German/Austrian small/mid-caps

Size: px
Start display at page:

Download "German/Austrian small/mid-caps"


1 BERENBERG EQUITY RESEARCH German/Austrian small/mid-caps Gunnar Cohrs, CFA Analyst Anna Patrice, CFA Analyst October 213

2 For our disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) and our disclaimer please see the end of this document. Please note that the use of this research report is subject to the conditions and restrictions set forth in the disclosures and the disclaimer at the end of this document.

3 Table of contents Germany/Austria: small and mid-caps... 5 Valuation matrix... 8 Germany and Austria... 1 Recovery expectations trigger market re-rating Companies ADVA Optical Networking SE Agrana Beteiligungs AG... 2 Aixtron SE alstria office REIT AG AMAG Austria Metall AG ANDRITZ AG Aurelius AG Axel Springer AG Bauer AG BayWa AG Bechtle AG Bilfinger SE... 3 Brenntag AG Carl Zeiss Meditec AG Celesio AG CEWE Stiftung & Co KGaA CompuGroup Medical AG CTS Eventim AG Delticom AG Deutsche Annington Immobilien SE Deutsche EuroShop AG Deutsche Wohnen AG... 4 Deutz AG Dialog Semiconductor plc DIC Asset AG Drägerwerk AG & Co KGaA Drillisch AG Dürr AG ElringKlinger AG Evotec AG Fielmann AG freenet AG... 5 Fuchs Petrolub SE GAGFAH SA GEA Group AG Gerresheimer AG Gerry Weber International AG Grenkeleasing AG GSW Immobilien AG Hamborner REIT AG Hawesko Holding AG Hochtief AG... 6 Hugo Boss AG Jenoptik AG Jungheinrich AG Kapsch TrafficCom AG KION Group AG Klöckner & Co SE Kontron AG Krones AG KUKA AG

4 LEG Immobilien AG... 7 Leifheit AG Lotto24 AG MAN SE Mayr-Melnhof Karton AG MIFA Mitteldeutsche Fahrradwerke AG MTU Aero Engines Holding AG Nemetschek AG NORMA Group AG OSRAM Licht AG Palfinger AG... 8 Patrizia Immobilien AG Pfeiffer Vacuum Technology AG ProSiebenSat.1 Media AG PSI AG QSC AG RATIONAL AG Rheinmetall AG RHI AG Rhön-Klinikum AG RIB Software AG... 9 Rosenbauer International AG Sartorius AG Schoeller-Bleckmann AG SGL Carbon SE Sky Deutschland AG Software AG STADA Arzneimittel AG STRATEC Biomedical AG Ströer Media AG Südzucker AG... 1 Süss Microtec AG Symrise AG TAG Immobilien AG TAKKT AG Telekom Austria Group Tipp24 SE Tomorrow Focus AG Tom Tailor Holding AG United Internet AG Verbund AG Vossloh AG VTG AG Wacker Neuson SE Wienerberger AG Wirecard AG Wüstenrot & Württembergische AG Xing AG zooplus AG Zumtobel AG Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) Contacts: Investment Banking

5 Germany/Austria: small and mid-caps The origins of Berenberg Equities Before developing into a pan-european all-cap house, Berenberg was recognised as one of the top research providers for German small and mid-caps. Today, Berenberg covers almost all of the key German small/mid-cap companies, and also offers among the broadest coverage of Austrian companies. With our longstanding experience and large coverage universe, we are ideally positioned to help investors pick out hidden champions in this space. In this note, our third cross-sector report focusing on German and Austrian small and mid-caps, we provide insight on 11 companies and identify our current top ideas. Top ideas Bechtle AG (Buy; PT EUR48.5; 28% upside) Bechtle is a full-service IT provider with a highly defensible market position in Germany. The market is highly fragmented and Bechtle is the second-largest player with a market share of 2%, roughly on a par with number one player (Computacenter Germany) and three times bigger than number three player (Cancom). Bechtle s key differentiating factors are its levels of service, process know-how and reliability it offers. It therefore places significant emphasis on these, employing 2,7 service personnel and providing a wide range of pre- and post-sale services. Bechtle has made c5 small acquisitions since its IPO in 2, but the market remains highly fragmented. We believe that Bechtle offers substantial growth potential, both organic and inorganic, given its strong balance sheet and plans for further market consolidation. Following Bechtle s significant investments in new personnel and thus future growth, its margin has been slightly depressed over the last few quarters. In the long term, margin expansion should be driven by the sale of more high value-add services to customers. In the short term, we expect Bechtle to improve its margin, supported by increased productivity on the part of new employees. This margin expansion should provide a near-term catalyst for the stock. The valuation of 11.3x 214 earnings is, in our view, not justified. Our DCFbased target price of EUR48.5 suggests a fair valuation at 14.4x 214 earnings, leaving c28% upside potential. Bjoern Lippe, tel: CEWE Stiftung & Co KGaA (Buy; PT EUR47.5; 2% upside) CEWE is among the few photo-printing companies that have overcome the structural changes that have taken place in the industry and survived the general shift from analogue to digital photo-finishing. Management has a solid track record of identifying and monetising new trends, which is evident in its leadership of the European photobook sector and the digital photo-printing market, in which it has a market share of more than 4%. In 21, CEWE entered the web-to-print segment, and strengthened its position there by acquiring Germany s number three player, Saxoprint, in October 213 Gunnar Cohrs, CFA Analyst Anna Patrice, CFA Analyst

6 The online segment is loss-making for the time being, and thus the company has reported flat group EBIT and net profit for 212, with little improvement expected for 213E. However, the company s competitive edge in photo-printing and its high brand awareness are set to support market share gains in this growing segment. We therefore expect a 3% sales CAGR E in online printing and positive EBIT by 215E with a 25% contribution to group earnings by 217E. This is not yet reflected in consensus or in valuation: a) our EPS estimates are 4% ahead of consensus for 214E and 1% ahead of consensus for 215E; b) our SOTP valuation indicates that online printing is worth EUR9.5 per share, while the core business is worth EUR38 per share versus the current share price of EUR38. CEWE s upcoming capital markets day on 16 October will focus on online printing, which is set to be a catalyst for share price outperformance. Anna Patrice, tel: Gerresheimer AG (Buy; PT EUR54.; 2% upside) Gerresheimer is one of the leading players in healthcare packaging. After a prolonged period of investment to enhance its product offering (insulin pens and RTF syringes) we believe Gerresheimer is about to embark a period of accelerated top-line growth and margin expansion. As the company comes out of its investment phase, there should be a significant improvement in balance sheet returns (its ROIC should rise from c9/1% to above the mid-teens), which we believe will trigger a re-rating in the stock and finally drive a warranted premium to other packaging peers. In the meantime, Gerresheimer may be tempted to bid for the Rexam Healthcare Plastics business (recently put up for sale). If this is the case, and Gerresheimer is successful in clinching the deal at a fair price, this could be transformational for the company. We view the Rexam opportunity as upside potential to the base case investment case for Gerresheimer. Scott Bardo, tel: Tipp24 SE (Buy; PT EUR68.; 43% upside) Tipp24 operates a highly profitable secondary lottery (it has a UK betting licence on the outcome of the German 6 from 49 lottery) which has been unsuccessfully challenged in the past by the German regulator. While it bears minimal regulatory risk at present, such risk will, in our view, be eliminated with the move to the UK. Given that most customers are presumably German and the company has not been allowed to advertise in Germany so far, the business is unlikely to grow in terms of active customers. A price increase of 33% introduced by the original lottery in May 213 and replicated by Tipp24 is likely to be the only source of growth for some time. Additional medium-term growth is likely to come from Tipp24 s recently acquired stake in Geonomics, which holds a UK licence for a geo-based lottery. Sector experts have labelled geo lotteries as the key innovation in the lottery industry; we believe that, in the medium term, the new game will be able to match the revenues and margins of the current business. The move of headquarters from Hamburg to London at the end of this year (although the company will retain its German stock listing) is very positive news for shareholders as it increases the likelihood that the company will pay a dividend next year. There is EUR14m of cash, excluding client money, at the Tipp24 subsidiary MyLotto24 UK Ltd, which to a large extent it can pay out. A weaker Q3 (which it will report on 7 November) due to the new businesses increased costs (as already announced with the full-year guidance for 6

7 213), a jackpot payout of EUR6.8m (announced in September) and a pleasant summer with lower internet activity could be a good entry point into the stock. Valuation with a cash adjusted P/E 214 of 7x and a free cash flow yield of 1% looks attractive. Our price target of EUR68 is based on DCF. Gunnar Cohrs, tel: United Internet AG (Buy; PT EUR35.; 25% upside) United Internet is the second-largest German residential broadband provider in Germany with operations in mobile since 21. A period of reinvestment has rejuvenated the company s national 1&1 brand which is among the fastest-growing mobile and broadband providers in Germany today. We believe a combination of subscriber growth, improving profitability and lower start-up investments should yield double-digit growth in EBITDA, earnings and free cash flow over the next few years. In the near term, we expect subscriber profitability to surprise to the upside leading to consensus earning upgrades for 214 and 215. Low leverage also leaves room for surprise on shareholder returns. Valuation-wise, UTDI looks expensive trading on 2x 214 estimates but not in relation to the growth on offer of a CAGR of 23%. Our DCF-based SOTP value for the business is EUR35, which would imply a price earnings ratio falling to 15x 215 and 25% upside potential. Usman Ghazi, tel: Zumtobel AG (Buy; PT EUR14.5; 2% upside) Zumtobel is Europe s leading professional lighting manufacturer, producing luminaires under the Zumtobel and Thorn brands in the Lighting division, and under the Tridonic brand in the Components division. After many quarters of restructuring and the negative effects of the LED transition, the company has turned a corner. LED growth in the Components division is now more than offsetting the decline in conventional products, while the benefits of economies of scale and lower input prices are starting to show through. Past restructuring efforts support ongoing margin improvements throughout the group despite a lacklustre market, which would provide further upside is European construction recovery boosts volumes. Previous management has done well to strengthen the balance sheet, improve cash flow generation and reduce working capital. Q2 results in December should provide a positive catalyst as we believe 1) the new CEO will announced his targets and strategic plan for the group, and 2) the strong seasonality which is not fully appreciated by investors in our view, is likely to result in an exaggerated share price reaction as performance continues to improve as it did in Q1. The share is trading on.5x EV/sales versus a long run expectation of 6.5%. Our EUR14.5 price target is based on a blended average of multiple-based, SOTP and DCF valuation methodologies and provides 2% upside with scope to reach EUR17.7 in FY 216 (5% upside). William Mackie, tel:

8 Valuation matrix Name Current rating (trading currency) Price (trading currency) Potential in % Abs. perf 3M Market cap. (m) in EUR Div. yield 213 P/BV 214 ROCE 213 EV/ Sales 213 EV/ EBIT 213 P/E 213 EBIT CAGR 13- margin 15e EBIT 213 Lotto24 Buy % -18.2% 82.% 5.1 n.m n.m. n.m. n.m. -7.6% Kapsch TrafficCom Buy % -.8% % 1.8 n.m. 1.1 n.m. n.m. -2.3% n.m. Tipp24 SE Buy % 9.2% 398.% % % 28.2% Suss Microtec Buy % -6.3% 132.%.9 n.m..8 n.m. n.m. -5.5% n.m. MIFA Buy % 6.6% 62.% % % 14.3% RHI Buy % -8.% % % % -2.6% RIB Software Buy % 27.8% % % % 13.5% DIC Asset Buy % 4.% %.6 3.2% % 2.5% Nemetschek Buy % -9.5% % % % 21.2% Bechtle Buy % 4.% % % % 1.8% Tom Tailor Buy % -7.9% 384.% % % 38.5% BayWa Buy % -5.9% 1, % % % 13.2% United Internet Buy % 24.6% 5, % % % 5.8% Deutsche Wohnen Buy %.4% 2, % % % 3.3% GAGFAH Buy % 8.9% 2,57.%.9 4.4% % 1.3% alstria office Buy % 1.8% %.9 4.4% % 1.5% CEWE COLOR Buy % 12.7% % % % 12.7% Gerresheimer Buy % 3.% 1,49 1.6% % % 14.5% Zumtobel Buy % 45.8% 521.6% % % 94.8% Drägerwerk Buy % -5.2% 1,644 1.% % % 13.5% TAG Immobilien Buy % 6.6% 1, % % % 5.6% Pfeiffer Vacuum Buy % 1.3% % % % 12.1% Rhön-Klinikum Buy % 8.7% 2,67 1.3% % % -18.5% Deutsche Annington Buy % 12.2% 4,33 3.5% % % 1.3% Tomorrow Focus AG Buy %.3% % % % 18.% Evotec Buy % 32.4% 45.% 2.4.6% 3.9 n.m % 325.7% Sartorius Buy % 1.% % % % 13.3% PATRIZIA Buy % -12.9% 425.% % % n.m. Gerry Weber Hold % -11.8% 1, % % % 15.6% LEG Immobilien Buy % 8.7% 2, % % % 9.7% Hamborner REIT AG Buy % 2.% % % % 4.6% Carl Zeiss Meditec Hold % -16.4% 1,787 2.% % % 9.8% ADVA AG Optical Networking Hold % 27.2% 223.% % % 59.3% Mayr-Melnhof Karton Buy %.5% 1, % % % 6.% Drillisch Buy % 32.4% % n.m. 22.1% % 33.4% BAUER Hold % 1.5% %.6 6.7% % 14.3% Jungheinrich Hold % 28.6% 1, % % n.m. n.m % 12.7% QSC AG Buy % 52.1% % % % 42.% Leifheit Hold % 9.% % % % 13.7% Deutsche EuroShop Buy % 1.6% 1, % % %.9% TAKKT AG Buy % 22.4% % % % 7.2% Hugo Boss Hold % 8.1% 6, % % % 14.9% Wirecard Buy % 16.4% 2,867.4% % % 27.8% Palfinger Buy % 17.9% % % % 16.1% AGRANA Hold % -12.5% 1,32 3.9% % % -1.9% Wüstenrot & Württembergische Hold % 4.8% 1,359 2.%.4 n.m. n.m. n.m. 1.5 n.m. n.m. PSI AG Buy % -18.% % % % 68.7% Rosenbauer Hold % 9.5% % % % 9.1% AMAG Austria Metall Hold % -7.8% % % % 23.1% Bilfinger Berger Buy % 7.8% 3, % % % 9.6% GSW Immobilien Buy % 4.2% 1,61 3.1% 1. 5.% % 3.6% Sky Deutschland AG Buy % 17.5% 6,218.% 1.8 n.m. 4.2 n.m. n.m. -4.% n.m. OSRAM Buy % 26.1% 3,649.% % % 16.4% Andritz Buy % 4.4% 4, % % % 28.2% Hawesko Hold % -2.6% % % % 13.% Suedzucker Hold % -14.6% 3, % % % -11.6% RATIONAL Hold % 4.7% 2, % % % 1.8% Norma Buy % 15.3% 1,98 2.4% % % 12.2% STADA Buy % 12.6% 2,33 2.% % % 12.2% Fielmann Hold % -3.3% 3,35 3.7% % % 7.9% GEA Hold % 8.2% 5,88 2.1% % % 8.5% Jenoptik Hold % 31.7% % % % 2.% Aixtron Hold % -3.5% 1,183.% 2.4 n.m. 2.5 n.m. n.m. -7.1% n.m. Dialog Semiconductors Hold % 41.7% 962.% % % 28.1% 8

9 Name Current rating (trading currency) Price (trading currency) Potential in % Abs. perf 3M Market cap. (m) in EUR Div. yield 213 P/BV 214 ROCE 213 EV/ Sales 213 EV/ EBIT 213 P/E 213 EBIT CAGR 13- margin 15e EBIT 213 Vossloh Sell % -1.9% % % % 6.9% VTG Hold % 1.8% % % % 8.% Brenntag Hold % -1.5% 6,19 2.% % % 6.2% KUKA Hold % -4.6% 1,116.9% % % 7.3% Hochtief Hold % 16.% 4, % % % 2.3% MTU Hold % -7.2% 3,588 2.% % % 13.5% Xing Buy % 65.3% % % % 51.1% freenet Hold % 2.2% 2, % % % 7.7% Symrise Hold % -2.5% 3, % % % 8.% Axel Springer Hold % 27.9% 4,231 4.% % % 5.1% DEUTZ Buy % 28.2% 89.% % % 37.6% Delticom Hold % 11.% % % % 16.8% CTS Eventim Hold % 8.2% 1,69 2.2% % % 8.4% Klöckner & Co Hold % 16.% 981.%.6.9% n.m..4% 138.3% ElringKlinger Hold % 18.2% 2,21 1.5% % % 15.% CompuGROUP Hold % -7.3% % % % 13.7% Rheinmetall Hold % 19.1% 1, % % % 44.6% Aurelius AG Hold % 23.3% % % % 1.% MAN Sell % 4.5% 12,977.4% % n.m. 3.1% 69.% Fuchs Petrolub Hold % -.2% 2,94 2.7% % % 1.9% Grenkeleasing Hold % -3.7% % 1.9 n.m. n.m. n.m. 2.6 n.m. n.m. Ströer Out-of-Home Media AG Hold % 56.% 614.% % % 26.8% Krones Hold % 12.3% 1, % % % 11.3% Schoeller-Bleckmann Oilfield Hold % 4.5% 1, % % % 7.9% Celesio Hold % 1.6% 3, % % % 9.6% zooplus AG Sell % 25.8% 38.% %.8 n.m. n.m..7% 132.1% Stratec Hold % 1.3% % % % 16.6% Kion Sell % 18.2% 2, % % % 8.% ProSieben Sat.1 Sell % -4.6% 6, % % % 3.7% Wienerberger Sell % 39.9% 1,53.9%.7 1.6% n.m. 1.7% 84.9% Software AG Sell %.2% 2,13 2.2% % % 2.% Wacker Neuson Sell % 9.4% %.8 8.2% % 8.4% Kontron Hold % 41.4% %.9 5.% % 86.2% Verbund Sell % 15.3% 5,757 6.% % % -22.5% Dürr Hold % 12.7% 1, % % % 1.8% Telekom Austria Sell % 24.1% 2,766.8% % % 7.4% SGL Carbon Sell % 27.9% 2,367.% 3.1.7% 2. n.m. n.m..8% 228.9% Source: Berenberg, 8 October 213 9

10 Germany and Austria The long-awaited European recovery has led to solid stock market performance and a re-rating with MDAX trading at almost 2% premium to its historical P/E. However, the German mid-cap universe is still an attractive market for the following reasons. Favourable macro environment: There is solid growth potential in Germany, with economic sentiment improving at a higher pace than the rest of Europe and positive momentum with earnings upgrades coming through as opposed to slight downgrades elsewhere. There have been few surprises and the stable political environment supports Germany s safe-haven status. High-quality mid-cap businesses: The companies in our coverage universe are focused on their niche segments and therefore are market leaders, able to gain market share in fragmented markets or profit from new trends and structural changes by developing their markets. Looking at the sector s valuation, earnings expectations are positive. However, the companies that attended our Munich conference in September remained cautious about the outlook, and Q3 results might prove to be a mixed bag, revealing a disappointing pace of growth. Precise stock picking is, therefore, more important than ever in these markets, which are characterised by expanded and converted multiples, coupled with the absence of short-term catalysts. In this note, we have combined our German and Austrian small and mid-cap universes, comprising a total of 11 companies, and have screened the stocks according to the following criteria: a Buy recommendation with upside of more than 1% to the current price; strong earnings growth over the next three years; and significant catalysts for the stock over the next few months. Based on these criteria, we have chosen the following six top picks from our universe that offer more defensive growth or have stock-specific growth drivers and are unlikely to suffer negative surprises linked to slower-than-expected growth going into Q3 results Bechtle, CEWE, Gerresheimer, United Internet, Zumtobel and Tipp24. We expect a weak set of results for the latter, but this is a result of company-specific issues that its management has already highlighted. We believe that these stocks either offer robust non-cyclical growth (Gerresheimer, United Internet, Tipp24) or we expect them to benefit from an improved macro environment reinforced by stock-specific growth drivers (Bechtle, CEWE, Zumtobel). The next edition of our German/Austrian mid-cap product is planned for April 214. Meanwhile, we will continue to publish updates to our list in a newsletter every month. Reviewing the selection of top picks chosen for the last German/Austrian note, which were chosen based on the same criteria as above, we can identify a share price performance of +26%, which represents a 12.7ppt outperformance compared with the average increase of our German and Austrian small and midcap coverage universe of 13.2% since April 213. In particular, Sky Deutschland and STADA contributed to this strong performance with share price increases of 76% and 26% respectively. 1

11 Performance of old top picks since selection in April 213 LEG Immobilien Hugo Boss CompuGroup STADA Sky Deutschland % 1% 2% 3% 4% 5% 6% 7% 8% Best/worst five performers since our publication in April 213 Xing Deutz Sky Deutschland QSC Stroer Media Suedzucker PSI Vossloh Andritz AMAG -4.% -2.%.% 2.% 4.% 6.% 8.% 1.% 12.% Source:,, closing price of 3 October 213 compared with closing price of 8 April 213, CompuGroup - until 23 July, downgrade to Hold on 24 July, Hugo Boss until 25 September, downgrade to Hold on 26 September 11

12 2/ 1/ 6/1 2/2 1/2 6/3 2/4 1/4 6/5 2/6 1/6 6/7 2/8 1/8 6/9 2/1 1/1 6/11 2/12 1/12 6/13 3/6 8/6 1/7 6/7 11/7 4/8 9/8 2/9 7/9 12/9 5/1 1/1 3/11 8/11 1/12 6/12 11/12 4/13 Recovery expectations trigger market re-rating Despite political uncertainties, Syria, the US shutdown and political instability in Italy, leading indicators show that, across the world, positive sentiment continues to gain momentum and Europe is not an exception to this. Eurozone manufacturing keeps growing modestly, although the pace of expansion eased a little in September. There is little noticeable difference between core and crisis countries, with the PMI index staying above 5 since July 213 for Germany, as well as for Spain, Italy and the eurozone as a whole. Germany is set to benefit from a) improving domestic demand, because consumer confidence and the employment rate are high, while inflation expectations are low; and b) improving macro conditions in its main export countries. Furthermore, German mid-cap companies still generate almost 7% of sales outside their domestic market and so will benefit from global macro development. Eurozone and German economic sentiment index PMI index indicates growth ahead EU economic sentiment Germany PMI Manfucturing Germany China Manufactruing PMI ISM Manfucturing US Source: Underlying expansion is there, but short-term momentum is mixed Underlying expansion is accelerating, but our economists expect moderate headline growth in Q3 and Q4 213E. This corresponds closely with corporate comments from our Munich conference, where companies said they were optimistic about FY 214E but did not expect significant improvement in the short term. The Q3 213 results season is, therefore, unlikely to be an earnings upgrade event. Indeed, current consensus estimates paint a similar picture, with downgrades/flat EPS estimates for the current fiscal year (ESP FY1). For the next fiscal year, consensus expects flat development for most of the indices. That said, consensus earnings expectations are already above the pre-crisis year also for most of the indices. 12

13 Earnings estimates (EPS FY1), 25-ytd MDAX DAX S&P 4 Midcap S&P 5 SDAX 5 FTSE 25 Aug 5 Aug 6 Aug 7 Aug 8 Aug 9 Aug 1 Aug 11 Aug 12 Aug 13-5 ATX Source: Earnings estimates (EPS FY2), 25-ytd MDAX DAX S&P 4 Midcap S&P 5 SDAX 5 ATX FTSE 25 Aug 5 Aug 6 Aug 7 Aug 8 Aug 9 Aug 1 Aug 11 Aug 12 Aug 13 Source: Germany as a safe haven A strong labour market, healthy gains in consumer incomes, a solid fiscal position and political continuity have secured Germany s safe-haven status. Indeed, domestic demand is likely to be the key GDP driver in the mid-term, while an improving macro environment is set to accelerate Germany s export growth. Germany, therefore, seems as a safe bet in times of macro volatility and political instability, but its exports will also benefit when Europe picks up. The charts below prove that, for Germany, the theory that domestic demand drives GDP growth holds true. Indeed, net exports are set to decline because of an increase in imports, and thus GDP is set to be driven by domestic demand (private consumption and imports). However, this decline in net exports is a result of a rise in imports that has outpaced solid export performance and is not caused by poor export performance. 13

14 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q 1Q1 1Q2 1Q3 1Q4 1Q5 1Q6 1Q7 1Q8 1Q9 1Q1 1Q11 1Q12 1Q13 1Q14E 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q 1Q1 1Q2 1Q3 1Q4 1Q5 1Q6 1Q7 1Q8 1Q9 1Q1 1Q11 1Q12 1Q13 1Q14E 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q 1Q1 1Q2 1Q3 1Q4 1Q5 1Q6 1Q7 1Q8 1Q9 1Q1 1Q11 1Q12 1Q13 1Q14E Of our top picks, Bechtle, CEWE, Tipp24, United Internet are set to benefit from this improving private consumption and significant exposure to the domestic market. Germany driven by domestic demand, yoy growth (%) Source: Factset, Berenberg Real GDP Priv Consumption Net exports Private consumption and net export, EURm Net export split: export and import, EURm Priv Consumption Net exports Exports Imports Source: Factset, Berenberg, Private consumption on left hand side and net export and right hand side Source: Factset, Berenberg German companies are, therefore, well positioned to benefit from European recovery, yet also offer a buffer because of the solid domestic demand. It is no surprise that German stocks have fared better than their international peers in terms of consensus upgrades. And it is worth noting that it is the German mid-cap stocks (MDAX) that have seen steady earnings upgrades since Q2 213 for 214E. The chart below further demonstrates the resilience and growth potential of German companies and, in particular, the mid caps the MDAX stands out because of its consistent earnings upgrades since the start of

15 Earnings revision, EPS FY A B C D DAX MDAX FTSE 25 S&P 4 Midcap FTSE 1 S&P 5 A = 1 Jan Mar 213 C = 29 Mar Jun 213 B = 28 Jun YTD D =1Sep Oct 213 Source: Earnings revision, EPS FY A B C D DAX MDAX FTSE 25 S&P 4 Midcap FTSE 1 S&P 5 A = 1 Jan Mar 213 C = 29 Mar Jun 213 B = 28 Jun YTD D =1Sep Oct 213 Moreover, the German mid-cap universe offers some of the highest earnings growth potential over the next two years, with a 2% CAGR E. Estimated earnings E CAGR 25% 23% 2% 2% 15% 1% 15% 13% 12% 1% 5% % FTSE 25 MDAX S&P 4 Midcap DAX STOXX 6 S&P 5 Source: Multiples expansion Earnings upgrades look modest compared with market performance and, consequently, so does the multiples expansion. While markets do not trade at all high levels, the P/E ratios are well above their historical 1-year averages. While MDAX and SDAX have seen the strongest re-ratings, the overall European stock market (STOXX 6) trades an all-time high with most sectors seeing current PER ratios well above their historical averages, as illustrated in the charts below. 15

16 Basic resources Technology Oil & gas Utilities Telecommunications services Industrial goods and services Construction and materials Healthcare Chemicals Food and beverages Media Retail Autos and parts Real Estate Insurance Personal and household Transport and leisure Financial services Market Trading at a premium to historical 1-year average, PE FY DAX MDAX SDAX FTSE 25 S&P 4 Midcap MinMin/Max Max Current Average S&P 5 Source: Trading at a premium to 1-year historical average, PE FY2, STOXX 6 sectors Min Min/Max Max Current Average Source: Indeed, while the German mid-cap universe is skewed towards capital goods and industrial engineering, we see limited upside potential for this sector, with most of our stocks on a Hold recommendation. For example, Deutz has had a fantastic performance this year, with its share price almost doubling. However, during our Munich conference, management was downbeat on end-markets, relying on market share wins to drive the recent order intake strength. Media is another sector that has re-rated. Out of the top five performers within Berenberg s German and Austrian mid-cap universe, three are media players (Xing, Sky Deutschland and Ströer). Sky Deutschland has seen a 76% share price increase since we chose it as our top pick. 16

17 The re-rating of cyclical sectors leads us to be more cautious in choosing our top picks, so we prefer companies that show a mostly defensive growth profile or belong to those sectors that have not seen excessive re-rating (Gerresheimer in healthcare; United Internet and Bechtle in telecoms and IT services). We also expect consensus upgrades for Zumtobel as we believe margin expansion potential is not yet reflected in consensus estimates, and thus we believe that valuation is still appealing. Earning estimates not conservative The multiples expansion and high valuation could be justified by upgrades, as usually the sell-side is late in identifying turning points. However, earnings estimates do not look particularly conservative, neither in terms of expected margin progression nor in terms of expected earnings growth: profitability () to reach the pre-crisis level (DAX, FTSE 25) or even exceed it (MDAX, S&P 5); and earnings growth over the next two years (212-15E) to be significantly above historical growth rates (24-212). is expected to reach or even exceed pre-crisis levels 2% 15% 1% 5% % Source: DAX MDAX SDAX S&P 4 Midcap S&P 5 Earnings growth expectations do not look conservative 25% CAGR Year CAGR CAGR Year CAGR CAGR Year CAGR 2% 15% 1% 5% % Sales Sales Sales EBIT EBIT EBIT EPS EPS EPS CAGR Year CAGR CAGR Year CAGR CAGR Year CAGR DAX MDAX FTSE 25* S&P 4 Midcap S&P 5 Source:, FTSE

18 Back to stock picking Careful stock picking is not only essential in uncertain and volatile times, but also during stock market rallies to avoid disappointment on unsustainable expectations. We believe that the German mid-cap market provides significant opportunities for investors to pick high-quality companies that offer one or several of the following: a focus on niche markets within which they are the leaders (CEWE, Gerresheimer, United Internet); a defensive growth profile (Gerresheimer, Tipp24); innovative products and, therefore, structural growth in new emerging-market segments (CEWE, Tipp24, Zumtobel); family ownership and its concordant focus on long-term, sustainable and profitable growth (CEWE); hidden gems that are not well known to the market (Bechtle, CEWE, Tipp24). We believe our top picks will outperform the market because they offer significant upside potential and: have defensive but solid growth (Gerresheimer, with 12% EPS CAGR E, United Internet); are active players in consolidating fragmented markets (Bechtle); benefit not only from the improving macro environment but also competitive advantages that support market share gains (Bechtle); or have track records in identifying and monetising new trends (CEWE and its new commercial online printing division, Tipp24 with its geo-based lottery, Zumtobel with LED). Berenberg top picks solid growth profile and upside potential Source: Berenberg estimates, PT Upside EPS EPS growth PER EPS 3Y FY1 FY2 FY3 FY1 FY2 FY3 FY1 FY2 FY3 CAGR PEG Bechtle % % 17% 7% % 1.1 CEWE % % 13% 16% % 1.2 Gerresheimer 54. 2% % 16% 16% % 1.2 Tipp % % 36% 21% %.8 United Internet % % 35% 42% %.5 Zumtobel % % 74% 69% %.4 18

19 ADVA Optical Networking SE 8 October 213 Hold EUR /1/213 XETRA Close EUR 5.2 EUR 225 m ADAG ADV GY Shares outstanding (m) 48 Daily trading volume 219,871 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS... - EBITDA margin 8.4% 7.6% 1.3% 14.2% 6.6% 5.9% 8.6% 12.5% Dividend yield.%.%.%.% ROCE 17.8% 14.2% 22.6% 38.1% FCF yield 5.% 5.8% 7.% 1.3% EV/sales EV/EBITDA EV/EBIT PER EGORA Group 18.1% Ali Farid Khwaja, CFA Company overview: Founded in 1994, ADVA develops, manufactures and sells optical and ethernet-based networking solutions to telecommunications carriers and enterprises. It generated EUR33m in revenues in 212 (up by 6.2% yoy), of which 3% were from its Enterprise Networks and Ethernet Access segments respectively and 4% came from its Carrier Infrastructure business segment. The company has headquarters in Munich, Atlanta and Shenzen. Quality: ADVA is a niche player operating in a challenging industry. The overall profitability of the sector has been eroded by the entry of Chinese companies as well as by depressed telecoms operator capex. ADVA is one of the few companies in the sector which has been able to maintain profitable growth even during the economic downturn. The company has a healthy balance sheet with net cash of around EUR4m by end-h We think this, along with a profitable business model and its focused product portfolio, are key differentiators which will allow ADVA to gain from the eventual consolidation in the sector. ADVA has a 2% market share in fibre ethernet access devices (it is the global leader) and a 1% market share in EMEA metro WDM (Wavelength-division Multiplexing) equipment market. Growth: We are modelling a c7.3% CAGR growth in revenues over Key growth drivers are increased spending by telecoms operators on optical-related wireline infrastructure and by corporates in areas like ethernet access. Some structural trends ie the growth in data centres, increased data traffic on networks, LTE deployments and smartphone penetration are driving growth in the sector. Macroeconomic conditions remain challenging; however, there are early signs of a pick-up in spending by carriers and corporates. We also expect ADVA to make acquisitions, especially in the US, which could help to accelerate growth. Valuation: Our price target of EUR5.2 is based on 12x next year s P/E. The stock is trading at 9.5% below our price target. ADVA trades on a steep discount to its US peers like Ciena and Infinera. Share catalysts: These would include new large contract wins and market share gain in the US. Sales and development Business segment overview E 14E 15E 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% Carrier Infrastructure 4% Enterprise Networks 3% Sales (EUR) Ethernet Access 3% 19

