1 EPaccess Media Sweden 22 November 213 Equity Research ZetaDisplay Europe leads the way Risk and Return Potential Return Potential Risk High High Risk Current Price 4,8 High/Low (12M) 6,8/2,96 Number of Shares (m) 12,2 Market Capitalisation (SEKm) 9 Net Debt (SEKm) -4 Enterprise Value (SEKm) Reuters/Bloomberg Listing Estimates and Valuation (SEK) ZETA.ST/ZETA SS First North Premier FY (Dec) E 214E 21E Sales Gross Profit EBIT Pre-tax Result EPS Adjusted -,21 -,37,47,63 BVPS 2,44 2,7 2,4 3,17 Dividend,,,, EPS Growth NM NM NM 34,6 Gross Margin 6,8,1 6, 62, EBIT Margin -11,4-7,1 7,8 9, ROE -8,2-16,3 2,4 22,1 ROCE,8 2, 26,7 34, Net Debt/Equity -,37 -,13 -,28 -,4 EV/Sales,6,87,73,66 EV/EBIT NM NM 9,3 7, P/E Adjusted NM NM 1,2 7,6 P/BV 1,38 2,32 1,89 1,1 Dividend Yield,,,, Price trend, 12 months 7, 6, 6,,, 4, 4, 3, 3, 2, N D J F M A M J J A S O N ZetaDisplay OMXS (Rebased) Initiation of coverage Target Report Price Change Estimate Important Change Event Sales in line with expectations ZetaDisplay reported sales of SEK 12 (1) million in Q3, representing sales growth of 2% compared to the same period last year. We anticipated sales of SEK 13 million in Q3. The sales increase was primarily driven by a stronger demand scenario from the French and Norwegian markets. The gross margin increased during the quarter and amounted to 6%, compared with 3% in Q2 (positive mix effect of increased recurring revenue). Operating profit amounted to SEK -1.9 (- 1.8) million, which was slightly below our estimate of SEK -1.4 million. The company states that its international expansion was the primary reason for the slightly higher cost base. Profit after tax amounted to SEK.1 (.2) million. International expansion begins to bear fruit During the quarter, four companies signed agreements for ZetaDisplay s media platform, including Norwegian home furnishing chain Hansen & Dysvik, which has 4 stores in its network, and a cosmetics company in France. Furthermore, the company announced that two more companies (Netonnet and Mercedes-Benz) signed contracts after the period for the Digital Signage media platform. This indicates that the international expansion is beginning to bear fruit. We calculate that the company requires annual sales of approximately SEK 6-7 million to meet its costs. Our view is that the cost level of the company will rise slightly in the final quarter of the year. However, we expect a positive operating profit before depreciation and amortisation for Q4 213, driven by continued growth of installations, software and services. We expect profit in 214E We are lowering our estimates for 213E EPS, given a slightly higher cost base from ZetaDisplay s expansion in Europe than we had previously anticipated. However, we maintain our forecast for 214E. With a steadily growing installed base and continued strong flow of inquiries from both existing and new customers, we expect profit in 214 for ZetaDisplay. Uncertainty, and thus probable deviations from the forecasts, is large given the quarterly and annual fluctuation in margins and revenues. On our 214E forecasts ZetaDisplay is traded at P/E 1x, which we find attractive. For 21 and onwards, we see good growth potential for both the underlying market and ZetaDisplay. Source: FactSet Date Event Place 2/2/214 Q4 report See last page for the disclaimer.
