FIRST CAPITAL. A cash pile ready to be used. Buy (maintained) Company Update

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1 FIRST CAPITAL Company Update Buy (maintained) MARKET PRICE: EUR0.94 TARGET PRICE: EUR1.15 (from EUR1.17) Financial Holding Data Shares Outstanding (m): Market Cap. (EURm): 22.5 NAV (EURm): 30.7 Free Float (%): 35.8 Av. Daily Trad. Vol. (000): 7.5 Main Shareholder: Reuters/Bloomberg: Strategy Invest (28.4%) FICM.MI FIC IM 52-Week Range (EUR) Performance 1m 3m 12m Absolute -0,5% -6,5% +33,6% Rel. to FTSE IT +6,1% +2,9% +34,3% A cash pile ready to be used We confirm our positive stance on First Capital and fine tune our target price to EUR1.15 (from EUR1.17) while applying a holding company discount of 10% to NAV, in line with the average of European Smaller Companies investment trusts. The discount to NAV has increased to 27% from 23% in our last report Hidden value and new opportunities of May 5. The company now has substantial liquidity (EUR11.7 million at June-14, representing >50% of its market capitalization), ready for investment to implement its business plan targeting expansion into alternative investments (convertible bonds, SPACs, pre-ipo etc.), entry in the corporate advisory industry, and penetration of foreign markets through investment of up to EUR100 million (EUR25 million directly and EUR75 million through institutional investors and family offices) by In addition, First Capital has already successfully placed 4.67 million shares deriving from the exercise of the withdrawal right last April, and holds treasury shares totalling 3.4% of the share capital, while it has cashed in a further EUR1.3 million of dividend in August. All its main shareholdings, with the exception of Elica, performed well in 1H14 increasing both revenues and net profit. As a result, we believe First Capital remains an attractive opportunity to invest in a diversified Italian small caps company with a well balanced portfolio. Buy reiterated. > 1H14 results showed an increase of 33% in net profit while net cash rose to EUR11.7 million due to the dividend from Mid Industry Capital and capital gains (EUR0.66 million). Its investment portfolio significantly outperformed the stock market. > The company now has the financial resources to implement its business plan and we expect new significant investments in the coming months. Next event 11 November 2014, NAV > We have increased our 2014 forecasts to include cost savings, with a positive impact on EPS of 2.5% forecasts have been upgraded to reflect lower operating costs. Marco Cristofori marco.cristofori@ubibanca.it Tel Website: > The current discount to NAV has widened to about 27% and we believe there is considerable hidden value: we refer mainly to Mid Industry Capital whose book value is much higher than its market capitalization. Our EUR1.15 target price per share incorporates a 10% discount to the current NAV and offers upside potential of >22%. Financials E 2015E 2016E Total income (EURm) 2,34 2,87 3,07 3,23 Pre-tax profit (EURm) 1,23 1,77 1,95 2,07 Net Profit (EURm) 1,17 1,42 1,56 1,66 EPS (EUR) 0,051 0,059 0,065 0,069 BVPS (EUR) 1,05 1,04 1,07 1,09 DPS (EUR) 0,029 0,035 0,045 0,052 Source: Company Data, UBI Banca Estimates Ratios E 2015E 2016E P/E(x) 13,8 15,9 14,4 13,6 P/BV(x) 0,66 0,90 0,87 0,85 Dividend Yield (%) 4,19% 3,78% 4,85% 5,53% ROI (%) 7,20% 7,82% 8,61% 9,18% ROE (%) 4,82% 5,65% 6,05% 6,31% Debt/Equity (x) -0,30-0,10-0,12-0,14 Source: Company Data, UBI Banca Estimates 1

2 Key Financials (EURm) E 2015E 2016E Dividends 0,33 0,35 0,37 0,40 Other financial income 0,32 0,40 0,41 0,44 Trading profit/(loss) 1,69 2,12 2,28 2,40 Total income 2,34 2,87 3,07 3,23 Net Profit 1,17 1,42 1,56 1,66 Capital Employed 17,05 22,62 22,61 22,60 Shareholders Equity 24,29 25,03 25,74 26,31 Net Financial Position -7,24-2,41-3,13-3,70 Key Profitability Drivers E 2015E 2016E Net Debt/Equity (x) -0,30-0,10-0,12-0,14 Cost/Income (%) 55,0% 33,0% 31,7% 31,1% ROI (%) 7,2% 7,8% 8,6% 9,2% ROE (%) 4,8% 5,7% 6,1% 6,3% Key Valuation Ratios E 2015E 2016E P/E (x) 13,8 15,9 14,4 13,6 P/BV (x) 0,7 0,9 0,9 0,9 Dividend Yield (%) 4,2% 3,8% 4,9% 5,5% 2

