paragon AG Update BUY Target Price: EUR 23,18 Incessant growth and a step further in new technologies 15. December 2014

Transcription

1 15. December 2014 Europa Germany Auto Supplier Update BUY Target Price: EUR 23,18 paragon AG Incessant growth and a step further in new technologies Outlook: Industry: Country: ISIN: Bloomberg: Reuters: W ebsite: Autom otive Supplier Germ any DE PGNG.DE PGN GR First nine months of the year paragon AG recorded revenues of EUR million (9m/9m +7.2%) with a stable growth. In that sense, at 30 September order books were covered by already over 70% of its revenue forecasts for Revenue growth is particularly driven by the ongoing development of the Acoustic (+24.34%) and Sensors (+9.54%) divisions. Last Price: 11,51 High Low Price 52 W.: 15,89 10,01 Market Cap. (EURm) 47,36 No. of Shares (in m) 4,11 Shareholders Klaus-Dieter Frers 51,32% Free Float 48,68% Performance 4 Weeks -15,35% 13 Weeks -19,52% 26 Weeks -27,45% 52 Weeks 10,24% YTD 10,58% Dividend in EUR in % ,23 2,00% ,25 2,17% ,35 3,04% ,25 2,17% High investments in such areas as "Electromobility" and "Body Kinematics" have increased its accrued values up to three times the same capital expenditures for Q3/13. In the first nine months, paragon AG achieved 2.01 EURm (9m/9m %), however, the adjusted EBIT 4.57 (9m/2013: 3.63 EURm) increased a 25.89% 9m/9m. The expenses for personnel and equipment increased by 12.43% (y/y 10%). A superb 24% growth in Acoustics division is recorded for this quarter, as well as the consolidation of its air-quality sensor products in customers mind. Nevertheless, besides temporary weak net income, operating cash flow suffers as well of a punctual decrease from 0,921 EURm to -0,324 EURm which can be primarily explained by a temporary increase in its inventories storages. Due to the constant sales growth, a strong adjusted-ebit and the new business unit "Electromobility", we increase our target price to EUR As this is an upside potential from the current share price of 103.5%, our BUY recommendation will be slightly increased for the stock. The growth prospects, the high level of innovation (10.5% R&D), as well as the good and long-standing relationships with premium manufacturers support our fundamental view. Hence, paragon AG should then be able to reach its target forecasts for the current 2014 financial year. Key Figures in EU R m E E E Analyst Dr. Norbert Kalliwoda nk@kalliwoda.com Phone: Also see our Bloomberg page: KALL N e t s a le s 6 7, , , , , ,4 5 EB IT D A 1 2, , , , , ,0 1 EB IT 8,8 2 7,7 8 7,9 2 8, , ,0 3 N e t in c o m e 5,3 4 4,6 4 3,9 5 5,0 6 6,6 3 7,4 8 EP S 1,3 0 1,1 3 0,9 6 1,2 3 1,6 1 1,8 2 B V P S 2,3 8 3,1 7 3,8 6 5,0 9 6,7 0 8,5 2 R o E 7 4,8 2 % 4 0,6 1 % 2 7,3 0 % 2 7,4 7 % 2 7,3 3 % 2 3,8 9 % EB IT m a r g in 1 3,1 5 % 1 1,0 4 % 1 0,7 2 % 1 0,8 7 % 1 1,3 5 % 1 1,7 4 % P /E 1 1,6 9 x 1 3,4 6 x 1 5,8 0 x 1 2,3 3 x 9,4 1 x 8,3 4 x P /B V P S 6,3 7 x 4,7 9 x 3,9 3 x 2,9 8 x 2,2 6 x 1,7 8 x EV /EB IT D A 5,6 8 x 6,2 8 x 5,9 9 x 5,5 0 x 4,4 5 x 4,0 7 x

2 2 paragon AG Update December 2014 Content 1 Company Profile Products and Market Share Clients SWOT Valuation Q3/14 - Figures Outlook Share s relevant facts Profit and Loss Statement Balance Sheet Cash Flow Statement... 13

3 3 paragon AG Update December Company Profile Paragon AG was founded in 1988 as an electronics manufacturer. The company's headquarters are located in Delbruck (North Rhine-Westphalia). Other Company s divisions are based in Suhl, St. Georgen, Nuremberg (production or development) and Shanghai (Sales Office). The paragon AG has also started to build a battery production plant in Texas (USA), as well as it is planning to develop a facility in Mexico (production through partners) and reached an agreement with a Chinese automotive supplier to institute a joint venture for production in China. The Group currently employs a staff of 420 permanent and 49 temporary workers Products and Market Share Founded as a contract manufacturer for electronics, paragon is now a pure Tier 1 automotive supplier. Its main focus relies on auto electronics for interior products to enhance the health, comfort, communication, and since 2011, on efficiency. The product catalog includes more than 170 products with a capacity of over 20 million units produced per annum, in addition to its 250 patents owned. Divisions Sensors Acoustics Electromobility Air quality sensor AQS Microphone Energy Storage Powerpack Air improvement system Seatbelt microphone blet mic Motor Controller MoDrive Air treatment system DC/DC Converter DCCon Clutck travel sensor Onboard Charger ChargeON All gear sensor Start-stop sensor Cockpit Interfaces Cradles & Consoles ctablet docking station Instruments Controls Reversing camera system Stepper Motors kinematics Aerodynamic Comfort Convertible tops Safety Source: Company, Dr. Kalliwoda Research GmbH Many of paragon s products own its unique features, such as the Allgang sensor which at the start of a shift can detect which gear is being loaded. The sensor can be a softer and simultaneously faster gearshift, as well as for the vehicle manufacturer resulting in economic benefits because a separate reverse gear sensor is no longer required.