20 E 215E 216E Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Agrana Beteiligungs AG 8 October 213 Hold EUR /1/213 Vienna Close EUR 1. EUR 1,331 m AGRV AGR AV Shares outstanding (m) 14 Daily trading volume 1,439 Y/E 28.2, EUR m E 215E 216E Sales 3,66 3,122 3,13 3,142 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 1.4% 8.9% 8.9% 9.% 7.7% 6.% 6.1% 6.2% Dividend yield 3.8% 3.8% 3.8% 3.8% ROCE 1.1% 7.6% 7.5% 7.7% FCF yield.3%.5%.5%.5% EV/sales EV/EBITDA EV/EBIT PER Z&S Holding 75.5% James Targett, CFA Fintan Ryan Sales and development 3,5 3, 2,5 2, 1,5 1, 5 Company overview: Agrana is a leading sugar processor in CEE, one of the largest manufacturers of food starch in Europe, and the largest bioethanol supplier in Austria and Hungary. It is the global market leader in fruit preparations and a leading producer of juice concentrates in Europe. It is a 75%-owned subsidiary of Südzucker AG. Quality: Agrana has diversified away from low-volumegrowth, quota-driven EU sugar beet processing into sugar refining, food starch and bioethanol operations in CEE, and global fruit juice and preparation operations (in the US, China and Russia). Emerging markets now account for over 4% of sales and are growing through Fruit division exposure and should be a driver of future growth. Growth: After peaking Sugar profitability in FY , declining EU sugar prices from October 213, uncertainty about the industry structure and pricing in the run-up to (and aftermath of) EU quota abolition in 217 (as well as Sugar and Starch input costs) all weigh on the stock (and profits) currently. However, expansion in Starch capacity and growth in Fruit sales and profits (from global demand for yoghurt) should support longer-term growth. Sugar accounted for 5% of profits in FY 213, and as such we expect an 3% EPS decline in FY 214 (Sugar profits down by 5%) and a broadly stable FY 215. Agrana has 28% of the EU isoglucose quota, which is likely to be a growth area post-217. Valuation: 11.5x calendar 214 P/E appears cheap, but given limited liquidity and mid-term earnings risks (-1% three-year EPS CAGR), it seems appropriate at this time. The 3.8% dividend yield (with a comfortable 44% payout ratio) provides downside support at these levels. Our EUR1 price target is derived from an average of our peer multiple (EUR97), SOTP (EUR99) and DCF (EUR16) fair values. Share catalysts: Guidance for the EU sugar price for the 214 Sugar Marketing Year (from October) will be key to sentiment, although late contract negotiations mean we expect little colour at the H1 results (due 1 October). Ultimately, concerns about lower sugar prices over the next 12+ months will be a headwind for sentiment and forecasts. The competitive dynamics and investment in sugar processing capacity up to and after 217 will determine longer-term winners (and losers). 1.% 8.% 6.% 4.% 2.%.% EU versus world white sugar price (EUR per tonne) Sales (EURm) Operating profit margin (%) Source: European Commission, Datastream 2 EU average white sugar price EU reference price World white sugar price

21 Aixtron SE 8 October 213 Hold EUR /1/213 Frankfurt Close EUR 12. EUR 1,191 m AIXGn AIXA GR Shares outstanding (m) 11 Daily trading volume 853,474 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS.... EBITDA margin -5.8% -1.9% 14.9% 19.7% -58.1% -7.1% 11.5% 16.4% Dividend yield.%.%.%.% ROCE -26.3% -4.8% 9.7% 14.2% FCF yield -5.4% -1.9%.4% 3.6% EV/sales EV/EBITDA EV/EBIT PER CAMMA 7.6% Ali Farid Khwaja, CFA Sales and development Company overview: Aixtron, based in Germany, is the second-largest manufacturer of MOCVD (Metal Organic Chemical Vapour Deposition) equipment used for making semiconductors such as LEDs. The company has a global market share of around 35%, second to US-based Veeco, which has around a 58% share of a duopoly market structure. MOCVD machines produced by Aixtron are used for making LEDs, which have applications in TVs, mobile phones, cars and general lighting. Aixtron is trying to diversify away from LED and also sells machines that are used in the manufacture of power electronics, DRAM memory, OLEDs and also new materials such as graphene and carbon-nanotubes. Quality: While the industry generally has high barriers to entry, the MOCVD industry is facing a steep slump in demand. Given its high fixed-cost base (opex of EUR1m), Aixtron made losses in 212 and we expect the company to make a further loss in 213. The industry is cyclical and the next cycle is expected to be driven by the adoption of LEDs in general lighting. While there are early signals of pick-up in demand for LEDs, there is still no visibility on the timing of a recovery in terms of order intake. Aixtron is expected to continue to operate in a challenging environment until the LED companies start the next wave of investments in MOCVD equipment. Growth: Aixtron s revenue growth is dependent on capital spending by LED companies. This investment has been cyclical. The first cycle was driven by an increase in demand for LED driven by adoption in mobile phones, the second one by TV demand, and now the adoption of LED in general lighting is expected to be the next growth driver. Valuation: Given the cyclical nature of the business, our valuation is based on a through-the-cycle approach. We model demand for 2,2 MOCVD machines over , ASP of EUR1.5m, a 45% market share for Aixtron, a gross margin of 43% and EUR1m of opex. We also expect Aixtron to generate around EUR13m in non-led sales in the mid-term. This leads to a normalised EPS of EUR.84. Applying a target multiple of 14x leads to a EUR12 price target. Share catalysts: These would include signs of recovery in terms of order intake. Order intake still at trough levels E 14E 15E Sales (EUR) 4.% 2.%.% -2.% -4.% -6.% -8.% Order intake ( m) 21

22 Rents in EUR EBIT-margin in % alstria office REIT AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 11.3 EUR 741 m AOXG AOX GY Shares outstanding (m) 79 Daily trading volume 81, Y/E 31.12, EUR m E 214E 215E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield 6.% 5.6% 6.1% 6.6% P/FFO Dividend yield 5.4% 5.5% 5.9% 6.2% P/NAV per share -12% -14% -14% -16% P/NNAV per share -12% -14% -14% -16% Net gearing 99% 11% 11% 98% Loan-to-value (LTV) 54% 54% 53% 52% Implied yield 6.5% 6.5% 6.6% 6.7% CGI Partners 7%, CNP Assurances 5% Kai Klose, CIIA Estelle Weingrod Rental income and development % 9.% 85.% 8.% 75.% Company overview: alstria is the largest German REIT that focuses on offices and owns a portfolio of EUR1.6bn. The regional focus is on Hamburg followed by Stuttgart and the Rhine-/Ruhr-region in western Germany. The company is internally managed and has also internalised all key functions such as asset management and project development. The strategic focus is on buy-to-let. Quality: alstria follows a defensive strategy which is reflected in total vacancy rates of 11%, of which 3.9% is made up of ongoing development projects. The main tenants are the City of Hamburg (3%) and Daimler AG (15%), followed by Bilfinger Berger (4%) and Siemens (4%). The average remaining lease term is 6.9 years. Due to low gearing levels (53% loan-to-value), income predictability is above-average. Growth: The company s rather cautious investment policy in previous years has paid off in terms of stable portfolio values and also stable NAV/share. In particular, alstria bought two mid-sized office portfolios in 211 and 212 that both had shorter lease terms and higher vacancy rates than its existing portfolio. Alstria has also been able to re-let some of its properties, even though the average vacancy rate in the German office market is still relatively high. Valuation: Recently, alstria strengthened its debt profile by signing a new syndicated loan of EUR544m for seven years with four mortgage banks on favourable terms. This has reduced its risk profile further, and is why we regard current valuation levels with a 14% discount to net asset value and a 5.9% dividend yield as undemanding. Share catalysts: A reduction of the portfolio s vacancy rate would still be the main catalyst, and we would expect some further improvement, particularly over the next year. We would also expect alstria to look somewhat more actively into investment opportunities following its successful debt extension. Geographical split Hamburg Stuttgart Rhineland Rhur Berlin Munich Saxony Hanover Others 7.% E 13E 14E 15E Total rental income 22

23 AMAG Austria Metall AG 8 October 213 Hold EUR /1/213 Vienna Close EUR 22. EUR 717 m AMAV AMAG AV Shares outstanding (m) 35 Daily trading volume 25,757 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 16.4% 15.2% 17.1% 17.5% 1.2% 9.% 1.6% 11.4% Dividend yield 2.9% 2.9% 3.4% 3.9% ROCE 11.2% 9.% 11.% 12.1% FCF yield 5.2% -4.9% -1.8% 6.8% EV/sales EV/EBITDA EV/EBIT PER B&C Industrieholding 29.9% Raiffeisenlandesbank 16.5% AMAG Arbeitnehmer Privatstiftung 11.1% Oberbank 5% Bjoern Lippe Company overview: AMAG manufactures downstream aluminium products (rolled and cast) from recycled scrap, as well as primary aluminium, at its site in Ranshofen and through its share in Canadian smelter Alouette. Both production assets are industry-leading in terms of cost efficiency and the technological sophistication of its output. More than 5% of AMAG s product portfolio comprises speciality products. Quality: AMAG s high level of operating profitability and stability compared to industry averages are, in our view, supported by: 1) its technological leadership in scrap recycling; 2) its focus on high value-added products in its downstream business; and 3) low exposure to LME prices due to hedging. Growth: The metal division has been suffering from the decline in the aluminium price. However, the strong performance of the rolling division in recent quarters, based on the large share of high value-add speciality products, has been a mitigating factor. Despite a challenging year ahead, we see strong growth potential in the medium term with a large expansion programme under way which should increase capacity in the Ranshofen plant by 5% by the end of 214. A 5% capacity expansion is also planned at Alouette, with a decision on the timing expected in the next few months. While we do not include it in our estimates at this stage, this should provide strong upside to our medium-term numbers. Valuation: For our valuation of the company, we use a DCF model. This, in our view, best captures the expected value accretion of the capacity expansion while accounting for the fact that AMAG is less dependent on price development than other producers. With an EV/EBITDA of 6.2x on our 214 estimates, AMAG is trading at a premium to other aluminium producers and in our view is therefore fully valued. Share catalysts: A positive catalyst for the stock could be a decision on the expansion of Alouette. On the negative side, any negative newsflow concerning the European automotive industry, a key end-market for AMAG s downstream products, could put pressure on the share price. Sales and development Share price since IPO versus LME price 1, E 14E 15E Sales (EUR) 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% 13% 12% 11% 1% 9% 8% 7% 6% 4/11 7/11 1/11 1/12 4/12 7/12 1/12 1/13 4/13 7/13 LME Aluminium AMAG Source:, Berenberg 23

24 ANDRITZ AG 8 October 213 Buy EUR /1/213 Vienna Close EUR 46.5 EUR 4,4 m ANDR.VI ANDR AV Shares outstanding (m) 14 Daily trading volume 177, Y/E 31.12, EUR m E 214E 215E Sales 5,177 5,898 6,222 6,376 EBITDA EBIT Net profit Y/E net debt -1, ,169-1,431 EPS (reported) EPS (recurring) DPS EBITDA margin 8.1% 7.% 8.5% 8.9% 6.5% 4.5% 6.% 6.8% Dividend yield 3.1% 2.5% 3.8% 4.6% ROCE 15.6% 12.6% 15.2% 15.8% FCF yield 3.3% 8.1% 7.7% 8.9% EV/sales EV/EBITDA EV/EBIT PER (cash adj) CEO (Certus) 29% Management, others 2% Benjamin Glaeser Alexander Virgo Company overview: ANDRITZ is an engineering conglomerate that builds and services large-scale plants for hydropower, pulp and paper processing, and steel production. Its portfolio of activities is complemented by specialty niches as such environmental-oriented machinery products. The company has leading global positions in all its activities. That said, external growth has always provided an important pillar of growth in the past and should continue to do so in the future. Further, on the back of its extraordinary positioning and the nature of its business, ANDRITZ enjoys a continuous negative working capital position of more than EUR1bn. Quality: As it operates in a number of oligopolistic markets such as hydro power and pulp and paper machinery, we believe ANDRITZ s market positions are well protected. With the acquisition of Schuler, the company has found a way to use its balance sheet more effectively, adding a good margin business to its metals division. With a strong order book in hydro and pulp and paper, ANDRITZ has high visibility on 213 and even 214. Growth: We believe current output levels are protected by recurring, smaller project demand in ANDRITZ s largest endmarkets as well as by the EUR7.6bn order book. Growth beyond these levels will in our view mostly relate to large-scale order intake. The potential pipeline for large-scale hydro and pulp and paper projects amounts to more than EUR5bn over the next 24 months, with ANDRITZ claiming a 4-6% share in these markets. Valuation: Our price target is based on an average of DCF and target multiples. At 8.6x FY14 EV/EBITA and 14.2x cash adjusted P/E, valuation still appears reasonable compared to sector averages. Further, a FY14 FCF yield 7.7% and a dividend yield of 3.8% are attractive among our coverage universe. Share catalysts: Next to its October capital markets day, which will focus on Schuler, we would consider the strongest catalyst to be large-scale order wins in pulp and paper and hydro. Mid-term, we see the separate listing of Metso s Valmet business (the pulp and paper competitor) planned for January 214 as a first step to easing price competition in the market. Sales and development Segment order development 7, 6, 5, 4, 3, 2, 1, E 14E 15E Sales (EUR) 8.% 6.% 4.% 2.%.% 6, 5, 4, 3, 2, 1, FEED & BIOFUEL SEPARATION METALS PULP & PAPER HYDRO 24

25 Aurelius AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 23. EUR 725 m AR4G AR4 GY Shares outstanding (m) 32 Daily trading volume 7, Y/E 31.12, EUR m E 214E 215E Sales 1,261 1,649 1,915 2,141 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 8.5% 1.5% 9.9% 9.9% 2.5% 6.9% 6.4% 6.5% Dividend yield 6.% 3.1% 3.7% 4.4% ROCE 5.6% 15.% 12.5% 12.3% FCF yield -11.3% -1.1% 3.7% 5.4% EV/sales EV/EBITDA EV/EBIT PER Management 4% of which 32% CEO and 8% Gert Purkert (Executive Board Member) Bjoern Lippe Company overview: Aurelius is an industrial holding based in Germany. It currently has a portfolio of 18 companies and specialises in acquiring, at low prices, companies that are in special situations and have clear development potential through operational restructuring. Quality: The company has a proven track record in restructuring and has already sold several restructured portfolio companies for a high multiple on invested cash. For example, last year Aurelius sold Schabmüller after five years and an initial investment of EUR4.2m for EUR72m. Aurelius also has a strong track record in sourcing deals in any market conditions. It acquired five companies in both 28 and 29, and a further seven in 27, before the crisis. As a buyer of restructuring cases, appropriate risk management is a key factor. Aurelius limits risk by adhering to a strict policy to pay low multiples, acquiring its targets through German GmbH holding companies with a liability limited to EUR25,. Growth: We estimate that Aurelius has around EUR15m of cash not tied up in operating businesses. In our view, this is a very solid base for strong further expansion and also provides a substantial safety net for any unexpected costs. After having acquired two business so far this year as well as announcing one further acquisition which is still waiting for anti-trust approval, we expect several further acquisitions. However, over the next few years, we also expect Aurelius to sell on average three companies each year, thereby making room in the portfolio as well as generating investable capital through the sale of successfully restructured companies. Valuation: We value Aurelius using a sum-of-the-parts model of the underlying EBITDA of the current portfolio (excluding any bargain purchase income and other one-off effects) and arrive at a price target of EUR23.. Share catalysts: The Aurelius share price has always been driven by transactions and we believe that any good acquisition, and especially a profitable sale, can act as a catalyst for the stock. For 213, we expect two further acquisitions, and two sales. Sales and development 2,5 2, 1,5 1, E 14E 15E Sales (EUR) 25.% 2.% 15.% 1.% 5.%.% -5.% Deal flow each year since IPO Year Acquisitions Sales/Bankruptcies 213* Total average p.a *so far this year, one still awaiting anti-trust approval 25

26 Axel Springer AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 42. EUR 4,168 m SPRGn SPR GY Shares outstanding (m) 99 Daily trading volume 214, Y/E 31.12, EUR m E 214E 215E Sales 3,311 3,335 2,923 3,2 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 19.% 17.4% 2.6% 21.% 13.4% 13.% 15.5% 16.% Dividend yield 4.% 4.% 4.3% 4.8% ROCE 8.5% 7.8% 9.3% 9.9% FCF yield 8.9% 8.5% 9.3% 9.1% EV/sales EV/EBITDA EV/EBIT PER Trust (Friede Springer 9%) 51.5% Friede Springer 7.% Sarah Simon Emma Coulby Company overview: Axel Springer is a leading consumer publisher in Germany and eastern Europe which is successfully managing the transition to digital. With nearly 4% of 212 operating profit coming from the group s digital marketing, classified and portal businesses, and following the sale of its regional newspaper businesses, the split between traditional print and online has now shifted in the latter s favour. The company is restructuring its newspaper publishing activities. Quality: While print is under pressure, Axel Springer still owns some of the leading newspapers globally, including titles such as Die Welt and Bild, as well as some of the leading newspapers in CEE. As far as its digital business is concerned, the group operates the leading European performance marketing business (Xanox), the number one online property sites in Belgium and France and the world s leading women s portal ( Growth: With print declining at mid- to high single digits, Axel Springer relies on its digital activities to drive top-line growth. Overall, we forecast low single-digit revenue growth for the group (excluding the impact of acquisitions and disposals). Meanwhile, we expect margin growth, given the shift in the business mix towards the more profitable digital activities. Overall, we forecast a 6% average EPS growth Valuation: At mid-teens P/E multiples, we believe that the mix of declining and fast growing assets is adequately reflected. In our view, Axel Springer is fairly valued at current levels, particularly given the challenges it may face in 214 and 215. Share catalysts: The entry of Schibsted into the French online property classifieds market in 214 could be taken negatively. So could further acceleration of Xing s progress in the online recruitment market in Germany. On the plus side, a high valuation for Deutsche Telekom s Scout 24 could provide positive valuation read-across to SPR s online businesses. Sales and development 3,4 3,3 3,2 3,1 3, 2,9 2,8 2,7 2, E 14E 15E Sales (EUR) 2.% 15.% 1.% 5.%.% H1 213 revenue split 14% 12% 31% 3% Digital Media 39% Newspapers National Magazines National Print International Services/ Holding 26

27 Bauer AG 8 October 213 Hold EUR 19. 4/1/213 XETRA Close EUR 21. EUR 368 m B5AG B5A GY Shares outstanding (m) 17 Daily trading volume 49, Y/E 31.12, EUR m E 214E 215E Sales 1,344 1,39 1,455 1,532 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 12.1% 12.6% 13.% 13.4% 5.3% 5.9% 6.4% 7.% Dividend yield 1.5% 1.6% 1.9% 2.3% ROCE 5.9% 6.7% 7.5% 8.4% FCF yield 19.9% 8.% 8.2% 1.9% EV/sales EV/EBITDA EV/EBIT PER Bauer family 48.2% Felix Wienen Benjamin Glaeser Company overview: Bauer is one of Europe s largest producers of specialist foundation equipment (c4% of sales), such as drilling rigs and trench-cutters, and a leading provider of foundation-related construction services (c4% of sales). In resources (c2% of sales), Bauer offers well-drilling services and related equipment. Specialist construction enjoys structural growth as the complexity of large infrastructure projects rises. Quality: The company s competitive quality is embedded in its unique process expertise and scale. Firstly, with its global network of more than 11 subsidiaries in 7 countries, Bauer is one of the few companies worldwide that is able to execute large infrastructure projects on a global scale. Secondly, the best-in-class and often customised equipment meets its customers need for large and powerful, yet easy-to-transport machines. Growth: Bauer benefits from the continuous urbanisation in emerging countries, which fuels demand for alternative means of transport (eg subways and railways) and thus demand for construction and equipment business. In addition, a high level of pent-up demand and refurbishment investment in Europe and the Americas should support midterm growth. Resources underperforms in 213E in terms of profit contribution due to a lack of follow-on contracts, but the mid-term outlook in this division remains intact. Valuation: The key downside to Bauer s investment case is the low utilisation in the Equipment division in conjunction with a relatively short visibility of just about three months versus 1 months in the construction division. The 5% yoy decline in Equipment EBIT at the H1 213 results highlights the resistance among Bauer s customers and negative product mix. While a volume recovery in this division could result in healthy positive operating leverage, we remain cautious about the short term given the low visibility. We recommend to Hold the stock with a price target of EUR21 based on a blended average of DCF and multiples. Share catalysts: A sustained recovery in Bauer s Equipment division constitutes the key catalyst for the stock. Generating double-digit margins before 211, rising production volumes should benefit profitability in this division which dropped to 6.5% in 212. However, visibility is low and product mix is unfavourable for the moment, as confirmed by the profit warning in early August. Sales and development Sales and order development 2, 1,5 1, E 14E 15E 1.% 8.% 6.% 4.% 2.%.% 2, 1,5 1, 5 1.4x 1.2x 1.x.8x.6x.4x.2x.x Sales (EUR) Order intake Sales Book-to-bill 27

28 Sales (EURm) BayWa AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 45. EUR 1,267 m BYW6 BYW6 GY Shares outstanding (m) 34 Daily trading volume 44,467 Y/E 31.12, EUR m E 214E 215E Sales 1,576 15,232 15,831 16,454 EBITDA EBIT Net profit Y/E net debt 1,45 1,696 1,675 1,63 EPS (reported) EPS (recurring) DPS EBITDA margin 2.9% 2.1% 2.4% 2.4% 1.8% 1.4% 1.6% 1.6% Dividend yield 1.8% 1.9% 2.2% 2.4% ROCE 5.9% 5.7% 6.6% 6.6% FCF yield -.6% -.9% 2.2% 3.9% EV/sales EV/EBITDA EV/EBIT PER Bay. Raiffeisen Beteiligungs AG 38% Raiffeisen AgrarInvest GmbH 26% Bjoern Lippe Company overview: BayWa is a diversified international trading group comprising three key business segments: Agriculture, Building Materials and Energy. While BayWa has a track record of low growth and low returns, this has been in the process of changing since Klaus Josef Lutz became CEO in 28. He is giving the company a comprehensive facelift and has already made some significant changes. Quality: There have been many positive changes at BayWa recently, which have improved the quality of the business. In 212, BayWa sold 5% of its underperforming DIY business unit to Hellweg Group. It will reduce its remaining stake over the next few years to focus on business units with higher returns. Furthermore, BayWa entered the renewable energy business in 29 and this sub-segment has contributed margins much higher than the group average. Most importantly, however, BayWa is selling parts of its extensive real estate portfolio to finance growth which is freeing up significant hidden reserves. Growth: Acquisitions are a key part of BayWa s growth strategy. In early 212, BayWa took a 75% stake in Turners & Growers, the largest domestic distributor of fresh fruit in New Zealand. This acquisition complements BayWa s successful German fruit business. The most recent acquisitions of Cefetra and Bohnhorst have expanded BayWa s presence in the value chain, moving the company further into international trading, a market which is set to benefit from increasing demand from Asia, the Middle East and Africa. With these two acquisitions, BayWa has secured access to key trading routes via the companies Baltic and North Sea port facilities. Valuation: We value BayWa with a DCF model and calculate a price target of EUR45. While valuation looks relatively high based on multiples, it is important to highlight that on a 214 P/E multiple, BayWa trades at a discount of over 4% to the historical average forward P/E multiple of 16.6x. Share catalysts: While there are no immediate catalysts on the horizon, we do believe that the market has not fully appreciated the improving growth and ROCE profile and the release of hidden reserves from the real estate sales. Sales and development EBIT 213E by segment 2, 2.% 18% 15, 1.5% 4% 1, 5, 1.%.5% 2% 58%.% E 14E 15E 16E Sales (EURm) Agriculture Energy trading Building materials Renewable energy 28

29 Bechtle AG 8 October 213 Buy EUR 38. 4/1/213 XETRA Close EUR 48.5 EUR 797 m BC8G BC8 GY Shares outstanding (m) 21 Daily trading volume 97, Y/E 31.12, EUR m E 214E 215E Sales 2,97 2,228 2,362 2,54 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 4.9% 4.9% 5.% 4.8% 3.8% 3.8% 4.1% 4.1% Dividend yield 3.3% 2.6% 2.9% 3.2% ROCE 15.% 15.% 16.4% 16.1% FCF yield 3.1% 9.1% 7.9% 8.% EV/sales EV/EBITDA EV/EBIT PER Karin Schick 35.2% Bjoern Lippe Company overview: Bechtle is a full-service IT provider running an integrated business model consisting of IT system houses (including IT managed services) and an IT e- commerce business. Quality: The German IT system house market is highly fragmented. With a market share of c2%, Bechtle is the number two company in this market. Bechtle differentiates itself from its major competitors small local system houses by offering a broad range of specialised IT knowledge and proximity to the customer. With the increasing speed of innovation in the IT segment, shorter product cycles and trends such as cloud computing, it is increasingly difficult for small system houses to provide specialised IT knowledge in more than one area. By focusing on small and mid-sized companies, Bechtle avoids competition from large international system houses like Computacenter, which are more focused on blue-chip companies. Growth: Bechtle benefits from the ongoing consolidation of the German IT market and the unbroken growth in demand for IT (driven by equipment replacement) coupled with the increasing complexity of IT themes (ie cloud computing). Bechtle is traditionally driven by its Vision strategies and has set ambitious targets with its Vision 22 of EUR5bn in sales and an EBT margin of 5% by 22. This target should be reached by a further internationalisation of the e-commerce segment, the enlargement of the product range and further acquisitions within the system house segment. With the company having grown on average by 14.3% over the last 1 years, this target seems challenging but feasible. Valuation: We value the stock using a DCF-model which leads to a price target of EUR48.5. Share catalysts: Changes in the economic environment are usually reflected in Bechtle s results after 3-6 months and we therefore expect that the recent improvements in key economic indicators in Europe should become visible in earnings during the next few months and drive the share price. In addition, any further value-accretive acquisitions could provide a catalyst for the stock. Sales and development 3, 2,5 2, 1,5 1, E 14E 15E Sales (EUR) 5.% 4.% 3.% 2.% 1.%.% 1 largest players in the fragmented market Rank Name 212 Revenue 1 Computacenter Germany Bechtle Cancom Comparex Allgeier Fritz & Macziol Arvato Systems Dimension Data Germany 2 9 SVA System Vertrieb Alexander Nextira One

30 DPS in EUR Payout ratio in % Bilfinger SE 8 October 213 Buy EUR /1/213 XETRA Close EUR 84. EUR 3,221 m GBFG.DE GBF GY Shares outstanding (m) 44 Daily trading volume 25, Y/E 31.12, EUR m E 214E Sales 8,29 8,291 8,649 8,983 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 6.4% 7.1% 6.5% 6.6% 4.4% 5.% 4.6% 4.9% Dividend yield 4.7% 3.8% 4.% 4.2% ROCE 11.2% 12.% 1.4% 11.2% EV/sales EV/EBITDA EV/EBIT PER Bilfinger Berger 4.9% (treasury shares) Benjamin Glaeser Company overview: Bilfinger SE has evolved from an international construction company into a leading engineeringdriven service group. The company provides service solutions for industry, utilities, real estate and infrastructure. Its largest exposure is in the process industry and in power generation, where Bilfinger focuses on high pressure piping, boilers and related maintenance service as well as overhaul. The group also engages in facility and property management and has remaining exposure in construction. Quality: Bilfinger is well positioned in its European service markets with 6% of its business relating to maintenance contracts (of 3-5 years in length, with a more than 9% retention rate). Having acquired almost all of its service exposure over the last decade, Bilfinger s focus has been on moderate valuation multiples and imminent earnings accretion. After being run very decentralised Bilfinger is in the process of creating a coherent group brand and escalating its cross-selling potential for its multinational customers. Bilfinger has also announced a restructuring programme which will eliminate a middle layer of segment management and yield up to EUR1m in annual cost savings from FY16. Growth: The group has decent exposure to structural growth themes in energy markets (ie long-term demand, power plant rehabilitation), the process industry (ie outsourcing, multinational contracts) and construction (ie public/private partnerships). Under its communicated five-year plan, output is expected to grow to EUR11bn-12bn and net profit double until 216. These improvements will largely be driven by up to EUR1bn in acquisitions, which Bilfinger is front-loading. Together with further expansion in power and facility services, Bilfinger is looking to broaden its geographical reach (ie in the Middle East and India, and also in the US). Valuation: Following its reorientation, Bilfinger is still not really valued on the multiples of its service peers (ie 13x P/E). We value Bilfinger on an average of SOTP, DCF and target multiples. The shares also offer a dividend yield of 4%, and the company aims to distribute 5% of earnings annually. Share catalysts: Short-term a pick up in project business within its industrial segment could also serve as a strong catalyst (as it could considerably raise segment margins). Sales and development Dividend per share and payout development 9,5 9, 8,5 8, 7,5 7, E 14E 15E 5.2% 5.% 4.8% 4.6% 4.4% 4.2% 4.% 3.8% % 6% 4% 2% % Sales (EUR) DPS Bonus DPS Payout ratio 3

31 Sales in EUR EBIT-margin in % Brenntag AG 8 October 213 Hold EUR EUR /1/213 Frankfurt Close EUR 6,163 m BNRGn BNR GR Shares outstanding (m) 52 Daily trading volume 4,558 Y/E 31.12, EUR m E 214E 215E Sales 9,69 9,92 1,453 11,34 EBITDA EBIT Net profit Y/E net debt 1,483 1,36 1, EPS (reported) EPS (recurring) DPS EBITDA margin 7.4% 7.3% 7.3% 7.4% 6.4% 6.3% 6.3% 6.4% Dividend yield 2.6% 2.% 2.3% 2.5% ROCE 1.9% 1.2% 1.6% 11.2% FCF yield 6.1% 5.2% 5.4% 5.9% EV/sales EV/EBITDA EV/EBIT PER % Free Float Simon Mezzanotte Company overview: Brenntag is a third-party distributor of industrial and speciality chemicals. With over 1, products and a diverse supplier base, Brenntag offers one-stop-shop solutions to about 16, customers. The company operates a network from 4+ locations in 7 countries. Quality: With a 6.9% share, Brenntag is market leader and one of the few chemical distributors operating globally. Its business model is also highly resilient thanks to a high degree of diversification (in terms of geographical exposure, products distributed and end-markets served); very limited exposure to fluctuations in chemical prices (thanks to a proven ability to pass these on swiftly to its clients); and a flexible cost structure. Growth: With the top five players holding less than 19% of the global outsourced market, this relatively immature industry is ripe for consolidation, and Brenntag is likely to capitalise on this. Also, given the very low penetration (9%) of third-party chemical distributors within the total addressable market, outsourcing should continue to nudge up over the medium term on the back of chemical producers needing to rationalise their distribution and small and medium-sized chemical users increasingly requiring flexibility. Valuation: The stock has risen by 2% in the last 12 months while consensus FY 214 EPS estimates have fallen by 5%. Brenntag s shares have therefore re-rated to 16.x FY 214 EPS, not too far from distribution peers (16.1x), which looks fairly valued to us. The stock trades at a discount to the business services sector of around 12%; we believe this is justified considering lower EPS growth prospects at least for the short to medium term (mid-single-digit EPS growth versus 9% for the sector). Our price target is derived from an average of a DCF and peer multiples analysis. Share catalysts: After a disappointing March and April, when organic growth in gross profit per day declined by.5% and 2.% respectively, recent trends look more promising with June and July up 1.8% and 2.4% respectively. The Q3 results on 6 November should in our view confirm whether this is the beginning of a recovery or yet another false start. Sales and development ROIC versus EBITDA/gross profit 12, 1, 8, 6, 4, 2, E 14E 15E Sales 6.4% 6.2% 6.% 5.8% 5.6% 5.4% 5.2% 5.% 4.8% 25% 2% 15% 1% 5% % E 14E 15E ROIC EBITDA/GP (RHS) 4% 38% 36% 34% 32% 3% 31

32 Q2 7/8 Q3 7/8 Q4 7/8 Q1 8/9 Q2 8/9 Q3 8/9 Q4 8/9 Q1 9/1 Q2 9/1 Q3 9/1 Q4 9/1 Q1 1/11 Q2 1/11 Q3 1/11 Q4 1/11 Q1 11/12 Q2 11/12 Q3 11/12 Q4 11/12 Q1 12/13 Q2 12/13 Q3 12/13 Sales (EUR) Organic Growth Carl Zeiss Meditec AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 25. EUR 1,787 m AFXG AFX GY Shares outstanding (m) 81 Daily trading volume 55, Y/E 31.12, EUR m E 214E 215E Sales ,22 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 16.3% 16.5% 16.8% 17.4% 14.3% 14.5% 14.7% 15.3% Dividend yield 1.8% 2.% 2.% 2.2% ROCE 33.9% 32.6% 34.6% 37.% FCF yield 4.3% 3.5% 5.2% 5.4% EV/sales EV/EBITDA EV/EBIT PER Carl Zeiss AG 65% Scott Bardo Sales and development 1,2 1, E 14E 15E Sales (EUR) 16.% 15.% 14.% 13.% 12.% 11.% Company overview: Zeiss is a global leader in microsurgery and ophthalmology, with dominant market positions in cataract surgery, neurosurgery and eye diagnostics. These conditions are correlated with age, so we see strong demand for its market-leading products as the population of elderly people continues to expand. Quality: We view Zeiss as a high-quality small cap healthcare company. It enjoys dominant positions in structural growth markets (opthalmology and microsurgery), has meaningful opportunities to innovate, and has an under-appreciated ability to expand into the service business and take share in the lucrative intraocular lens (IOL) market. As a market, opthalmology remains a product-driven industry, and in many key markets Zeiss continues to lead advances. Growth: Zeiss has shown strong top-line growth with a 1% CAGR 28-12, driven by successful product launches in Microsurgery, strong double-digit growth in Asia-Pacific and Latin America as well as some market share gains. While growth from its Microsurgery division (c43% of sales) has started to normalise at around 4-5%, we believe there remains a good opportunity to continue to deliver doubledigit growth from its IOL business (c14% of sales) and return to more acceptable mid- to high single-digit growth rates in its core Opthalmic Systems business (43% of sales). Zeiss should be well positioned to deliver c6-7% annual topline growth out to 218, slightly outpacing the growth of the broader Surgical Opthalmology market. Zeiss continues to prioritise investments in R&D; however, despite this, with scale effects we still see good prospects for a further c15-2bp margin expansion out to 218. Furthermore, there remains a good opportunity for Zeiss to enhance its earnings profile with targeted deployment of its meaningful cash pile (213E: EUR375m). Valuation: We rate Zeiss as a Hold with a EUR25 price target. We believe Zeiss should trade in line with other European med-techs at c1.5x EBITDA, which supports our price target. Our piece is supported by our DCF valuation of EUR26.4. Share catalysts: The next key catalyst is the ESCRS (European Society of Cataract & Refractive Surgeons) in Amsterdam on 5 October. Following that, its FY 213 results are in December. IOLs are high-growth and high-margin 35% 3% 25% 2% 15% 1% 5% % -5% Surgical Opthalmology Alcon IOLs 32