2 Net Debt, SEKm Net Debt/Equity EBIT, SEKm EBIT Margin, Percentages EBIT, SEKm EBIT Margin, Percentages ZetaDisplay Sales by Segment ZetaDisplay Sales by Market Norge 9% Danmark 7% Övriga 2% Finland 21% Sverige 61% Ospecificerat 1% ZetaDisplay Full-year EBIT Performance ZetaDisplay Quarterly EBIT Performance E 14E 1E EBIT EBIT Margin EBIT EBIT Margin ZetaDisplay Financial Position ZetaDisplay Share Structure, Management E 14E 1E Net Debt Net Debt / Equity Note: Negative numbers indicate a net cash position Market Cap (SEKm) 9 No of Outstanding Shares (m) 12,2 Avg No of Daily Traded Shares (s) 7 Free Float (Shares) 74,9% Main Shareholders Votes Shares Mats Johansson 1,% 1,% Martin Gullberg 11,3% 11,3% Fons Hf 9,8% 9,8% Mikael Öberg med bolag 8,% 8,% Övriga,9%,9% Chairman Mats Johansson CEO Leif Liljebrunn CFO Peter Rudbert IR Leif Liljebrunn Phone Number / Internet / Next Report 2 February 214 ZetaDisplay 22 November 213 Erik Penser Bankaktiebolag 2
3 Investment case ZetaDisplay s business concept The company aims to be a total supplier and thus provide Digital Signage software and services, which will in turn generate higher sales for its client companies. These client companies are large and medium-sized retail and service trade chains in Sweden and the other Nordic countries that require complex solutions. The goal is to successively build an installed base of Digital Signage customers whose purchases of licenses and services generate repeat revenues with a high gross margin. The idea is to expand the offering over time for both existing and new customers and to grow along with the customers businesses. The objective is to be a leading provider in the Nordic region and eventually to expand the offering to markets outside the Nordics. ZetaDisplay took its first step towards international expansion in Q1 213 by opening sales offices in the Netherlands and Estonia in order to better serve new and existing customers in these and neighbouring markets. We anticipate a profit in 214 We anticipate good, double-digit revenue growth in 2131E with a 2% sales increase this year. Several contracts are said to be in the pipeline and we are basing our forecasts on improvements in contract finalisation, primarily during 213, that will result in higher license revenues and hardware deliveries. Break-even should be somewhere around sales of SEK 6-7m, partly dependent upon the sales mix, and for 214 we expect revenues of about SEK 76m and an operating profit of SEK 6m (after approximately 3m in depreciation/amortisation) and EBITDA of 9m. Gross margin and growth potential attractive valuation 214E Assuming the increased base of repeat revenues at a healthy margin, we are anticipating that the gross margin will increase in 213 to.1%, from last year s 4.4%. At the end of the forecast period (21E), we assume a gross margin of 62%, partly restrained by sustained good growth in new projects and thus diluted by the initially lower margins for project deliveries. In this scenario, the share will be traded 214E at a P/E multiple of 1.x (EV/EBIT 9.1x) and we see continued good growth potential, both for the underlying market and for ZetaDisplay, which, all things considered, should be able to take a larger share of the addressed market. ZetaDisplay Our Estimate Changes (SEK) 213E 214E 21E Old New Change Old New Change Old New Change Försäljning % % 8 83 % EBIT -4-4 % 6 6 % 8 8-1% EPS just -,33 -,37-1%,47,47 %,66,63-4% Source: Erik Penser Bankaktiebolag Erik Penser Bankaktiebolag ZetaDisplay 22 November 213 3