4 4 paragon AG Update December Clients paragon AG maintains long-term customer relationship, which is translated in the fact that its over 170 products are currently demanded by 23 customers for 172 vehicle models. Whereas the three largest customers cover approximately 33%, 17% and 15% of sales, respectively. About 81% of the proceeds come mainly from Audi, VW, Daimler, BMW and Porsche (as of September 2014). By far, it is the largest customer of the Volkswagen Group, where holds a particularly long and intensive customer relationship. Nevertheless, is a risk for the company the concentration of a large part of its sales, but due to the growth of the Volkswagen Group, it is also at the same time an opportunity. 2 SWOT Strengths Combination of innovation and integration of force through company-wide culture of innovation with a focus in developing new products, while observing the product integration into the overall system for the automobile manufacturers; by First-Mover-Advantage and high success rate of bringing products to the market. 175 products and 250 patents. Products with unique features in niche markets with high quantities in automated manufacturing. Therefore high margins and strong market position in several areas. 18 million units produced. Direct supplier with many years of customer loyalty, knowing what customers want, means entry-market barriers. Opportunities Increasing use of paragon products in the compact and mid-range through new technologies and efficient production with a high degree of automation and economies of scale, eg. Air quality. Growth and diversification through the field of electric mobility by expanding the customer base to smaller commercial vehicles in domestic and urban areas, where applications are already in use for electric mobility. With this regard, more distribution channels are sought. Weaknesses High business risk due to strong sales focus on three German automotive manufacturers in the premium area, tempered by long-term customer relationships under contracts, all model series, and the relatively small dependence of premium manufacturers. Low negotiating power with customers and suppliers in the low-selling environment of numerous competitors mitigated by the relatively higher willingness to pay the premium end-user customers. Strong competition with high pressure to innovate, since more than half of key innovations are taking place in the field of electronics. Risks Products are not expected to develop their potential and the number of units produced cannot cover the costs. paragon AG tries to avoid this by an intensive dialogue with automobile manufacturers. Competitor may displace paragon of revenueimportant market niches. An unexpected slump in the automobile industry may lead to liquidity difficulties at paragon. Reduction of product-specific integration costs for the customer through development of applications to support the vehicle installation can be a significant competitive advantage.

5 5 paragon AG Update December Valuation We have evaluated paragon using our DCF model, which results in a 12-month price target of EUR At the current market level this corresponds to an upside of 103,5%. DCF-Analysis Discounte d-c a sh-f low -Mode ll (B asis 5/2014) in EUR M io E E E E E E E E E Ne t s a le s 7 9, , , , , , , , ,7 3 ( y - o - y c hange ) 8,0 % 20,0 % 7,0 % 3,3 % 3,0 % 2,8 % 2,5 % 2,2 % 2,0 % EBIT 8, , , , , , , , ,8 9 ( EBIT margin ) 10,8 % 11,3 % 11,7 % 12,0 % 12,6 % 12,6 % 12,5 % 12,5 % 12,4 % NO P L A T 6,0 7 7,6 0 8,4 2 8,9 2 9,6 8 9, , , ,4 2 + Depreciation and A mortiz ation 4,65 5,58 5,98 6,17 6,36 6,54 6,70 6,85 6,98 = Net operating c as h flow 10,72 13,19 14,40 15,09 16,04 16,45 16,82 17,15 17,40 - Total inv es tments (Capex and W C ) -8,12-10,67-9,86-9,62-9,77-9,96-10,13-10,28-10,37 Capital ex penditure - 6,94-8,64-8,33-8,27-8,44-8,61-8,75-8,88-9,00 W o r kin g c a p ita l - 1,1 8-2,0 3-1,5 3-1,3 4-1,3 3-1,3 5-1,3 7-1,4 0-1,3 7 = Free c as h flow ( FCF) 2,60 2,52 4,54 5,48 6,27 6,49 6,69 6,86 7,03 P V o f FC F's 2,5 9 2,3 2 3,8 6 4,3 1 4,5 6 4,3 6 4,1 6 3,9 4 3,7 3 P h a se 1 PV of FCFs in ex plic it period 33,83 PV of FCFs in terminal period 65,21 En t e r p r is e v a lu e ( EV ) 9 9,0 4 + Ne t c a s h / - n e t d e b t - 1 0,8 6 + Inv es titionen / - Minderheiten 0,00 S h a r e h o ld e r v a lu e 8 8,1 8 Number of s hares outs tanding ( m ) 4,1 1 S e n s it iv it ä t s a n a ly s e W A CC 8,2 % Cos t of equity 9,4 % 8,9 % 9,9 % 1 0,9 % 1 1,9 % 1 2,9 % 1 3,9 % 1 4,9 % Pre - tax cos t of debt 7,5 % 5,2 % 34,12 38,18 42,25 46,31 50,37 54,43 58,49 Normal tax rate 30,0 % 6,2 % 26,39 29,35 32,30 35,26 38,22 41,17 44,13 A fter - tax c os t of debt 5,3 % 7,2 % 21,37 23,63 25,88 28,14 30,40 32,66 34,92 S h a r e o f e q u ity 7 0,0 % 8,2 % 1 7, , , , , , ,5 2 S h a r e o f d e b t 3 0,0 % 9,2 % 1 5, , , , , , ,8 5 Fair valu e p e r s h are in ( to d ay) 21,43 10,2 % 1 3, , , , , , ,2 9 Fa ir v a lu e p e r s h a r e in ( in 1 2 m o n t h s ) 2 3,1 8 Source: Company, Dr. Kalliwoda Research GmbH WACC T e r m in a l EB IT - M a r g e

6 6 paragon AG Update December Q3/14 - Figures Turnover In the first nine months of 2014, the Company redeemed EUR million (y/y +7.2%) as a result of an ongoing dynamic development in the automobile industry in the throughout year(+6% records in main markets according to the Association of automotive industry), having already received 99.1% of all customer orders needed to achieve the total revenue budgeted for this current fiscal year. In Q3/14, paragon generated revenues of 18.2 EURm (y/y +10%) feed by a considerable increase in the Acoustic (accounted 40.3% of total sales) and Sensor (19.4% sales and where paragon currently conducts several negotiations with manufacturers regarding innovative CO2 sensors for an increase in vehicle s safety) divisions. On the other hand the Cockpit and Body Kinematics segments prolong in 9m/14 its stagnation in the revenues contribution y/y (accounting for 36.2% of revenues) started in Q1. Besides, the production of the "Electric mobility" division is derived to its two new Voltabox subsidiaries divided geographically in Germany and Texas (USA) and which respectively accounted a turnover of 0.3% and 0.2%. Q3/14 compared to previous year Q3/14 compared to prev. year in EURm Q3/14 Q3/13 Q3/14 vs. Q3/13 Net sales 18,22 16,56 10,0% EBITDA 1,59 1,73-8,2% EBITDA-M arge 8,7% 10,4% EBIT 0,51 0,68-25,7% EBIT margin 2,8% 4,1% Net income -0,21 0,00 Net margin -1,1% 0,0% Source: Company, Dr. Kalliwoda Research GmbH Copyright 2014 Our Outlook in EURm 2014E 2015E 2016E Net sales 79,79 95,75 102,45 EBITDA 12,23 13,32 16,45 EBITDA margin 15,3% 13,9% 16,1% EBIT 7,92 8,67 10,86 EBIT margin 9,9% 9,1% 10,6% Net income 3,95 5,06 6,63 Net margin 4,9% 5,3% 6,5% Source: Company, Dr. Kalliwoda Research GmbH Copyright 2014

7 7 paragon AG Update December 2014 Profitability Cost Structure at Q3/14 compared to Q3/13 60,00% 55,94% 54,37% 50,00% 40,00% 30,00% 30,16% 29,65% 20,00% 13,28% 10,00% 0,00% -10,00% 5,94% 6,33% CoGS Personnel costs Depreciation & Amortization 0,33% Write-downs -0,01% 3,12% Other operating expenses H H Source: Company, Dr. Kalliwoda Research GmbH Copyright 2014 Despite a solid revenue growth, EBIT margin lies at a 8.7% (y/y 10.4%) below the previous year's figures. This situation might be arisen due to new recruitment processes, the personnel expense ratio of 30.16% rose slightly from the previous year. Here, however, the management confirmed the longterm goal of a personnel expense ratio of 26.5%, hence we consider the higher expense ratio solely as temporary. The net result was therefore reduced by about 79.5% to a punctual loss of 0.21EURm. In this sense, Creditreform Rating downgraded paragon AG from BB + to BBB- (investment grade). Balance Sheet and Cashflow On September 30, 2014, the balance of paragon AG had an equity sum of 14,991 EURm (equity ratio of 26.7%). Interest-bearing liabilities amounted to EUR 27.8 million. (9m/13: 23.4 EURm) and a working capital estimate of 19.3 EURm (9m/13: 20.2 EURm ). Due to the new loan issue of meur 2.9, net liabilities were over the September 2014 value (12.68 EURm vs EURm). The increased, discussed earlier, investments in new business areas to secure the future were reflected in the cash flow from investing activities, which increased from EURm to EURm. Even though the cash flow from financing activities turned worse than last year with 3,3 EURm (compared to previous year 6,32 EURm). Moreover the Company experienced a decrease in cash and cash equivalents compared to December 2013 (-5.87 EURm to 3.4 EURm).