33 Celesio AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 15. EUR 3,178 m CLSGn CLS1 GY Shares outstanding (m) 186 Daily trading volume 293, Y/E 31.12, EUR m E 214E 215E Sales 22,271 21,312 21,757 22,235 EBITDA EBIT Net profit Y/E net debt 1,81 1,756 1,651 1,542 EPS (reported) EPS (recurring) DPS EBITDA margin 2.6% 2.5% 2.7% 2.8% 2.% 1.9% 2.1% 2.2% Dividend yield 2.1% 2.2% 2.7% 3.% ROCE 9.5% 9.1% 1.1% 1.9% FCF yield 9.5% 8.1% 8.4% 8.9% EV/sales EV/EBITDA EV/EBIT PER Franz Haniel & Cie. GmbH 5.% Scott Bardo Sales and development Company overview: Celesio is a drug wholesaler and pharmacy operator present in 16 countries around the world. As one of the largest players in the European market, it has had to contend with fierce industry-wide regulatory and competitive pressures since 28. The difficult trading environment has not abated, with pricing wars in French and German wholesale and ongoing pressures in UK pharmacy reimbursement. Quality: The market needs convincing that Celesio can execute on its growth strategy. The departure of CEO Markus Pinger has not helped investor perception, and Celesio now needs to deliver tangible evidence that key initiatives such as the European Pharmacy Network (EPN) can act to stabilise the group and add to growth thereafter. Further complicating the investment case, Haniel, Celesio s majority shareholder, is reportedly contemplating whether to sell part of its stake in the business or alternatively to enter into a global procurement collaboration with other international players. The outcome and timing of Haniel s decision is unknown, but press speculation suggests more clarity in October. Growth: Celesio has taken bold restructuring measures over the last few years; however, so far these actions have only allowed the company to absorb ongoing competitive and regulatory pressures rather than return the business to positive earnings growth. Dynamics in the German pharmaceutical wholesale market need close monitoring and will have a meaningful bearing on the near-term earnings profile. For the longer term, growth initiatives, particularly EPN, are paramount; however, at this stage there is only limited evidence that these will deliver. Valuation: We think under a sustainable high mid-single digit earnings growth scenario, fundamental valuations could support a share price in the high teens. On the flip side, only stabilising earnings leads to fundamental valuations toward EUR1. Until we gain more clarity on the trading environment and Haniel s intentions, we think shares will remain in a holding pattern between both outcomes. We maintain our Hold. Our EUR15 price target is based on the shares trading on c11.5x 214 earnings. Share catalysts: These would include an update on Haniel s status (possibly in October), and Celesio s Q3 results, due on 13 November. Celesio s market share progress in German wholesale 23,5 23, 22,5 22, 21,5 21, 2,5 2, E 14E 15E 3.% 2.5% 2.% 1.5% 1.%.5%.% 18.% 17.5% 17.% 16.5% 16.% 15.5% 15.% German pharmacy backlash following Celesio's acquisition of DocMorris. Cooperative NOWEDA and Sanacorp take share Princing War related to AMNOG introduction Fresh pricing war beings Sales (EUR) 14.5%

34 CEWE Stiftung & Co KGaA 8 October 213 Buy EUR /1/213 XETRA Close EUR 47.5 EUR 254 m CWCG CWC GY Shares outstanding (m) 7 Daily trading volume 19,927 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 13.1% 12.9% 13.% 13.4% 5.7% 5.7% 5.9% 6.4% Dividend yield 4.6% 3.9% 4.4% 5.% ROCE 16.% 15.4% 16.4% 17.6% FCF yield 6.6% 8.3% 7.6% 8.7% EV/sales EV/EBITDA EV/EBIT PER % Neumüller heirs 9.8% CEWE Color Holding AG 1.4% CEWE Management Anna Patrice, CFA Company overview: CEWE is among the few photo-printing companies that have overcome the structural changes that have taken place in the industry and survived the general shift from analogue to digital photo-finishing. Management has a solid track record in identifying and monetising new trends. This is evident in its leadership of the European photobook sector and the digital photo-printing market, in which it has a market share of more than 4%. With its recent acquisition of Saxoprint, the number three player in Germany, the company has strengthened its new venture into the fast-growing commercial web-to-print segment. Quality: CEWE has leading market positions in the photofinishing and the photobook segments of 4% and 24% respectively. This has led to cost advantages through economies of scale in: a) marketing; b) R&D investment; and c) competitive prices. This high level of competitive quality is evidenced by CEWE s solid ROCE of 16% in 212, despite the transformation from analogue to digital, and its investment in online printing. Growth: 5.6% sales and 1.3% EPS CAGR over E are driven by: a) the steady, but slowly growing, photo-finishing segment, in which margins are improving thanks to favourable product mix (increasing share of photobooks and photo gift products); and b) expansion in online printing. The online division is set to grow by 38% CAGR E, supported by the Saxoprint acquisition and investments in its expansion. The online division should achieve break-even and contribute profits for the first time by 215E, and we expect margin improvement to support 1% EBIT and EPS CAGR over E. Over the long term, we expect the online division to contribute 25% of group EBIT by 217E. Valuation: Our sum-of-the-parts approach indicates that online printing is worth EUR12. per share, and values the core business at EUR36.. Therefore, the potential of online printing is not yet reflected in the share price. The dividend yield of more than 4% is also attractive, in our view. Share catalysts: The capital markets day on 16 October, which will focus on the online division, is set to bring deeper insights of the business model and the upside it represents to CEWE. Sales and development EBIT split, EURm online loss making for now E 14E 15E 16E 8.% 6.% 4.% 2.%.% E 214E 215E 216E 217E Sales (EUR) Photofinishing Retail Online 34

35 CompuGroup Medical AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 17. EUR 93 m COPMa COP GY Shares outstanding (m) 5 Daily trading volume 26,886 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT* Net profit Y/E net debt EPS (reported) EPS (recurring)* DPS EBITDA margin 23.3% 21.2% 23.1% 24.1% * 2.8% 18.6% 2.7% 21.7% Dividend yield 1.9% 1.9% 2.2% 2.5% ROCE* 19.1% 16.5% 18.6% 19.7% FCF yield 4.3% 5.4% 6.1% 7.% EV/sales EV/EBITDA EV/EBIT* PER* *adjusted for non-recurring items and PPA Gotthardt family 46.7% Reinhard Koop 3.8% Treasury shares 6.2% Gunnar Cohrs, CFA Company overview: CompuGroup Medical s (CGM) core business is providing software solutions for practitioners, dentists and hospitals. Quality: Although differentiation via its software products is limited, CGM has the largest customer base in Europe, with 25, doctors. This guarantees a high share of recurring revenues and would be hard for a competitor to replicate because healthcare professionals usually rely on only one software product and are very reluctant to switch to another. Growth: In the last eight years, CGM has grown by 24% (CAGR 23-12), of which 16% was via acquisitions and 8% was organic. As doctors tend not to switch their software vendor, the number of doctors the company serves has grown via acquisitions. However, the high organic growth rate in the same period indicates that a bigger organisation could sell better and more products at a higher price. The absence of large acquisition targets in Europe and currently unattractive targets in the US will allow the company to focus more on organic growth. There are upselling opportunities in various European states, and the potential for adoption of electronic health record (EHR) systems in the US. As roughly 2% of sales is R&D and essentially fixed (in the medium term, all acquired software platforms will be migrated onto one), operating leverage is high. Valuation: The profit warning with Q2 results was a major set back after a strong FY 212. Even though most of the issues appear to be one-offs, which have already been solved, we have lowered the organic growth rate for the years to come. Our EUR17 price target is based on DCF. Strongerthan-expected top-line growth and evidence that CGM is set to achieve its long-term EBITDA margin target of 3% would lead us to upgrade the stock to Buy again. Share catalysts: In the long term, we see significant potential for CGM in telematics. In autumn this year, two pilot projects will start in Germany. In the long run, all insured citizens will receive a patient card that doctors will use to access the centrally stored patient data. This could lead to EUR5m of additional revenue potential in Germany for CGM and EUR25m recurring. Sales and development Operating leverage: Quarterly personnel expenses E 14E 15E 16E Sales (EUR) 25.% 2.% 15.% 1.% 5.%.% % 48.% % % 42.% % 38.% % % 32.% 5. 3.% Q2 27 Q2 28 Q2 29 Q2 21 Q2 211 Q2 212 Q2 213 Personnel expenses Personnel exp. as % of sales 35

36 Revenues for CTS Eventim CTS Eventim AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 32. EUR 1,588 m EVDG EVD GY Shares outstanding (m) 48 Daily trading volume 2,12 Y/E 31.12, EUR m E 214E 215E Sales EBITDA* EBIT* Net profit Y/E net debt** EPS (reported) EPS (recurring) DPS EBITDA margin* 22.7% 22.9% 23.6% 24.6% * 2.3% 2.8% 21.6% 22.7% Dividend yield 1.7% 2.2% 2.5% 2.8% ROCE* 24.9% 26.8% 27.% 27.2% FCF yield 6.1% 5.1% 5.6% 6.% EV/sales EV/EBITDA* EV/EBIT* PER* *adjusted for legal costs for arbitration and PPA.**including ticket payments already received for future events Klaus-Peter Schulenberg (CEO) 5.2% Gunnar Cohrs, CFA Company overview: With its roots in the live entertainment sector (three-fifths of sales and one-fifth of EBIT), CTS Eventim has become the European market leader in ticketing (which accounts for two-fifths of sales and four-fifths of EBIT), with an estimated 112m tickets sold in 212. Quality: Given its scale, both online and offline, and its distribution power, CTS Eventim occupies the sweet spot in the live entertainment value chain: all other participants (artists, managers, promoters and venue operators) rely on a vital link to end-customers wallets that link is ticketing. Growth: Online ticketing is the key growth driver for the business. It currently generates seven times more revenue than offline ticketing and will continue to grow by double digits every year until it achieves a penetration of 8% of all retail tickets (currently c5%). This migration from offline to online ticketing drives the company s earnings momentum. CTS plans to launch a number of features in the few next months to boost online ticketing. These include an interactive seating map, a reserve-for-a-friend function, tablet apps and secondary ticketing integrated with the primary platform. Valuation: Valuation looks full with a PPA adjusted P/E 214 of 19x for an EPS CAGR of 12%. This is 19% above the long-term average and CTS trades at a premium to its broader peer group (16x 214 P/E). Based on DCF, we derive a price target of EUR32. The recent share price weakness is, in our view, due to profit taking after a good run following the conclusion of arbitration with Live Nation (the outcome was disappointing for CTS but it removed an unpredictable one-off event from the stock). Share catalysts: Comparables will be much tougher in H2, in particular in Q4. Our recent roadshow with management confirmed that there are no imminent catalysts such as acquisitions or cooperations. However, the future market will be the US, where CTS is looking for cooperations/jvs with content providers (promoters, venue operators). AEG is one opportunity (although it controls only 1% of all tickets in the US): it has to secure a new ticketing company next year because it is not allowed to use Ticketmaster after 214. Sales and development Business model for ticketing E 14E 15E 16E 25.% 2.% 15.% 1.% 5.%.% Total ticket price Distribution via Sales outlets Internet Ø ticket face value 5 Ø ticket fee 7 Ø 1 system fee Ø 7 service fee Sales (EUR) 36

37 Delticom AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 4.5 EUR 486 m DEXGn DEX GY Shares outstanding (m) 12 Daily trading volume 18,9 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 7.7% 7.3% 7.8% 8.4% 7.2% 6.9% 7.2% 7.8% Dividend yield 3.2% 4.7% 5.1% 6.% ROCE 44.8% 39.3% 37.6% 43.3% FCF yield 12.4% 1.7% 4.8% 5.8% EV/sales EV/EBITDA EV/EBIT PER Dr. Andreas Prüfer 27% Rainer Binder 26% EMH 4% Stanislaus von Thurn und Taxis Sales and development Company overview: Delticom is Europe s leading online tyre retailer, with an estimated market share of 8%. Through its 1 websites, its 5m+ customers can choose from a broad portfolio of replacement tyres. Quality: Typically, Delticom, with its online presence, benefits from significant cost advantages over traditional bricks and mortar retail chains, which allows for an average discount of c15%. Moreover, with its strong market position, it has a significant advantage in terms of purchasing power in comparison to other smaller online players. The European replacement tyre market, which is worth EUR1bn annually, provides ample growth opportunities. Delticom provides a very solid dividend policy, paying out 1% of HGB net profit since 26. With the two founders owning a stake of 55%, we do not expect this policy to change soon. Growth: Last month, Delticom acquired its most potent competitor in the online tyre replacement market, Tirendo, for EUR5m. The acquisition will boost Delticom s top line and will restore its margin prospects. Tirendo entered the market in 211 with an aggressive marketing strategy targeting Delticom directly through a focused keyword campaign. In addition, Tirendo offered low prices and initiated high profile advertising campaigns which depressed Delticom s top-line growth and margins. The acquisition of Tirendo will allow Delticom to profit from the positive growth dynamic and will reduce margin pressure. We estimate Tirendo s sales at EUR3m, a figure depressed by high marketing expenditure and low prices, and expect the acquisition to add 2% to the top line this year and 7% next year. We forecast that the sales CAGR13-16E will improve from 5% to 8.4% and that the EBITDA CAGR13-16E will increase from 8% to 15%. Valuation: After the transfer of coverage and pricing in the Tirendo acquisition, we still rate the stock as a Hold with a price target of EUR4.5 derived from a DCF valuation on the back of dampened European demand and a generally blurry outlook. Share catalysts: The Tirendo acquisition provides Delticom with marketing expertise which we expect to feed through to increased top-line growth. If the acquisition reduces margin pressure faced by Delticom, this could prove to be a gamechanger in a business which has suffered from pricing and marketing pressure. Gross margin and EBITDA margin ( E) E 14E 15E Sales (EUR) 12.% 1.% 8.% 6.% 4.% 2.%.% 26.2% 26.% 25.8% 25.6% 25.4% 25.2% 25.% E 214E 215E 216E Gross profit margin EBITDA margin (secondary) 9.% 8.5% 8.% 7.5% 7.% 6.5% Source: Delticom, Berenberg Source: Delticom, Berenberg 37

38 Rents in EUR EBIT-margin in % Deutsche Annington Immobilien SE 8 October 213 Buy EUR /1/213 XETRA Close EUR 22.5 EUR 4,329 m ANNGn ANN GR Shares outstanding (m) 224 Daily trading volume 54,611 Y/E 31.12, EUR m E 214E 215E Total revenues 1,161 1,144 1,145 1,146 Net rents EBIT (incl. revaluation net) EBIT (excl. revaluation) 648 1, Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield - 4.9% 6.2% 6.5% P/FFO Dividend yield - 3.5% 4.4% 4.6% P/NAV per share - -9% -12% -15% P/NNAV per share - -9% -12% -15% Net gearing 224% 142% 134% 126% Loan-to-value (LTV) 59% 51% 5% 49% Implied yield 8.6% 5.5% 5.7% 5.8% Monterey Holdings 84.5%; Norges Bank 5.5% Kai Klose, CIIA Estelle Weingrod Rental income and development E 13E 14E 15E Total rental income 67.% 66.% 65.% 64.% 63.% 62.% 61.% 6.% 59.% 58.% Company overview: Deutsche Annington (DAIG) is the largest listed owner of residential real estate in Germany, with a portfolio of ~18, units externally valued at EUR1.4bn as of March 213. About 97% of the fair value is located in western Germany and Berlin. DAIG s largest exposure is to NRW (46%), Germany s most populous federal state, where the population density is very high. Quality: With the largest portfolio in the sector, DAIG can benefit from strong operational leverage, leading to a high level of efficiency and attractive organic growth rates, supported by favourable financing costs and gearing levels. Based on lfl rental growth and higher occupancy levels, and despite the annual disposal of c4,5 units in total, the company benefits from high income predictability. The portfolio is of good/average quality. Growth: Having raised in-place rents by an annual average of 2.3% on an lfl basis since 21, with a reduction in the overall vacancy rate to 3.9%, DAIG has shown a strong track record in asset management. We would welcome it if organic growth remained the primary focus in future, although the current platform clearly enables DAIG to integrate new assets smoothly. Valuation: DAIG s capital structure can be viewed as bestin-class due to its diversity and a rating of BBB from S&P. The stock became public in July at EUR16.5 and is now still trading at a 12% discount to NAV 213E. The company is targeting a high payout ratio of 7% on FFO, as adjusted net profit leads to a current dividend yield of 3.5%. Share catalysts: DAIG is planning to invest EUR15m a year in its portfolio from 213 as part of its modernisation programme, which will support rental growth. However, DAIG will have to refinance one of its remaining term loans of EUR1bn. Geographical split Other Western Germany 7% Schleswig- Holstein and Hamburg 6% Berlin 8% Bavaria and Baden- Wurttemberg 14% Hesse 16% Eastern Germany 3% NRW 46% 38

39 Rents in EUR EBIT-margin in % Deutsche EuroShop AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 35. EUR 1,77 m DEQGn DEQ GY Shares outstanding (m) 54 Daily trading volume 122, Y/E 31.12, EUR m E 214E 215E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield 5.2% 6.4% 6.5% 6.6% P/FFO Dividend yield 3.8% 3.8% 4.% 4.% P/NAV per share 29% 36% 35% 31% P/NNAV per share 12% 23% 21% 18% Net gearing 134% 141% 139% 135% Loan-to-value (LTV) 44% 44% 44% 43% Implied yield 6.1% 5.4% 5.5% 5.5% Blackrock 3%; Hertie Foundation 3% Company overview: Deutsche EuroShop (DEQ) is Germany s largest retail property stock. The portfolio consists of 19 shopping centres valued at about EUR3.7bn, of which 16 are located in Germany, one in Poland, and one each in Austria and Hungary. Its investment strategy is longterm orientated, with a buy-and-hold-and-develop strategy, with property preferably in city centres or in locations which are well connected to transport infrastructure. Quality: DEQ has a broadly diversified tenant structure, with the top 1 tenants representing 25% of total rents; Metro Group and Douglas Group are the largest tenants. Also, the lease structure is solid, with the standard lease being for 1 years without break-up options. The weighted average maturity of rental contracts is more than seven years; the vacancy rate is 1%, and has been at this level for longer. Growth: The company has always followed a cautious acquisition strategy, but has a successful acquisitions track record. The company s cautious view on deals has paid off in previous years, as reflected in stable portfolio values. We welcome the fact that DEQ is considering extensions to its existing malls and that it is consolidating its existing portfolio by buying the remaining stakes in its existing malls. All minimum rents are CPI-indexed. Valuation: With a low loan-to-value ratio of 46% and a weighted debt maturity of about seven years, DEQ has a defensive debt profile. In addition, it benefits from attractive earnings predictability, as reflected in its 35% premium to NAV 213E (3.8% dividend yield and 6.4% FFO yield for 213E). Share catalysts: DEQ is not at the vanguard of the industry in terms of acquisitions. The existing portfolio is still showing momentum after several refurbishments and extensions, which will remain the main trigger in the future (in Hamburg, Wuppertal and Gdansk). The market would also welcome a higher dividend payout ratio. Kai Klose, CIIA Estelle Weingrod Rental income and development % Geographical split Geographical split Other, 1% % 86.5% 86.% 85.5% 85.% 84.5% E 13E 14E 15E Total rental income Germany, 9% 39

40 Rents in EUR EBIT-margin in % Deutsche Wohnen AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 16. EUR 2,26 m DWNG DWNI GY Shares outstanding (m) 169 Daily trading volume 245, Y/E 31.12, EUR m E 214E 215E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield 3.9% 5.1% 5.7% 6.1% P/FFO Dividend yield 1.5% 2.5% 2.8% 3.1% P/NAV per share 12% -2% -9% -1% P/NNAV per share 22% 5% -2% -4% Net gearing 169% 141% 13% 132% Loan-to-value (LTV) 59% 56% 54% 53% Implied yield 5.% 7.% 7.2% 7.2% MFS 5%; First Eagle Inv. 5%; Blackrock 5% Kai Klose, CIIA Estelle Weingrod Rental income and development Company overview: Deutsche Wohnen is among the largest owners of residential properties in Germany, with a portfolio of ~8, units. The company is largely exposed to the Berlin housing market (54%), followed by Frankfurt/Rhine-Main and Hanover/Brunswick in Lower- Saxony. We regard the portfolio structure in total as favourable as it covers regions with solid economic and demographic fundamentals. Quality: The portfolio is of good/average quality: 96% is invested in core regions, there is high income predictability (due in part to positive rent reversions), and it has low vacancy rates of 2.6% in the core regions. In-place rents have grown at a constant rate (~2.5%), which we expect will continue. Deutsche Wohnen has indicated a rental upside of more than 2% for the existing portfolio. Growth: Deutsche Wohnen offers an attractive combination of internal and external growth, which in our view is also reflected in the acquisition of 1,9 units in Dresden and 7,8 units in Greater Berlin. In addition, the company has made a public takeover bid for GSW, which is still ongoing. For the combined entity, which would have about 15, units at a portfolio value of EUR8.5bn, Deutsche Wohnen estimates annual synergies of around EUR25m and accretion of FFO per share/adjusted EPS. Valuation: Deutsche Wohnen s financial ratios are strong, with a loan-to-value ratio of 56%, an average debt maturity of 7.5 years and no major loans due before the end of 215. The company has also reduced the average cost of debt further to 3.5%. The stock is currently trading at a 5% premium to NAV 213E, a FFO yield of 5.1% and a 2.5% dividend yield for 213E. Share catalysts: The rationale for this potential merger and the profile of the combined entity seem compelling and also Deutsche Wohnen s EGM expect approved the issuance of new shares. In principle, we regard the strategy of paying in shares as intelligent, given that Deutsche Wohnen s shares have been trading at a premium to NAV. The threshold for acceptance among the GSW shareholders is set at 75%. Geographical split E 13E 14E 15E Total rental income 82.% 8.% 78.% 76.% 74.% 72.% 7.% 68.% 66.% 64.% Rhine Valley North 3% Central Germany 4% Rhine Valley South 5% Hanover- Braunschweig- Magdeburg 12% Other 12% Rhine-Main incl. Frankfurt/ Main 1% Greater Berlin 54% 4

41 Deutz AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 6.5 EUR 543 m DEZG DEZ GY Shares outstanding (m) 121 Daily trading volume 2,84,42 Y/E 31.12, EUR m E 214E 215E Sales 1,292 1,392 1,492 1,58 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS.... EBITDA margin 1.6% 1.5% 12.% 13.% 3.% 4.3% 6.% 7.2% Dividend yield.%.%.%.% ROCE 5.1% 7.8% 1.9% 13.% FCF yield 1.1% 1.5% 1.7% 2.3% EV/sales EV/EBITDA EV/EBIT PER Volvo 25% Same Deutz-Fahr 8.4% Felix Wienen Alexander Virgo Company overview: Deutz is the world s number two noncaptive diesel engine producer. It offers standardised compact engines (c78% of sales) and tailored engine solutions (c22% of sales). The Deutz engine range covers capacities of below four litres up to 16 litres (c5-58kw). Deutz caters to various endmarkets, the most important being mobile machinery (c35% of sales) and agricultural equipment (c16% of sales). It also offers spare parts, services and exhaust-gas after-treatment systems. Quality: Deutz is the second-largest non-captive (OEM independent) diesel engine manufacturer globally, enjoying significant size and scale advantages over smaller peers. The company also ranks among the very few players that are able to offer, in addition to diesel engines, both internal and external emission-reduction technology, which is a major differentiation factor to peers. Growth: Deutz is an early-cyclical company and we believe that orders troughed in Q3 212 while following quarters have shown a sequential improvement in order intake. That said, we expect a further sequential return of demand over the course of 213. We are particularly positive about China (c3% of sales), where Deutz currently outperforms a flat development in construction equipment and truck market. Given the high operating leverage inherent in Deutz s business model, we expect operating margins to progress from the 3% generated in 212. However, the potential for profitability is currently capped as higher amortisation from the capitalised R&D spending for new engines and costs related to new product introductions are realised in 214/15. Valuation: Our year-end price target of EUR6.5 is based on the blended average of a DCF model and target multiples for 215 discounted back to year-end 213. Following the strong performance of +92% ytd, the stock now trades on 14x forward P/E, in-line with the sector average. Share catalysts: Having troughed in H2 212, we expect a sustained positive order trend due to the introduction of new engine models and recovering end-markets in China (construction and trucks). However, we expect profit contribution from these new orders to be capped as higher costs related to new products hurt. As we focus on margins, any positive surprise will be a strong catalyst for Deutz shares. Sales and development 2, 8.% 1,5 6.% 1, 4.% 5 2.%.% E 14E 15E Sales (EUR) Quarterly sales and order development in EURm Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q Order intake (left scale) Sales (left scale) Book-to-bill 1.6x 1.4x 1.2x 1.x.8x.6x.4x.2x.x 41

42 Dialog Semiconductor plc 8 October 213 Hold EUR /1/213 XETRA Close EUR 14.5 EUR 1,25 m DLGS DLG GY Shares outstanding (m) 65 Daily trading volume 499,117 Y/E 31.12, USD m E 214E 215E Sales ,83 1,258 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS.... EBITDA margin 16.1% 15.1% 15.9% 16.3% 11.8% 1.8% 12.1% 12.7% Dividend yield ROCE 16.2% 14.1% 15.1% 14.6% FCF yield 5.2% 9.6% 16.3% 2.5% EV/sales EV/EBITDA EV/EBIT PER RHJ International 6.96% Kleinwort Benson Trustees 3.98% Citrone Robert 5.36% Ali Farid Khwaja, CFA Sales and development Company overview: Dialog is a leading analog semiconductor company listed in Frankfurt. The company provides highly integrated innovative power management (PMIC), audio and low-energy short-range wireless technologies to mobile phone and tablet PC vendors. The company is a key supplier of PMIC to Apple, and Apple represents around 7% of Dialog s revenues. Management is trying to diversify its customer mix via 1) acquisition of iwatt (a US-based producer of digital power control solutions), 2) new design wins with customers like Samsung and Chinese handset vendors, and 3) development of new products like Bluetooth SMART chip and touch screen sensors. Quality: Dialog is a well managed company with a dominant position in the power management business. The company is the sole supplier of PMIC chips to Apple, which reflects the quality of its products. However, this also creates overexposure to Apple and leads to high concentration risk in the business. The diversification measures are expected to become more material by 214. Until then, the key risk on the business is from over-concentration on Apple. However, Dialog has an excellent relationship with Apple and the product it sells is very sticky. Consequently, the risk of losing Apple as a customer, although real, is not imminent. We expect Samsung to generate around 7% of group revenues in 213. The company also has a strong balance sheet, with net cash of cusd164m. Growth: Given the high exposure to Apple, Dialog s growth is very sensitive to Apple s unit sales. However, we expect other customers like Samsung and Chinese handset vendors to contribute more to revenues in future. We are modelling a 18% CAGR revenue increase and a 21% earnings increase in driven by strong unit growth in smartphones and tablets. Dialog will also structurally benefit from the launch of innovative products like smart glasses and smart watches as they increase the total addressable market for PMIC. Valuation: We value Dialog at 14x P/E (214 diluted EPS) which is the high end of the sector average trading range of 12-14x. This leads us to a EUR14.5 price target. Share catalysts: The key catalysts for upside will be stronger sales of Apple s product, new design wins especially with Samsung and new product launches. Dialog s share price highly correlated with Apple s 1,4 1,2 1, E 14E 15E 13.% 12.5% 12.% 11.5% 11.% 1.5% 1.% 9.5% Sales (EUR) Apple Dialog 42

43 Rents in EUR EBIT-margin in % DIC Asset AG 8 October 213 Buy EUR 7.9 7/1/213 XETRA Close EUR 1.3 EUR 367 m DAZG DIC GY Shares outstanding (m) 46 Daily trading volume 85, Y/E 31.12, EUR m E 214E 215E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield 13.4% 12.6% 13.3% 13.7% P/FFO Dividend yield 4.8% 4.4% 4.6% 5.% P/NAV per share -51% -46% -47% -46% P/NNAV per share -44% -37% -37% -34% Net gearing 229% 219% 217% 218% Loan-to-value (LTV) 71% 68% 68% 67% Implied yield 7.1% 6.7% 6.8% 6.9% DIC KGaA 39%; MSREF 7%; Solvia 5% Kai Klose, CIIA Estelle Weingrod Rental income and development Company overview: DIC is among the larger German commercial property companies with an own portfolio of EUR1.8bn, which mainly comprises office space. The regional focus is widely spread, but the largest region is Rhine-Ruhr in western Germany with a 29% share of the portfolio, followed by the Rhine-Main region with 21%. DIC also manages real estate funds for third-parties and typically keeps a 2% stake as co-investor. The historically larger development pipeline has reduced in size in recent years, with the MainTor project in Frankfurt the largest remaining one. Quality: We regard the portfolio quality as good/average and welcome that DIC was able to reduce vacancy rates continuously from 14.3% in 211 to 11.1% as of June this year. The average lease term is relatively long at 5.1 years, and the annual lease expiries of ~1% in 214 and 214 are clearly manageable. The MainTor project is progressing further after several building sections were sold before the start of construction. Growth: Previously, DIC has grown primarily in the funds business, due to the rising demand from institutional investors for indirect real estate. Given the increasing supply of undermanaged office properties, we expect DIC also to look more actively into selective acquisitions; the company is well positioned in this respect due to its nationwide branch network. The company has also reiterated its the target to reduce vacancy rates to around 1% by year-end. Valuation: DIC is still trading at an above-average discount to NAV of more than 3%, which we regard as too high given the reduced risk profile of the company. Also, at 12.6%, the earnings yield looks attractive. Share catalysts: The main focus remains to reduce vacancy rates further, but any further progress on the MainTor project should also help the share price to recover. Sector split Sector split E 13E 14E 15E 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% Retail 19% Logictics / Industrial 1% Residential 1% Office 7% Total rental income 43

44 Market Share Drägerwerk AG & Co KGaA 8 October 213 Buy EUR /1/213 XETRA Close EUR 11. EUR 1,399 m DRWG DRW3 GY Shares outstanding (m) 17 Daily trading volume 25, Y/E 31.12, EUR m E 214E 215E Sales 2,373 2,385 2,48 2,64 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 12.4% 12.3% 13.1% 13.9% 9.7% 9.4% 1.3% 11.1% Dividend yield 1.% 1.% 2.4% 2.6% ROCE 22.7% 2.2% 22.2% 23.8% FCF yield 7.1% 2.5% 7.9% 8.2% EV/sales EV/EBITDA EV/EBIT PER Ordinary stock: Dräger family 71% of voting rights c44% economic rights Scott Bardo Company overview: Drägerwerk is an international player in the fields of medical and safety technology. The company is subdivided into two divisions: Dräger Medical and Dräger Safety. Quality: Over the last 12 years, Drägerwerk has been a pioneer in the fields of gas regulation and monitoring helping it to expand into lucrative, albeit diverse, niches across the med. tech and safety industries. The Anaesthesia and Ventilation Care divisions are the crown jewels within the business, driving c5% of sales and c7% of profits for the group by our estimates. Growth: Top-line growth in 213 is likely to be relatively lacklustre (low single digits) with impacts from hospital budget pressures in Europe, some modest competition in Anaesthesia and, at the fringe, some evidence of scaled-back infrastructure plans in emerging countries. Drägerwerk continues to invest in R&D and its global marketing infrastructure, and expects these investments to return the business to more than 4% growth annually (the historical norm for group). Management also sees scope to improve s by c2bp over the next five years which we also believe is eminently achievable. Profitability improvements will be driven by salesforce efficiency programmes, plans for more favourable product mix and optimisation of the manufacturing process. Valuation: Our Buy recommendation and price target of EUR11 per preference share is based on the stock trading on 13x forward diluted earnings, which we do not view as demanding given our expected 1% EPS CAGR out to 218E. Our price target is supported by our DCF valuation of EUR12. Share catalysts: The Q3 results at the end of October will be a catalyst for the shares, with focus on the order book into the all-important fourth quarter. The Medica trade fair in November has also historically proven to be share-pricesensitive; however, we are not expecting any ground-breaking new product launches this year. Sales and development Drägerwerk s market-leading positions 2,7 2,6 2,5 2,4 2,3 2,2 2,1 2, 1, E 14E 15E Sales (EUR) 12.% 1.% 8.% 6.% 4.% 2.%.% 45% 4% 35% 3% 25% 2% 15% 1% 5% % Anaesthesia ($85m) Ventilation ($1.1bn) Gas Detection ($2bn) Respiratory Patient Monitoring Detection ($2bn) ($3.6bn) 44

45 m Drillisch AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 2. EUR 699 m DRIG DRI GY Shares outstanding (m) 49 Daily trading volume 2, Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 17.4% 24.4% 3.% 33.4% 15.4% 2.6% 27.4% 31.% Dividend yield 8.8% 8.8% 8.8% 8.8% ROCE 9.3% 22.1% 35.3% 26.4% FCF yield 4.4% 4.8% 7.9% 8.3% EV/sales EV/EBITDA EV/EBIT PER Treasury shares: 9.76% Management: 7.32% Supervisory board: 6.99% Usman Ghazi Company overview: Drillisch is an online-only wholesaler of mobile tariffs in Germany buying network capacity from O2 and Vodafone and selling its own branded tariffs on these networks. While it is the second-largest mobile service provider after freenet AG, its market share of the Germany mobile market stands at 1-2%. The company s brands are associated with price leadership in Germany. Quality: The key competitive advantage of Drillisch is that it operates the lowest cost structure of all the mobile operators in Germany. This enables it to keep prices lower than its competitors. For instance, the company only sells its tariffs online (thereby avoiding an expensive retail presence) and avoids advertising its tariffs in mainstream media, instead relying on favourable consumer/trade reviews and social media of headline-grabbing cheap tariffs. Growth: We expect the company to nearly double EBITDA by 215 (relative to 212 levels) driven by growth in subscribers and a changing subscriber mix to higher-margin budget tariffs (defined as integrated voice/sms and data tariffs with a monthly commitment) as smartphone penetration at the low end of the mass-market in Germany gathers pace. Higher profitability on low capital expenditure requirements and no debt afford an above-average return of free cash flow to shareholders in dividends and buybacks. Valuation: Our DCF-based price target is EUR2. The shares look undervalued for a company delivering earnings CAGR of 22%, trading on a dividend yield of 9%, a price earnings multiple of 14x (excluding cash) and cash earnings multiple of 12x. Versus the sector, the shares trade on a 13% discount on EV/OpFCF of 9.6x (sector 11x). Share catalysts: We see three positive catalysts near-term including a re-levering of the balance sheet for a special dividend or buyback, an upgrade of 214 guidance, and regulated MVNO access conditions imposed on Telefónica Deutschland as a condition of merger approval with E+. Sales and development Low leverage and ample liquidity pave way for special dividend or buyback in Q E 14E 15E 35.% 3.% 25.% 2.% 15.% 1.% 5.%.% Q13 2Q13 3Q13 4Q13 213E 214E 2.x 1.5x 1.x.5x.x -.5x -1.x Sales (EUR) Liquidity ND:EBITDA (x) - company defined. Net debt excludes gross debt that is nonrecourse and hedged against company s shares in freenet AG 45

46 Dürr AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 42.5 EUR 1,684 m DUEG DUE GY Shares outstanding (m) 35 Daily trading volume 131, Y/E 31.12, EUR m E 214E 215E Sales 2,4 2,49 2,533 2,571 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 8.4% 8.7% 8.8% 8.8% 7.4% 7.7% 7.8% 7.7% Dividend yield 2.2% 2.4% 2.4% 2.4% ROCE 2.7% 2.5% 19.7% 18.3% FCF yield 4.8% 5.4% 5.9% 6.% EV/sales EV/EBITDA EV/EBIT PER Heinz Dürr GmbH 26.5% Heinz und Heide Dürr Stiftung 3.5% Management 1.1% Benjamin Glaeser Felix Wienen Company overview: Dürr is one of the leading global equipment suppliers to the automotive industry. The company is primarily known for providing paint shops for automotive companies (c65% of sales). With a global market share of more than 5%, Dürr is leading this field and is three times the size of its peers Eisenmann (Germany) and Taikisha (Japan). This enables the company to realise substantial economies of scale and R&D advantages. Besides engineering services, it also offers specialised machinery (c35% of sales). The product range encompasses assembly and balancing systems, as well as machinery for cleaning and filtration. Quality: Dürr s global-sourcing approach positions the company to benefit from the rebound in demand in mature markets, such as the US, and the ongoing automotive capex spending in emerging markets. Since mid-29, the book-to-bill ratio has amounted to, on average, 1.3x. This in turn caused the order book to grow to an all-time high of EUR2.4bn in Q2 212, providing visibility of more than 12 months. The positive order development is also reflected in the quality of the order book s margins. We therefore expect that Dürr will be able to even slightly increase its record FY12 margin level. Growth: Emerging markets remain in the focus of OEMs capex plans. Already today, c65% of incoming orders stem from emerging markets. However, also in mature markets, the high average age of installed capacity and OEM repositioning especially in Europe are driving demand for more efficient paint shops and, therefore, modernisation investments. Also with a large installed base, Dürr has scope to grow the share of its service business especially in emerging markets (eg 5% service sales share in Asia versus 21% for the group). Valuation: While historically Dürr has traded closely to order intake levels, we believe the recent share price increase reflects the decent cash generation and has changed margin profile of the company. We value Dürr on an average of DCF and target multiples. Share catalysts: Stronger-than-expected order intake and prove of further margin improvement (ie a higher service share and evidence of better pricing in the order book) could serve as the strongest catalysts, in our view. Further Dürr is looking at potential mid-sized acquisitions. Sales and development Ageing installed capacity 3, 2,5 2, 1,5 1, 5 1.% 8.% 6.% 4.% 2.%.% E 14E 15E Sales (EUR) 46

47 ElringKlinger AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 3. EUR 2,81 m ZILGn ZIL2 GY Shares outstanding (m) 63 Daily trading volume 115, Y/E 31.12, EUR m E 214E 215E Sales 1,127 1,194 1,283 1,383 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 19.1% 21.7% 22.4% 22.5% 12.1% 12.9% 14.2% 14.8% Dividend yield 1.4% 1.5% 1.8% 2.% ROCE 18.% 18.5% 19.6% 19.8% EV/sales EV/EBITDA EV/EBIT PER Lechler family 52.% Benjamin Glaeser Felix Wienen Sales and development Company overview: ElringKlinger is the leading supplier of powertrain, transmission and exhaust system sealing and shielding systems to the automotive industry. These include metal gaskets, shielding components and plastic parts, but also spare parts and whole exhaust treatment systems. In our view, ElringKlinger provides high-quality, low-weight and competitively-priced products, and is regarded as a technological leader and a close partner to almost all the major OEMs. Quality: ElringKlinger largely enjoys market leading positions (around 3-4%) and a relatively broad customer base (its largest single OEM exposure is 15%). It has historically been able to improve its market shares by offering better technology at lower cost than its competitors (largely Dana and Federal Mogul). Its competitive advantages thus lie within its R&D capabilities and expertise in metal forming and coating. These are, in our view, the main reasons why ElringKlinger has achieved outstanding margins in the past (up to 18%). Growth: ElringKlinger has historically been able to outperform global car production by c5%. This was in large part driven by more stringent emission regulations and the focus on fuel economy, which led to an increase in ElringKlinger s content sold into each car/truck. Currently, we see the strongest benefit being the adoption of Euro 6 for trucks, which creates incremental business for ElringKlinger s plastic in these engines. In additional, we see large market potential in its exhaust treatment systems for use in trucks, cars, ships, locomotives as well as construction and stationary machinery. Valuation: Our EUR3 price target is based on a blend of DCF and target multiples. At 18x forward P/E and 12.6x EV/EBIT, ElringKlinger s share price is trading at a premium to its historical averages and is implying strong midterm margin improvement. Catalysts: We see the strongest short-term catalysts to be 1) recovering car production in Europe, which would allow for stronger profitability especially in ElringKlinger s OE business, and 2) further newsflow on orders (eg orders regarding truck refits in the US) for its exhaust systems within Hug, which could increase the market s confidence in the sustained commercial success of its technology. Organic outperformance of global car production 1,5 16.% 1, E 14E 15E Sales (EUR) 14.% 12.% 1.% 8.% 6.% Global car production (million units) Elring sales (meur) ,33 1,127 1,191 Car production growth 6% -4% -12% 25% 3% 6% 1% Organic sales growth 15% -2% -12% 37% 19% 9% 6% Outperformance 9.5% 2.7% % 13% 16% 3.% 4.2% 47

48 Sales in EUR EBIT Margin Revenues ( m) Evotec AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 4. EUR 454 m EVTG EVT GY Shares outstanding (m) 131 Daily trading volume 6, Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS.... EBITDA margin 6.4% 11.5% 21.1% 26.8% -3.7% 1.4% 11.6% 18.% Dividend yield.%.%.%.% ROCE -1.6%.6% 6.2% 1.7% FCF yield.%.%.%.% EV/sales EV/EBITDA EV/EBIT PER Roland Oetker 13.4% Alistair Campbell Charles Cooper Company overview: Evotec is a drug discovery and development company headquartered in Hamburg, with a significant presence in the UK and the US. The business is split into three areas, ranging from fee-for-service bespoke drug discovery to investment in translational programmes at leading academic research centres such as Harvard and Yale. Quality: Evotec differentiates itself by offering state-of-the-art technology platforms alongside a proven drug discovery business in locations close to key customers. This results in active and integrated relationships with partners allowing the company to gain market share in the R&D outsourcing market, despite the rise of low-cost competitors in emerging markets. Growth: The growth of Evotec comes from the three legs of the business. Execute represents the company s early stage drug discovery business. This business grows through service and development fees from an increasing number of pharma and biotech companies seeking to reduce their fixed costs. Integrate and Innovate represent the company s pre-clinical and clinical platforms. This business is highly profitable with significant long-term upside depending on clinical success. This business currently generates milestone income, which should increase in size and frequency as development alliances mature. Valuation: Our SOTP valuation for Evotec values the base drug discovery business at EUR4/share. This valuation includes nothing for ongoing clinical studies as a result, positive data from any study would represent upside to our valuation. We expect earnings CAGR of 41% between 214 and 218, and with the shares currently trading on 43x 214; we see 15% upside to fair value. Share catalysts: Before the end of 213, management has committed to commercialise one Cure X initiative and start three to five more Cure X/Target X programmes. Given that the last partnership deal with Jannsen led to a 18% rally in the shares, these are significant short-term catalysts. Longer-term, we expect the results of the DiaPep277 and MAyflOwer RoAD studies at the end of 214 and early in 215, either of which, if successful would drive significant upside to the current share price. Sales and development A 211A 212A 213E 214E 215E 216E 217E Sales EBIT Margin 3% 25% 2% 15% 1% 5% % -5% Base business revenues versus milestones/ upfronts Base business (Evotec Execute) Milestones / Upfronts / royaltuies 71 48

49 Fielmann AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 81.5 EUR 3,212 m FIEG FIE GY Shares outstanding (m) 42 Daily trading volume 1,339 Y/E 31.12, EUR m E 214E 215E Sales 1,17 1,156 1,216 1,285 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 19.4% 19.5% 19.6% 2.% 16.3% 16.6% 16.8% 17.4% Dividend yield 3.7% 3.8% 4.% 4.4% ROCE 3.8% 31.6% 32.3% 33.8% FCF yield 4.6% 4.2% 4.4% 4.8% EV/sales EV/EBITDA EV/EBIT PER Günther Fielmann 36.8% Fielmann Familienstiftung 11.4% Marc Fielmann 8.8% Luise Sophie Fielmann 2.% Anna Patrice, CFA Sales and development Company overview: Fielmann is the leading optician retailer in Germany (its core market, accounting for c8% of group sales), with close to 5% market share by volume. It benefits from an integrated business model with c2% of its lenses produced in-house. Prescription glasses (lenses and frames) account for c85% of group sales, contact lenses for 11% and hearing aids for just 2%. Quality: Fielmann benefits from good brand awareness for high-quality products sold at lower prices than its competitors. The company is the cost leader (it has a 5% market share by volume but only 2% by value), given its integrated business model and market leadership by volume and hence its scale advantage. Nevertheless it still reports an impressive 8% gross margin and a ROCE of greater than 3%. Its network of more than 57 stores in Germany in prime locations is virtually impossible to replicate, and thus entry barriers are high. Growth: Steady 5% sales growth is supported by a) an ageing population with an increasing need for eye correction, and within this group an increasing share of more expensive multifocal lenses (4-5x price of single vision glasses), b) market share gains in still fragmented markets and store expansion, although the latter is constrained by the lack of opticians, c) expansion in the hearing aid market. Margin expansion is set to drive a 8.5% EPS CAGR E on the back of operating leverage and increasing share of more profitable multifocals. Personnel expenses (c4% of sales) is the key factor to watch, as increasing employee numbers (and wages) has burdened margin development in recent years and is the main risk. Valuation looks expensive, but the stock trades at a slight discount to its peer group; the 4% dividend yield is attractive with an accumulating net cash position (1% of market cap). Our price target of EUR81.5 is based on CFRoEV 216E. Share catalysts: Investors concern about limited operating leverage and rising personnel costs have already resulted in share price underperformance in 212 and ytd 213. An improving macro should lead to a better top line driven by ASP rather than mostly volumes and lead to margin progression and a return to high single-digit EPS growth. Increasing share of multifocal lenses, indexed 24=1 1,4 1,2 1, E 14E 15E Sales (EUR) 17.5% 17.% 16.5% 16.% 15.5% e Source: Company data 49

50 freenet AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 18. EUR 2,266 m FNTGn.DE FNTN GY Shares outstanding (m) 128 Daily trading volume 5, Y/E 31.12, EUR m E 214E 215E Sales 3,89 3,271 3,34 3,376 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 11.6% 1.9% 1.8% 1.8% 6.8% 8.9% 9.4% 1.% Dividend yield 7.6% 8.5% 8.5% 8.5% ROCE 7.6% 11.% 11.9% 12.2% FCF yield 1.% 9.7% 1.1% 1.3% EV/sales EV/EBITDA EV/EBIT PER Drillisch AG 4.5% Usman Ghazi Company overview: As a mobile service provider, the freenet Group has no network infrastructure of its own, but it markets, under its own brands, the mobile services of the network operators Deutsche Telekom, Vodafone, E+ and O2 in Germany. Quality: freenet has the largest independent sales and distribution network comprising own shops and dealer networks outside of the network operators. The group is currently in the midst of extending its shop network by another 4% over 213/14. Over the last few years, freenet s management deserves credit for successfully executing on a turnaround plan that has stabilised the subscriber base and profitability. Growth: freenet is in the final phase of the turnaround which involves a return to revenue growth. Managements hope to over-compensate for the competitive pressure on mobile prices by increasing sales of new products and services sold in the shop network, such as smart-metering and smartphone accessories. For the time being, this looks a distant possibility. We expect freenet should be able to generate stable EBITDA of EUR35m-355m and free cash flow of around EUR22m- 23m, allowing the company to return a safe and high dividend per share of EUR1.5 per share. Valuation: freenet s attraction lies in in its operational stability in the context of a sector facing falling EBITDA and dividends. Our price target of EUR18 is based on DCF. On P/E, the shares looks cheap on 9.3x 214 earnings primarily due to a low tax rate that is aided by EUR28m of net tax losses that will expire by 22. Normalising for this, the shares are trading on 11x. Share catalysts: We see few near-term catalysts for the shares. Over the mid-term, an easing of price pressure in the German mobile market after the deal between E+ and Telefónica Deutschland would support our forecasts for mobile ARPU stabilisation beyond 214. Sales and development A safe dividend yield on low leverage 3,4 3,3 3,2 3,1 3, 2, E 14E 15E Sales (EUR) 12.% 1.% 8.% 6.% 4.% 2.%.% % 8.4% 8.4% 8.4% % 7.5% A 213E 214E 215E 216E Net debt:ebitda Dividend yield 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% 5

51 Fuchs Petrolub SE 8 October 213 Hold EUR /1/213 XETRA Close EUR 54. EUR 3,92 m FPEG_p FPE3 GY Shares outstanding (m) 71 Daily trading volume 125, Y/E 31.12, EUR m E 214E 215E Sales 1,819 1,827 1,891 1,991 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 18.% 18.8% 18.% 18.% 16.5% 17.1% 16.3% 16.3% Dividend yield 2.2% 2.7% 3.2% 3.6% ROCE 4.% 38.6% 36.2% 36.6% FCF yield 3.4% 4.2% 4.4% 4.6% EV/sales EV/EBITDA EV/EBIT PER Ordinary shares: Fuchs family 51.73% Free float across all shares: 68.2% John Klein Company overview: Fuchs is the largest independent producer of lubricants. It produces lubricants and technical greases for a variety of applications including in the automotive, industrial and engineering sectors. Fuchs is currently expanding its production capacity in overseas markets. Quality: Fuchs specialises in being a provider of customised products for non-retail customers. Fuchs customers buy large volumes for applications such as automotive first fillings or metalworking uses. The company employs a highly skilled salesforce that works closely with the customer to find tailored solutions. Oil majors do not customarily engage in this market, focusing instead on retail-grade lubricants. As the technical sophistication of lubricants for professional customers grows, these customers increasingly value Fuchs customer service. Growth: Fuchs saw more than 5% annual revenue growth during the period. This is impressive given that the lubricant market has been stagnant is recent years, and in some segments has even shrunk. We believe the main growth driver has been price increases as a result of raw materials (mostly base oil, a crude oil derivative) inflation. Currently, raw materials prices are falling, so that price increases will be more difficult for Fuchs to achieve in the short term. Ongoing investment into new facilities in emerging markets will add volume growth. We forecast a sales CAGR of 3.1% Fuchs is very cash-generative, and will return increasing dividends to its shareholders. Valuation: At 19x 214 earnings on our numbers, we believe Fuchs is fully valued. We estimate an EPS CAGR of 2% , with sales growing at 3.1%. Our DCF-based price target is EUR54. Share catalysts: Fuchs main raw material is base oil, an eventual derivative of crude oil. Base oil price movements will therefore influence pricing of Fuchs products. Inflation in the raw material chain is generally a positive catalyst. Sales and development Sales split by customer industry (volume, 212) 2% 2,5 17.5% 2, 1,5 17.% 16.5% 31% 44% 1, 16.% E 14E 15E 16E Sales (EUR) 15.5% 15.% 24% Automotive oils Metalworking/greases Industrial oils Process oils 51

52 Rents in EUR EBIT-margin in % GAGFAH SA 8 October 213 Buy EUR /1/213 XETRA Close EUR 11.8 EUR 2,79 m GFJG GFJ GY Shares outstanding (m) 216 Daily trading volume 663, Y/E 31.12, EUR m E 214E 215E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield 6.3% 6.4% 7.6% 8.1% P/FFO Dividend yield.%.% 2.1% 5.2% P/NAV per share -33% -25% -27% -3% P/NNAV per share -33% -25% -27% -3% Net gearing 249% 231% 219% 29% Loan-to-value (LTV) 65% 63% 62% 61% Implied yield 8.1% 7.5% 7.7% 7.8% Fortress 48% Kai Klose, CIIA Estelle Weingrod Rental income and development E 13E 14E 15E Total rental income 7.% 68.% 66.% 64.% 62.% 6.% 58.% 56.% Company overview: GAGFAH is a pure residential player with exposure only in Germany. Its largest exposure is ~2%, in Dresden, followed by Berlin. With ~144, units valued at about EUR7.7bn, GAGFAH owns the secondlargest residential property portfolio among its listed peers. We would regard the overall portfolio quality as average. Following the appointment of a new CEO, the company is set to spend more on capex and maintenance to improve asset quality. Quality: The current in-place rent, at EUR5.15/sqm, is close to peers levels, whereas the current lfl rental growth is below peers at 1.1% as of H Also, vacancy rates are currently higher, at 5.1%. The new management team is taking a realistic view on structurally improving the entire portfolio by reducing the maintenance backlog, with annual additional investments of EUR5m forecast. Growth: By focusing more on core assets and by increasing the annual maintenance/capex to EUR14-16/sqm from the previous EUR11/sqm, GAGFAH s lfl rental growth should rise to around 2.% annually from only 1.1% currently. We believe that a continuous improvement in rental growth and occupancy levels are the main parameters for long-term investors, which are areas in which the company still has to deliver. Valuation: In our view, the recent share price outperformance illustrates that the markets have taken the company s progress on deleveraging and the new management as positive. We believe that the to-be-completed extension of EUR9m of debt due in April 214 is no longer in doubt; not least since GAGFAH has successfully extended around of debt in recent months. However, valuations still show some scepticism, with a 25% discount to NAV 213E and a 6.4% FFO yield. Share catalysts: The main catalyst would be an improvement in operations, particularly higher lfl rental growth. Also, a higher free float would be a catalyst, as Fortress still owns a 48%. Geographical split Schleswig- Holstein 3% Hamburg 6% Baden- Württemberg 7% Berlin 11% Bavaria 3% Lower Saxony 14% Other 7% Saxony 29% North Rhine Westphalia 2% 52

53 Fwd EV/sales Exp margin GEA Group AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 31.5 EUR 5,987 m G1AG G1A GY Shares outstanding (m) 193 Daily trading volume 45,5 Y/E 31.12, EUR m E 214E 215E Sales 5,72 5,841 6,74 6,341 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 1.5% 12.2% 12.6% 13.% 9.8% 1.1% 1.6% 11.% Dividend yield 2.3% 2.1% 2.6% 2.7% ROCE 1.1% 11.6% 12.3% 12.6% FCF yield 5.4% 5.8% 6.3% 7.6% EV/sales EV/EBITDA EV/EBIT PER Kuwait Investment Office 8.3% Benjamin Glaeser William Mackie Sales and development Company overview: Between 24 and 28, GEA concentrated its activities by making c2 divestments in order to improve business quality, transparency and visibility. Today, GEA is one of the largest providers of machinery and equipment for the food, beverage, process and energy industries, with these end-markets contributing 55% to group sales. GEA s product offering encompasses centrifuges, process equipment, valves, decanters and also the engineering of entire lines and plants. Currently, GEA is looking to divest its heat exchanger (HX) exposure, which accounted for 24% of group EBIT in FY12. Quality: Besides being a major manufacturer of food processing machinery, GEA s competitive quality resides in its significant emerging-market exposure (currently 34%). Further, GEA is in the process of increasing its food and beverage exposure to 75% of sales (versus 55% at present) while divesting underperforming, higher-risk businesses. In light of its better cash generation, we do not rule out an increase in the payout ratio over the medium term. Growth: GEA is facing structural growth in a number of markets, especially in the food processing industry. However, growth in earnings will in our view be driven by divestment of lower margin HX businesses and reinvestment into foodand beverage-related markets. Valuation: Since the Q1 results, the share has re-rated ahead of the sector. At 14x FY 214 P/E and 1.6x EV/EBIT, on our estimates it is trading close to post-crisis highs. Furthermore, for the first time since before the crisis, GEA s consensus EV/sales is above levels implied by its operating margin (1.2x versus 1%). GEA s share price has risen by 25% ytd. It is now among the best-performing stocks in our large cap universe. Our price target is based on an average of 215 DCF and target multiples discounted back to year-end 213. Share catalysts: Our Hold rating reflects full valuation but the company is also missing short-term catalysts. The HX disposal and reinvestment of proceeds will likely be a threeto five-year process. As end-market development is pointing to a very stable development, we further see downside than upside risk for FY 213 guidance. EV/sales to operating margin points to fair valuation 7, 6, 5, 4, 3, 2, 1, E 14E 15E Sales (EUR) 12.% 1.% 8.% 6.% 4.% 2.%.% 1.2x 1.x.8x.6x.4x First time since pre-crisis trading.2x above marginimplied levels.x Fwd EV/sales Exp margin 12% 1% 8% 6% 4% 2% % 53

54 Gerresheimer AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 54. EUR 1,49 m GXIG GXI GY Shares outstanding (m) 31 Daily trading volume 115, Y/E 31.12, EUR m E 214E 215E Sales 1,219 1,276 1,344 1,42 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 19.7% 19.4% 2.2% 21.1% 1.8% 11.1% 12.2% 13.1% Dividend yield 1.4% 1.6% 1.9% 2.2% ROCE 9.7% 9.6% 11.% 12.5% FCF yield 4.3% 3.9% 6.2% 7.4% EV/sales EV/EBITDA EV/EBIT PER Scott Bardo Company overview: As one of the world s leading and longest-established healthcare packaging companies, Gerresheimer remains a strong play on the increasing global pharma consumption. The business has four main divisions: Tubular Glass, Plastic Systems, Moulded Glass and Life Science Research. Quality: Having been present in the pharma packaging industry for over 15 years, Gerresheimer has established a reputation for producing the highest-quality products. Clients include Sanofi, Novo Nordisk and AstraZeneca, to name a few. The importance of packaging in the approval process means that Gerresheimer s diversified client base is set to remain loyal in the long term. However, Gerresheimer s investment case is not just a volume story. We believe the company s recent heavy investments in fast-growth markets such as ready-to-fill syringes, insulin pens, diabetic blood lancets and asthma devices will soon pay off, driving accelerating top-line growth and margin expansion for the group. Growth: Plastic Systems has the strongest growth potential for the group over the next five years, largely owing to its broad pipeline of insulin pens and asthma inhalers. We also see opportunities for improvement in Tubular Glass in particular the profitability of ready-to-fill syringes. Margins for syringes are currently c1% by our estimates, around 14-15ppt lower than normalised margins for other products in the division. This should not be the case, and management is fully committed to closing the gap as soon as possible. Finally, we think that M&A could enhance shareholder value at Gerresheimer. Targets include emerging-market opportunities (particularly in China and India) as well as concentrated plastics investments in North America (See our How could GXI look with Rexam? note, dated 22 August 213). Valuation: Our target price of EUR54 is based on shares trading on 17.5x 214E or 15x 215E adjusted EPS. This valuation seems reasonable to us in this market given our expectation of c13% EPS CAGR out to 218E. Share catalysts: The Q3 results in early October are the next meaningful catalyst. Shares will likely be sensitive to any update on guidance as well as any status update on Rexam. Sales and development Group end-markets 1,5 1, E 14E 15E 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% Pharma & Life Science 83% Others 5% Cosmetics 12% Sales (EUR) 54

55 Gerry Weber International AG 8 October 213 Hold EUR /1/213 XETRA Close Absolute rating system EUR 34. EUR 1,469 m GWIG GWI1 GY Shares outstanding (m) 46 Daily trading volume 165,926 Y/E 31.12, EUR m E 214E 215E Sales ,26 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 16.5% 14.8% 15.5% 16.3% 14.5% 12.3% 13.2% 14.% Dividend yield 2.4% 2.8% 3.3% 4.% ROCE 3.% 24.4% 25.9% 27.2% FCF yield 1.6% 5.3% 5.3% 6.2% EV/sales EV/EBITDA EV/EBIT PER Gerhard Weber 28.34% Udo Hardieck 17.85% Ralf Weber 2.99% Anna Patrice, CFA Company overview: Gerry Weber is an apparel retailer with a focus on women aged over 45. Historically, it was a wholesale player with a predominant focus on Germany. However, recent own retail expansion and internationalisation have resulted in it generating c4% of group sales outside Germany and via own retail. Quality: In a generally highly competitive apparel market, Gerry Weber has found a niche with limited competition ie women aged over 45. It therefore benefits from both low competition and a financially well-off customer group that focuses on quality rather than just price. As a fashion follower, Gerry Weber does not start trends, but it does stand out in terms of operational excellence: a) its own cutting department ensures consistent quality while being flexible in its ability to change suppliers quickly if required; b) its IT system is connected to more than 4,5 PoS, which enables it to analyse and react to sell-through data; c) its RFID system is set to provide more cross-selling opportunities in the future. Growth: The 7.8% sales CAGR E is driven by own retail expansion (4% of group sales, 15% sales CAGR) and the Wissmach acquisition with converted 17 Wissmach stores (out of a total of c63 stores) into GW monolabel. Wholesale is set to grow at 2.7% CAGR E driven by its internationalisation (Germany is its largest market with c6% of sales). Increasing volumes and the shift to own retail is set to support gross margin development, but the newly converted Wissmach stores will dilute margins until 215E and lead to a 6.8% EBIT CAGR over E. Valuation: Our DCF-based price target of EUR34 indicates limited upside potential. We note limited visibility, with two recent profit warnings driven by the challenging trading environment and weak performance of Wissmach stores. Share catalysts: A return to historical outperformance of the German apparel market and margin progression should support a re-rating of the stock. However, the current trading environment is volatile and leaves little upside for positive surprises in the short term. Sales and development Gerry Weber retail expansion affects profitability 1,2 2.% 1, 1% 1, % 1.% 5.% % 6% 4% 2% E 14E 15E 16E.% % E 215 E Sales (EUR) Number of stores Share of mature stores 55

56 Net income in EUR Return on equity in % Grenkeleasing AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 61. EUR 967 m GKLG GLJ GY Shares outstanding (m) 15 Daily trading volume 4,926 Y/E , EURm Grenke family 42.6% Bjoern Lippe E 214E 215E New Business 1,26 1,179 1,297 1,427 Net Interest income Net income EPS reported DPS BPS Dividend Yield 1.4% 1.4% 1.5% 1.6% ROE 12.1% 1.8% 11.1% 11.3% Equity ratio 14.9% 16.3% 16.% 15.8% Cost/income ratio 44.1% 44.5% 44.9% 45.% P/E 15.2x 17.5x 15.4x 13.6x P/BV 1.8x 1.9x 1.7x 1.5x Company overview: Grenkeleasing is a unique and highly profitable company serving the small-ticket IT leasing market in 26 countries with a focus on Europe. With an average loan-loss ratio of 1.5% since 2 and a ROE of 11.9% since 27, the company has a strong earnings profile. The BBB+ rating from Standard & Poor s, which Grenkeleasing has had since 23, helps facilitate access to the required financing. Quality: Aside from the robust earnings profile, Grenkeleasing has a strong and highly defensible market position underpinned by an internal scoring tool with an extensive database of prior cases and a large network of loyal retail partners which market the leasing contracts. In addition, and importantly for a leasing company, Grenkeleasing demonstrates strong risk management skills. This is evidenced by a prudent expansion strategy, the increasing regional diversification of the leasing portfolio, its large number of independent retail partners and the strong diversification of financing sources, which allow the company to maintain sufficient liquidity. Growth: By far the strongest growth in new contracts currently comes from southern Europe, where Grenkeleasing can increasingly gain market share as banks move out of the leasing business. In addition, the company is in the process of testing markets such as Brazil and Turkey to prepare for continued strong growth in future. We believe Grenkeleasing will achieve an EPS CAGR of 1.4% until 215. Valuation: The performance of the share price has been very strong over the last few months despite a capital increase of 7.42% below the market price. We therefore currently see limited upside in the stock. In order to incorporate some of the company s long-term growth and earnings potential, we have used a residual income model and combined this with a target P/BV multiple of 2.x to reach a price target of EUR61. Share catalysts: As Grenkeleasing is growing continually and consistently, there are no specific identifiable catalysts. However, strong quarterly results usually serve as a catalyst for the stock as proof of its positive development. Net income and ROE development LLC and NII development E 14E 15E Net income ROE 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% % 8.% 6.% 4.% 2.%.% E 14E 15E Loan loss charge Net interest income LLC/NII 56

57 Rents in EUR EBIT-margin in % GSW Immobilien AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 34. EUR 1,624 m GIBG GIB GY Shares outstanding (m) 51 Daily trading volume 92, Y/E 31.12, EUR m E 214E 215E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield 4.2% 4.7% 5.% 5.2% P/FFO Dividend yield 2.8% 3.1% 3.3% 3.4% P/NAV per share 6% -7% -9% -12% P/NNAV per share 6% -7% -9% -12% Net gearing 125% 136% 138% 135% Loan-to-value (LTV) 57% 57% 57% 56% Implied yield 6.1% 6.5% 6.5% 6.7% MFS 1%, Government of Singapore 6%; CBRE Clarion 5% Kai Klose, CIIA Estelle Weingrod Rental income and development Company overview: GSW is a pure residential player in the Berlin market. With a portfolio of about 58, units, the company benefits from its good insight into the Berlin market, as well as from a good reputation as a long-termorientated local player in the German capital. It went public in April 211 and is a member of the German MDAX as well as of relevant property stock indices such as EPRA. Quality: The company benefits from low operational costs and high income predictability, with stable income payments (a payout ratio of 65%), a low vacancy rate (2.7%) and increasing rents in accordance with rent tables for Berlin. GSW was also successful in sourcing portfolios with the purchase of 2,8 units for EUR21m in Berlin in August. Growth: Since its IPO in April 211 at EUR19/share, GSW has shown strong momentum. In addition, the favourable conditions in Berlin s housing market have supported the equity story quite well. We expect the positive trend of rising rents to continue, and also look for lfl rental growth of slightly above 2.%. Valuation: With solid debt ratios (a loan-to-value ratio of ~54% based on nominal debt fixed at less than 4%) and an average debt duration of ~1 years, we regard GSW as an attractive investment case, offering a combination of highincome predictability and stable dividend payments. The stock is now trading at a 7% discount premium to NAV 213E and at a dividend yield of 3.1%. Share catalysts: Following the public takeover bid from Deutsche Wohnen, we see the proposed merger as highly rational, due to the regional overlap and GSW s strong local ties in Berlin. We regard GSW as the local market leader among the institutional and privately-owned property companies. The offer values GSW s equity at EUR1.8bn, implying a premium of 15% on the three-month volumeweighted average share price before the announcement of the transaction, which also comes close to our fair value on a standalone basis. Geographical split E 13E 14E 15E Total rental income 82.% 81.% 8.% 79.% 78.% 77.% 76.% 75.% 74.% 73.% 72.% 71.% Others 37% Steglitz - Zehlendorf 13% 1% Berlin Spandau 21% Friedrichshain /Kreuzberg 14% Reinickendorf 15% 57