4 ZetaDisplay Income Statement, Cash Flow and Balance Sheet (SEKm) Income Statement E 214E 21E Net Sales Other Operating Income Cost of Goods Sold (COGS) Gross Profit SG&A Costs Other Operating Costs EBIT Non-recurring Items Associated Companies Net Financial Items Pre-tax Result Tax Minority Interest Net Result Cash Flow E 214E 21E EBITDA Change in Working Capital Other Operating Cash Items 1 Operating Cash Flow Net Financial Costs Taxes Paid Capital Expenditure Free Cash Flow Dividends Acquisitions Disposals 1 Equity Issue/Share Buybacks Other Adjustments Total Cash Flow Other Non-cash Adjustments 1 Net Debt Balance Sheet ASSETS E 214E 21E Goodwill Other Intangible Assets Tangible Assets Shares in Participations Other Fixed Assets Total Fixed Assets Inventories Accounts Receivable Other Current Assets Cash and Cash Equivalents Total Current Assets TOTAL ASSETS EQUITY AND LIABILITIES Shareholder Equity Minority Interest Total Equity Long-term Financial Liabilities Pension Provisions Deferred Tax Liabilities Other Long-term Liabilities Total Long-term Liabilities Current Financial Liabilities Accounts Payable Tax Liabilities Other Current Liabilities Total Current Liabilities TOTAL EQUITY AND LIABILITIES ZetaDisplay 22 November 213 Erik Penser Bankaktiebolag 4
5 ZetaDisplay Valuation and Key Ratios (SEK) Per Share Data E 214E 21E EPS Reported -,38 -,92 -,98,1-1,9 -,7 -,21 -,37,47,63 EPS Adjusted -,38 -,92 -,98,1-1,9 -,7 -,21 -,37,47,63 CEPS -,2 -,68-1,1-1,24 -,8 -,9,16 -,33,74,89 Free Cash Flow,9,6,22-1,3 -,8-1,24,9 -,61,43,63 Dividend,,,,,,,,,, Book Value,73 4,81 3,8 3, 1,98 2,6 2,44 2,7 2,4 3,17 Tangible Book Value (Excl Goodwill),41 4,34 2,72 1,84,82 1,67 1,4 1,4 1,1 2,14 Net Asset Value,41 4,34 2,72 1,84,82 1,67 1,4 1,4 1,1 2,14 Net Debt -1,72,23,19,76 1,3,44 -,89 -,28 -,71-1,26 Enterprise Value ,44 2,6 4,2 4,9 3,62 Diluted No of Shares, Weighted Average (m) 9,1 9,1 9,1 9,2 9,6 11, 12,2 12,2 12,2 12,2 Diluted No of Shares, Year-end (m) 9,1 9,1 9,1 9,2 9,7 12,2 12,2 12,2 12,2 12,2 Valuation E 214E 21E P/E Reported NM NM NM 1,2 7,6 P/E Adjusted NM NM NM 1,2 7,6 P/CEPS NM 21,3 NM 6,,4 P/FCFPS NM 3,8 NM 11,1 7,7 FCF Yield ,1 26,6-12,8 9, 13,1 Dividend Yield ,,,,, Dividend Payout Ratio Adjusted NM NM NM NM NM NM NM NM,, P/BV , 1,38 2,32 1,89 1,1 P/Tangible BV ,38 2,4 4,63 3,19 2,24 P/NAV ,38 2,4 4,63 3,19 2,24 EV/Sales ,19,6,87,73,66 EV/EBITDA NM NM NM 6,1 4,7 EV/EBIT NM NM NM 9,3 7, Share Price, Year-end ,97 3,37 4,8 4,8 4,8 Share Price, High , 7, 6,8 - - Share Price, Low ,79 2,8 2, Share Price, Average ,28 3,7 4,9 - - Market Cap, Year-end and Current (SEKm) Enterprise Value, Year-end and Current (SEKm) Growth Rate and Margins E 214E 21E Sales Growth, YoY - -1,8 274,8 6, 66,1-13,1 2,8 21,3 2, 1, EBIT Growth, YoY - NM NM NM NM NM NM NM NM 33,9 EPS Adjusted Growth, YoY - NM NM NM NM NM NM NM NM 34,6 Gross Margin 6,3 63,1 43,7 49,1 47,8 7, 6,8,1 6, 62, EBITDA Margin 6,4-71,3 1,6 2,2-12, -11,8,9,8 12, 14, EBIT Margin -34,1-82,8,9 9,6-18, -18,4-11,4-7,1 7,8 9, Pre-tax Margin Adjusted -31,4-77,3,8-61,7 1,3,1-4,4-7,1 7,8 9, Net Margin Adjusted -31,4-77,4 1,9-61,7 1,3,1-4,9-7,1 7,6 9,3 Tax Rate NM NM NM NM NM NM NM NM 2, 2, Profitability E 214E 21E Return on Equity, ROE - -17, 2,6 8,4-44,6-33,4-8,2-16,3 2,4 22,1 Return on Equity -Year Average ,3-33, -32,2-16,4-3,1 Return on Capital Employed, ROCE - 9,9-34,9-49,6 6,4 2,6,8 2, 26,7 34, Return on Capital Employed -Year Average ,7-3,9 8,3-13, -,8 Capital Expenditure and Efficiency E 214E 21E Capital Expenditure Capex/Sales 149,9-13,8 2, 9,2,1 7,8-6,1,,, SG&A/Sales Inventory/Sales 32, 6, 29,1 28,6 1,2 8,8 11, 18,2 18,2 18,2 Receivables/Sales,,,,,,,,,, Payables/Sales,,,,,,,,,, Net Working Capital/Sales 32, 6, 29,1 28,6 1,2 8,8 11, 18,2 18,2 18,2 Asset Turnover -,16,61,46,9,7,9 1,2 1,37 1,27 Financial Position E 214E 21E Interest-bearing Net Debt (SEKm) Equity Ratio 72,8 71, 48,7 49, 36, 3,3 4,2,7 1,4 4,7 Net Debt/Equity -,3 -,46,,2,68,17 -,37 -,13 -,28 -,4 Net Debt/Market Cap ,12 -,27 -,6 -,1 -,26 Net Debt/EBITDA,4 2,6 -,2 -,4,1-1,1 3,6 2, -1, -1,3 Note: Key ratios based on fully diluted number of shares. Historical key ratios are calculated using the year-end share price. Erik Penser Bankaktiebolag ZetaDisplay 22 November 213
