Aufhäuser 20 Hauck & Aufhäuser Institutional Research
ISRA Vision Company background Business model Whenever the limits of human visual perception are surpassed, machine vision technology is used to inspect welds, surfaces, printed pattern, folded carton, identify workpieces, guide robots or check completeness. Intelligent systems are able to learn recurring defects and allow for a systematic rectification, resulting in improved up-time. Also, defective parts are not passed on to subsequent manufacturing stages, thus enabling a 100% quality target in a cost effective way. ISRA Vision’s core competences (called BrainWARE ®) are due to the combination of soft- and hardware, incorporating industry-specific process know-how, algorithms to process vision data and an optimal system design to produce quality data in a reliable and fast way. ISRA Vision AG provides systems for industrial image processing using application-specific modular standard software solutions for surface inspection, robot guidance, and quality control applications, which are developed, produced and marketed by the company. The application specific machine vision systems are focusing on: • Automation of quality control • Automation of production • Yield enhancing production decision intelligence Reporting divisions ISRA Vision operates in two divisions: • Surface Vision Division (82% of 2009/10 sales): optical quality inspection systems mainly for sheet products such as flat glass, solar, display glass, paper, plastic, nonwoven and metal. Surface Vision focuses primarily on surface inspection technology mainly for web materials like flat glass, solar glass and display glass, foil, plastics, print, metal, paper and others. These materials are checked for defects during the production process. Surface Vision – optical in-line print inspection and documentation Source: company data • Industrial Automation Division (18% of 2009/10 sales): Robot vision systems (2D or 3D) mainly supplied to the automotive, engineering, automation and general industry. For example, these systems enable a robot to insert a car windshield glass at a tolerance level of less than 1mm or to mount a wheel without scratching the car body. The Industrial Automation division focuses on the automotive and general industries. 21 Hauck & Aufhäuser Institutional Research
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