58 Rents in EUR EBIT-margin in % Hamborner REIT AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 8.25 EUR 327 m HABG HAB GY Shares outstanding (m) 45 Daily trading volume 37, Y/E 31.12, EUR m E 214E 215E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield 5.5% 6.9% 7.5% 7.7% P/FFO Dividend yield 5.3% 6.2% 6.7% 7.% P/NAV per share -8% -16% -17% -17% P/NNAV per share -5% -12% -13% -13% Net gearing 78% 1% 114% 122% Loan-to-value (LTV) 31% 38% 41% 43% Implied yield 6.5% 7.1% 7.1% 7.1% Ruffer 6%; Asset Value Investors 5%; Allianz GI 3% Kai Klose, CIIA Estelle Weingrod Rental income and development Company overview: Hamborner is focused on German commercial properties and was converted into a REIT in 21. The company is thus tax-exempt on a corporate level and has to distribute a large part of its earnings to shareholders. The portfolio now consists of 72 properties located in 55 cities and has grown significantly in recent years. The portfolio is split roughly one-third offices, a third high-street retail and a third large-scale retailing. Quality: As Hamborner only buys single properties, the company s earnings resilience is above-average: the average lease term is seven years, less than 1% of leases expire annually up to 217, and the vacancy rate is at less than 2%. Also the tenant mix is of good quality and includes wellknown companies like Edeka (15%), Kaufland (1%) and OBI (6%). The company is aiming to sell more smaller properties in non-core cities in order to enhance profitability. Growth: In 27, Hamborner changed its strategy towards real estate and started to grow substantially in terms of acquisition of single assets with high occupancy levels. The portfolio size has more than doubled to almost EUR7m as of now. This is also reflected in earnings momentum and Hamborner foresees a 2% increase in revenues for the current fiscal year and a 25% increase in FFO as adjusted net profit by 25%. Valuation: Despite its below-average risk profile, Hamborner still trades at a 12% discount to NAV. Also, the current dividend yield of 6.2% is an attractive level in our view, especially as the company has never cut the dividend per share since its foundation in Share catalysts: We expect Hamborner to maintain its strategy with further acquisition of single properties, even though the market has become more competitive. The disposal of non-core assets at book value (particularly in 214) will also lead to a more focused portfolio. Sector split Sector split % 58.% 56.% 54.% 52.% 5.% 48.% 46.% 44.% E 13E 14E 15E Total rental income High-street/ retailing, 36% Office / other, 28% Large-scale retail, 36% 58

59 Hawesko Holding AG 8 October 213 Hold EUR 4. 4/1/213 XETRA Close EUR 42. EUR 359 m HAWG HAW GY Shares outstanding (m) 9 Daily trading volume 4, Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 7.4% 7.4% 7.8% 8.% 5.8% 6.% 6.5% 6.8% Dividend yield 4.4% 4.2% 4.6% 4.9% ROCE 23.5% 25.5% 3.1% 32.3% FCF yield 3.2% 6.1% 8.5% 6.1% EV/sales EV/EBITDA EV/EBIT PER Alexander Margaritoff 3% Tocos GmbH 29.5% Augendum Vermögensverwaltung GmbH 5% Anna Patrice, CFA Company overview: Hawesko is the largest wine distributor in Germany within the premium wine segment (EUR1bn), and is active in the retail (283 Jacques Wein-Depot outlets), wholesale and mail order segments. It is exposed predominantly to Germany (89% of group sales as of FY 212), but is expanding in Sweden with its mail order business and in Switzerland with its wholesale business. Quality: Hawesko is the market leader in the premium wine segment in Germany across all distribution channels retail, wholesale and mail order 1.5-4x bigger than its closest peers in relevant segments thanks to its focus on premium wine. This scale and distribution reach has allowed Hawesko to negotiate exclusive distribution contracts for well-known wine houses in Germany. Thus, while its position in its home market is very strong, the company is expanding in neighbouring countries and in the online segment, consolidating what is a highly fragmented market. Growth: A 6% sales CAGR over E is driven by a) steady market growth with the trend moving towards more premium wine, b) market share gains in the domestic market, c) expansion in Sweden and Switzerland, supported by the acquisition of Vogel Vins in 213 (with estimated sales of EUR8m). Margin expansion towards the mid-term target of 7% follows a dilutive impact of an expansion phase in and supports a 9% EPS CAGR over E. Valuation: Valuation looks expensive on first sight at more than 16x P/E 214E. However, the dividend yield of more than 4% is attractive, while the high quality and stable growth justifies its premium rating in our view. Limited upside to our EUR42 price target, based on CFRoEV 215E, leads to a Hold rating. Share catalysts: Following a weak H1 213, we expect an acceleration in sales and earnings in H2 213E which should be supported by easing comps and integration of recently acquired companies. However, current trading seems to be mixed, and we would use any further share price weakness as an entry point. Sales and development Outperforming domestic wine market, yoy growth E 14E 15E 7.% 6.5% 6.% 5.5% 5.% 2% 15% 1% 5% % -5% -1% Total German wine market growth Sales (EUR) Hawesko domestic sales growth Source: Company data 59

60 Book-to-bill ratio Hochtief AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 62. EUR 4,43 m HOTG HOT GY Shares outstanding (m) 71 Daily trading volume 24,639 Y/E 31.12, EUR m E 214E 215E Sales 25,528 26,374 26,471 27,18 EBITDA 1,68 1,687 1,68 1,743 EBIT Net profit Y/E net debt 944 1,3 1,151 1,287 EPS (reported) EPS (recurring) DPS EBITDA margin 6.6% 6.4% 6.3% 6.5% 3.% 3.6% 3.6% 3.7% Dividend yield 2.4% 3.7% 4.8% 4.9% ROCE 8.9% 11.% 1.5% 1.5% FCF yield.9% -1.5% 3.6% 3.% EV/sales EV/EBITDA EV/EBIT PER Chris Moore Robert Muir Company overview: Hochtief is engaged in construction services, real estate development and airport and social infrastructure concessions. It has a c56% stake in Leighton Holdings, Australia s largest listed contractor. ACS, a Spanish construction company, owns c49% of Hochtief. Its main markets are Australia (48% of revenue), Asia (13%), the Americas (27%) and Germany (9%). Quality: Following weak performance in , driven by poor risk management on construction projects, Hochtief s new management team is carrying out an extensive cost-saving and restructuring programme. Management is reducing unnecessary management layers, simplifying reporting structures and aligning remuneration policies to cash-based targets, in order to cut costs and improve risk management. We expect this to lead to margin improvement and less volatile earnings in Growth: We forecast a c15% EPS CAGR driven mainly by management s cost-saving and restructuring programme. In addition, we expect Hochtief s end-markets in Europe and the US to recover over this period. However, we are slightly concerned that growth at Leighton could disappoint consensus expectations, driven by a reduction in spending in the mining and resources sector. Valuation: Our EUR62 price target is based on a sum-ofthe-parts methodology. Hochtief is trading on 17.6x 214 EPS which we think fairly reflects the potential for EPS growth as management s cost and restructuring programme is executed. Share catalysts: Management is planning a sale or partnership strategy for its real estate assets which have a gross carrying value of around EUR1.4bn. This could be a potential catalyst for the share price although we expect this is more likely to occur in 214. Sales and development Hochtief versus peers: rolling 12-month book-tobill ratio 3, 4.% , 2, 15, 1, 5, E 14E 15E Sales (EUR) 3.% 2.% 1.%.% -1.% Q4 211 Q1 212 Skanska Q2 212 Balfour Beatty Q3 212 Q4 212 Q1 213 Hochtief VINCI Q

61 Hugo Boss AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 12. EUR 6,197 m BOSG_p BOSS GY Shares outstanding (m) 36 Daily trading volume 9, Y/E 31.12, EUR m E 214E 215E Sales 2,346 2,472 2,667 2,887 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 22.4% 22.6% 23.7% 25.2% 18.5% 18.6% 19.5% 21.% Dividend yield 4.1% 3.8% 4.1% 4.8% ROCE 37.4% 36.1% 37.8% 4.% FCF yield 6.7% 8.2% 9.3% 12.% EV/sales EV/EBITDA EV/EBIT PER Red & Black Holding GmbH 56% Anna Patrice, CFA Sales and development. 3,5 25.% 3, 2,5 2, 1,5 1, E 14E 15E Sales (EUR) 2.% 15.% 1.% 5.%.% Company overview: Hugo Boss is a leading brand in the male premium apparel segment. Since its takeover by Permira, and following the installation of a new management team in 28, it has reduced its European exposure from 73% of sales in 27 to 6% by 212 and increased the share of own retail (from 26% of sales in 27 to 49% by 212). Primarily a men s brand (88% of group sales), Hugo Boss intends to expand in the women s wear segment (12% of group sales), with changes in its organisational structure and in management. Quality: Hugo Boss has a strong brand image for high-quality and elegant European designs, especially in the formal wear that it successfully leverages on its casual wear, which now accounts for c5% of group sales. Its high level of efficiency in logistics, production and distribution makes it one of the highest-achieving companies among its peer group in terms of profitability. Its management team has a good track record of expanding into own retail, improving brand image (China) and own retail efficiency, and as a result is driving profitable growth with an improved ROIC of 37% by 212 (21: 3%). Growth: Own retail expansion (including a c6% increase in the number of stores over E), mid-single-digit lfl sales growth and further internationalisation (in Asia, the Americas and eastern Europe) are set to drive a 7% sales CAGR E. A 13% EPS CAGR E is supported by operating leverage, improving operational efficiencies and an increasing number of mature stores in its network. The company s mid-term targets of EUR3bn in sales and a 25% recurring EBITDA margin are achievable despite the slowdown in Asia and upside potential could come via a) franchise takeovers (15% of group sales), and b) premiumisation of its product offering with the integration of Boss Selection (a luxury line, 3% of group sales) into Boss Black (67% of group sales). Valuation: upside potential is limited following share price outperformance and a narrower discount gap to the peer group, with Hugo Boss trading at 17-18x P/E versus luxury and large cap retailers P/E of 18-2x. Our EUR12. price target is DCF-based. Share catalysts: Improving sentiment towards Europe has supported share price outperformance. Upgrades are now necessary to support it, but are unlikely before 214E. Sales split by channel and region (EURm) 2, 1,5 1, 5 Retail Wholesale Asia/ Pacific E Americas Europe 61

62 Jenoptik AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 12. EUR 671 m JENG JEN GY Shares outstanding (m) 57 Daily trading volume 82,543 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 12.4% 13.2% 14.3% 15.% 9.4% 9.4% 1.7% 11.6% Dividend yield 2.5% 1.3% 1.3% 1.3% ROCE 1.3% 1.3% 11.6% 12.3% FCF yield 6.3% 4.6% 1.4% 9.7% EV/sales EV/EBITDA EV/EBIT PER ECE Industriebetiligungen 25.2% Varis 5.33% Templeton Investment Council: 3.11% Ali Farid Khwaja, CFA Sales and development Company overview: Jenoptik is a specialist producer of lasers and optical systems used in end-markets such as semiconductor equipment, automotives, medicine and defence. The company was founded in 1846 in Jena by Carl Zeiss. It has a strong IP portfolio, long-held relationships with customers and deep expertise in these sectors arising from its prior affiliations with Carl Zeiss. Besides selling lasers, laser systems, optics and solutions, Jenoptik also manufactures various components and systems for defencerelated industries, industrial metrology components and traffic light monitoring systems. Germany is its biggest endmarket, responsible for 35% of group sales (H1 213), but management has executed well to diversify into Asia-Pacific and the US, which now contribute 12% and 21% of sales respectively. Quality: The main feature of Jenoptik s business model is its diversified nature in terms of product portfolio and geographical exposure. Technology-wise, Jenoptik s core strength lies in optics, since it originated as a part of Carl Zeiss group. The quality of Jenoptik s optics products is evident from the fact that many of its customers, such as ASML, use it as a single-source supplier. In most of its business segments, end-markets are fragmented. In lasers, Jenoptik has a less than 1% market share and competes with companies such as Coherent, Cymer and Roth and Rau. Jenoptik is a global leader in cameras for traffic monitoring and control solutions. The company has consistently exceeded its financial guidance in the last two years. Growth: Jenoptik is a stable, steady growth business. A diverse product portfolio and end-market exposure means that when one market segment is weak it is often compensated by stronger demand from another vertical. We expect Jenoptik to maintain a steady growth profile and are modelling a 7% CAGR revenue growth and 11% earnings growth over E. Key growth drivers are demand from the automotive, semiconductor equipment, transportation and defence sectors. Valuation: Our price target is based on 13x next year s P/E, which is slightly higher than a 1x PEG ratio. Share catalysts: Our estimates are ahead of consensus and management guidance. We think the company can beat its FY 213 targets and raise FY 217 guidance. Diversified business model E 14E 15E 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% 6% 11% 29% 12% 23% 2% Automotive & machine construction Security and defense Aviation & traffic Semiconductor Sales (EUR) Medical technology Others 62

63 Jungheinrich AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 49. EUR 1,533 m JUNG_p JUN3 GY Shares outstanding (m) 34 Daily trading volume 4, Y/E 31.12, EUR m E 214E 215E Sales 2,229 2,317 2,463 2,628 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 14.6% 15.6% 16.1% 16.4% 6.7% 7.5% 7.9% 8.4% Dividend yield 3.5% 2.2% 2.6% 3.% ROCE 1.3% 11.2% 11.7% 12.5% FCF yield.8% 2.6% 5.4% 8.6% EV/sales EV/EBITDA EV/EBIT PER Ordinary shares: Lange and Wolf families 1% Preference shares Free-float of 1% Felix Wienen Sales and development Company overview: Jungheinrich is the third-largest global manufacturer of forklift trucks and with a market share of c24% ranks second in Europe (c9% of sales). The company specialises in warehouse equipment (ie high-rack lift trucks) and logistics solutions (ie fork lifts and counterbalanced trucks) and provides corresponding after-sales service. It complements its product portfolio with a large rental fleet (c26, units across Europe) and financing solutions for new vehicle sales, thereby boosting the group s turnover. Quality: One of Jungheinrich s differentiating characteristics is the company s broad, direct distribution network, which introduces high barriers of entry to the market. Through its branches and with more than 3,6 technicians, Jungheinrich serves the repair and maintenance needs of its large installed base (c95, vehicles). This after-sales business (c3% of group revenues) is highly profitable, generating margins of c11% compared to c7% at group level. Furthermore, the offered financing options for new vehicle purchases seem to be highly valued by customers as the leasing rate of c4% indicates. From a financial perspective, the company benefits from a sound balance sheet with a stable equity ratio of c45% (adjusted for leasing business; c3% including leasing). Growth: Jungheinrich will outgrow the sluggish European forklift market in 214/15 due to production increases at new plants, market share gains from an improved product portfolio and the good prospects for its logistics systems segment. The recently opened plant in China will expand capacity to 1, units and potentially lead to a doubling of revenues in China to EUR12m by 215. After years of double-digit growth in logistics systems, this business has reached critical mass at 25% of new equipment sales. Crossselling benefits and a sustainable competitive advantage over peers will support revenue generation even in a stagnant European forklift market. Valuation: Jungheinrich s stock has performed strongly at +5% ytd and has hence been re-rated to 14x P/E 213E versus the 1.4x historical average. While we see further longterm potential in the business case, the stock seems fairly valued and we recommend to Hold with a price target of EUR49. We value the company on an average of 215 DCF and target multiples discounted back to year-end 213. Share catalysts: Despite no immediate catalysts in sight, Jungheinrich continues to do well operationally and offers a fundamentally sound investment case. Sales split by product type 3, 2,5 2, 1,5 1, E 14E 15E 1.% 8.% 6.% 4.% 2.%.% Sales (EUR) New trucks Rental Used equipment Service 63

64 Kapsch TrafficCom AG 8 October 213 Buy EUR /1/213 Vienna Close EUR 56. EUR 453 m KTCG KTCG AV Shares outstanding (m) 13 Daily trading volume 8,273 Y/E 31.3, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 11.% 7.1% 1.9% 13.8% 7.7% 3.1% 8.9% 11.5% Dividend yield 1.6% 1.4% 1.6% 2.3% ROCE 11.4% 4.1% 13.% 16.2% FCF yield -1.% 13.6% -2.7% 8.5% EV/sales EV/EBITDA EV/EBIT PER Kapsch-Group Beteiligungs GmbH 64% Capital Research 4.5% Ali Farid Khwaja, CFA Company overview: Kapsch is a family-owned business based in Austria. It is a market leader in the provision of intelligent transportation systems (ITS) used for toll collection, urban access management and traffic safety and security. Kapsch is one of the few companies which provide complete turnkey solutions (for hardware, and for managing long-term tolling contracts). The company has around 28 references in 41 countries. Kapsch currently manages c1 long-term electronic toll collection contracts. Quality: Kapsch has key reference accounts and landmark deals in almost all regions globally: it is the operator of EZ- Pass, the largest e-tolling contract in the US and is carrying out large projects in South Africa, Austria, the Czech Republic, Poland, Australia and Chile. It is also the only company which has the technology platform for e-tolling via both GPS via satellites and via dedicated short range communications (DSRC). Its long-term contracts give Kapsch recurring revenues with high profitability. Around 6% of the group revenues are recurring in nature. However, the business has been hurt over the past 18 months due to the delay in initiation of the toll-collection system in South Africa and earlier by operating issues in Poland. The Polish issue was later resolved but South African still lingers. In South Africa, the initiation of an e-tolling system (which Kapsch implemented) was delayed due to political opposition. This meant that the company was incurring costs and not generating any recurring revenues from the project. The delay led to Kapsch making a loss in FY 213. While the South African project is scheduled to start soon, this issue has highlighted the inherent operating risks in the business, especially those involved in dealing in emerging markets. Growth: Growth is driven by large, long-term contracts awarded by governments. A typical contract would be EUR2m-3m in size and would last around 1 years. The timing of contracts is often uncertain. Consequently, growth is often lumpy, taking a step up when the company wins a large contract. The underlying ITS industry is expected to grow by around 1% annually and is EUR12bn in size. Valuation: Kapsch is trading on 16x next year s P/E and our price target of EUR56 is based on DCF. Share catalysts: These would include new contract wins and the start of the South African contract. Sales and development Recurring revenues % 1.% 5.%.% -5.% E 15E Sales (EUR) E 215E 3.% 25.% 2.% 15.% 1.% 5.%.% Services, Sys Ext & Component Sales m EBITmargin 64

65 EBITA adj margin KION Group AG 8 October 213 Sell EUR 28. 4/1/213 XETRA Close EUR 24. EUR 2,824 m KGX KGX GR Shares outstanding (m) 99 Daily trading volume 16, Y/E 31.12, EUR m E 214E 215E Sales 4,727 4,575 4,789 5,32 EBITDA EBIT Net profit Y/E net debt 1, EPS (reported) EPS (recurring) DPS EBITDA margin 15.8% 16.8% 17.3% 17.5% - 9.1% 9.4% 9.6% Dividend yield - 1.3% 2.% 2.7% ROCE 11.4% 1.3% 1.7% 11.% FCF yield - 6.3% 11.3% 16.8% EV/sales EV/EBITDA EV/EBIT PER GS/KKR 47% Weichai Power 3% Management 5% Felix Wienen Benjamin Glaeser Company overview: KION is a global leader in the production and after-sales service for forklift trucks. With sales of EUR4.5bn (212; ex-lhy) and a global market share of 15% (34% in Europe), it is the global number two in industrial trucks, after Toyota Material Handling. Besides new equipment at c58% of sales, the company also offers rental trucks (c9.5%) and used equipment (c5%). A large installed base of c1m forklift trucks is the key driver for the group s stable and defensive maintenance and repair revenues that contribute c25% to the group. Quality: At c142, produced trucks in 212, KION benefits from significant economies of scale in production and procurement. This is further multiplied via a platform assembly strategy. A wide after-sales network of own and third-party distributors with more than 12,8 multi-skilled service staff serve as the backbone for KION s after-sales business. This spare parts and after-sales service network is highly profitable, generating margins significantly above the group level of 9%. Furthermore, KION offers leasing solutions for new equipment purchases which generally come with attached service contracts. Growth: With a market share of 34% in Europe (8% of sales), KION is geared to a recovery in the European truck market where volumes trend 25% below pre-crisis peaks. While large markets have rebounded, Spain, Italy and other smaller countries continue to lag. Low utilisation has extended truck lifecycles during the crisis in these markets and we see no significant need for replacement before 215/16. Valuation: Since its IPO, the stock has performed broadly in line with peers although it now trades at a slight premium to the sector on 15x P/E 214E. The 47% shareholding of KKR/Goldman Sachs provides a further near-term risk and we recommend to Sell with a price target of EUR24 based on the average of a DCF and target multiples. Share catalysts: We are 16%/15% below a very broad consensus net profit estimates and thus see downside risk. The company will collect and distribute an updated consensus with Q3 results in November which could result in earnings downgrades. Sales and EBITA adj margin development Sales split by product type 6, 12.% 5, 1.% 4, 8.% 3, 6.% 2, 4.% 1, 2.% E 14E 15E.% New trucks Service Rental Used equipment Other Sales (EUR) 65

66 Klöckner & Co SE 8 October 213 Hold EUR /1/213 XETRA Close EUR 9.3 EUR 935 m KCOGn KCO GY Shares outstanding (m) 1 Daily trading volume 1,19,615 Y/E 31.12, EUR m E 214E 215E Sales 7,377 6,656 7,21 7,428 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS.... EBITDA margin.8% 2.% 3.% 3.4% -1.4%.4% 1.6% 2.1% Dividend yield.%.%.%.% ROCE -3.1%.9% 3.7% 5.3% FCF yield 9.8% 9.7%.8% 7.9% EV/sales EV/EBITDA EV/EBIT PER Interfer Holding: 7.82% Bjoern Lippe Company overview: Klöckner is the largest independent steel distributor in the European and North American market combined. The majority of customers are small companies which cannot source steel directly from steel mills and rely on distributors such as Klöckner. Its average order size is around EUR2, and its customer base is c17,-strong. Quality: Klöckner is highly cyclical and has been affected significantly by decreasing steel prices. It cannot hedge against these effects. An order period of 6-8 weeks followed by an inventory turnover period of 6 days means that when steel prices decline rapidly, as seen in 211, windfall losses will occur. The company then has to sell steel at levels far below the purchase price. However, Klöckner has a strong underlying balance sheet with large unused cash resources from a capital increase in 211, and can thus absorb the negative results. Following extensive restructuring and operating efficiency improvements, Klöckner is well positioned to benefit from a better macro-economic situation in Europe. Growth: Klöckner generates around 63% of its sales in Europe, and the overcapacity and price competition in the market has therefore put a squeeze on margins. Klöckner will thus struggle to reach its EBITDA margin target of 6% in the foreseeable future. While we believe the bottom has been reached, we do not expect a sustainable recovery until 214. Despite the negative market environment, Klöckner has a solid financial position and will increasingly be looking to acquire higher valued-add businesses. Valuation: We value the company using an average throughcycle sector multiple of 6.5x which we apply to our 214 EBITDA estimate which leads to a price target of EUR9.3. Hold. Share catalysts: A catalyst for the stock could be any valueaccretive acquisition. In addition, a sustainable positive trend in steel prices should allow the company to maintain a more stable earnings profile and thus have a positive effect on the share price. Sales and development Steel prices (in EUR/t) 8, 6, 4, 2, E 14E 15E 4.% 3.% 2.% 1.%.% -1.% -2.% Sales (EUR) N. Europe HRC S. Europe HRC US HRC Source:, Berenberg 66

67 Kontron AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 4. EUR 269 m KBCG KBC GY Shares outstanding (m) 56 Daily trading volume 125,649 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin -1.4% 1.4% 4.% 5.9% -5.9%.3% 3.% 4.9% Dividend yield.8%.8%.8%.8% ROCE -9.2%.5% 6.% 1.5% FCF yield EV/sales EV/EBITDA EV/EBIT PER Warburg Pincus 18.62% Triton III 12.3% Ali Farid Khwaja, CFA Company overview: Kontron is a global market leader for the production of specialist embedded microcomputer systems used in devices like slot machines, industrial equipment and vehicles (railways, aircraft and cars). The global market for these embedded computers is cusd4.5bn and is fragmented, with Kontron, Emerson and GEFanuc controlling c3% of the market with around a 1% share each. The company has been in restructuring mode for the past 18 months. Two private equity companies, Triton and Warburg Pincus, hold a 31% stake in the company. The new CEO, Mr Rolf Schwirz, is in the process of hiring a new management team and restructuring the organisation. Restructuring will involve closures of some plants, rationalisation of product portfolio and aligning the business to focus on growth areas and markets. The management intends to generate costs savings of EUR4m per annum by 216 through the restructuring plans. Quality: While Kontron still has a dominant position in its end-market, its business has been suffering over the past 18 months due to a multitude of factors. Firstly, it was hurt by fiscal austerity measures in Europe, as around 15% of group revenues came from European public entities. Secondly, increased competitive intensity in areas like telecommunications damaged the margins in those sectors. Thirdly, the company has struggled in its attempts to expand geographically, especially in Asia. The current management team believes that in the past the company has placed too little focus on integrating the businesses it acquired and that this created an inflated cost base. Growth: Kontron is currently a special situation case in our view. The company is in deep restructuring, a process which includes a complete management overhaul. Given the situation, there is limited visibility on the mid- to long-term growth profile of the business. We are modelling for around 4.3% annualised growth in revenues over Management is guiding for flat revenues in 213. We think once it has gone through these much-needed but difficult restructuring steps, it will be a good acquisition target. Valuation: Our price target of EUR4 is based on 1x tangible book value. Share catalysts: Key catalysts would include further clarity on restructuring plans and evidence of these steps generating some return. Sales and development Revenue by business segments (Q2 213) E 14E 15E Sales (EUR) 8.% 6.% 4.% 2.%.% -2.% -4.% -6.% -8.% 17% 22% 19% 21% 21% Industrial Communications Military/Avionics/Rail Multimarket Kontron Ventures 67

68 Krones AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 57. EUR 1,958 m KRNG.DE KRN GY Shares outstanding (m) 31 Daily trading volume 44,83 Y/E 31.12, EUR m E 214E 215E Sales 2,664 2,771 2,826 2,883 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 6.3% 9.3% 9.9% 1.4% 3.5% 6.4% 7.1% 7.7% Dividend yield 1.6% 1.7% 1.8% 2.1% ROCE 8.5% 15.5% 16.7% 19.3% FCF yield 1.3% 6.6% 3.4% 3.3% EV/sales EV/EBITDA EV/EBIT PER Kronseder family 53.7% Benjamin Glaeser Company overview: Krones is the world s leading manufacturer of equipment and complete lines in process technology, filling, bottling, canning, labelling and packaging of beverages and food, and also in chemicals, pharmaceuticals and cosmetics (9% of its sales are linked to the food and beverage sector). Quality: In its niche, Krones holds a 25% global market share, and is the global market leader, enjoying size and scale advantages over its peers. Its dense global sales and distribution network, as well as its high market shares in the emerging markets (especially China) are another differentiation factor to peers. We expect management to deliver on its promises and turn around the two underperforming divisions (Process Technology and KOSME), which is expected to lead to sequential margin progression over the course of the next few quarters. Growth: After years of strong growth in beverage capex (breweries, milk processing), we expect a normalisation in the next few years. Previous growth rates had been in part driven by pent-up demand after under-investment from Krones beverage clients during the crisis. Further, we believe Krones will be more selective on growth in order to counter profitability concerns in a still depressed price environment. Valuation: Our price target of EUR57 is based on an average of DCF and target multiples. On a forward P/E of 15x, the stock trades at post-crisis highs, in our view suggesting a fair valuation at the current share price level. Our more cautious view and Hold rating is supported by EV/sales of.7x versus an EBT margin of c6%. Share catalysts: We see the clearest catalyst in the quarterly proof of management s ability to turn around the loss-making divisions. Further commentary on price improvements for components or full bottling lines would be beneficial as market prices have not seen an improvement from crisis levels. Sales and development Price and consensus EPS development 3,5 3, 2,5 2, 1,5 1, E 14E 15E 1.% 8.% 6.% 4.% 2.%.% Sales (EUR) Stock Price EPS 68

69 KUKA share price EPS consensus KUKA AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 33. EUR 1,135 m KU2G.DE KU2 GY Shares outstanding (m) 34 Daily trading volume 12,4 Y/E 31.12, EUR m E 214E 215E Sales 1,739 1,828 1,922 1,98 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 8.% 7.9% 8.2% 8.5% 6.3% 6.4% 6.6% 6.8% Dividend yield.7%.9% 1.2% 1.6% ROCE 16.8% 15.8% 15.2% 16.8% FCF yield 3.5% 1.1% 2.7% 5.3% EV/sales EV/EBITDA EV/EBIT PER Grenzebach Maschinenbau 24.4% Wyser-Pratte 4.7% Rinvest 1.8% Benjamin Glaeser Felix Wienen Company overview: KUKA specialises in providing advanced solutions for the automation of industrial production processes. In terms of its automotive and general industry robotics business (around 4% of sales), the company operates in a global oligopoly and is Europe s market leader. In addition, in its systems business (around 6% of sales), it is the number two supplier of body-in-white production lines in Europe as well as in the US. KUKA s quality in our view stems from its technological leadership which builds on above-average R&D investments (around 1% of Robotics division sales) and knowledge transfer between its divisions. Quality: The company benefits from OEMs (75% of its sales are to the automotive industry) moving into emerging markets leading to increased utilisation in the Robotics division. Likewise, the more late-cyclical systems business (lead times of 9-12 months) has also improved profitability sharply and is running at close to full utilisation. Stronger growth in highermargin general industry robots (driven by new product introductions) should have positive mix effects mid-term. The largest risk we see is currently from the strong yen devaluation which benefits KUKA s largest competitors Fanuc and Yaskawa. Due to agreed pricing in the order backlog, this will, however, only have an effect in 214 at the earliest. Growth: KUKA is investing in production in Europe and China, targeting total capacity of 25, robots. It is addressing general industry clients with lower payload robots which increase its addressable market by c2%. While automotive capex will not continue to expand at the rate of recent years, we expect further growth in the next few years also to come from the overhaul/renewal of existing Western market capacity. Valuation: At 15x forward P/E, KUKA is trading at a premium to our SMID cap industrials universe. Further, at EV/sales of.6x versus operating margins of 6.4%, the share appears fairly valued. Our price target is based on a blend of DCF, SOTP and target multiples. Share catalysts: Large scale automotive orders appear to be the strongest immediate catalyst, in our view. A long speculated deconsolidation of KUKA s systems division (which could warrant a rerating of the remaining business) appears less likely in the short term. Sales and development EPS consensus finding a plateau 2,5 8.% , 1,5 1, E 14E 15E Sales (EUR) 6.% 4.% 2.%.% Price 12m fwd EPS 69

70 Rents in EUR EBIT-margin in % LEG Immobilien AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 48. EUR 2,219 m LEGn LEG GR Shares outstanding (m) 53 Daily trading volume 56, Y/E 31.12, EUR m E 214E 215E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield - 6.5% 7.3% 7.5% P/FFO Dividend yield - 4.2% 4.7% 4.9% P/NAV per share - -9% -12% -13% P/NNAV per share - -9% -12% -13% Net gearing 113% 117% 12% 125% Loan-to-value (LTV) 48% 49% 5% 51% Implied yield 5.6% 5.% 5.5% 5.5% Whitehall 41%; Perry Capital 9%; CBRE Clarion 4% Kai Klose, CIIA Estelle Weingrod Rental income and development Company overview: LEG owns around 9, apartments in North Rhine-Westphalia (NRW), Germany s most populous federal state and also a region of high population density, which also contributes 22% of Germany s total GDP. It is among the largest real estate players in NRW. The company benefits from a predictable rental income stream with some further upside potential. Quality: Having raised in-place rents by 2.3% annually within a four-year period to end-h1 213 and reduced vacancy rates to 3.% as of H1 213, LEG has shown a strong track record in portfolio management, considering the fairly high number of rent-restricted units. With this, the company has outperformed the underlying markets, which also reflects its experienced management. We expect LEG to continuously realise the upside in its portfolio, which is under-rented by ~13% compared to market levels. Growth: Following its recent IPO, LEG has the right platform in place to undertake external growth. Following the recent acquisition of 2,2 units which will contribute around EUR1m to FFO I in 213, LEG reiterated its target to buy ~1, units by 214. Of the 2, units currently under review, some potential deals are at advanced stages of due diligence. Valuation: From a balance sheet perspective, LEG ticks the relevant boxes with an average debt maturity of 11.5 years based primarily on mortgages, an average cost of debt of 3.3%, no large expiries in the short term and a broadly diversified group of lending banks. In combining sustainable and predictable growth with best-in-class financial ratios (low LTV at 48%) and payout levels, we regard LEG as an attractive play, not least in the current low-yield environment. The stock is now trading at a 9% discount to NAV 213E and a dividend yield of 4.2%. Share catalysts: Catalysts include i) portfolio acquisitions and ii) Whitehall and Perry Capital to reduce their 5% stake. Geographical split E 13E 14E 15E 45.% 4.% 35.% 3.% 25.% 2.% 15.% 1.% 5.%.% North Rhine Westphalia 1% Total rental income 7