6 EBIT, SEKm EBIT Margin, Percentages Pre-tax Result, SEKm Pre-tax Margin, Percentages Sales, SEKm YoY Change, Percentages Gross Profit, SEKm Gross Profit Margin, Percentages ZetaDisplay Quarterly Operating Performance (SEKm) Income Statement Q41 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Net Sales Other Operating Income Cost of Goods Sold (COGS) Gross Profit SG&A Costs Other Operating Costs EBIT Non-recurring Items Associated Companies Net Financial Items Pre-tax Result Reported Pre-tax Result Adjusted Tax Minority Interest Net Result Reported Growth Rates and Margins Q41 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Sales Growth, YoY - -9,3,1 1, -46,3-1,1-8,3 1,9 184,7 3, 7,3 22,6 EBIT Growth, YoY - NM NM NM NM NM NM NM NM NM NM NM Gross Margin 68,4 4,4,3 49,6 1,9 6,1 6,7 62,1 48,7 47,1 3,4 6,1 EBIT Margin -12,9-14, -6, 4,7-46,3-17,6-6,2-19,1-6,7-8, -19,3-16,7 Pre-tax Margin Adjusted -16,6-16, -7,4 6,3-48,1-19,9-8,7 3,9 2,3-8,9-19,9-17,7 Tax Rate NM NM NM NM NM NM NM NM 8,6 NM NM NM ZetaDisplay Sales, 12-month Moving Average ZetaDisplay Gross Profit, 12-month Moving Average Sales, 12-month Moving Average YoY Change Gross Profit Gross Profit Margin ZetaDisplay EBIT, 12-month Moving Average ZetaDisplay Pre-tax Result, 12-month Moving Average EBIT EBIT Margin Pre-tax Result Adjusted Pre-tax Margin Adjusted ZetaDisplay 22 November 213 Erik Penser Bankaktiebolag 6
7 This publication has been compiled by Erik Penser Bankaktiebolag for public dissemination and is not investment advice. The contents are based on information from publicly available sources which are deemed reliable. No guarantee is given as to the accuracy or completeness of the contents of the document, or the forecasts provided. Erik Penser Bankaktiebolag's consent is required to copy or distribute this publication in whole or in part. The publication should not and may not be disseminated or made available to any person in the United States (other than as provided in Rule 1a 16 of the Securities Exchange Act of 1934), Canada or any other country which has statutory restrictions on the dissemination and availability of the contents of the material. The information in the publication should not be considered as a request or recommendation to enter into transactions. The information does not take into account an individual recipient s investment knowledge and experience, financial situation or investment goals. Therefore, the information does not constitute a personal recommendation or investment advice. Erik Penser Bankaktiebolag disclaims all liability for direct or indirect loss which may be based on this publication. Investments in financial instruments are associated with financial risk. The investment may go up or down in value or it may become entirely worthless. The fact that an investment has performed well historically is no guarantee for the future. Erik Penser Bankaktiebolag has drawn up "Ethical Rules" and "Guidelines in respect of Conflicts of Interest". The aim of these rules and guidelines is to protect against and prevent conflicts of interest arising between departments in the company, and is based on restrictions (Chinese Walls) in communications. However, a client or advisory relationship may arise between an issuer and a department other than the research department. Erik Penser Bankaktiebolag has drawn up internal restrictions as to when trading may be conducted in respect of a financial instrument which is the subject of Investment Analysis. In this publication, the analyst has reported and represented his or her personal opinion of an issuer and/or financial instrument. Erik Penser Bankaktiebolag may receive remuneration from the company described in the document. The remuneration is preset and independent of the contents of this document. The person or persons who compiled this publication do not have any business relationship with the company described in the document. Erik Penser Bankaktiebolag is authorised to conduct securities operations and is under the supervision of the Swedish Financial Supervisory Authority. Erik Penser Bankaktiebolag (publ.) Biblioteksgatan 9 Box STOCKHOLM tel: fax: