NICE. Two positives, one negative. Hold (maintained) Company Update. 16 March 2016 MARKET PRICE: EUR2.24 TARGET PRICE: EUR2.30 (from EUR2.

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1 Company Update Hold (maintained) MARKET PRICE: EUR2.24 TARGET PRICE: EUR2.30 (from EUR2.86) Home Automation Data Shares Outstanding (m): Market Cap. (EURm): Enterprise Value (EURm): Free Float (%): 21.5% Av. Daily Trad. Vol. (m): 0.02 Main Shareholder: Reuters/Bloomberg: Lauro Buoro 69.7% NICE.MI NICE IM 52-Week Range (EUR) Performance 1m 3m 12m Absolute 10.3% -10.5% -31.3% Rel. to FTSE IT 0.5% 1.0% -18.3% Graph area Absolute/Relative 12 M Marco Cristofori marco.cristofori@ubibanca.it Tel Website: Financials E 2017E 2018E Revenues (EURm) EBITDA (EURm) EBITDA margin (%) 14.5% 14.9% 15.4% 16.4% EBIT (EURm) EPS (EUR) CFPS (EUR) DPS (EUR) Source: Company Data, UBI Banca Estimates Two positives, one negative Three main factors emerged from 4Q15 results: 1) France and Italy revenues recovered (+2% and +12.2% respectively) after many quarters of slowdown and this trend should continue in the coming quarters. This is particularly positive as these countries always reported a higher margin and therefore higher sales improve the mix; 2) DPS increased by nearly 50% giving an attractive dividend yield of 3.2%; 3) the EBITDA margin remained well below our expectations (10.7% vs. our 14.3% estimate), with lower gross margins related to a worsening product and geographic mix and slightly higher fixed costs. The company anticipates single digit growth this year for both the top line and EBITDA, meaning that margins should improve modestly. As a result, we have downgraded our estimates (and introduced 2018), cutting EBITDA expectations by 8% on average and net profit estimates by 9%. Even considering the share price drop of 35% in the past 12 months, we believe a significant upturn of the share price can occur only in the presence of sustainable EBITDA margin growth, which is still not evident. We confirm our Hold rating with a new target price of EUR2.30 (from EUR2.86). > 4Q15 revenues rose 5.9% (+6.5% in the full year and +7.6% at constant exchange rates) but margins remained under pressure due to the worsening product and geographical mix. The net profit improved compared with last year as 4Q14 was impacted by significant non-recurring costs. Net cash was limited to EUR0.5 million at Dec-15 as the company made substantial investments in 2015 (EUR11.3 million of capex and EUR13.2 million in acquisitions). Nice announced a dividend of EUR per share (+48% vs. 2014, 51% pay-out, 3.2% yield). > Management anticipates single digit figure growth in 2016 sales and EBITDA, with recovery in France and Italy and a further increase in capex which could rise to EUR15-20 million, plus eventual acquisitions that remain a target for the company. The Net financial position is expected to remain positive. > We have trimmed our target price by 19.5% to EUR2.30 per share from EUR2.86 due to our estimates downgrade and a more cautious terminal value. The shares are currently trading 40% below Somfy at EV/EBITDA level, but this is justified by the higher profitability of the French peer. Ratios E 2017E 2018E P/E(x) P/CF(x) P/BV(x) Dividend Yield 3.2% 2.8% 3.2% 3.8% EV/EBITDA(x) Debt/Equity (x) Debt/EBITDA (x) Source: Company Data, UBI Banca Estimates 1

2 Key Financials (EURm) E 2017E 2018E Revenues EBITDA EBIT NOPAT Free Cash Flow Net Capital Employed Shareholders Equity Net Financial Position Key Profitability Drivers E 2017E 2018E Net Debt/Ebitda (x) Net Debt/Equity (x) Interest Coverage (%) Free Cash Flow Yield (%) -0.6% 4.1% 5.4% 6.7% ROE (%) 7.5% 9.6% 10.2% 11.2% ROI (%) 8.2% 9.4% 9.8% 10.6% ROCE (%) 15.9% 16.3% 17.0% 18.2% Key Valuation Ratios E 2017E 2018E P/E (x) P/BV (x) P/CF (x) Dividend Yield (%) 3.2% 2.8% 3.2% 3.8% EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) EV/CE (x) Key Value Drivers (%) E 2017E 2018E Payout 53.5% 35.0% 35.0% 35.0% Cost of Equity 8.0% 8.0% 8.0% 8.0% WACC 8.0% 8.0% 8.0% 8.0% NWC/Sales 26.3% 26.0% 25.5% 25.4% Capex/Sales 3.9% 5.5% 5.4% 5.3% 2

3 Recent Developments > Although 4Q15 revenues were broadly in line with our forecasts, EBITDA missed our expectations due to higher COGS relating to a less favourable product and geographic mix which once again impacted the gross profit margin (53.4% vs. 54.4% in 4Q14). Adding higher fixed costs, the EBITDA margin declined to 10.7% (vs. 13.7% in 4Q14). The net result was up 32% but we remained that 4Q14 was affected by EUR2.3 million of non-recurring costs compared with less than EUR1 million in 4Q15 for the fair value of financial liabilities for the acquisition of minorities in Elero. > The company announced a dividend of EUR per share (+48% vs and well above our expectations), with a pay-out ratio of 511% and a yield of 3.2% at the current market price. The management stated that 2015 pay out ration is exceptional and that the dividend was increased to demonstrate the strength of the group to shareholders. > Net cash was EUR0.5 million at Dec-15 compared with EUR11.6 million at Dec- 14 and with EUR7.8 million net debt at Sept-15. NWC slightly increased to EUR75.8 million or 25.8% of sales vs. EUR74.4 million or 27.5% of sales in 2014). Capex were EUR11.3 million in 2015 (vs. EUR6.4 million in 2014) and Nice also invested EUR11.3 million in a small acquisition in South Africa at the beginning of > Management guidance indicates low single digit figure growth in 2016 sales, with further growth outside Europe, France growing gradually after +2% in 4Q15 and Italy remaining broadly stable. The EBITDA margin is expected to expand due to an improved gross margin and lower operating costs. Figure 1-4Q15 and 2015 Results The gross margin deteriorated by 40 bps in 2015 (54.5% vs. 54.9% in 2014) and fixed costs were also up 7.5%, reducing EBITDA margin by 80 bps EURm 4Q14A 4Q15A Chg. YoY 4Q15E Delta vs. UBI 2014A 2015A Chg. YoY Sales % % % EBITDA % % % EBITDA margin 13.7% 10.7% 14.3% 15.3% 14.5% EBIT % % % EBIT margin 10.0% 7.4% 11.6% 12.3% 11.5% Net Income % % % 3

4 Figure 2 Weight of revenues from Italy and France and trend in the quarterly gross margin As the following chart shows, there is a strong correlation between the gross margin and the weight of Italian and French sales on total revenues (R2 >0.8) and we believe it could be extremely difficult to increase margins without a sustainable recovery in sales in France and Italy. For this reason the positive performance of Italy (+12.2% in 4Q15) and France (+2%) is a very positive news 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,0% 1Q103Q101Q113Q111Q123Q121Q133Q131Q143Q141Q153Q15 66,0% 64,0% 62,0% 60,0% 58,0% 56,0% 54,0% 52,0% 50,0% 48,0% Italy and France sales (% on total) Gross margin Source: UBI Banca using Company data Figure 3 - Sales breakdown by area (EURm) 4Q14A 4Q15A 2014A 2015A France Italy Europe at Rest of Europe Rest of World Total Sales As % of Total France 14.3% 13.8% 15.2% 13.9% Italy 11.8% 12.5% 13.2% 12.8% Europe at % 27.5% 28.5% 28.3% Rest of Europe 21.9% 19.8% 20.8% 18.6% Rest of World 24.9% 26.4% 22.3% 26.4% % Growth France 0.0% 2.0% -5.7% -2.7% Italy -8.9% 12.2% -7.0% 2.8% Europe at % 7.4% 8.0% 5.5% Rest of Europe 3.0% -3.9% 2.8% -4.9% Rest of World 15.7% 12.2% 8.5% 25.7% Total Sales 5.0% 5.9% 2.6% 6.2% Source: Company data 4