71 Leifheit AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 33. EUR 141 m LEIG LEI GY Shares outstanding (m) 5 Daily trading volume 2,191 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 9.5% 8.7% 9.2% 9.7% 6.5% 5.8% 6.5% 7.% Dividend yield 6.1% 5.2% 5.7% 7.1% ROCE 9.5% 8.3% 9.4% 1.6% FCF yield -1.1% 8.8% 5.4% 6.3% EV/sales EV/EBITDA EV/EBIT PER Home Beteiligungen: 5.3% MKV Verwaltungs: 1.% Joachim Loh: 6.6% Leifheit: 5.% Anna Patrice, CFA Company overview: Leifheit is a leading German player in the niche sub-segments of durable consumer goods, such as drying racks, ironing boards, floor and window cleaning systems, kitchen goods and scales. It operates via two divisions: Brand (8% of group sales) and Volume (2%). Following the disposals of the Bathroom Furnishing, Ladder and Bin businesses, and termination of the Dr Oetker licence agreement, the company is focused on its two main brands Leifheit and Soehnle within its Brand division, which is the main growth driver of the company, while the Volume division is the cash cow. Quality: The company s tight focus on core segments and innovation has resulted in brand recognition for quality products, durability and convenience, and leading market positions (the number one in laundry and wellbeing in Germany, and the number two in cleaning). The disposal of non-core activities, its optimised production and logistical structure, as well as optimised product portfolio led to an improvement in ROCE from 2% in 29 to 9% by 212. Growth: Exposure to western Europe leads to low singledigit top-line growth driven by a) market share gains in Europe following the launch of an e-commerce channel and a PoS excellence programme in February 213, b) expansion in key emerging markets, with clearly defined plan for Russia and Poland in the short term and China and Turkey in the mid-term. With its cost structure optimised and well controlled, we expect operating leverage (with 5% of costs being fixed) and the gross margin improvement to lead to the targeted 8% in the mid-term. Valuation is demanding at 14.6x P/E versus a 13x historical average and a 12x peer group P/E. That said, the net cash position accounts for almost 25% of the market cap and the dividend yield of more than 5% is attractive. The limited upside to our EUR33. CFRoEV 214E-based price target results in a Hold rating. Share catalysts: Management changes at the board level and a focus on key categories and countries within the organisation are set to support earnings growth. New midterm targets to be released in November are likely to be a positive catalyst, although the short-term outlook is subdued. Sales and development E 14E 15E Sales (EUR) 8.% 6.% 4.% 2.%.% Sales split (EURm): exposure to mature markets Eastern Europe 9% Central Europe 28% Rest 5% France 15% Germany 43% 71

72 Lotto24 AG 8 October 213 Buy EUR 4.1 4/1/213 Frankfurt Close EUR 8.5 EUR 8 m LO24n LO24 GR Shares outstanding (m) 2 Daily trading volume 47,771 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS.... EBITDA margin % % -22.3% -75.9% % % -22.6% -76.2% Dividend yield.%.%.%.% ROCE -27.2% -45.7% -54.8% -5.9% FCF yield -4.2% -17.3% -2.5% -16.5% EV/sales EV/EBITDA EV/EBIT PER Oliver Jaster, 33.29% Jens Schumann, 5.7% Management,.65% Gunnar Cohrs, CFA Company overview: Having been spun off from Tipp24 in 212, the former leader in the German online lottery market, Lotto24 has a first-mover advantage in Germany because it is equipped with a) Tipp24 s IT infrastructure; b) Tipp24 s marketing know-how; and c) sufficient financial resources to invest significantly in marketing (compared with smaller competitors). Quality: As the product is undifferentiated (ie the same draw and the same prizes each time) it is critical, in our view, that Lotto24 gains a large customer base as quickly as possible. Lotto24 has proven its competitive edge by being among the first private companies to be granted a licence to broker lottery tickets online (for five years) and to advertise on the web (for two years). Its large financial resources will enable Lotto24 to invest significantly in marketing (compared with its smaller competitors) in order to grow its customer base. Growth: At the end of June, Lotto24 had 97, customers. We expect much stronger growth in H2, given the continuation of TV and online activities (many of the new partnerships and affiliated websites were only activated during the course of Q2). On 24 July, Lotto24 also launched its search-engine marketing on Google and went live with its first AdWords campaigns. Valuation: We value the company based on DCF with a price target of EUR8.5. Lotto24 is a start-up with all the risks and opportunities which that entails (eg strong growth potential in an untapped market, start-up losses, further capital needs and a changing competitive landscape). At present, we prefer Tipp24 to Lotto24 due to the former s established customer base, which makes it less vulnerable to new market participants. Share catalysts: In September, Lotto24 issued 5.988m new shares at EUR3. in a rights offering. It will mainly use the gross proceeds of ceur18m to fund customer growth. We believe the amount will be insufficient to achieve break-even. Jumbo Interactive recently announced its entry into the market. We see Jumbo as a serious competitor to Lotto24 given its 13 years of experience in Australia and a cash position net of customer funds of AUD17m. Sales and development Registered customers (in thousands; accumulated) % -1.% -2.% -3.% % E 14E 15E 16E 17E -5.% Q.II 12 Q.III 12 Q.IV 12 Q.I 13 Q.II 13 Sales (EUR) 72

73 MAN SE 8 October 213 Sell EUR /1/213 XETRA Close EUR 8.89 EUR 12,13 m MANG MAN GY Shares outstanding (m) 147 Daily trading volume 268,434 Y/E 31.12, EUR m E 214E 215E Sales 15,772 15,75 16,8 17,5 EBITDA 1,87 1,3 1,655 1,88 EBIT ,18 1,4 Net profit Y/E net debt 3,932 3,869 3,79 3,511 EPS (reported) EPS (recurring) DPS EBITDA margin 6.9% 6.4% 9.9% 1.7% 4.% 3.1% 7.% 8.% Dividend yield 1.2%.5% 2.1% 2.7% ROCE 4.9% 3.7% 9.% 1.4% FCF yield -6.5% 1.6% 1.7% 3.5% EV/sales EV/EBITDA EV/EBIT PER Volkswagen 75.3% Adam Hull Company overview: MAN effectively has three main segments. Around 55% of revenues come from a European/global truck/bus business (H113 :.8%), around 25% from power engineering (including diesel engines for ships) and around 2% from trucks/buses in Latin America, mainly in Brazil and marketed under the VW brand (H113 : 6.8%). MAN has around a 17% share of the European truck market (GVW over 6 tonnes) after 8M 213, but this is down by c1bp yoy. Its share in Germany is c29% but it lost some 2bp of share in the first seven months of 213. In Brazil, MAN has a c27% share of the over GVW 6 tonnes truck market. Quality: The peak was 12.2% in FY7 but endmarkets are weak and MAN had a one-off charge of EUR29m in H113 as a result of unexpected costs (including overrun penalties) on projects in its power engineering/power plant business. We assume a group in 213E of 3.1%: with no one-offs and a recovery, this should rise to 8.% in 215E. Growth: 213 is a tough year with the European heavy truck market down by 8% after eight months. MAN has lost share ytd in Europe and Brazil. Orders in Europe were however up yoy in July and August and are probably up in Q3. We expect growth in the truck markets in Europe and Brazil each year in E. Pricing has stabilised in Europe but in Brazil, MAN and others are still struggling to pass on the c1% price hike needed to compensate for the higher cost Euro 5 truck changed from Euro 3 at start of 212. Valuation: VW has made an offer of EUR8.89/share for the c25% of MAN ordinary shares it does not already own (same offer for MAN prefs). This is c8% below the current price. Shareholders can either take this or accept EUR3.7 a share, theoretically to perpetuity a 3.5% dividend yield. The offer will close after all legal disputes on the valuation are resolved some have already been tabled and these may last years. Investors will receive notice of when the offer will close. We see little upside potential and we advocate investors sell the shares in the market (close as of 27 September: EUR88.). We believe VW prefs offer a 3.8% 214E dividend yield and c4.9% on 215E. Share catalysts: MAN s profits are of relatively little significance. Of more importance are the legal cases to some degree, and any dramatic change in VW s perceived ability to pay. Sales and development 18, 1.% 17, 8.% 16, 6.% 15, 4.% 14, 2.% 13,.% E 14E 15E MAN H1 213 revenue and EBIT by segment 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 (1) 55% of H113 revs but only 35m EBIT in as only.8% (2) Lat Am Trucks 6.8% EBIT margin, below recent years due to higher cost Euro 5 trucks but should rise in E (3) Power Engineering had 193m loss in H Sales (EUR) -25 MAN Truck and Bus (ex MAN Lat Am Trucks MAN Power Engineering LatAm) 73 H113 revs, columns left axis ( m) H113 EBIT, line right axis ( m)

74 Capacity in kg Capital turn Mayr-Melnhof Karton AG 8 October 213 Buy EUR /1/213 Vienna Close EUR 92. EUR 1,771 m MMKV MMK AV Shares outstanding (m) 2 Daily trading volume 15, Y/E 31.12, EUR m E 214E 214E Sales 1,96 1,952 1,98 2,29 2,29 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 13.% 12.9% 13.8% 14.3% 14.3% 8.7% 8.5% 9.1% 9.7% 9.7% Dividend yield 2.4% 2.6% 2.5% 2.7% 2.7% ROCE 14.1% 13.% 14.% 14.2% 14.2% FCF yield - 2.4% 8.3% 8.2% - EV/sales EV/EBITDA EV/EBIT PER % family owned Bjoern Lippe Company overview: Mayr-Melnhof Karton (MMK) is an integrated producer of cartonboard and packaging for fast-moving consumer goods (FMCG). With no exposure to the ailing paper industry unlike its peers its business focus is more favourable to MMK than to most of its direct industry peers. We believe its highly defensible returns (a 2% cash adjusted ROCE) are based on its scale, focus on price over volume and expansion into higher-margin boards. Quality: Due to its strong exposure to volume FMCG s demand for cartonboard and folding boxes is very stable and its performance is largely tied to GDP development. Growth above the European GDP rate will, in our view, be driven by further expansion into emerging economies, as the potential for market share gains in developed Europe are limited. The company has a spotless M&A track record following a cautious but very sustainable approach to entry into new markets. After consolidating much of the European packaging industry, MMK has set its focus on emerging markets in Latin America, eastern Europe and Turkey. A substantial net cash position lends MMK flexibility. Growth: We see most growth potential for MMK in the continued expansion of its Packaging business into emerging markets. In addition to its acquisition strategy, MMK is investing in green and brownfield projects in order to increase its footprint in target markets. Since 2, Packaging has grown by a CAGR of 6% while the Cartonboard division s output was largely stable. Valuation: Our EUR92 price target is DCF-based and reflects the margin stability and sustainable growth of the business. At a forward EV/EBIT 7.9x, MMK is trading at a slight discount to historical averages. Share catalysts: The share has proven very defensive, without major movements based on quarterly results. Newsflow of larger acquisitions would be the clearest catalyst in the short term, also as they would allow for a more efficient use of the large net cash position. Sales and development Continued efficiency gains 2,1 1.% , 1,9 1,8 9.5% 9.% 8.5% ,7 1, E 14E 15E Sales (EUR) 8.% 7.5% Capacity per Employee in Karton Capital turnover 74

75 MIFA Mitteldeutsche Fahrradwerke AG 8 October 213 Buy EUR 6.6 4/1/213 Frankfurt Close EUR 8.5 EUR 68 m FW1G FW1 GF Shares outstanding (m) 1 Daily trading volume 41,167 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS.... EBITDA margin 5.7% 7.6% 8.% 8.1% 2.6% 5.8% 6.6% 6.8% Dividend yield.%.%.%.% ROCE 4.% 12.% 13.3% 14.1% FCF yield -31.1% -8.5% 4.2% 3.% EV/sales EV/EBITDA EV/EBIT PER Carsten Maschmeyer, 28.5% Peter Wicht, 24.53% AFM Holding GmbH, 3.87% Anna Patrice, CFA Company overview: MIFA is the largest bicycle manufacturer in Germany in terms of volume, producing every fourth bicycle sold in Germany (a total of 546, bicycles in 212). Its product portfolio ranges from comfort and sports bicycles to electric bicycles. Until 212, MIFA was mainly active as a white-label producer for large food/nonfood retail chains such as Aldi and Metro. However, since 212, it has broadened its product range by acquiring highpremium brands (such as Grace and Steppenwolf) to address the independent dealer market. Quality: MIFA s product quality does not make it stand out from its competition, but its production process is one of the most cost-efficient in Europe. It is the only company in the world that has a fully automated process for fitting spokes to wheels. Manufacturing is concentrated on one site and the company produces five bicycles per minute, giving MIFA a clear advantage compared with its competitors. It has labour costs of around EUR18 per bicycle, which is significantly below other competitors, including Chinese imports. Growth: The strategic move to add high-premium brands to its portfolio will not only raise MIFA s average bicycle prices but will also help to address a completely new customer group that is willing to pay for better quality/design (the Apple generation ). Moreover, as Grace is also the producer of the Smart electric bicycle (for the car producer Daimler), MIFA has entered the growing electric bicycles sector with a brand that appeals to younger people. This will differentiate it in a market that has so far been dominated by demand from older people. MIFA aims to double its sales to EUR2m by 216. Valuation: We value the stock based on DCF deriving a price target of EUR x P/E 214E does not look expensive for a double-digit growth profile. Share catalysts: Expansion in the electric bicycle market is the major driver for both the top and bottom line and newsflow on development of the Smart electric bicycle will in our view be a major share driver. Sales and development Number of e-bikes sold in Germany and Europe 2 8.% 1,2, 15 6.% 1,, 8, 1 4.% 6, 5 2.% 4, 2, E 14E 15E Sales (EUR).% Germany Europe Source: German Two-Wheeler Industry Association (ZIV) 75

76 MTU Aero Engines Holding AG 8 October 213 Hold EUR 69. 7/1/213 XETRA Close EUR 69. EUR 3,395 m MTXGn MTX GY Shares outstanding (m) 51 Daily trading volume 138,291 Y/E 31.12, EUR m E 214E 215E Sales 3,379 3,74 4,39 4,397 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 13.2% 12.9% 13.5% 13.7% 8.9% 8.8% 9.4% 9.7% Dividend yield 2.% 2.1% 2.4% 2.8% ROCE 13.2% 12.3% 13.4% 19.3% FCF yield -3.9% 1.7% 2.1% 2.2% EV/sales EV/EBITDA EV/EBIT PER Treasury shares 2.6% William Mackie Sales and development Company overview: MTU is Germany s leading aero engine manufacturer. The group designs, develops, manufactures and markets commercial and military engine modules and components. MTU is also the world s largest independent provider of commercial aero engine maintenance services (MRO). The group hold strong positions on Airbus and Boeing aircraft. MRO accounts for 37% of sales; Military accounts for 12% and Commercial 51%. Quality: MTU holds defined risk- and revenue-sharing positions on key engine types with leading aero engine OEMs, which create powerful barriers to entry. Its main competences are in turbines and compressors. Important engines that will drive growth are the GP7 (22.5%), the V25 (16%) and the GEnx (6.6%). Spares demand from the rising installed base of engines creates profitable revenue stream supporting margin expansion. Military revenues are driven by MTU s close relationship with the German air force, while the outlook for the MRO business is underpinned by rising flying activity and overhaul capabilities in Europe and China. Growth: The civil aerospace industry is a growth sector, driven by increased flying activity globally. Due to good platform exposure and rising end-markets, MTU aims to double revenue between 213 and 22. While Military is likely to be flat, this should be offset by a c1% CAGR at MRO and a c12% CAGR at Civil over the coming seven years. In the medium term, as mix improves, MTU aims to lift operating margins from 8% in 213 into the 12-14% range. Valuation: Following the 2%+ cut to 214 EPS forecasts, MTU s valuation appears fully up with events, in our view. At 1.2x EV/sales for a current year 8-9% adjusted EBITA margin, the shares continue to discount growth and margin recovery. Our price target is based on an average of 215 DCF and target multiples discounted back to year-end 213. Share catalysts: Following the Q2 213 profit warning, MTU must assure investors that the group is back on track for 1%+ margins. The first update will be the company s capital markets day on 26 November. Geographic split 5, 12.% 4, 3, 2, 1, 11.5% 11.% 1.5% 1.% 9.5% E 214E 215E 9.% Europe Germany Americas Sales (EUR) Asia/Pacific ROW 76

77 Nemetschek AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 57. EUR 435 m NEKG NEM GY Shares outstanding (m) 1 Daily trading volume 6,189 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 23.3% 24.% 24.6% 24.9% 16.6% 18.2% 21.2% 21.9% Dividend yield 2.5% 2.7% 3.% 3.2% ROCE 19.% 19.9% 21.9% 21.3% FCF yield 7.% 5.9% 8.1% 8.5% EV/sales EV/EBITDA EV/EBIT PER Nemetschek family: 53.6% Sebastian Grabert Sales and development Company overview: Nemetschek is a leading European provider of building information modelling (BIM) software for the architecture, engineering and construction (AEC) sector. Nemetschek company comprises 11 brands, which operate independently in the market and serve more than 3, customers in 142 countries. While its focus is on the design phase of construction projects with its flagship applications ArchiCAD, Allplan and Vectorworks, it also offers services for the later stages of such projects. Quality: Our positive stance is based on our top-down analysis, which suggests that the construction industry will gain momentum and that the digitisation trend will continue to grow. Besides dramatic efficiency gains for the construction industry, the implementation of BIM also serves the secular trend of sustainable construction. We expect an increased level of IT capex within the construction industry, used for replacement/update investments of existing 2D/3D CAD solutions, which will lead to increasing, high single-digit growth. This is especially true for the under-penetrated European market. Our bottom-up approach further reveals that Nemetschek s open-platform strategy gives the company an advantageous starting position versus competitor Autodesk s focus on its closed ecosystem to successfully penetrate markets. Growth: There was lighter licence growth in both quarters of H113 than both consensus and we expected, which was only partially offset by stronger maintenance growth as Vectorworks and Maxon implemented the offering of maintenance contracts later than the group s other brands. As a result, the top line was up by only 4.8% yoy, with licences and maintenance up.7% and 9% respectively, which led to a guidance adjustment to the lower end of 6-9% on the Q2 call. Valuation: Currently trading at 13.6x our 214E adjusted earnings and on 1.9 x EV/213E sales, we believe that Nemetschek is undervalued on the basis of its long-term free cash flow generation potential. Share catalysts: These would include 1) M&A activities expected in the course of 213 (US/Asia), 2) after the announcement of the collaboration of Nemetschek s Maxon with Adobe, possible collaboration with another larger software vendor in H2 or beyond, 3) CABR Technology in China next candidate for the OpenBIM initiative Geographical split % 2.% Germany % 1.% 5.% Austria Switzerland E 14E 15E.% Rest of the world Sales (EUR) 77

78 NORMA Group AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 36. EUR 956 m NOEJ.DE NOEJ GY Shares outstanding (m) 32 Daily trading volume 75,5 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 2.% 2.5% 2.8% 21.2% 15.6% 16.5% 16.9% 17.4% Dividend yield 3.7% 2.8% 3.2% 3.6% ROCE 17.1% 18.3% 19.4% 2.1% FCF yield 5.6% 8.5% 6.1% 7.1% EV/sales EV/EBITDA EV/EBIT PER Management c.3% Benjamin Glaeser Felix Wienen Company overview: NORMA Group is the largest producer of joining components such as clamps, connectors and thermoplastic fluid systems for the automotive industry (c55% of sales) and other industrial applications. From its product portfolio of around 35, products, c1.1bn units were sold last year to approximately 1, clients in more than 8 countries. NORMA s distribution channels vary by division: in the Engineered Joining Technology division (c66% of sales), tailormade joining products are directly distributed to customers, while Distribution Services (c34% of sales) offers more standardised products through wholesalers and other independent distributors. Quality: While NORMA s products might appear trivial at first glance, they are often mission-critical components for the group s customers, despite only making up a fraction of the total end-product value (usually.1-.5%). Being the largest supplier in its mostly fragmented, niche markets, NORMA achieves market shares of 5-15%, making it more than twice the size of its closest peer. Growth: We anticipate that NORMA will be able to regain growth momentum in 214 and beyond, driven by 1) tightening emission regulation (especially the introduction of Euro 6 regulations); 2) the continuation of the group s expansion into new geographies (ie Asia-Pacific, Brazil) and end-markets; and 3) further consolidation of its highly fragmented niche market (there is the potential to add more than 2% pa to top-line growth, which is not reflected in our estimates). Valuation: Our EUR36 price target is based on a blend of DCF and target multiples. Despite better margins, returns and M&A track record NORMA continues to trade at a discount to through cycle average valuation of ElringKlinger. With close to double digit organic growth over the next two years and EBITDA margins north of 2% NORMA deserves a further rerating in our view. Share catalysts: We see the strongest further catalyst in improving European car production which is not reflected in consensus estimates and would thus lead to earnings upgrades. While we do not expect large scale acquisitions NORMA s value accretive small scale M&A activity leaves further upside to market estimates. Sales and development One product two ways to market 1, 2.% E 14E 15E 15.% 1.% 5.%.% Engineered Joining Technology - direct sales - Tier / JIT suppliers Industrial OEMs Distribution Services - indirect sales - Large general distributors, direct trade Large specialised distributors Small/medium general vs. specialised distributors Industrials customers, wholesalers, tradesmen, DIY Sales (EUR) 78

79 OSRAM Licht AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 37. EUR 3,68 m OSR OSR GY Shares outstanding (m) 15 Daily trading volume Y/E 31.12, EUR m E 214E 215E Sales 5,4 5,314 5,446 5,629 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 12.2% 11.9% 12.8% 13.9% 4.4% 6.9% 7.8% 8.9% Dividend yield -.% 2.8% 4.2% ROCE 11.7% 15.% 15.9% 16.2% FCF yield -6.5% 2.9% 5.2% 8.4% EV/sales EV/EBITDA EV/EBIT PER Siemens 17% Siemens pension fund 2.5% William Mackie Company overview: OSRAM is the only pure-play global lighting company, holding the number one or number two positions in most markets, with a portfolio of traditional lighting products and solutions complemented by a leading portfolio of LED chips and packages. OSRAM is present along the lighting value chain, with well balanced revenues spread between EMEA (41%), the Americas (35%) and Asia- Pacific (24%). The group s 39, employees are split between four divisions: Lamps & Components (LC; 49%), Opto Semiconductors (OS; 16%), Speciality Lighting (SP; 25%) and Luminaires & Solutions (L&S; 1%). Quality: OSRAM is a world-leading lighting company and has close distributor relations. OSRAM is the global number one supplier of automotive lighting products and systems and a global leading producer of high power LED chips and components. Group profitability is driven by c15% margins within Speciality Lighting and 13%+ margins within LED. Group margin development will hinge on turnaround at Lamps & Luminaires. Growth: The lighting market is expected to grow at a 4% CAGR , driven by rising demand for solid state lighting (SSL), which will more than offset lower demand for traditional lighting. OSRAM s mix of SSL (25%), green (47%) and basic (28%) technologies means that the company should be able to at least grow inline with the market. Valuation: At.5x EV/sales and 1x P/E for 214, versus a target margin of more than 8%, through-the-cycle, OSRAM remains good value. Our 213 target price of EUR37 is derived from a 215 objective discounted to year-end 213. We use target multiples and DCF to reach the 215 valuation target. Share catalysts: Over the next 12 months, share performance will hinge on success executing the EUR1bn cost savings programme. FY 213 results in early November will see OSRAM set out 214 objectives for the first time, creating a framework for 214 earnings expectations. Sales and development 6, 14.% 5, 12.% 4, 1.% 3, 8.% 6.% 2, 4.% 1, 2.%.% E 14E 15E Sales (EUR) EBITA margin adj. Split of value by division L&S 5% L&C 23% OS 22% SP 5% 79

80 Palfinger AG 8 October 213 Buy EUR /1/213 Vienna Close EUR 3. EUR 829 m PALF.VI PAL AV Shares outstanding (m) 35 Daily trading volume 245,79 Y/E 31.12, EUR m E 214E 215E Sales ,68 1,127 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 1.% 13.3% 13.9% 14.4% 7.3% 1.5% 11.7% 12.6% Dividend yield 2.3% 2.5% 2.9% 3.2% ROCE 1.4% 13.6% 14.6% 15.3% FCF yield 1.7% 4.9% 5.5% 6.% EV/sales EV/EBITDA EV/EBIT PER Palfinger family 65% Treasury shares 1% Benjamin Glaeser Felix Wienen Company overview: Palfinger is an international manufacturer of hydraulic lifting, loading and handling systems. Its core products are knuckle-boom cranes, in which the company has a global market share of more than 35% and ranks as the global market leader. In order to decouple from its dependence on the construction industry, management has embarked on an external growth path directed towards internationalisation and product diversification, with the latter process now considered complete. Since 27, more than EUR24m in sales have been acquired via M&A, primarily in truck-mounted lifting platforms and in the US. In 21, Palfinger entered the marine cranes market through two takeovers. With the diversification strategy concluded, management s focus is now on internationalisation. Quality: Palfinger is a significant player in truck-mounted cranes, and enjoys a dominant 35% global market share in knuckle-boom cranes. Its dense sales and service network and long-standing customer relationships allow it to stand out against peers. Margins would greatly benefit from a pick-up in European and North American construction, with both businesses having considerable operating leverage. Growth: Palfinger should be able to grow its business in the next few years due to its highly diversified product portfolio and its increasing exposure to emerging markets, especially China. Its JV with Sany Heavy Industries for truck-mounted cranes in China is targeted to double in size in each of the next three to four years. In addition to China, India and Brazil also present significant growth opportunities for the company. Valuation: Our price target of EUR3 is based on an average of DCF and target multiples. On EV/sales of 1x versus an of 12% in 214E, and on consensus forward P/E of 14x versus an historical average of around 16x, the stock does not appear overly expensive. Share catalysts: Next to the announcement of large acquisitions (eg in Russia, and in the marine space), we see improvement in European and North American construction markets as the clearest catalyst for Palfinger. Further, the historical correlation between new truck registrations and Palfinger sales is more than 9%. Sales and development EU truck registrations versus sales 1,2 1, E 14E 15E Sales (EUR) 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% 8

81 Rents in EUR EBIT-margin in % Patrizia Immobilien AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 8.5 EUR 426 m P1ZGn P1Z GY Shares outstanding (m) 63 Daily trading volume 78, Y/E 31.12, EUR m E 214E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS... NAV per share NNAV per share EV/EBITDA FFO yield 11.9% 11.1% 11.4% P/FFO Dividend yield.%.%.% P/NAV per share 6% 9% -2% P/NNAV per share -1% 3% -7% Net gearing 156% 97% 49% Loan-to-value (LTV) 68% 62% 42% Implied yield 5.% 4.3% 3.4% First Capital Partner 52%; Axa 3% Kai Klose, CIIA Estelle Weingrod Rental income and development Company overview: Patrizia is a real estate investment house and is offering a broad range of services. The focus has shifted from own properties towards asset and funds management for third-parties. Currently, AuM amount to EUR1.2bn, up from EUR2.7bn in 21. About EUR.6bn of this figure is the company s own portfolio (which consists of ~5,3 apartments), EUR4.9bn is managed for thirdparties and EUR4.7bn is made up of co-investments. All of Patrizia s key functions are managed in-house. While it has broadened its regional diversification on a pan-european basis in recent years, almost 8% of assets are still located in Germany. Quality: The quality of Patrizia s remaining ~5,3 apartments is high,, which is reflected in average disposal prices of up to EUR2,5/sqm for single apartments with disposal margins of more than 2%. The company is aiming to sell its own portfolio by 215 and will pay down the majority of its remaining corporate debt. The proceeds will also be invested in co-investments with institutional investors, in which Patrizia typically takes a stake of 5-1% and acts as asset manager. Growth: The change of Patrizia s business model towards an asset manager/co-investor began in earnest in 212 following the acquisition of a EUR1.4bn residential portfolio from state-owned bank LBBW, and continued, also in 212, with the EUR2.5bn GBW residential portfolio. Accordingly, AuM reached the company target of EUR1bn two years earlier than initially expected. Valuation: Currently, Patrizia is trading at a ~2% premium to NAV, while NAV includes only half of the portfolio at market value. The company has distributed its dividend in shares rather than in cash for the last two fiscal years. Share catalysts: The short-term trigger will be the update on the full-year guidance expected with the 9M results on 7 November. Geographical split Regional split % 2.% 15.% 1.% 5.% Hamburg 8% Berlin 8% Regensburg 4% Dresden 2% Hanover 5% Munich 31% E 13E 14E.% Leipzig 11% Cologne / Düsseldorf 22% Total rental income 81

82 Pfeiffer Vacuum Technology AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 17. EUR 861 m PV PFV GY Shares outstanding (m) 1 Daily trading volume 38,6 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 19.% 2.7% 22.7% 23.% 14.7% 16.5% 18.6% 19.1% Dividend yield 4.2% 4.6% 5.4% 5.8% ROCE 17.2% 19.7% 21.8% 22.9% FCF yield 5.8% 7.% 7.7% 8.1% EV/sales EV/EBITDA EV/EBIT PER Legg Mason 4.95% Hakuto 3.48% Sun Life 3.15% Benjamin Glaeser Felix Wienen Company overview: Pfeiffer Vacuum (PFV), founded in 195 and headquartered in Asslar, Germany, is one of the leading global suppliers in the field of vacuum pump technology. With products ranging from turbo and backing pumps to leak detectors and vacuum chambers, the company has one of the most integrated and complete portfolios in this area. Its products and services are offered worldwide via more than 3 sales and distribution centres. Quality: With a wide-ranging product portfolio, a global setup and as the largest listed player in this niche, PFV has a unique opportunity to gain exposure to this growing industry. Furthermore, PFV (pre-adixen) has been characterised by over-the-cycle operating margins north of 2% (peak 27: 27%). On the back of its sustainable, above-average profit profile as well as a sound balance sheet (and an equity ratio of more than 6%), the company has historically paid out 75% of its net earnings. Growth: PFV s exposures in industrial applications, science and R&D are largely defensive with relatively stable, GDPlinked growth over the years. Following the acquisition of adixen at the end of 21, roughly 35% (formerly c1%) of the group s sales are exposed to the semiconductor industry. This makes the business more cyclical but also opens the door to what is already the largest, and expected to be the fastest, growing market for vacuum technology. Valuation: We currently rate PFV as a Buy with a price target of EUR17 based on a blend of DCF and target multiples. At a dividend yield of more than 4%, PFV is one of the highest yielding stocks in our SMID cap industrials universe. Share catalysts: Considering the weak performance of PFV s semiconductor exposure, a rebound in end-market demand would serve as the strongest catalyst for the share (expected end of this or beginning of next year). With better utilisation in acquired adixen (largely semi-conductor exposure), PFV would in our view quickly show the cost base and efficiency improvements achieved in the business. Sales and development E 14E 15E Sales (EUR) 3.% 25.% 2.% 15.% 1.% 5.%.% EPS and DPS development % 6.% 5.% 4.% 3.% 2.% 1.%..% E214E 82

83 ProSiebenSat.1 Media AG 8 October 213 Sell EUR /1/213 XETRA Close EUR 27.6 EUR 6,8 m PSMG_p PSM GY Shares outstanding (m) 19 Daily trading volume 781, Y/E 31.12, EUR m E 214E 215E Sales 2,373 2,587 2,715 2,859 EBITDA EBIT Net profit Y/E net debt 1,97 1,51 1,376 1,268 EPS (reported) EPS (recurring) DPS EBITDA margin 31.4% 3.5% 29.8% 29.7% 26.3% 27.1% 26.6% 26.5% Dividend yield 29.4% 4.7% 5.3% 5.6% ROCE 14.2% 18.2% 22.5% 23.7% FCF yield 7.7% 12.2% 12.7% 13.4% EV/sales EV/EBITDA EV/EBIT PER Lavena 33% (KKR/Permira) Treasury 3% Sarah Simon Emma Coulby Company overview: ProSiebenSat.1 is a leading commercial broadcaster in Germany, with adjacent content and digital operations. The company is controlled by KKR and Permira, although they have begun the process of selling down their holding in the company. Quality: ProSiebenSat.1 has held its audience share at the c3% level over the last few years, delivering mass market programming such as The Voice. RTL remains the key competitor, with a similar market position. Besides free-to-air broadcasting, the group s diversifications include online games publishing (on a pan-european basis), content (global) and various digital ventures. Growth: ProSiebenSat.1 has set clear targets for revenues in 215, which include the benefit of acquisitions, particularly in digital, where it has been expanding in the commerce and travel segments. While the core free-to-air television business is likely to grow at low single digits, digital is growing at double-digit rates. Meanwhile, we expect margins to trend down to the high 2s due to a change in mix (digital is less profitable). Valuation: While recognising that ProSiebenSat.1 includes digital businesses at a relatively early stage of development, we consider multiples to be very high given that this is not a question of trough margins the company has never been more profitable! In our view, broadcasters face medium-term pressure on growth due to a shift of video advertising away from TV and towards online. We expect a de-rating as a result. We use a DCF valuation. Share catalysts: On the plus side, we expect the forthcoming capital markets day to be positively received, as management will formally confirm an increase in revenue targets for 215 (already anticipated by the market). On the negative side, we expect to see further placing of shares by KKR and Permira as they exit the stock. In addition, we expect to see increasing signs that online video is taking revenue from TV. Sales and development H1 213 revenue split 3,5 3, 2,5 2, 1,5 1, % 27.% 26.5% 26.% 25.5% 25.% 24.5% E 14E 15E 4% 18% Sales (EUR) 78% Broadcasting Germanspeaking Digital & Adjacent Content Production & Global sales 83

84 PSI AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 12.9 EUR 187 m PSAGn PSAN GY Shares outstanding (m) 16 Daily trading volume 16,5 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 9.4% 5.2% 1.4% 9.7% 7.1% 3.% 8.2% 7.5% Dividend yield 1.9% 2.5% 3.2% 3.1% ROCE 1.9% 4.8% 13.3% 12.4% FCF yield -1.7% 1.3% 4.9% 4.5% EV/sales EV/EBITDA EV/EBIT PER % RWE 8.1% Harvinder Singh Margaret Paxton William Mackie Sales and development % 6.% Company overview: PSI provides process control software for electricity grids, industrial manufacturers and other infrastructure customers. The company is currently transitioning to a product-based, licence-driven model, enabled by gradually shifting software to a single platform. Once completed, it believes margins could reach 2% EBIT. Quality: PSI s Electricity business competes with large conglomerates such as Siemens and ABB which are often unable to allocate the attention required to maintain a technological leadership; it is unsurprising therefore that PSI has a c9% market share of the electrical grid in Germany. In more fragmented markets, PSI competes with smaller pure players and in areas where it can demonstrate product innovation and efficiency advantages, such as in the metals business, and can achieve a number one position. Due to its ability to cut customer costs by improving efficiency, PSI is largely protected from cyclical factors. Growth: PSI grew at a 7% CAGR and expanded its margins by 23bp in Progress towards a higher margin software business will be a slow process in our view, and historically overestimated by the market. Disappointments have therefore overshadowed the stock. Following the September profit warning, since which expectations have been completely reset for 213 to 215, removing any hope of improvements in their electricity business, we believe the risk has shifted heavily to the upside and the risk of further disappointment is limited. Valuation: We believe the current share price is at a base following a more than 15% de-rating since the profit warning. Our EUR12.9 price target is based on 215 forecasts and discounted back two years (12% upside) to 213; a 214 price target implies 2% upside. The share price looks attractive despite rebased expectations with good scope for positive surprise. Share catalysts: There are no obvious near-term catalysts; however, upside potential in the electricity business could come from German energy policy changes, large expected Russian contracts and follow-on contracts from current and previous R&D expenditure (note PSI does not capitalise R&D). 1.% Sales split Infra Mgmt 14% Energy Mgmt 35% E 14E 15E Sales (EUR) 4.% 2.%.% Prod'n Mgmt 51% 84