8 8 paragon AG Update December Outlook We maintain an optimistic assessment of paragon s share and assume that the company s own guidance (y/y +8% prev. EBIT margin of approximately 10%) and our forecasts for FY 2014 can be reached, even though the EBIT margin was driven by weaker than expected recurring expenses. The primary investment in the business "Electromobility" (now Voltabox), we understand, is strengthening its position in this rapidly growing market segment. The US subsidiary Voltabox Texas Inc could also occur already positive in May 2014 with a great job in the double-digit million dollar range. The new production facility in the United States must as in Germany supply to customers from different areas (manufacturers of cars, commercial vehicles, solar and forklifts) and thus contribute to a greater diversification. In the coming years, paragon is planning to expand its reach through a further internationalization. These new productions are about to be built in cooperation with Mexican and Chinese partners next to the location in Texas. In this sense, paragon recently signed a contract with its Chinese partners Jiangsu Ryings Electronics Co Ltd to stablish a joint venture engaged in the production and marketing of air quality sensors. In addition, paragon AG will continue to invest heavily in R&D (9m/ % of sales vs. 9.3% in 9m/13) to secure its competitive advantage and further expansion. For instance, the development completion of an ordered spoiler module, as well as preliminary progresses on the elaboration of adaptative microphones with wind-adjustment. Thereby, the company positions itself a step forward among its competitors in the offer of tailored optimum solutions for all kind of applications in a wide range of varied industries.

9 9 paragon AG Update December Share s relevant facts Share Performance Source: Company, Dr. Kalliwoda Research GmbH Shareholder s Structure Klaus-Dieter Frers; 51,32% Streubesitz; 48,68% Source: Company, Dr. Kalliwoda Research GmbH

10 10 paragon AG Update December 2014

11 11 paragon AG Update December Profit and Loss Statement P ro fit a n d L o s s s ta te m e n t - p a ra g o n A G F is c a l y e a r in m E U R E E E N e t s a le s 6 7, , , , , ,4 5 C h a n g e in in v e n to rie s 0,0 6 0,5 7 0,2 6 0,3 6 0,3 2 0,3 1 C a p ita lis e d a s s e ts 1,3 4 2,0 3 1,6 8 0,5 0 0,5 0 0,5 0 T o ta l O u tpu t 6 8, , , , , ,2 6 C o s t o f g o o d s s o ld -3 3, , , , , ,1 1 G ro s s p ro fit 3 4, , , , , ,1 5 O th e r o p e ra tin g in c o m e 1,8 6 2,0 2 1,1 0 1,1 2 1,1 4 1,1 6 P e rs o n n e l c o s ts -1 6, , , , , ,3 9 D e p re c ia tio n & A m o rtiza tio n -4,0 7-3,8 9-4,3 1-4,6 5-5,5 8-5,9 8 W rite -d o wn s -0,1 1-0,1 4-0,2 7 0,0 0 0,0 0 0,0 0 O th e r o p e ra tin g e x p e n s e s -6,9 4-7,4 5-8,5 4-7,9 1-8,9 7-8,9 1 E B I T 8,8 2 7,7 8 7,9 2 8, , ,0 3 N e t fin a n c ia l re s u lts -1,3 2-1,0 8-1,4 9-1,4 4-1,3 9-1,3 4 E B T 7,5 0 6,7 0 6,4 3 7,2 3 9, ,6 9 In c o m e ta x e s -2,1 7-2,0 7-2,4 9-2,1 7-2,8 4-3,2 1 M in o rity in te re s ts 0,0 0 0,0 0 0,0 0 0,0 0 0,0 0 0,0 0 N e t in co m e / lo s s 5,3 4 4,6 4 3,9 5 5,0 6 6,6 3 7,4 8 E P S 1,3 0 1,1 3 0,9 6 1,2 3 1,6 1 1,8 2 D P S 0,0 0 0,0 0 0,0 0 0,0 0 0,0 0 0,0 0 C h a n g e y -o -y N e t s a le s n.a 5,0 6 % 4,8 7 % 8,0 0 % 2 0,0 0 % 7,0 0 % T o ta l O u tp u t n.a 6,6 9 % 3,8 0 % 6,3 8 % 1 9,7 4 % 6,9 4 % C o s t o f g o o d s s o ld n.a 9,7 5 % -1,8 5 % 9,6 2 % 1 9,4 9 % 7,5 9 % G ro s s p ro fit n.a 3,7 2 % 9,5 8 % 3,4 0 % 1 9,9 7 % 6,3 0 % O th e r o p e ra tin g in c o m e n.a 8,1 6 % -4 5,5 6 % 2,0 0 % 2,0 0 % 2,0 0 % P e rs o n n e l c o s ts n.a 1 2,7 6 % 3,9 8 % 5,9 7 % 1 9,2 7 % 6,5 2 % D e p re c ia tio n & A m o rtiza tio n n.a -4,5 0 % 1 0,9 1 % 8,0 0 % 2 0,0 0 % 7,0 0 % W rite -d o wn s n.a 2 7,3 6 % 9 8,5 2 % n.a n.a n.a O th e r o p e ra tin g e x p e n s e s n.a 7,3 8 % 1 4,5 9 % -7,3 5 % 1 3,4 1 % -0,6 4 % E B IT n.a -1 1,8 4 % 1,8 8 % 9,4 3 % 2 5,3 1 % 1 0,7 4 % N e t fin a n c ia l re s u lts n.a -1 8,3 5 % 3 8,3 5 % -3,3 6 % -3,4 7 % -3,6 0 % E B T n.a -1 0,6 9 % -3,9 9 % 1 2,3 9 % 3 1,0 4 % 1 2,8 4 % In c o m e ta x e s n.a -4,7 1 % 2 0,3 4 % -1 2,7 1 % 3 1,0 4 % 1 2,8 4 % M in ority in te re sts n.a n.a n.a n.a n.a n.a N e t in c o m e / lo s s n.a -1 3,1 2 % -1 4,8 2 % 2 8,1 9 % 3 1,0 4 % 1 2,8 4 % E P S n.a -1 3,1 2 % -1 4,8 2 % 2 8,1 9 % 3 1,0 4 % 1 2,8 4 % D P S n.a n.a n.a n.a n.a n.a S h a re in to ta l re v e n u e s N e t s a le s 1 0 0,0 0 % 1 0 0,0 0 % 1 0 0,0 0 % 1 0 0,0 0 % 1 0 0,0 0 % 1 0 0,0 0 % T o ta l O u tp u t 1 0 2,1 0 % 1 0 3,6 8 % 1 0 2,6 2 % 1 0 1,0 7 % 1 0 0,8 5 % 1 0 0,7 9 % C o s t o f g o o d s s o ld -5 0,2 1 % -5 2,4 5 % -4 9,0 9 % -4 9,8 3 % -4 9,6 2 % -4 9,8 9 % G ro s s p ro fit 5 1,8 8 % 5 1,2 3 % 5 3,5 3 % 5 1,2 4 % 5 1,2 3 % 5 0,9 0 % O th e r o p e ra tin g in c o m e 2,7 8 % 2,8 6 % 1,4 8 % 1,4 0 % 1,1 9 % 1,1 4 % P e rs o n n e l c o s ts -2 4,9 4 % -2 6,7 6 % -2 6,5 4 % -2 6,0 4 % -2 5,8 8 % -2 5,7 6 % D e p re c ia tio n & A m o rtiza tio n -6,0 7 % -5,5 1 % -5,8 3 % -5,8 3 % -5,8 3 % -5,8 3 % W rite -d o wn s -0,1 6 % -0,1 9 % -0,3 6 % 0,0 0 % 0,0 0 % 0,0 0 % O th e r o p e ra tin g e x p e n s e s -1 0,3 5 % -1 0,5 8 % -1 1,5 6 % -9,9 1 % -9,3 7 % -8,7 0 % E B IT 1 3,1 5 % 1 1,0 4 % 1 0,7 2 % 1 0,8 7 % 1 1,3 5 % 1 1,7 4 % N e t fin a n c ia l re s u lts -1,9 7 % -1,5 3 % -2,0 2 % -1,8 0 % -1,4 5 % -1,3 1 % E B T 1 1,1 9 % 9,5 1 % 8,7 1 % 9,0 6 % 9,9 0 % 1 0,4 4 % In c o m e ta x e s -3,2 3 % -2,9 3 % -3,3 6 % -2,7 2 % -2,9 7 % -3,1 3 % M in o rity in te re s ts 0,0 0 % 0,0 0 % 0,0 0 % 0,0 0 % 0,0 0 % 0,0 0 % N e t in c o m e / lo s s 7,9 6 % 6,5 8 % 5,3 4 % 6,3 4 % 6,9 3 % 7,3 0 % D r. K a l l i w o d a R e se a rc h

12 12 paragon AG Update December Balance Sheet B a la n c e S h e e t - p a ra g o n in m E U R E E E A s s e ts C a s h a nd c a s h e q uiva le nts 1 5, , , , , ,8 4 Inve nto rie s 6,8 7 7,3 1 7,4 7 8,1 9 9, ,5 3 T ra d e a c c o unts a nd no te s re c e iva b le s 0,4 9 1,7 9 6,0 4 7,1 7 9, ,9 0 O the r c urre nt a s s e ts 1,6 0 2,2 0 1,9 5 2,1 1 2,5 3 2,7 1 C u rre n t a s s e ts 2 4, , , , , ,9 6 P ro p e rty, p la nt a nd e q uip m e nt 1 3, , , , , ,5 1 S o ns tig e im m a te rie lle V e rm ö g e ns w e rte 3,2 8 4,9 1 5,6 0 6,0 5 7,2 6 7,7 7 F irm e nw e rt 0,0 0 0,0 0 0,0 0 0,0 0 0,0 0 0,0 0 O the r a s s e ts 0,1 6 0,1 2 0,2 5 0,2 7 0,3 2 0,3 4 D e fe rre d ta x a s s e ts 0,4 3 0,0 0 0,0 0 0,0 0 0,0 0 0,0 0 N o n -c u rre n t a s s e ts 1 7, , , , , ,6 3 T o ta l a s s e ts 4 1, , , , , ,5 9 L iab ilities F is c a l y e a r T ra d e p a ya b le s 3,0 7 3,0 4 3,3 6 3,6 8 4,4 0 4,7 3 O the r lia b ilitie s 7,7 7 8,1 3 5,9 1 6,3 9 7,6 6 8,2 0 S ho rt-te rm fina nc ia l d e b t 2,6 7 2,3 9 2,8 6 2,7 1 2,5 6 2,4 1 P ro vis io ns 0,8 8 0,3 0 0,0 6 0,0 6 0,0 7 0,0 8 C u rre n t lia b il iti e s 1 4, , , , , ,4 1 L o ng -te rm fina nc ia l d e b t 1 2, , , , , ,7 1 S p e c ia l b e ne fits 2,7 1 2,0 9 1,5 0 1,5 4 1,7 5 1,7 7 P e ns io n o b lig a tio ns 2,0 2 2,7 3 1,2 2 1,3 2 1,5 9 1,7 0 D e fe rre d ta x lia b ilitie s 0,0 0 0,0 0 0,9 4 0,9 4 0,9 4 0,9 4 L o n g -te rm lia b il itie s 1 7, , , , , ,1 1 T o ta l li a b i litie s 3 1, , , , , ,5 2 S h a re h o ld e rs e q u ity 9, , , , , ,0 7 M in o rity in te re s ts 0,0 0 0,0 0 0,0 0 0,0 0 0,0 0 0,0 0 T o ta l e q u i ty a n d li a b i litie s 4 1, , , , , ,5 9 D r. K a lli w o d a R e se a rc h

13 13 paragon AG Update December Cash Flow Statement C a s h F lo w s ta te m e n t - p a ra g o n F is c a l y e a r in m E U R E E E N e t inc o m e 5,3 4 4,6 4 3,9 5 5,0 6 6,6 3 7,4 8 D e p re c ia tio n 4,0 7 3,8 9 4,3 1 4,6 5 5,5 8 5,9 8 C ha ng e o f w o rk ing c a p ita l 1,2 0-1,6 2-3,4 2-1,1 8-2,0 3-1,5 3 O the rs -2,0 2-1,1 0 0,2 7 0,0 0 0,0 1 0,0 0 N e t o p e ra tin g c a s h flo w 8,5 8 5,8 0 5,1 0 8, , ,9 3 C a s h flo w fro m in v e s tin g -3,3 2-6,1 5-4,8 1-6,9 4-8,6 4-8,3 3 F re e c a s h flo w 5,2 6-0,3 5 0,2 9 1,6 0 1,5 6 3,6 1 C a s h flo w fro m fin a n c in g -3,7 2-0,9 0 3,2 7-0,5 7-0,4 4-0,5 6 C ha ng e in c a s h 1,5 4-1,2 5 3,5 6 1,0 3 1,1 2 3,0 5 C a s h, s ta rt o f the ye a r 1 3, , , , , ,7 9 C a s h, e nd o f the ye a r 1 5, , , , , ,8 4 D r. K a l l i w o d a R e se a r c h Financial Figures F isca l y e a r E 2015E 2016E 2017E 2018E Gross margin 50,82% 49,41% 52,16% 50,70% 50,80% 50,50% 50,00% 50,00% EBITDA margin 18,83% 15,97% 16,13% 16,52% 17,03% 17,44% 17,74% 18,39% EBIT margin 12,88% 10,65% 10,45% 10,75% 11,25% 11,65% 11,95% 12,60% Net margin 7,79% 6,35% 5,21% 6,28% 6,87% 7,25% 7,52% 8,03% Return on equity (ROE) 74,82% 40,61% 27,30% 27,47% 27,33% 23,89% 20,51% 18,56% Return on assets (ROA) 15,68% 13,38% 11,34% 11,90% 13,04% 12,66% 12,01% 11,79% Return on capital employed (ROCE) 23,20% 17,87% 12,23% 13,65% 14,89% 14,48% 13,57% 13,25% Net debt (in EURm) 1,87 3,30 6,64 5,06 3,56-0,03-4,59-9,05 Net gearing 19,12% 25,29% 41,77% 24,15% 12,90% -0,08% -10,66% -17,44% Equity ratio 23,65% 29,63% 30,60% 36,58% 41,96% 47,66% 52,90% 58,27% Current ratio 1,69 1,83 2,72 2,82 2,83 3,05 3,35 3,64 Quick ratio 1,10 1,15 1,94 2,01 1,99 2,19 2,47 2,75 Net interest cover 6,69 7,22 5,32 6,02 7,82 8,98 9,88 11,15 Net debt/ebitda 0,15 0,28 0,54 0,38 0,22 0,00-0,24-0,45 Book value per share 2,38 3,17 3,86 5,09 6,70 8,52 10,47 12,61 CAPEX/Sales -4,91% -8,21% -6,02% -8,70% -9,02% -8,13% -7,82% -7,74% W orking capital/sales -6,85% -2,77% 6,35% 7,35% 8,25% 9,20% 10,18% 11,10% EV/Sales 1,09 1,04 0,99 0,92 0,77 0,71 0,69 0,67 EV/EBITDA 5,68 6,28 5,99 5,50 4,45 4,07 3,87 3,63 EV/EBIT 8,30 9,42 9,25 8,45 6,74 6,09 5,75 5,30 P/BVPS 6,37 4,79 3,93 2,98 2,26 1,78 1,45 1,20 P/E 11,69 13,46 15,80 12,33 9,41 8,34 7,78 7,08 P/FCF 11,87-179,79 215,13 39,07 40,06 17,29 13,64 13,96 Source: Company, Dr. Kalliwoda Research GmbH

14 14 paragon AG Update December P/Tangible BVPS E 2015E 2016E 2017E Source: Company, Dr. Kalliwoda Research GmbH

15 15 paragon AG Update December 2014 Primary Research Fair Value Analysis International Roadshows Head/CEO: Dr. Norbert Kalliwoda Dr. Peter Arendarski Harald Gruber CEFA-Analyst; University of Frankfurt/Main; PhD in Economics; Dipl.-Kfm. Senior-Analyst, Msc & Ph.D in Finance (Poznan Univers. of Economics),CFA Level 3 Candidate DVFA-Senior-Analyst, Diplom- Ökonom (Universität Giessen) Arndtstr Frankfurt Tel.: Fax: Sectors: IT, Software, Electricals & Electronics, Mechanical Engineering, Logistics, Laser, Technology, Raw Materials Sectors: Technology,Raw Materials, Banks & Insurances, Financial- Modelling (Quant., Buyside) Sectors: Technology/Special Situations Patrick Bellmann pb@kalliwoda.com Michael John mj@kalliwoda.com Rainer Koch rk@kalliwoda.com Olaf Köster ok@kalliwoda.com Adrian Kowollik ak@kalliwoda.com Christoph Löffel cl@kalliwoda.com Dr. Christoph Piechaczek cp@kalliwoda.com Dario Maugeri dm@kalliwoda.com Nele Rave nr@kalliwoda.com Hellmut Schaarschmidt; hs@kalliwoda.com Dr. Erik Schneider es@kalliwoda.com Hans-Georg Sutter hsu@kalliwoda.com Rainer Wochele rw@kalliwoda.com Junior-Analyst; WHU - Otto Beisheim School of Management, Vallendar Dipl.-Ing. (Aachen) Computer-Science/Dipl.-Betriebw, (Frankfurt); seasoned international Executive IT-Industry Dipl.-Betriebswirt, EBS Dipl.-Kfm.; Humboldt-Universität zu Berlin, CFA Candidate Bachelor Betriebswirtschaftslehre Universität Mannheim Dipl.-Biologist; Technical University Darmstadt; Univ. Witten-Herdecke. Master of Science in Corporate Finance; Rotterdam School of Management Lawyer; Native Speaker, German School London, Dipl.-Geophysicists; University of Frankfurt/Main. Dipl.-Biologist; Technical University Darmstadt; Univ. Hamburg. Dipl.-Wirtschaftsingenieur University Kaiserslautern Bachelor of Science in Economics and Business Administration (Goethe University Frankfurt M. / Graduation Fall 2013) Sectors: Support Research and Quantitative Approach Sectors: Chemicals, Chemical Engineering, Basic Metals, Renewable Energies, Laser/Physics Sectors: IT, IT-Services, Internet, Media, Internet, Emerging Markets Sectors: Renewable Energy/Technology Sectors: Media, Internet, Gaming, Technology, Eastern European stocks Sectors: Financials, Real Estate Sectors: Biotech & Healthcare; Medical Technology Pharmaceutical Sectors: Automotive, Technology Legal adviser Sectors: Oil, Regenerative Energies, Specialities Chemicals, Utilities Sectors: Biotech & Healthcare; Medical Technology Pharmaceutical Sectors: IT/e-commerce Junior-Analyst Also view Sales and Earnings Estimates: DR. KALLIWODA RESEARCH GmbH on Terminals of Bloomberg, Thomson Reuters, vwd group, Capital IQ and Factset Analyst of this research: Dr. Norbert Kalliwoda, CEFA Also see our Bloomberg page: KALL