5 Financial Projections > Following 2015 results, we have revised our estimates for and introduced 2018 forecasts. We have merely fine-tuned our top line estimates implying a CAGR of 5.0% to > While the gross operating margin should remain broadly stable for the coming years (vs. a gradual improvement expected before), EBITDA should slightly improve thanks to a slight reduction in fixed costs reaching 16.4% in 2018 (which, however, remains well below the average of >22% in the past 10 years). Altogether, our EBITDA estimates have been reduced by around 8% and net profit forecast by an average 9%. > Given management indications, we have increased our capex expectations which now point to EUR16.5 million this year and EUR17 million in NWC should remain about 25-26% of sales (vs. our previous expectation of 26-27%). Altogether, Nice should remain cash positive (excluding possible new acquisitions) achieving a net cash position of EUR2.5 million at Dec-16 with significant further improvements in the coming years. Figure 4 - Old vs. new estimates 2014 net income included EUR2.3 million of non-recurring costs for the impairment of goodwill (EUR0.6 million) and for the fair value of financial liabilities for the acquisition of minorities in Elero (EUR1.7 million). (EURm) 2015A 2016E 2017E 2018E Old New Old New New Sales % change -0.1% -0.1% 0.0% EBITDA % change -2.3% -6.6% -8.9% Margin 14.5% 16.0% 14.9% 16.9% 15.4% 16.4% Net Income % change -4.7% -8.1% -10.7% Net debt (cash) % change -80.3% -72.5% 5

6 Figure 5 Gross margin evolution Our assumptions for fixed and variable costs indicate a sales breakeven point of EUR223 million in 2016E, which implies there is a good safety margin of 26% based on our estimate of 2016E revenues E 2017E 2018E 65% 60% 55% 50% 45% 40% 35% 30% COGS Gross Margin COGS as % on net sales GM as % on net sales Figure 6 Cost structure and DOL (degree of operating leverage) evolution Fixed costs declined to 38.9% of total costs in This level should remain broadly stable in coming years while variable costs are expected to fall slightly from 54% of revenues in 2015 to 53.1% expected for DOL should see some improvements in , although it is likely to remain lower than in recent years E 2017E 2018E 4,5 4,0 3,5 3,0 2,5 2,0 1,5 Variable Costs Fixed Costs DOL (rhs) 6

7 Valuation > The share price has fallen 8.7% since the beginning of the year, mostly in line with the market. However, we believe that outperformance could come only if the company is able to increase its EBIT margins which have fallen continuously since As a result, we maintain our Hold rating on the stock. > Our target price derives from a weighted average of a DCF analysis and an EV/ROACE approach. We excluded a valuation based on Somfy as the French company is constantly reporting EBITDA margins well above Nice and therefore its multiples deserve a premium. Following our downgrade in estimates, our target price has fallen by 20% to EUR2.30 per share (from EUR2.86). > Nice is currently trading at 5.9x EV/EBITDA16E, or 40% below Somfy, the only comparable listed company, while Nice s P/E is 21% below its peer. Figure 7 Valuation Summary Method Fair Value (EUR) weight DCF % EV/ROACE % Target Price 2.30 Price per share (actual) 2.24 Increase/decrease % 2.8% Source: UBI Banca estimates Figure 8 - P/E and EV/EBITDA vs. main peers P/E EV/EBITDA 2016E 2017E 2016E 2017E Somfy Nice Premium/(discount) -20.9% -25.6% -40.3% -40.5% Source: Factset, UBI Banca estimates Figure 9 - WACC estimate Risk free rate = 3.00% D = 0% beta = 1.10 E = 100% k (E) = 8.0% T = 27.5% Market premium = 4.5% k (D) = 3.6% WACC 8.0% Source: UBI Banca estimates 7