85 QSC AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 4.9 EUR 514 m QSCG QSC GY Shares outstanding (m) 124 Daily trading volume 28, Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 16.2% 17.1% 18.2% 2.% 5.1% 5.7% 7.9% 11.% Dividend yield 2.2% 2.4% 2.9% 3.1% ROCE 6.% 6.% 8.% 1.5% FCF yield 3.8% 4.7% 7.9% 8.8% EV/sales EV/EBITDA EV/EBIT PER Gerd Eickers 25.7% Dr Bernd Schlobohm 12.48% Usman Ghazi Company overview: Over , QSC has been in transition as it repositions itself as an integrated telecoms and ICT services and cloud computing company for the German Mittelstand. Well-timed acquisitions have increased the group s competence and higher contract values provide evidence of the transformation. The group look well placed to return to growth and benefit from the take-up of desktop virtualisation and mobility in the workplace trends and big data solutions for German regional utilities. Quality: QSC differentiates its ICT offerings from those of system integrators and pure software vendors by: a) leveraging its reputation and existing customer relationships in the German Mittelstand; and b) merging its experience in managing secure telecoms networks with the acquired ICT expertise to create ICT outsourcing solutions comprising platforms and applications delivered over the internet. Growth: With growth areas in the form of ICT services and provision of broadband connectivity to SMEs now accounting for 6% of revenues and 7% of gross profits, we expect the company to return to revenue and profitability growth in 214. We forecast revenue growth of around 2% in 214, accelerating to 6-7% by 217. The free cash flow CAGR is higher at around 2% due to a shift in the revenue mix and cost savings. Valuation: Our DCF-based price target is EUR4.9. QSC shares look expensive on 18x 214 earnings. However, with depreciation abnormally high relative to capex, we prefer to look at the cash earnings multiple. This stands at 13x 214E versus a three-year forward free cash flow CAGR of 12%. In addition, QSC s under-geared balance sheet allows room for buybacks and/or M&A to improve earnings and the cash yield. Share catalysts: Positively, QSC is in the second round of bidding for two large IT contracts that would yield upside to our price target if won. The M&A buzz around the sector has increased and will support QSC. Negatively, Q4 213 consensus revenues/ebitda look respectively 2/6% too high to us. Sales and development Cash earnings multiple looks undemanding for growth on offer E 14E 15E Sales (EUR) 12.% 1.% 8.% 6.% 4.% 2.%.% FCF CAGR% (3 yr forward) Cash earnings multiple 85

86 RATIONAL AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 225. EUR 2,581 m RAAG.DE RAA GY Shares outstanding (m) 11 Daily trading volume 8, Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 29.9% 29.4% 29.6% 3.1% 28.2% 27.8% 28.1% 28.6% Dividend yield 3.% 3.1% 3.3% 3.7% ROCE 44.7% 42.1% 41.9% 42.5% FCF yield 4.% 3.6% 4.1% 4.6% EV/sales EV/EBITDA EV/EBIT PER Siegfried Meister 64% Walter Kurtz 8% Benjamin Glaeser Felix Wienen Company overview: RATIONAL is the leading global supplier of thermal cooking devices, specifically combisteamers, to restaurants, fast-food chains, hotels and institutional customers. In a highly consolidated industry, in which the five biggest suppliers account for 85% of the market, RATIONAL s product and technological leadership has resulted in a market share of 55%. More than half of the group s revenues are generated from its key product, the SelfCooking Center, which offers the most advanced technology in its niche market of combi-steamers. Quality: Strengthened by the company s dominant position and the substantial value-add for the customer (ie the reduction in raw materials, energy and preparation time required; see below), RATIONAL is characterised by strong top-line growth at sustainable, high-profit margins. Since 2, the company managed to achieve an average operating margin of c25%, peaking at 3.2% in 21 (and troughing at 18.8% in 211). Due the highly profitable but at the same time asset-light production process, RATIONAL generated a superior ROCE of 42.1% in 213. The company is a sound dividend payer, with a payout ratio of 7-8% and a yield of above 3%. Growth: While RATIONAL s addressable market consists of c2.5m kitchens worldwide, only 8% of these currently use the company s equipment. Resulting penetration rates outside Europe stand at 1% only (Europe: c5%), providing the company with ample room to continue its remarkable growth of a 9% CAGR Furthermore, with c84% of RATIONAL s clients being recurring customers, the company benefits from a highly loyal client base as well as mega trends such as a rising middle class and a growing population. Valuation: Our EUR225 price target is based on an average of DCF and target multiples. At 23x FY 213 P/E RATIONAL has the highest valuations in our industrials coverage universe; however, with double-digit organic growth and high margins, it also has an equally unique high growth/high return set-up. Share catalysts: With consensus already fully reflecting the company s mid-term guidance and stretched valuation, we see limited share price catalysts apart from quarterly results. Midterm new key accounts (especially in fast food chains) could present the clearest upside to expectations. Sales and development 6 31.% 5 3.% 4 29.% 3 28.% 27.% 2 26.% 1 25.% 24.% E 14E 15E Sales (EUR) Short payback times of RATIONAL equipment Input Savings potential Calculation Extra income Meat Fat/Oil Energy Employees Per month Per Year After ten years Significantly lower loss during the frying process leading to avr. 22% less raw materials required Will essentially be needless and thus be reduced by 95% A modern control mechanism will enable on avr. 6% lower enery consumption Raw materials of 6,/month; raw materials for same level of output with the SelfCooking Centre 4,68 Raw materials of 175/month; raw materials for same level of output with the SelfCooking Centre 9 Avr. consumption 6,3 kwh= 63/month; energy required with the SelfCooking Centre 2,52 kwh = 252/month Time saving due to pre-cooking, 15 min/day = 7hrs/month x CareControl, cooking at night, etc. avr. hourly salary of 23 Potential savings (minus depreciation of 374/month over 5 years) 1,32/month 166/month 378/month 1,61/month 3,1 37,2 372, 86

87 Rheinmetall AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 4. EUR 1,381 m RHMG.DE RHM GY Shares outstanding (m) 38 Daily trading volume 292,1 Y/E 31.12, EUR m E 214E 215E Sales 4,74 4,688 4,896 5,84 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 1.1% 7.9% 1.3% 11.% 6.4% 3.7% 6.3% 7.2% Dividend yield 4.6% 4.8% 5.2% 4.9% ROCE 8.6% 4.9% 8.3% 9.5% FCF yield 7.6% -1.3% 11.3% 15.9% EV/sales EV/EBITDA EV/EBIT PER Treasury stock 3.3% Benjamin Glaeser Felix Wienen Company overview: Rheinmetall is a leading player in the global automotive parts and defence systems market. The company s automotive business, contributing 45% to group EBIT, supplies engine blocks, pistons, pumps, bearings and emission control systems for both cars and commercial vehicles. The defence business, contributing 55% to group EBIT, engages in the design and manufacturing of various weapons systems and is best known for its armoured vehicles and munitions systems. Quality: Despite the challenging macro environment, the automotive division has benefited greatly from earlier restructuring efforts, positioning the division in high-margin businesses that continue to benefit from increasingly stringent emission standards. The defence division has a strong order book of EUR6.4bn albeit with relatively long duration. With initiated restructuring measures and recovery in higher margin munitions markets, Rheinmetall is looking to improve segment margins to 1% in FY 215. Growth: In the medium term, Rheinmetall has good visibility from its defence order-book. As most of the current larger orders (ie Leo2 for Qatar, Puma and Australian RMMV) will start having a more meaningful contribution in FY15, utilisation rates and margins are expected to improve strongly that year. On the automotive side, stricter emissions standards (eg Euro 6) are benefiting the segment s truck business. Further, we expect the European car markets to trough in FY 213 and production to provide a tailwind for the segment from next year. Valuation: Our target price of EUR4 is based on a blend of DCF and target multiples. Rheinmetall remains one of the cheapest stocks among our industrial coverage. However, margin improvement from moving parts in restructuring, ammunition recovery and better project execution will not show their full benefit before FY 215. In light of recent disappointments, we do not believe investors are willing to give Rheinmetall the benefit of the doubt for now. Share catalysts: In the shorter term, we see a pick-up in European auto production as the clearest catalyst for Rheinmetall. On the defence side, additional orders should only be of marginal benefit due to the already high level of backlog. Sales and development Ammunition orders key for defence profitability 6, 5, 4, 3, 2, 1, 1.% 8.% 6.% 4.% 2.%.% E 14E 15E Sales (EUR) 87

88 RHI AG 8 October 213 Buy EUR /1/213 Vienna Close EUR 33. EUR 1,45 m RHIV RHI AV Shares outstanding (m) 4 Daily trading volume 42,772 Y/E 31.12, EUR m E 214E 215E Sales 1,836 1,846 1,914 1,97 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 12.6% 16.1% 14.2% 14.4% 9.1% 12.% 1.3% 1.7% Dividend yield 3.9% 2.9% 3.% 3.% ROCE 12.5% 15.7% 13.6% 13.5% FCF yield -.7% 14.4% 14.1% 15.1% EV/sales EV/EBITDA EV/EBIT PER MS Private Foundation >25% FEWI Beteiligungs GmbH >1% Raiffeisen Bank International >5% Bjoern Lippe Company overview: RHI is a world-leading producer of refractory products. These are heat-resistant materials used in the smelting process that require temperatures of above 1,2 C. More than half of RHI s revenue is from steel, with 12% from the cement industry and the remainder from glass and non-ferrous metal producers. Refractories are produced in the form of bricks, mixes and lining and are made of rocklike raw materials (such as magnesite). Quality: The company has been investing in a variety of cost-saving measures particularly backward integration. A dead-burned magnesia production site in Turkey was opened recently as well as a new fusion plant in Norway. The high level of backward integration at RHI secures its gross margins, as raw materials account for 7% of the production costs of a fireproof brick while the world market (and price) of the raw materials is controlled by China. Growth: Organic growth potential remains small as the process of winning a new customer is very complex and given the strong overcapacity in the European steel market, RHI s most important end-market is not growing. However, markets such as India, where steel consumption per capita is still very low in comparison to more developed countries and where, at the same time, competition is low and margins high, pose an interesting opportunity. Indeed, RHI recently bought Indian company Orient, a local refractories supplier, establishing a better local presence there. Valuation: On the basis of 214 P/E, RHI is trading 4% below both its European peers and its Brazilian competitor Magnesita. This confirms our view that the market has not yet realised the value RHI has been creating and will be able to create through margin improvements. It supports our DCF-based price target of EUR33 and our Buy recommendation. Share catalysts: Due to the limited growth potential in Europe, we expect RHI to invest in new growth markets such as India but also to improve its production network by producing locally in important markets such as the US. Any news on such investments should prove a catalyst for the share price. Sales and development Annual magnesia production (in tonnes) 2,5 2, 1,5 1, E 14E 15E 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 Sales (EUR) Source: US Geological Survey Mineral Commodity Summaries

89 Rhön-Klinikum AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 22.7 EUR 2,669 m RHKG RHK GY Shares outstanding (m) 138 Daily trading volume 1,291, Y/E 31.12, EUR m E 214E 215E Sales 2,865 3,49 1,49 1,88 EBITDA EBIT Net profit Y/E net debt 798-1, EPS (reported) EPS (recurring) DPS EBITDA margin 1.1% 9.9% 11.1% 14.% 5.2% 5.2% 6.3% 9.7% Dividend yield 2.3% 1.3% 71.2% 1.% ROCE 5.7% 5.6% 3.2% 8.9% FCF yield.% 2.1% -1.4%.3% EV/sales EV/EBITDA EV/EBIT PER Münch family 12.5% Asklepios Kliniken 5.1% Ludwig Georg Braun 5.% Fresenius SE & Co KgaA 5.% Tom Jones Sales and development Company overview: Rhön-Klinikum is a leading private operator of acute care hospitals in Germany. It is currently in the process of divesting c65% of its clinic portfolio in a EUR3.7bn sale to Fresenius SE. The new look Rhön will have 1 hospitals across five sites, 5,3 beds and ceur1bn in revenues. It will continue to focus on high-end and speciality care. Quality: Rhön has had a tough time in recent years with operational issues at Horst Schmidt Klinik (HSK) as well as political and union opposition to restructuring at university hospitals in Gieβen and Marburg (UKGM). This led to the resignation of the CEO and CFO late last year. Despite this, we think Rhön is a high-quality operator, with expertise in high-end, specialised care. A new structure with fewer hospitals should allow it to focus on turning around UKGM. Growth: The hospitals Rhön is retaining are all relatively high-end facilities, being either maximum care or university hospitals. This creates a unique entity within German healthcare. Fresenius SE has essentially taken Rhön s network of standard acute care facilitates, leaving Rhön to run the more complex high-end facilities. We think this leaves scope for the new structure to drive revenue growth of c4% CAGR In addition, cost savings should help drive EBIT margin expansion in excess of 3bp by 217. Valuation: We value Rhön in two steps. First we look at the gross dividend post the Fresenius SE deal of EUR1.9bn. Fully taxed at 25%, we get to a value of EUR1.35 net per share. We then put the remaining business on a 1x 215 EV/EBITDA multiple or EUR12.35 per share. This multiple is the halfway point between what we see as a fair ex-growth multiple of 8x and the 12x take-out multiple Fresenius SE is paying for two-thirds of Rhön s existing business. This gets us to a total share value of EUR22.7. Share catalysts: Long-term, the key catalyst will be Rhön achieving or upgrading its 14% 215 EBITDA margin target, primarily by effecting a turnaround at UKGM. Near-term, all focus will be on the closing of the deal. Anti-trust approval is due in Q In addition, bid speculation on the stub remaining after the Fresenius SE deal is likely to further support the shares. German private hospital revenues pre- versus post-deal 3,5 3, 2,5 2, 1,5 1, E 14E 15E Sales (EUR) 12.% 1.% 8.% 6.% 4.% 2.%.% Helios Helios "New" Asklepios Asklepios RHÖN New RHÖN Sana Sana Other Today Tomorrow 89

90 RIB Software AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 7.7 EUR 232 m RSTAG RSTA GY Shares outstanding (m) 38 Daily trading volume 18,814 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 4.9% 31.3% 3.% 28.7% 3.2% 21.4% 21.2% 2.2% Dividend yield 1.3% 2.3% 2.5% 2.7% ROCE 5.6% 5.8% 6.9% 7.1% FCF yield 5.9% 6.4% 7.% 7.3% EV/sales EV/EBITDA EV/EBIT PER Sebastian Grabert Sales and development Company overview: RIB is a software company that focuses on the construction industry. Its newly developed itwo software enables contractors to standardise processes, improve workflow and thus generate significant cost savings. itwo bridges the gap between CAD software and ERP systems using a fully integrated approach. Quality: We appreciate the operational strength as well as the advanced unique technology offered by itwo, which in our view leaves point solution vendors behind (eg Glodon, Vicosoft). We believe the risk/reward profile has become more attractive for investors given the higher visibility on deal-closing and an improving win rate. We are also optimistic about the new set-up after the acquisitions of MC², US Cost, Project Centre and German Cosinus over the last 12 months, which have added more sales and consultant capacities worldwide. RIB has managed to generate positive FCF and has constantly achieved high earnings quality, with a cash conversion of around 1.5 for both FY11 and FY12. Growth: itwo s addressable market within the construction industry is potentially many times greater than that of CAD software as it provides dynamic integration between design, estimating, scheduling, progress and finance on a single screen. These are functions used by many other employees in addition to designers. We believe that itwo will benefit from increased IT spending by the construction industry, which needs to improve productivity. Compared with the auto or the aero industries, construction has been a chronic underinvestor in IT and has been particularly slow to embrace the virtualisation of the production process. Valuation: Trading on a 15x cash adjusted P/E ratio 214E, the stock s valuation is compelling, even assuming a more conservative top-line growth (eg 2% pa) than management s long-term guidance suggests. Our price target is EV/NOPAT-based. Share catalysts: These would include 1) the shortening of the decision-making process of phase I clients transitioning to phase II (POC and more product labs), 2) the general availability of itwo on Project Centre s SaaS platform to ultimately increase the company s TAM, 3) successful leverage of the newly created sales platform, especially in the US. In addition, the transition of a US client from a phase I deal to a phase II deal could have a strong signalling effect. Geographical split E 14E 15E 35.% 3.% 25.% 2.% 15.% 1.% 5.%.% Germany EMEA APAC Others Sales (EUR) 9

91 Rosenbauer International AG 8 October 213 Hold EUR /1/213 Vienna Close EUR 62. EUR 378 m RBAV ROS AV Shares outstanding (m) 7 Daily trading volume 2,5 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 7.4% 8.3% 8.8% 9.2% 6.% 7.% 7.6% 7.9% Dividend yield 2.9% 2.2% 2.9% 2.9% ROCE 14.3% 15.8% 17.7% 17.% FCF yield -4.7% 8.9% 8.8% 14.4% EV/sales EV/EBITDA EV/EBIT PER Rosenbauer Beteiligungsverwaltung GmbH 51% Felix Wienen Benjamin Glaeser Company overview: Rosenbauer, founded in 1866 and headquartered in Leonding (Austria), is the world s leading provider of fire-fighting vehicles (c8% of sales) and corresponding equipment. It claims a 17% worldwide market share in a rather concentrated market, with 11 production facilities and a dealer presence in 15 countries. Quality: Rosenbauer operates an integrated business model that serves all the needs of its key customers fire-fighters. The product range is broad, including vehicles (eg day-to-day municipal and also highly specialised airport vehicles), components (eg portable or truck-mounted pumps) and equipment (eg helmets). Rosenbauer is the only player able to produce vehicles that comply with both US NFPA and European DIN standards, which is a crucial factor in winning international tender offers. Financially, the group benefits from a solid order backlog of EUR682m in H1 213 (providing visibility until mid-215) as well as its conservative balance sheet with an equity ratio of 36% in H1 213 and no goodwill. Growth: With its global presence (c55% of sales are outside Europe), Rosenbauer takes advantage of structural drivers in emerging markets such as infrastructure investment (ie the EUR245m and EUR126m orders from Saudi Arabia in 211/213), as well as replacement demand in developed countries. Heightened security awareness of natural and terrorist disasters further fuel demand for Rosenbauer s products around the globe. Valuation: We value the stock on a blended average of a DCF and target multiples resulting in our price target of EUR62. Advancing 24% ytd, the stock has shown a solid performance and now trades close to all-time highs. The upside to our price target at 9% is therefore limited at present. Share catalysts: Over the next year, Rosenbauer will focus on executing its strategy 215. While the revenue target of ceur72m by 215 seems achievable given the solid order backlog, production efficiency has to improve. Targeting above 8% margins by 215 compared to historical peaks of 8.3% in 21 and a 7.2% operating margin in 212, production logistics need to be optimised. As Rosenbauer executes on its strategy, any update regarding profitability will be taken positively. Sales and development Sales development by geography 1, 1.% 8 8.% 6 6.% 4 4.% 2 2.%.% E 14E 15E 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Sales (EUR) % Other countries Asia & Oceania NAFTA Arab world Western & Eastern Europe 91

92 Sartorius AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 92. EUR 1,383 m SATG_p SRT3 GY Shares outstanding (m) 9 Daily trading volume 12,535 Y/E 31.12, EUR m E 214E 215E Sales ,2 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 19.% 19.8% 2.8% 21.6% 14.3% 14.9% 16.% 16.9% Dividend yield 1.2% 1.4% 1.5% 1.8% ROCE 12.9% 14.7% 16.3% 17.7% FCF yield -1.4% 1.3% 13.4% 15.% EV/sales EV/EBITDA EV/EBIT PER Preferred shares: 91% free float 9% treasury stock Ordinary shares: 5% executor of Sartorius estate 3% Bio-Rad Laboratories 9% treasury stock 7% Sartorius Family Scott Bardo Sales and development Company overview: Sartorius is a global market leader in single-use equipment used to manufacture biologic drugs and vaccines providing both equipment (bioreactors), and consumables (ie PVC bags, tubing and sensors). The company also has strong market share positions in other laboratory product markets such as scales, pipettes, lab consumables and lab services. Quality: The single-use equipment produced by Sartorius for drug manufacturing offers a number of benefits over classic re-usable systems, including significant cost savings (c3-4% over the product life), greater capacity flexibility and lower contamination risk. In addition, the biologic drugs market is significantly outgrowing the wider pharma market. Given Sartorius s strong market position, innovation leadership and brand value, we believe the company is well placed to capture a growing share of a growing market. Growth: In our view, the structural trends driving Sartorius s business will be sufficient to drive a revenue CAGR of 6.6% from E. In addition, we believe Sartorius can expand EBITA margins by 4bp over the next five years. We expect this to be driven by a high incremental gross margin on consumable products (given the high degree of fixed cost, and ample capacity to support top-line growth), operational leverage particularly on the SG&A line, as well as favourable product and geographic mix (rapidly growing single use technology and improved penetration in the lucrative North American market). Valuation: Our Buy recommendation is based on our view that Sartorius is well placed in a structural growth market. Our target price is at the mid-point of our DCF valuation of EUR94 and SOTP valuation of EUR91. On a P/E basis, this equates to a 214 multiple of 19x or c16x 215E, which we do not view as overly demanding given our expected c15% EPS CAGR out to 218E. Share catalysts: The company reports its Q3 results on 21 October. Outside of this, shares will likely be sensitive to any newsflow on the disposal of the Industrial Weighing business (unlikely by year-end). Sartorius versus Stedim share price 1,2 1, E 14E 15E 2.% 15.% 1.% 5.%.% Sales (EUR) Sartorius Stedim 92

93 Q1 7 Q3 7 Q1 8 Q3 8 Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Sales (EUR) Schoeller-Bleckmann AG 8 October 213 Hold EUR /1/213 Vienna Close EUR 76. EUR 1,219 m SBOE.VI SBO AV Shares outstanding (m) 16 Daily trading volume 21,3 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 31.6% 31.2% 31.8% 31.7% 23.5% 23.% 23.8% 23.7% Dividend yield 2.% 2.1% 2.2% 2.4% ROCE 22.6% 19.6% 2.% 19.2% FCF yield 3.5% 2.9% 2.9% 4.9% EV/sales EV/EBITDA EV/EBIT PER BIH AG 31.% Benjamin Glaeser Alexander Virgo Company overview: Schoeller-Bleckmann (SBO), headquartered in Ternitz (Austria), specialises in high-precision components for the oil services industry, enabling the operators to perform directional drilling. The company s drill string components division (around 65% of sales) operates in a comparatively consolidated market, in which SBO claims a 5-6% market share and is consequently positioned as the global number one player. Moreover, the company s high-performance drilling engines as well as other drilling components and the associated services also have respective 5-8% market shares, depending on the product. Quality: SBO s distinctive quality stems from its technological leadership, along with the company s strong customer orientation and the customisation of its products. Due to its superior market share as well as the necessity of its products, customers are willing to pay a premium. This has ultimately resulted in SBO achieving operating margins typically above 2%, provided volumes are at a healthy level. Growth: As easily accessible oil reserves have become limited, more complex and advanced drilling procedures are required for the exploration of new oilfields. Thus, we expect: 1) a trend from conventional, vertical drilling towards horizontal and directional drilling to increase; as well as 2) the trend from onshore to offshore drilling to continue. With this in mind, SBO, as the world s number one supplier within this niche, is ideally positioned to benefit from the rising need for oil and gas and the above-mentioned trends towards more complex exploration procedures. Valuation: Our EUR76 price target is based on a blend of DCF and target multiples. Due to the high operating profits and ROCE (peak of 28% in 26), SBO typically trades at a premium to our industrial mid-cap universe. However at close to 17x forward P/E and 11x EV/EBIT, Schoeller is trading at above through-cycle averages. Share catalysts: The most immediate catalyst for Schoeller would be a pick-up in US rig counts, which have so far not seen the expected recovery. Also, as with recent months, sharp movements in oil prices (taken as an indicator for future capex spent) could serve as a catalyst for Schoeller. Sales and development Rig counts not showing improvement yet % 25.% 2.% 15.% 1.% 5.% 1% 6% 2% -2% -6% E 14E 15E Sales (EUR).% NAm rig count growth YoY Horiztl rig count growth YoY 93

94 SGL Carbon SE 8 October 213 Sell EUR /1/213 XETRA Close EUR 14. EUR 1,977 m SGCG SGL GY Shares outstanding (m) 71 Daily trading volume 96,484 Y/E 31.12, EUR m E 214E 215E Sales 1,79 1,63 1,75 1,92 EBITDA* EBIT* Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin* 14.% 5.9% 1.6% 12.1% * 9.%.8% 5.7% 7.6% Dividend yield.7%.%.%.7% ROCE 7.2%.7% 5.5% 8.% FCF yield -2.6% -2.9% -.6% -.8% EV/sales EV/EBITDA* EV/EBIT* PER *adjusted for one-offs SKion GmbH 26.9% BMW 15.7% Voith AG 9.1% Volkswagen AG 8.2% Gunnar Cohrs, CFA Sales and development Company overview: SGL is one of the world s leading producers of graphite and carbon fibre products, operating in a very focused market. The Performance Products division (PP; ~55% of sales) produces graphite electrodes and cathodes for the production of steel and aluminium. Its Graphite Material & Systems division (GMS; ~29%) produces parts and materials for the chemicals and energy industries, and for companies active in semiconductors and metallurgy. In contrast to PP, the success of this segment depends on product innovations. The Carbon Fibres & Composites division (CFC; ~16%) not only focuses on the upstream business (the production of carbon fibres/composite materials), but also downstream (composite components for aircraft, wind rotor blades and auto parts). Quality: SGL can rely on high market barriers due to significant capex requirements, high-temperature process technology and materials expertise, and scale advantages, backed by a market share of more than 2% in the core business graphite electrodes. Although there is significant growth potential, the CFC segment has not generated much in the way of returns so far. Growth: For its largest unit PP SGL depends on the steel or aluminium cycle. SGL is well-placed in the energyefficiency, alternative energies and light construction markets. Forward integration into the market for aircraft and rotor blades, and joint ventures for components in the automotive industry (BMW, Benteler, Brembo), are promising, but the former two in particular have consistently missed earnings targets and forced significant write-downs. Valuation: The sale of stakes by large shareholders (see chart below) is unlikely, in our view, but so is a break-up of the company. On fundamentals, we derive a price target of EUR14 (CFRoEV 215E) and thus there still seems to be a significant takeover premium in the share price. Share catalysts: Management has announced a cost-savings programme (SGL215) but has not published any details in terms of timing, associated costs and benefits. Its plans include the closure of one or two high-cost graphite electrodes plants. Shareholder structure 2,5 2, 1,5 1, E 14E 15E 16E Sales (EUR) 12.% 1.% 8.% 6.% 4.% 2.%.% Free float, 4.1% Volkswagen, 8.2% Skion GMBH, 26.9% Voith AG, 9.1% BMW, 15.7% 94

95 Sky Deutschland AG 8 October 213 Buy EUR 7.8 4/1/213 XETRA Close EUR 7.6 EUR 6,29 m SKYDn SKYD GY Shares outstanding (m) 877 Daily trading volume Y/E 31.12, EUR m E 214E 215E Sales 1,333 1,552 1,91 2,223 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS.... EBITDA margin -3.8% 2.1% 11.7% 19.8% -9.4% -3.7% 6.2% 14.7% Dividend yield.%.%.%.% ROCE -17.7% -8.1% 15.2% 34.1% FCF yield.8% 1.6% 4.4% 7.8% EV/sales EV/EBITDA EV/EBIT PER st Century Fox: 54.8% Sarah Simon Robert Berg Company overview: SkyD is the leading premium pay-tv provider in Germany and Austria, distributing over satellite, cable and IPTV. The company has long-term agreements with major content providers including the Bundesliga, the Champions League, Hollywood Studios and local German content providers. It offers traditional subscription to various programming tiers, as well as enhanced services such as HD, Personal Video Recorder and mobility. Quality: Over the last few years, SkyD has invested heavily in upgrading its product and in customer service. In the past, the company had a poor reputation on both fronts, but this has changed following substantial investment in the business, and materially enhanced management, including the CEO, who previously ran the customer business of BSkyB in the UK. As a result, customer recommendation has increased significantly 4% of SkyD customers now come via this route. Growth: SkyD has a huge market opportunity with premium pay-tv having a penetration of less than 9% in Germany compared with over 3% in other European markets and as much as 6% in the UK, we see substantial potential in customer numbers and, as customers trade up to more premium offers, in ARPU. We forecast that the company will generate a revenue CAGR of 18% between 212 and 215. Valuation: 213 is the first year of EBITDA profitability, making valuation dependent on medium and long term forecasts. Given the substantial opportunity, we focus on DCF to determine our price target, and see fair value at up to EUR1, depending on the perception of risk profile. In our view, SkyD is now a lower risk proposition than BSkyB. Share catalysts: Focus will be on subscriber net additions, ARPU and EBITDA in the coming quarters. There is also potential for Fox, which owns 55% of the company, to make a bid for full control. Sales and development Quarterly net subscriber additions 2,5 2, 1,5 1, E 14E 15E Sales (EUR) 2.% 1.%.% -1.% -2.% -3.% -4.% -5.% Q1 8 Q3 8 Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q3 12 Q

96 Software AG 8 October 213 Sell EUR /1/213 XETRA Close EUR 21. EUR 2,127 m SOWG SOW GY Shares outstanding (m) 84 Daily trading volume 296,545 Y/E 31.12, EUR m E 214E 215E Sales 1, ,5 1,12 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 26.7% 23.8% 24.4% 24.% 23.7% 2.4% 2.8% 2.7% Dividend yield 2.% 2.2% 2.4% 2.7% ROCE 17.1% 15.2% 14.4% 13.1% FCF yield 7.8% 8.2% 8.3% 8.3% EV/sales EV/EBITDA EV/EBIT PER % Software AG Stiftung Daud Khan Sales and development Company overview: Software AG is one of the leading European software companies. It has expanded from its core business of mainframe database software to take advantage of the opportunity within business process software infrastructure (BPE). It has achieved this mainly through the acquisitions of webmethods in 26 and IDS Scheer in 29. Quality: In our view, Software is one of the best financially managed companies in Europe, with strong operating cash conversion and a tightly controlled cost structure that has led to consistently good margin performance. However, we remain cautious about a quick return to normalised growth because the company was late in positioning itself as a cloud player among its peers. While BPE is the largest revenue contributor (47% of revenue), the Enterprise Transaction Systems (ETS) division remains the biggest contributor (6%) to profits. ETS s contribution to profits continues to decline and, despite BPE s revenue growth, its profit contribution is flat/declining. If growth stalls in BPE, it is inevitable that profitability will be affected. Growth: We believe expectations for 2-3% licence growth in FY13 are unachievable following the revenue weakness in Q2 of Software s BPE division. We have examined the licence gross margin (defined as revenue less cost of sales, less R&D and S&M) and compared the BPE business with that of its nearest competitor, Tibco. We find the ratios are in line; hence the increased level of investment made by Software has only closed the underinvestment gap with its peer. Any attempt to improve the licence margin (ie cut costs) will lead to a revenue growth trade-off. Valuation: Our price target (EUR21) is based on adjusted 1x 214E earnings. However, we recognise that optically the stock looks cheap, with EV/maintenance revenue of less than 5x, and that Q3 licence revenue in BPE will likely recover. Nevertheless, we believe there is too much uncertainty and volatility to favour Software over similaryielding stocks in more predictable sectors. Share catalysts: These would include an increase of Terracotta s reach to establish itself as an industry platform for Big Data and delivery of the results the company has hoped for (eg a doubling of revenues in 213 yoy and growth to a EUR1m+ business in the mid-term). Trailing 12-month segment result 1,15 1,1 1,5 1, E 14E 15E 25.% 24.% 23.% 22.% 21.% 2.% 19.% Q4 11Q 11Q2 11Q3 11Q4 11Q1 12Q2 12Q3 12Q4 12Q1 13Q2 13 BPE ETS Sales (EUR) 96