16 16 paragon AG Update December 2014 Essential information, disclosures and disclaimer A. Essential information Investments in financial instruments and securities (e.g. equities, bonds) generally involve high risks. It is possible that investors lose some or all of their invested money. Potential investors should be aware of the fact that prices of securities could fall and rise. Thus, the income from such investments might be subject to considerable fluctuations. Investment strategies are not appropriate at all times and past results are not a guarantee of the future performance. Investors should make their own and independent decisions as to whether undertake a risky investment. B. Disclosures according to Section 34b of the German Securities Trading Act (WpHG) and the German Regulation governing the Analysis of Financial Instruments (FinAnV). I. Information about the company held accountable and regulatory authority: Company responsible for the content of this document: DR. KALLIWODA RESEARCH GmbH, Frankfurt am Main, Germany. Regulatory authority for DR. KALLIWODA RESEARCH GmbH is the Federal Financial Supervisory Authority (BaFin), Graurheindorfer Straße 108, Bonn, Germany and Lurgiallee 12, Frankfurt am Main, Germany. II. Additional Information: 1. Sources of information: Essential sources of information for the compilation of this document are publications from domestic and international information services and media (e.g. Bloomberg, dpa-afx, Reuters, VWD, among others), financial press (e.g. Allgemeine Zeitung Frankfurter, Börsenzeitung, Financial Times Handelsblatt and others), specialized trade press, published statistics, rating agencies as well as publications by peer group companies and the company itself. This document was made available to the company before publishing to ensure the correctness of the information provided. 2. Summary of the basis of valuation principles and methods used to prepare this document: Within the scope of the evaluation of companies, the following valuation methods are applied: Multiple-based models (Price/Earnings, Price/Cash-flow, Price/Book value, EV/Sales, EV/EBIT, EV/EBITDA), peer group comparisons, historic valuation methods, discounting models, sum-of-theparts-approaches, substance-valuation methods and SWOT-analyses. The valuation principles and models are dependent on macroeconomic factors, such as interest rates, exchange rates, raw materials and on basic assumptions about the economy. Moreover, the value of enterprises is affected by market moods and market sentiment. The approaches are based on expectations that could change rapidly and in advance warning according to developments specific to the individual branch. The valuation results and fair values derived from the models might therefore change accordingly. The ratings are the evaluation results and refer to a fair value pricing reflecting a time-horizon of twelve-months. Nevertheless, evaluation results are subject to changing market conditions and constitute merely a snapshot. The evaluation results and fair values may be reached faster or slower than expected by the analysts. The results and fair values may be scaled upwards or downwards.

17 17 paragon AG Update December 2014 DR. KALLIWODA RESEARCH GmbH uses the following rating model: BUY: Based on our analysis, we expect the stock to appreciate and produce a total return of at least 10% over the next twelve months ACCUMULATE: HOLD: REDUCE: SELL: Based on our analysis, we expect the stock to appreciate and produce a total return between 5%- 10% over the next twelve months Based on our analysis, we expect the stock to produce a total return between -5% and +5% over the next twelve months Based on our analysis, we expect the stock to cause a negative return between -5% and -10% over the next twelve months Based on our analysis, we expect the stock to cause a negative return exceeding -10% over the next twelve months 3. Updates: A specific update of this document has currently not been set. The research reflects the author s judgement on the date of this publication and is subject to change without any notice. The document might be incomplete or shortened and it may not contain all information concerning the company covered. It is in the sole decision of DR. KALLIWODA RESEARCH GmbH whether and when a potential update of this research is made. III. Disclosures about potential conflicts of interest: The business model of DR. KALLIWODA RESEARCH GmbH is based on business relationships with issuer company, their broker or IR/PR agency, as well as equity transactions to be performed on the issuer s stock. Dr. Kalliwoda Research has entered into an agreement on the preparation of this document with issuer itself. Conflicts of interest may be in existence with employees of DR. KALLIWODA RESEARCH GmbH who are the authors of this document as well as other persons that were involved in the preparation of this research or related parties. Following conflicts of interest might exist: 1. DR. KALLIWODA RESEARCH GmbH employees or other persons that were involved in the preparation of this document or related parties might have a major shareholding (holding more than 5%) of the share capital of the issuer that is, or whose financial instruments are, the subject of the research. 2. DR. KALLIWODA RESEARCH GmbH employees or other persons that were involved in the preparation of this document or related parties are possibly holders of instruments that are mentioned in this research (or that are linked to these instruments) or might become holders and could regularly trade the issuer s securities or securities based on these issues as principal or agent. 3. DR. KALLIWODA RESEARCH GmbH employees or other persons that were involved in the preparation of this document or related parties could have participated in leading a consortium for the issuer via a public offering of the financial instruments that are the subject of this research. 4. DR. KALLIWODA RESEARCH GmbH employees or other persons that were involved in the preparation of this document or related parties might have been party to an agreement on the provision of investment banking services with the issuer which is the subject of this research, or have received services or a pledge to perform under the terms of such an arrangement during the same period.

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