8 Figure 10 - Cash Flow projections Compared with our previous DCF valuation, we have lowered our EBIT margin at terminal value to 13% vs. 14.5% before. Also capex were significantly increased (EURm) FY13A FY14A FY15A FY16E FY17E FY18E TV Net Sales , growth yoy (%) -3.8% 2,5% 6.2% 5.1% 5.0% 4.9% 3.0% EBIT , ROS % 12.5% 12,3% 11.5% 12.0% 12.5% 13.5% 13.0% growth yoy (%) -28.0% 0,5% -0.2% 9.7% 9.6% 12.9% -0.8% Cash taxes on EBIT (11.5) (11,8) (13.4) (15.5) (16.2) (16.9) (16.7) NOPAT D&A 7.6 8, (Capex) (7.4) (8,6) (11.3) (16.5) (17.0) (17.5) (17.2) (NWC requirements) 7.9 5,7 (1.0) (2.9) (2.5) (3.4) (2.7) Free Cash Flow , Discounted FCF Implied ratios FY13A FY14A FY15E FY16E FY17E FY18E TV Sales/Capital Employed Capex/D&A Capex/Sales 2.8% 3.2% 3.9% 5.5% 5.4% 5.3% 5.0% Capex/CE 3.7% 4.4% 5.9% 8.2% 8.1% 7.9% 7.9% NWC/Sales 32.0% 29.1% 27.8% 27.4% 26.9% 26.6% 26.6% Source: UBI Banca estimates Figure 11 - DCF fair value estimate Our Terminal Value represents ca 88% of Nice s EV. (A) Discounted free cash flow (EUR million) 31.6 WACC 8.0% Terminal growth 2.0% Terminal Value (EURm) (B) Discounted terminal value (EURm) (A+B) Operating activities Value (EURm) 263 Cash (Net Debt) FY14 (EURm) 0.5 Equity Value (EURm) Number of shares (m) Value per share (EUR) 2.27 Source: UBI Banca estimates 8

9 Income Statement (EURm) E 2017E 2018E Net Revenues EBITDA EBITDA margin 14.5% 14.9% 15.4% 16.4% EBIT EBIT margin 11.5% 12.0% 12.5% 13.5% Net financial income /expense Associates & Others Profit before taxes Taxes Minorities & discontinuing ops Net Income Balance Sheet (EURm) E 2017E 2018E Net working capital Net Fixed assets M/L term funds Capital employed Shareholders' equity Minorities Shareholders' funds Net financial debt/(cash) Cash Flow Statement (EURm) E 2017E 2018E NFP Beginning of Period Group Net Profit Minorities D&A Change in Funds & TFR Gross Cash Flow Change In Working Capital Other Operating Cash Flow Net Capex Other Investments Free Cash Flow Dividends Paid Other & Chg in Consolid. Area Chg in Net Worth & Capital Incr Change in NFP NFP End of Period

10 Financial Ratios (%) E 2017E 2018E ROE 7.5% 9.6% 10.2% 11.2% ROI (%) 8.2% 9.4% 9.8% 10.6% Net Fin. Debt/Equity (x) Net Fin. Debt/EBITDA (x) Interest Coverage NWC/Sales 26.3% 26.0% 25.5% 25.4% Capex/Sales 3.9% 5.5% 5.4% 5.3% Pay Out Ratio 53.5% 35.0% 35.0% 35.0% Per Share Data (EUR) E 2017E 2018E EPS DPS Op. CFPS Free CFPS BVPS Stock Market Ratios (x) E 2017E 2018E P/E P/OpCFPS P/BV Dividend Yield (%) 3.2% 2.8% 3.2% 3.8% Free Cash Flow Yield (%) -0.6% 4.1% 5.4% 6.7% EV (EURm) EV/Sales EV/EBITDA EV/EBIT EV/Capital Employed Growth Rates (%) E 2017E 2018E Growth Group Net Sales 6.2% 5.1% 5.0% 4.9% Growth EBITDA 0.3% 8.4% 8.7% 11.4% Growth EBIT -0.2% 9.7% 9.6% 12.9% Growth Net Profit -1.4% 37.8% 13.9% 18.5% 10