97 STADA Arzneimittel AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 4. EUR 2,171 m STAGn SAZ GY Shares outstanding (m) 59 Daily trading volume 366, Y/E 31.12, EUR m E 214E 215E Sales 1,838 2,1 2,174 2,298 EBITDA EBIT Net profit Y/E net debt 1,177 1,374 1,294 1,168 EPS (reported) EPS (recurring) DPS EBITDA margin 2.% 2.2% 21.3% 21.6% 14.7% 14.7% 15.7% 16.1% Dividend yield 1.4% 2.1% 2.6% 2.9% ROCE 13.1% 13.5% 14.2% 14.7% FCF yield 8.% 7.1% 9.1% 11.6% EV/sales EV/EBITDA EV/EBIT PER Doctors and Pharmacists: 12% Scott Bardo Company overview: STADA is Germany s third-largest generics company (and the sixth-largest globally). It has had to contend with strong competitive pressures in its domestic markets as well as austerity-related pressures in several other key European territories. Quality: In response to ongoing pressures in its core business, STADA was quick to reduce its domestic generics exposure, and through a series of acquisitions and organic growth initiatives it managed to build a strong presence in emerging Europe, particularly in Russia and other CIS countries. Furthermore, the quality of its group offering has been enhanced considerably over the last three years. Around a third of sales and c5% of group profits now stem from branded/ over-the-counter (OTC) products. This business is accompanied by strong customer loyalty, allowing for stable growth prospects and a good degree of pricing elasticity. The company continues to grow out its OTC strategy, most recently acquiring the private UK company Thornton & Ross, which will add to earnings from Q Growth: We believe STADA can deliver c8-9% top-line growth over the coming few years, driven by continued strong business in Russia (+15-2% annually), stabilisation/modest growth in western Europe and some positive effects from business integration (including Thornton & Ross). With respect to the bottom line, STADA continues to reiterate its target of EUR215m net income in 214E suggesting over 2% earnings growth from 213E. Its restructuring initiatives have now concluded and management also envisages some structural improvements in corporate taxation which should become apparent next year. Valuation: Our EUR4 price target is based on the shares trading on c12x 214E P/E (c8x forward EV/EBITDA). We view this as appropriate given the higher-quality OTC mix for the business, as well as considering the opportunities and risks to our forecast 12% EPS CAGR out to 218. Share catalysts: The company s capital markets day is on 1 October and its Q3 results are on 13 November. Sales and development Branded products have grown to equivalence in profit contribution 2,5 16.5% 5% 2, 1,5 1, 5 16.% 15.5% 15.% 14.5% 14.% 13.5% E 14E 15E Sales (EUR) 4% 3% 2% 1% % 46% 36% 37% 33% 33% 26% 27% 28% 26% 24% 21% 2% 27A 28A 29A 21A 211A 212A Share of branded products in sales Share of branded products in adjusted EBIT 97

98 Forward PE STRATEC Biomedical AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 28. EUR 378 m SBSG SBS GY Shares outstanding (m) 12 Daily trading volume 9,5 Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 17.5% 18.4% 19.5% 19.9% 14.4% 15.2% 16.1% 16.5% Dividend yield 1.6% 1.7% 1.9% 2.2% ROCE 18.% 18.6% 19.6% 2.4% FCF yield.1% 1.5% 5.2% 7.3% EV/sales EV/EBITDA EV/EBIT PER Hermann Leistner (CEO) 42.9% Scott Bardo Company overview: STRATEC is a leading provider of dedicated analyser systems for the diagnostics industry. We believe the OEM market for the diagnostics industry will be worth more than USD3bn by 216E. Supporting this expansion will be continued global growth of the sector (+5-6% pa), as well as a strong shift towards outsourcing solutions as the main IVD players focus resources on developing a test menu to maximise returns. Quality: STRATEC has a reputation for strong client delivery having up until recently never had a contract cancelled. It has longstanding relationships with eight leading IVD companies with which it has lengthy contracts. These contracts by their nature provide some barriers to entry. Initially, orders are for capital goods but later on, the replacement parts business (c2% sales) can service the installed base. While this can be lumpy business on a quarter-by-quarter basis, it grows with the installed base and is very profitable. Thus STRATEC has decent barriers to entry with its major customers. Growth: Despite a recent downgrade in full-year guidance due to the cancellation of a major contract, STRATEC continues to have attractive growth opportunities with the ability to drive a mid-teens EPS growth profile over the coming five years. We forecast an EPS CAGR of 16%. That said, the company needs to deliver on guidance this year, and start showing tangible evidence that it can execute on its strategy before we can get too excited. Valuation: While we believe STRATEC offers attractive growth prospects, investors need to be convinced that the cycle of earnings downgrades has ended. Our price target of EUR28 would have the stock trading on c18x 214E, which looks fair to us given both the risks and opportunities. Share catalysts: Following a downgrade in full-year guidance at the Q2 results, investors will be looking for reassurance at the Q3 results on 3 October that the cycle of downgrades has indeed ended. The company is also expected to announce two sizeable contracts in the coming months. Sales and development 2 2.% % 1 1.% Historical valuation 35.x 3.x 25.x 2.x E 14E 15E Sales (EUR) 5.%.% 15.x 1.x 5.x.x

99 Ströer Media AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 11.4 EUR 616 m SAXG SAX GY Shares outstanding (m) 49 Daily trading volume Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS.... EBITDA margin 17.7% 16.7% 17.% 17.5% 6.1% 5.7% 7.1% 7.8% Dividend yield.%.%.%.% ROCE 4.4% 5.% 6.7% 8.% FCF yield 2.4% 2.5% 5.1% 7.3% EV/sales EV/EBITDA EV/EBIT PER Dirk Stroer: 25.3% Udo Muller: 28.2% Sarah Simon Robert Berg Company overview: Ströer is the leading outdoor advertising company in Germany, with a c5% market share, and now the third-largest online advertising network in the country, as measured by unique users. It is also the leading outdoor advertising company in Turkey and in Poland. Ströer generates revenues from the sale of outdoor and online advertising to agency and corporate buyers. Margins vary by division while outdoor generates EBITDA margins of over 2%, online has high single digit profitability and will not materially exceed 1%. Quality: Ströer has invested in a new digital offering within its outdoor division the Out of Home (OOH) Channel. This is a premium offering focused on transport locations (train stations) and shopping malls. The upgrade of its more traditional billboard business is ongoing, however, and, in our view, requires further investment. The digital business is new to the company and has been created through the purchase of a number of online ad sales businesses and technology platforms. Growth: The German advertising market is broadly stable, and we do not expect it to show dynamic growth, although it should benefit from the recovering economy. Outdoor is taking share of the market, but more slowly than anticipated, given the slow upgrade of inventory. Online is the fastest growing part of the market, albeit growth is unlikely to be more than mid single digits in 212. Overall, we forecast 5.5% organic growth in 214, boosted by online underlying expansion of 1%. Valuation: While recognising that Ströer is exposed to cyclical upside, we do not expect strong growth in the German outdoor advertising market, which is the key driver of earnings. Therefore we believe that valuation looks full at the present time, at 8.1x 214 EV/EBITDA, 18.4x P/E and a free cash flow yield of 5%. We note that leverage remains quite high at 3.2x net debt/ebitda for 213E. Share catalysts: The key to Ströer s valuation will be earnings upgrades, we believe. These will require strongerthan-expected advertising revenue growth in the outdoor advertising segment. Sales and development 8 25.% H1 213 revenue split 9% 3% E 14E 15E Sales (EUR) 2.% 15.% 1.% 5.%.% 17% 71% Germany Turkey Online Other 99

100 E 215E 216E Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Südzucker AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 22.5 EUR 4,376 m SZUG SZU GY Shares outstanding (m) 24 Daily trading volume 333,736 Y/E 28.2, EUR m E 215E 216E Sales 7,879 7,969 7,95 7,932 EBITDA 1,248 1,56 1,36 1,11 EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 15.8% 13.2% 13.% 12.7% 12.4% 9.8% 9.6% 9.3% Dividend yield 3.3% 4.2% 4.2% 4.2% ROCE 13.7% 9.3% 8.8% 8.4% FCF yield.1%.%.%.% EV/sales EV/EBITDA EV/EBIT PER SZVG 52% ZSG 1% James Targett, CFA Fintan Ryan Sales and development 1, 8, 6, 4, 2, Company overview: Südzucker AG is a leading sugar processor in Europe and manufacturer of food ingredients, bioethanol, starch, frozen foods and fruit preparations. It has a c75% stake in Agrana which represents its starch, fruit preparation/juice concentrates and CEE sugar activities. Quality: EU sugar made up 73% of (record) FY 213 profits and although management has talked about investments outside of Europe and new product areas (eg fruit preparation), Südzucker remains highly exposed to falling (and volatile) EU sugar prices and commodity prices such as bioethanol outputs as well as grain and sugar beet input costs. From a volume perspective, Südzucker is well positioned to benefit from the abolition of EU sugar quotas in 217, although further investment is likely to be required and the ultimate outcome will depend on the competitive dynamics of other EU producers. Growth: FY 214 is a challenging year for Südzucker, with operating profits guided down 15% yoy to EUR828m, although we expect nearer EUR78m. Despite management s outlook for stable sugar pricing, our industry sources suggest quota contracts for the 213/214 Sugar Marketing Year are closer to ceur65 per tonne (from ceur72-75 currently). Combined with higher input costs, we expect Sugar division profits to fall by 25% in FY 214. In addition, higher starch and bioethanol input costs and the (short-term) effect of the Ensus acquisition at CropEnergies means group profits could fall by 2%. The Fruit division should see good sales and profit momentum driven by demand for yoghurt preparations and emerging markets. We expect further, sugar-driven, profit declines in FY 215. Valuation: The stock is down 32% ytd and now trades on 1.2x calendar 214 P/E. Although optically cheap, we believe this is appropriate considering the three-year -14% EPS CAGR and the uncertainty involving the industry outlook following the abolition of the EU sugar quotas. The 4.2% dividend yield provides downside support at these levels. Our EUR22.5 price target is derived from an average of our peer multiple (EUR24.4), SOTP (EUR2.8) and DCF (EUR22.2) fair values. Share catalysts: Guidance for the EU sugar price for the 214 Sugar Marketing Year (from October) will be key to sentiment, although late contract negotiations mean we expect little colour at the H1 results (1 October). Ultimately, concerns about lower sugar prices over the next 12+ months will be a headwind for sentiment and forecasts, continuing until greater visibility exists on the implications of 217 quota abolition for Südzucker. 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% EU versus world white sugar price (EUR per tonne) Sales (EURm) Operating profit margin (%) Source: European Commission, Datastream 1 EU average white sugar price EU reference price World white sugar price

101 Süss Microtec AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 9.4 EUR 147 m SMHNn SMHN GY Shares outstanding (m) 19 Daily trading volume 12,39 Y/E 31.12, EUR m E 214E 215E Sales EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS % -5.5% 9.9% 13.7% Dividend yield.%.%.%.% ROCE 7.5% -6.% 9.6% 13.1% EV/sales EV/EBIT PER 15.8 nm Tammy Qiu Company overview: Süss is a leading supplier of equipment and process solutions for the semiconductor and LED industry. It focuses primarily on the mid- and back-end of the semiconductor fabrication process, supplying equipment which is used in packaging and MEMS manufacturing processes. It also supplies photomask cleaning tools used in the front-end semiconductor fabrication process. Quality: We believe the company is well positioned to benefit from back-end cycle recovery and 3D packaging trends. With its Tamarack Scientific acquisition in 212, it has established a more comprehensive product portfolio than those of its competitors Ultratech, Tokyo Electron and EVG. We believe its ability to supply a full range of product/solutions has given Süss a competitive edge. Its expertise in 3D bonder technology and the strong relationship it has with the leading international Integrated Device Manufacturer (IDM) will give it significant revenue growth potential once 3D chip packaging becomes the mainstream solution to new chips, which is expected to be in 216. Growth: We expect growth to be driven by the lithography segment between 213 and 215, before 3D bonder revenue starts to grow. We forecast a 1% CAGR top-line growth from 212 to 215, driven by back-end order recovery. We are expecting the company s operating margin to improve to 13.7% in 215 due to an increased top line, a better pricing environment and better margins due to a new Tamarack order and cost saving plans. Valuation: Our EUR9.4 price target is based on a 14x P/E on 214 adjusted EPS of EUR.67. The 14x P/E is at the mid-point of the historical 11-18x multiple applied in the middle of the order recovery cycle. Share catalysts: We believe a catalyst for the share could be the next quarter s earnings announcement on 7 November, and that any positive comments related to the back-end order trend recovery and pricing environment could be positive for the stock. Sales and development E 14E 15E Sales (EUR) 15.% 1.% 5.%.% -5.% -1.% Segment margin trend 3% 2% 1% % -1% -2% -3% -4% -5% -6% E 214E 215E Lithography Bonder Photo mask equipment 11

102 Symrise AG 8 October 213 Hold EUR /1/213 XETRA Close EUR 32. EUR 3,66 m SY1G SY1 GY Shares outstanding (m) 118 Daily trading volume 775, Y/E 31.12, EUR m E 214E 215E Sales 1,734 1,863 1,957 2,54 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 19.5% 21.5% 21.6% 22.% 14.5% 16.3% 16.8% 17.3% Dividend yield 2.% 2.8% 2.9% 3.2% ROCE 13.1% 15.3% 15.7% 16.1% FCF yield 4.% 4.8% 5.1% 5.6% EV/sales EV/EBITDA EV/EBIT PER Jaideep Pandya Sales and development Company overview: Symrise is the fourth-largest player in the flavours and fragrances market (after Givaudan, Firmenich and IFF), with c1% share of the global market. Symrise is the global leader in oral care products; it is fully backwardly integrated into the key raw material synthetic menthol. Quality: Symrise is well positioned to serve the flavour and fragrance business and enjoys a solid reputation in this space, mainly due to the company s consistent operational performance. This is driven by a strong customer base, split as follows: 33% top 1 accounts; 34% regional clients; and 33% local clients. This well balanced customer base minimises dependency and increases stability, enabling the company to service very different groups efficiently. Symrise is the number one player, with a particularly strong position in (sweet) flavours. Growth: Symrise has increased its market share in emerging markets up to 48% (from 39% in 27) thanks to doubledigit growth in Latin America and Asia. New business in fragrances and oral care, coupled with fast-growing demand for its fine fragrances, personal care and processed food and beverages products have led to an expansion in infrastructure. Growth in the flavours and fragrances market is estimated at 2-3% over the last five years and Symrise has outperformed the market by c3-4% in this period. We expect Symrise to continue to outperform the market by 2-3% as we expect sales growth of 5.8% for It has managed to register an organic sales CAGR of 6% and EBITDA growth of 6% for Driven by product mix improvement, we believe Symrise can deliver stronger EBITDA growth of 15% for Valuation: Our price target of EUR32 per share is DCFderived. We think that current valuation of the company is already factoring robust sales growth assumptions and are concerned about potential slowdown of growth in 214 due to tough comparables. Share catalysts: Symrise is one of the leaders in menthol, where it has expanded capacity recently but so will competitors. We believe capacity additions and price developments should be monitored by investors. Consumers sentiment and spend are macro catalysts. Geographical sales split 2,5 2, 18.% 17.% 12% 49% EAME 1,5 1, E 14E 15E 16.% 15.% 14.% 13.% 22% 17% North America Asia Pacific Latin America Sales (EUR) 12

103 Rents in EUR EBIT-margin in % TAG Immobilien AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 1.5 EUR 1,27 m TEGG TEG GY Shares outstanding (m) 131 Daily trading volume 225, Y/E 31.12, EUR m E 214E 215E Total revenues Net rents EBIT (inc revaluation net) EBIT (excl revaluation) Net profit (reported) Funds From Operations (FFO) EPS reported FFO per share DPS NAV per share NNAV per share EV/EBITDA FFO yield 3.2% 5.9% 7.5% 8.1% P/FFO Dividend yield 2.6% 4.3% 5.4% 6.% P/NAV per share -5% -6% -12% -15% P/NNAV per share -1% -3% -9% -12% Net gearing 28% 217% 24% 24% Loan-to-value (LTV) 6% 61% 6% 59% Implied yield 5.3% 7.% 7.3% 7.3% Ruffer 15%; Flossbach von Storch Invest 12%; Sun Life 1% Kai Klose, CIIA Estelle Weingrod Rental income and development Company overview: Primarily exposed to the German residential market (87%), as well as office properties (13%), TAG s portfolio has now reached ~7, units following two major portfolio acquisitions. This is now a reasonable portfolio size, at which scale effects and an improvement in profitability have already become visible despite the increase in regional diversification. Quality: With vacancy rates currently standing at 9.3%, TAG benefits from the potential to decrease vacancies within the residential portfolio further, especially in Salzgitter (~12% of TAG s residential portfolio), where the vacancy rate is high at ~2%. The quality of the residential portfolio is broadly average, with regional exposure now primarily to eastern Germany. Growth: The portfolio has grown rapidly, from around 5, units, since Rolf Elgeti became CEO in 29. Following the acquisition of two portfolios (DKBI and TLG), TAG has taken a step back this year to focus on integrating both portfolios. The CEO seems optimistic, however, about acquiring up to 1, units by year-end. The company s focus is on existing regions, which should increase TAG s profitability further. We expect the trend of higher occupancy as well as rent levels to continue in the coming years. Valuation: We expect TAG to have slightly higher gearing levels than its relevant peers (its loan-to-value is 63%), although its average debt maturity is long at around nine years. TAG s dependence on single banks is quite low and it currently has an average cost of debt of 4.1%. TAG is now trading at a discount to NAV 213E of ~6% and offers a 4.3% dividend yield. Share catalysts: Falling vacancy rates and rising rental levels are the main operational triggers. In addition, up to 1, units are expected to be acquired by year-end. The disposal of selected residential portfolios also remains on the table. Geographical split E 13E 14E 15E 2.% 18.% 16.% 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% Salzgitter 11% Hamburg region 18% North Rhine Westphalia 8% Greater Berlin 21% Thuringia- Saxony 42% Total rental income 13

104 TAKKT AG 8 October 213 Buy EUR /1/213 XETRA Close EUR 16. EUR 843 m TTKG TTK GY Shares outstanding (m) 66 Daily trading volume 31,285 Y/E 31.12, EUR m E 214E 215E Sales 94 1,7 1,58 1,115 EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 14.2% 14.2% 14.5% 14.7% 12.8% 12.9% 13.% 13.4% Dividend yield 3.2% 2.5% 2.9% 3.2% ROCE 21.3% 18.6% 18.8% 19.9% FCF yield 1.% 9.3% 1.2% 1.9% EV/sales EV/EBITDA EV/EBIT PER Franz Haniel & Cie. GmbH 5.3% Bjoern Lippe Company overview: TAKKT is one of the leading players in the B2B durables market, selling products such as plant and warehouse equipment, packaging solutions and display articles from third-party vendors to businesses in both Europe and the Americas. Around 55% of revenues are generated in Europe, the remainder stem from the TAKKT America division. Across all subsidiaries, TAKKT operates in more than 25 countries, offering over 2, products to more than 3m customers. Quality: Over the years, TAKKT has developed a highly scalable multi-channel network covering all major marketing channels. In this way, TAKKT has developed a reputation for reliability and high-quality products, with global businesses among its client list. TAKKT also has a strong track record of generating significant amounts of cash, gained through high-quality earnings. This is demonstrated by the average ROCE of 18.4% and average EBITDA margin of 12.6% that it has delivered over the past 1 years. Growth: Although TAKKT has historically been able to keep relatively stable margins due to its high-quality business model, it is exposed to cyclical trends. During the first half of 213, TAKKT was exposed to a number of negative external trends which led to an organic decline. However, we expect a recovery during the second half. With Berenberg economists forecasting a eurozone recovery and US GDP growth of c2.5% in 214, TAKKT is poised to benefit from its cyclical exposure. We thus expect revenue growth of c4.9% for 214 onwards. In addition, TAKKT plans to grow on average by 5% through acquisitions. Valuation: Despite the strong recent performance of the stock, it still trades at a 22% discount to its peer group on the basis of 214 EV/EBITDA while generating a higher margin than the peer group on average. We value TAKKT using a DCF model and reach a price target of EUR16.. Share catalysts: Since TAKKT is a cyclical company, a positive or negative change in economic factors could prove a catalyst for the stock. At the same time, TAKKT follows an expansion strategy and has a good track record of value-add acquisitions. The announcement of any further acquisition could also be a catalyst for the stock. Sales and development Free cash flow generation 1,2 15.% 12. 1, % E 14E 15E Sales (EUR) 5.%.% E 214E 215E 14

105 Telekom Austria Group 8 October 213 Sell EUR6.25 7/1/213 Vienna Close EUR4.2 EUR2,89m TELA.VI TKA AV Shares outstanding (m) 442 Daily trading volume Y/E 31.12, EURm E 214E 215E Sales 4,33 4,216 4,12 4,11 EBITDA 1,456 1,311 1,253 1,262 EBIT Net profit Y/E net debt 3,249 3,681 3,523 3,377 EPS (reported), EPS (recurring) DPS EBITDA margin 33.6% 31.1% 3.4% 3.8% 11.4% 9.% 8.8% 1.7% Dividend yield.8%.8%.8%.8% ROCE 7.8% 5.3% 5.1% 6.1% FCF yield 19.4% 18.7% 17.2% 17.8% EV/sales EV/EBITDA EV/EBIT PER OeIAG: 28.4% America Movil (direct and indirect): 25.9% Usman Ghazi Company overview: Telekom Austria (TKA) is the incumbent telecoms operator in Austria and has built up an enviable mobile market share position in several CEE countries through a period of deal-making over Lately it has been acquiring broadband assets in CEE to bundle wireline services to its mobile portfolio. The two largest shareholders in the company are the Austrian government, which owns 28.4%, and América Móvil, which has recently amassed a direct and indirect stake of 25.9%. Quality: A combination of a depressed macro environment and currency devaluations in CEE, and hyper competition in the domestic mobile market on an inflexible cost base, has resulted in a significant decline in profitability over the past few years. Growth: Given an inflexible cost base, revenues must inflect for EBITDA to stabilise. We do not think this is realistic in the near term due to continued aggression by Hutchison in the Austrian mobile market and regulatory pressures on voice termination and roaming rates in CEE. We expect revenues to decline by 2% in 214 (after 2.6% in 213) leading to an EBITDA decline of 4%. Valuation: The shares are expensive on most metrics trading on 2x earnings (sector 1-12x), an EV/214 EBITDA of 6x and (sector x) and EV/OpFCF of 13x (sector 11-12x). This is despite one of the weakest balance sheets in the sector with net debt/ebitda at 2.6x (including the hybrid bond issuance in the debt). The premium valuation has been driven by M&A speculation which we believe will disappoint as a result of which the shares should fall back to trading at a sector discount on above-average risk to estimates from competition, regulatory pressures and currency risks. Share catalysts: In the near term, there is a risk of a rights issue at TKA to fund potentially higher than expected costs for the spectrum auction and the acquisition of a cable asset in Serbia. Sales and development Leverage is too high 4,8 4,6 4,4 4,2 4, 3, E 14E 15E Sales (EUR) 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% 3.x 2.5x 2.x 1.5x 1.x.5x Net Debt:EBITDA (co defined) Net Debt:EBITDA (ad.for hybrid and provision) 15

106 Tipp24 SE 8 October 213 Buy EUR /1/213 XETRA Close EUR 68. EUR 398 m TIMGn TIM GY Shares outstanding (m) 8 Daily trading volume 24, Y/E 31.12, EUR m E 214E 215E Sales EBITDA EBIT Net profit Y/E net debt EPS (reported) EPS (recurring) DPS EBITDA margin 44.5% 27.8% 35.% 4.5% 39.5% 23.2% 3.5% 36.% Dividend yield.%.% 8.6% 9.2% ROCE 37.3% 18.7% 21.1% 23.5% FCF yield 5.4% 6.8% 8.9% 1.8% EV/sales EV/EBITDA EV/EBIT PER *includes client funds of approximately EUR16m Oliver Jaster 24.99% Marc Peters 4.82% Jens Schumann 4.45% Gunnar Cohrs, CFA Company overview: Tipp24 was the leading broker for online lottery tickets in Germany (c6% market share) until online lottery was banned in Germany in 29. Since then, Tipp24 has increasingly focused on its business abroad, operating secondary lotteries through its UK subsidiary MyLotto24 (including bookmaker risk) that boosted revenues by 95% in 29. Quality: Operating secondary lotteries is a high-margin (more than 4%) and highly cash-generative business (operating cash flow of ceur28m). Cash flows in this business are sustainable, we believe, as with last year s introduction of the CAT bond, Tipp24 has managed to bring the risk of large jackpots under control. We expect Tipp24 to pay dividends on an annual basis from 214. Growth: Revenues should experience an uplift following a 33% price increase in the 6 out of 49 lotto in May 213. However, apart from this effect, growth is limited for Tipp24 s traditional secondary lottery business because the company is not allowed to advertise in Germany. Therefore Tipp24 has recently acquired a stake in Geonomics, which holds a UK licence for a geo-based lottery. Instead of a combination of numbers, lottery players choose a square on a map, such as one containing their house. Sector experts have labelled it as a key innovation in the lottery industry. In addition, Tipp24 is aiming to offer online lottery platforms as white label solutions to state lotteries. We expect it to focus on North America, where online lotteries have always been forbidden but where regulation has shown signs of softening since 211. Valuation: Trading cheaply at 4.1x 214 EV/EBIT, we believe the expected dividend payments are so far not reflected in the share price. We value the stock based on DCF, deriving a price target of EUR68, which implies an upside potential of more than 4%. Share catalysts: The announcement of a dividend payment after the relocation to the UK should be the major catalyst but positive newsflow on the recent re-launch of GeoSweep (now GeoLotto) should also drive the share price. Sales and development Legal status in US % 4.% 3.% 2.% 1.%.% E 14E 15E 16E Sales (EUR) 16

Cautionary note with regard to forward-looking statements

Cautionary note with regard to forward-looking statements Cautionary note with regard to forward-looking statements Some statements in this annual report are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty

More information

GLOBAL MARKET LEADER IN. chemical distribution

GLOBAL MARKET LEADER IN. chemical distribution GLOBAL MARKET LEADER IN chemical distribution Annual Report 2010 KEY FINANCIAL FIGURES AT A GLANCE Consolidated Income statement 2010 2009 Change Sales EUR m 7,649.1 6,364.6 20.2% Gross profit EUR m 1,636.4

More information

European Advertising Market

European Advertising Market EMEA Equity Research Media / UNDERWEIGHT Research Analysts Nick Bertolotti 44 20 7888 4954 Specialist Sales: Neil Shelton 44 20 7888 1370

More information

Keeping investment straightforward.

Keeping investment straightforward. Keeping investment straightforward. Aberdeen Asset Management PLC Annual Report and Accounts Highlights has been another year of profitable growth, notwithstanding volatility in markets. Dividend per

More information

Imagine the result CLIENT FOCUS

Imagine the result CLIENT FOCUS Imagine the result CLIENT FOCUS AnnuAl RepoRt 2011 Imagine the result Our mission is to improve quality of life around the world by creating places of distinction and providing sustainable solutions that

More information

Hauck & Aufhäuser Cloud Computing Stockpicker

Hauck & Aufhäuser Cloud Computing Stockpicker Hauck & Aufhäuser Cloud Computing Stockpicker 31-July-13 Cloud Computing in Germany A stockpicker s guide Thanks to its strong growth prospects and lively M&A activity, Cloud Computing is on everyone s

More information

Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report.

Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report. INITIATION OF COVERAGE 6 May 2014 Summary Hexatronic (HTRO) Fiber growth feeding revaluation Hexatronic is a company with operations in the optical fiber industry as a supplier of products and systems

More information

Table of Contents. Share Information 90. Corporate Governance and Remuneration Report Corporate Governance 93 Remuneration Report 112

Table of Contents. Share Information 90. Corporate Governance and Remuneration Report Corporate Governance 93 Remuneration Report 112 Rapport annuel 2008 Table of Contents Page Introduction Facts & Figures 1 Editorial 2 The Year of view of the Group Executive Board 11 Highlights 2008 34 Management Commentary Economic Environment 35 Strategy

More information

Mine 2015 The gloves are off

Mine 2015 The gloves are off Mine 2015 The gloves are off Review of global trends in the mining industry 2015 The Mine Series 2004 Mine 2008 As good as it gets? 2012 The growing disconnect 2005 Enter the Dragon

More information

press Conference Fiscal 2009/2010 based on preliminary figures

press Conference Fiscal 2009/2010 based on preliminary figures press Conference Fiscal 2009/2010 based on preliminary figures Düsseldorf, November 09, 2010 2 Key Figures 2009/2010. Financial Statement ( million) 3 2009/2010 1 2008/2009 2 Change Net sales 2,239 2,250

More information



More information

Management Consulting Group PLC Annual report and accounts 2013

Management Consulting Group PLC Annual report and accounts 2013 Management Consulting Group PLC Management Consulting Group plc provides management expertise, guidance and professional services to many of the world s leading companies. MCG operates through two independently

More information

Turkish Glass Sector Hefty Returns in a Glass Bottle

Turkish Glass Sector Hefty Returns in a Glass Bottle Turkish Glass Sector Hefty Returns in a Glass Bottle April 2013 lyas Safa Urganc Nur Karabacak Table of Contents Investment Summary 1 Sector Analysis

More information


WWW.SIEMENS.COM/AR/COMBINED- MANAGEMENT-REPORT In our Combined Management Report, we analyze our business activities in the reporting year as well as the current state of Siemens worldwide and Siemens AG. Starting from a description of our business,

More information



More information

create a Better WorLd of LotterY

create a Better WorLd of LotterY create a Better WorLd of LotterY Annual Report 24 CONTENTS Strategic Report Business and Financial Highlights Executive Review Our Vision: Create a Better World of Lottery 08 Basic Principles of the Group

More information

2012: Annual Report. The CEE Stock Exchange Group and its Capital Markets 2012/13. CEE Stock Exchange Group Budapest Ljubljana Vienna Prague

2012: Annual Report. The CEE Stock Exchange Group and its Capital Markets 2012/13. CEE Stock Exchange Group Budapest Ljubljana Vienna Prague 2012: Annual Report The CEE Stock Exchange Group and its Capital Markets 2012/13 2 CEE Stock Exchange Group Budapest Ljubljana Vienna Prague Table of Contents CEE Stock Exchange Group 2012: One Step Closer

More information

Annual Report 2010. Taking control of growth

Annual Report 2010. Taking control of growth Annual Report 2010 Taking control of growth We re taking control of growth at Experian by focusing our efforts on our best opportunities. Firstly, we re doing more to expand our global reach into key vertical

More information

interim Report January March 2013 the World Run Better The Best-Run Businesses Run SAP

interim Report January March 2013 the World Run Better The Best-Run Businesses Run SAP interim Report January March 2013 Helping the World Run Better The Best-Run Businesses Run SAP TABLE OF CONTENTS INTERIM REPORT JANUARY MARCH 2013 INTRODUCTORY NOTES 3 QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)

More information

Telefónica January-December 2014 Results Conference Call Transcript

Telefónica January-December 2014 Results Conference Call Transcript Telefónica January-December 2014 Results Conference Call Transcript 25 th February, 2015 Important Notice: Although we try to accurately reflect speeches delivered, the actual speech as it was delivered

More information

Rerouting to a rerating

Rerouting to a rerating Christmas crackers TomTom OUTPERFORM FROM NEUTRAL Rerouting to a rerating 16 DECEMBER 2014 Alexander Peterc WHY YOU SHOULD READ THIS REPORT After seven painful years of Satnav market implosion, TomTom

More information


OUTOKUMPU ANNUAL REPORT 2006 NOW WE FOCUS... NOW WE FOCUS... Annual Report 2006 CONTENTS OUTOKUMPU 2006 1 Outokumpu in brief 2 Vision and strategic direction 4 CEO s review 6 Highlights of the year 8 Market review 12 Management discussion on strategy

More information 46.2p 2005 46.2p 253m 2005 253.4m 2,138m 2005 2,138m 12.0p 2005 12.0p 163m 2005 162.9m 297m 2005 297.3m 46.2p 2005 46.2p 253m 2005 253.4m 2,138m 2005 2,138m 12.0p 2005 12.0p 163m 2005 162.9m 297m 2005 297.3m You have access to more information on our website: DMGT s corporate website,, has achieved an AAA accessibility rating in independent tests, the highest level achievable.

More information

Annual Report 2011. Nordea Annual Report 2009

Annual Report 2011. Nordea Annual Report 2009 Annual Report IV Nordea Annual Report 2009 VI Nordea Annual Report 2009 is a relationship bank. Value propositions and a full range of services enhance great customer experiences. Nordea Nordea Annual

More information

Annual Report 2014. Visit

Annual Report 2014. Visit Annual Report 2014 Visit 14 Contents Company Report 2 About us 3 2014 in brief 4 Letter from the Chairman & CEO 6 Interview with the CEO 8 The HR services industry 14 Our strategy

More information

O KEY Group S.A. Annual Report 2013

O KEY Group S.A. Annual Report 2013 O KEY Group S.A. Annual Report 2013 O KEY aims to improve customer lifestyles by offering an outstanding shopping experience and making a broad assortment of high quality products more accessible across

More information

Annual Report 2013/2014

Annual Report 2013/2014 Annual Report 2013/2014 Investment Company under Luxembourg Law (SICAV) R.C.S. Luxembourg N B 96 268 Audited annual report as of 30 April 2014 Active Solar Amares Strategy Fund - Balanced Asian Solar &

More information

Key Figures. /+ (%, %p) 01.01.2013 31.12.2013 01.01.2012 31.12.2012

Key Figures. /+ (%, %p) 01.01.2013 31.12.2013 01.01.2012 31.12.2012 Annual Report 213 Profile Delticom is Europe s leading online tyre retailer. Founded in 1999, the Hanover-based company has more than 1 online shops in 42 countries, among others ReifenDirekt,

More information

The way ahead. introducing Vodafone 2015. Vodafone Group Plc. Annual Report for the year ended 31 March 2013

The way ahead. introducing Vodafone 2015. Vodafone Group Plc. Annual Report for the year ended 31 March 2013 Annual Report for the year ended 31 March 2013 Registered Office: Vodafone House The Connection Newbury Berkshire RG14 2FN England Registered in England No. 1833679 Telephone: +44 (0) 1635 33251 Fax: +44

More information

Annual Report 2009/ BME. Market Environment

Annual Report 2009/ BME. Market Environment 3 1 Market Environment Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. Translation of consolidated financial statements originally issued in Spanish and prepared

More information