11 Disclaimer Analyst Declaration The analyst who prepared this report. and whose name and role appear on the front page. certifies that: a. the views expressed on the Company mentioned herein accurately reflects his personal views. It does not represent the views or opinions of the management of UBI Banca or any other company in or affiliated to the UBI Banca Group. It is possible that individuals employed by UBI Banca. or any other company in or affiliated to the UBI Banca Group. may disagree with the views expressed in this report; b. no direct or indirect compensation has been or will be received in exchange for any views expressed; c. the analyst does not own shares of the Company; d. neither the analyst nor any member of the analyst s household serves as an officer. director or advisory board member of the Company; e. the analyst does not receive bonuses. salaries. or any other form of compensation that is based upon specific investment banking transactions. About UBI Banca This document has been prepared by UBI Banca. a bank authorized by the Bank of Italy to provide investment services pursuant to Article 1. Paragraph 5. letter a). b). c). c-bis). e) and f) of Legislative Decree. 24 February n 58. General warning This document is for information purposes only. This document (i) is not. nor may it be construed. to constitute. an offer for sale or subscription of or a solicitation of any offer to buy or subscribe for any securities issued or to be issued by the Company. (ii) should not be regarded as a substitute for the exercise of the recipient s own judgement. In addition. the information included in this document may not be suitable for all recipients. Therefore the recipient should conduct his own investigations and analysis of the Company and securities referred to in this document and make his own investment decisions without undue reliance on its contents. Neither UBI Banca. nor any other company of the UBI Banca Group. nor any of its directors. managers. officers or employees. accepts any liability whatsoever (in negligence or otherwise). and accordingly no liability whatsoever shall be assumed by. or shall be placed on. UBI Banca. or any other company of the UBI Banca Group. or any of its directors. managers. officers or employees. for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. The information provided and the opinions expressed in this document are based upon information and data provided to the public by the Company or news otherwise public and refers to the date of publication of the document. The sources (press publications. financial statements. current and periodic release. as well as meetings and telephone conversations with Company representatives) are believed to be reliable and in good faith. but no representation or warranty. express or implied. is made by UBI Banca as to their accuracy. completeness or correctness. Past performance is not a guarantee of future results. Any opinions. forecasts or estimates contained herein constitute a judgement as at the date of this document. and there can be no assurance that the future results of the Company and/or any future events will be consistent with any such opinions. forecasts or estimates. Any information herein is subject to change. update or amendment without notice by UBI Banca subsequent to the date of this document. with no undertaking by UBI Banca to notify the recipient of this document of such change. update or amendment. Organizational and administrative arrangements to prevent conflicts of interests UBI Banca maintains procedures and organizational mechanism (physical and non physical barriers designed to restrict the flow of information between Business Analysis Unit and the other areas/departments of UBI Banca) to prevent and professionally manage conflicts of interest in relation to investment research. For further information please see UBI Banca s website ( Meccanismi organizzativi ed amministrativi posti in essere per prevenire ed evitare conflitti di interesse in rapporto alle Ricerche. Disclosure of potential conflicts of interest The outcome of the checks carried out is reported below: > UBI Banca acts as Specialist for Nice Spa. On the basis of the checks carried out no other conflict of interest arose. Frequency of updates UBI Banca aims to provide continuous coverage of the companies in conjunction with the timing of periodical accounting reports and any exceptional event that occurs affecting the issuer s sphere of operations and in any case at least twice per year. The companies for which UBI Banca acts as Sponsor or Specialist are covered in compliance with regulations of the market authorities. For further information please refer to 11

12 Valuation methodology UBI Banca s analysts value the Company subject to their recommendations using several methods among which the most prevalent are: the Discounted Cash Flow method (DCF). the Economic Value Added method (EVA). the Value map method. the Multiple comparison method. For further information please refer to Ranking system UBI Banca s analysts use an absolute rating system. not related to market performance. The explanation of the rating system is listed below: Buy: if the target price is 10% higher than the market price. Hold: if the target price is 10% below or 10% above the market price. Sell: if the target price is 10% lower than the market price. Target price: the market price that the analyst believes that the share may reach within a one-year time horizon. Market price: closing price on the day before the issue date of the report. appearing on the first page. Distribution This document is intended for distribution only by electronic and ordinary mail to Professional Clients and Qualified Counterparties as defined in Consob Regulation n dated This document may be distributed in the USA by a United States Securities and Exchange Commission ( SEC ) registered broker dealer. This document may not be distributed in Canada. Japan or Australia. Copyright This document is being supplied solely for the recipient s information and may not be reproduced. redistributed or passed on. directly or indirectly to any other person or published. in whole or in part. for any purpose without prior written consent by UBI Banca. The copyright and intellectual property rights on the data are owned by UBI Banca Group. unless otherwise indicated. The data. information. opinions and valuations contained in this document may not be subject to further distribution or reproduction. in any form or via any means. even in part. unless expressly consented by UBI Banca. By accepting this document the recipient agrees to be bound by all of the forgoing provisions. Distribution of ratings For further information regarding quarterly rating statistics and descriptions. please refer to Historical ratings and target prices Date Rating Target Price (EUR) Market Price (EUR) 20/03/2012 BUY /08/2012 BUY /11/2012 BUY /05/2013 BUY /09/2013 BUY /04/2014 HOLD /09/2014 HOLD /03/2015 HOLD /09/2015 HOLD