3 Recent Developments > First Capital s net profit in the first half of the year was EUR0.73 million, up 33% vs. 1H13, mostly due to lower operating costs (mostly legal costs). Capital gains in the period were EUR0.66 million (EUR0.75 million last year). Net cash increased to EUR11.73 million from EUR7.24 million at Dec-13 largely due to the cash inflow of EUR4.7 million attributable to Mid Industry Capital s extraordinary dividend of (EUR4.7 per share with a further extraordinary dividend of EUR1.3 per share paid on August 28 which generated a further EUR1.3 million cash inflow for First Capital), which reduced the book value of the investment in Mid Industry Capital by EUR5.87 million. > Following last April s exercise of withdrawal rights at EUR1.02 per share, First Capital acquired 22.77% of its own share capital (5.48 million shares) with a cash disbursement of EUR5.6 million. The majority of these shares, offered to existing shareholders and on the market, have been placed with existing shareholders (4.44% of share capital) and new shareholders (14.97%). As a result, First Capital has 806,000 of residual treasury shares, equal to 3.35% of its share capital (EUR0.75 million market value or 2.4% of NAV) while the free float is now 35.8% of the share capital. > The company distributed an extraordinary dividend of EUR per share, paid on October 13, with a 3.2% yield. > During 1H14 First Capital acquired a further 267,000 shares in Mid Industry Capital (EUR2.5 million investment) taking its stake to 23.6% of the company, 38,500 shares of Gala (EUR0.45 million investment) and subscribed to the majority of the Bomi Italia bond cum warrant (EUR1.5 million, 7.25% fixed rate with warrants granting the right to subscribe to shares in the IPO) investing EUR0.5 million. It also divested EUR3.7 million worth of assets (Elica, Servizi Italia, Nice and Cembre) realizing EUR0.66 million in capital gains. Since then, the company has invested EUR0.53 million in the IPO of MP7 (advertising bartering) acquiring a 3.8% stake, EUR0.33 million for acquiring 2% of Eukedos (healthcare assistance and medical products), EUR0.44 million of corporate bonds (Primi Sui Motori % and Iacobucci %) and EUR0.21 million in Iniziative Bresciane (hydroelectric energy) for 0.4% stake. > Following its disposal of Nadella, Mid Industry Capital, retains just one shareholding: 76% of Mar Ter, a maritime logistics company focused on pulp and paper which reported sales of EUR26.8 million in 1H14 with an EBITDA of EUR4.4 million and a net profit of EUR0.8 million. > First Capital s main investments generally reported positive 1H14 results, in particular Cembre and Servizi Italia (19% of NAV) which increased revenues and net profit. However, Elica s results deteriorated in the first half with net profit nearly halving despite broadly stable revenues. Figure 1 1H14 results (EURm, %) 1H13A 1H14A % Change Total financial income 1,16 1,20 3,0% Operating costs -0,62-0,54-11,5% Pre tax profit 0,55 0,65 19,4% Net Profit 0,55 0,73 33,3% Net Debt (Cash) , % Source: Company data 3

4 Figure 2 Servizi Italia: 1H14 results and forecasts Servizi Italia performed well in 1H14, and consensus for 2014 is unchanged. The shares have risen 4.1% since the start of the year. (EURm, %) 1H13A 1H14A % Change 2013A 2014E % Change Sales 104,9 115,8 10,4% 215,4 232,0 7,7% EBITDA 30,1 32,5 7,8% 61,2 70,0 14,4% % margin 28,7% 28,0% 28,4% 30,2% EBIT 10,1 10,8 7,0% 19,0 27,0 42,1% % margin 9,6% 9,3% 8,8% 11,6% Net Profit 5,2 6,2 17,7% 8,8 12,0 36,4% Net Debt 63,7 69,7 66,0 Source: Company data, Factsets Figure 3 - Cembre: 1H14 results and forecasts Cembre beat expectations in the firt half of the year and consensus estimates for 2014 have been increased. The shares have risen 12.2% since the start of the year. (EURm, %) 1H13A 1H14A % Change 2013A 2014E % Change Sales 52,3 56,6 8,3% 104,5 112,1 7,3% EBITDA 10,1 12,1 19,3% 20,4 23,6 15,4% % margin 19,3% 21,3% 19,5% 21,0% EBIT 8,0 9,7 22,1% 15,8 18,8 18,7% % margin 15,2% 17,2% 15,1% 16,7% Net Profit 5,2 6,8 31,2% 10,5 12,8 21,9% Net Debt (Cash) 3,77-2,55-5,90-8,55 Source: Company data, Factsets Figure 4 - Elica: 1H14 results and forecasts Elica has been impacted by restructuring costs in 1H14 while consensus estimates for 2014 have been slightly reduced. The shares have fallen 10.4% since the start of the year. (EURm, %) 1H13A 1H14A % Change 2013A 2014E % Change Sales 195,0 195,7 0,4% 391,8 398,6 1,7% EBITDA 12,3 12,3 0,5% 22,9 28,4 24,0% % margin 6,3% 6,3% 5,8% 7,1% EBIT 4,3 4,0-5,9% 6,9 12,3 78,3% % margin 2,2% 2,0% 1,8% 3,1% Net Profit 1,4 0,7-45,2% 1,4 5,3 275,0% Net Debt (Cash) 64,43 60,93 56,70 51,55 Source: Company data,, Factset 4

5 Figure 5 - Shareholder structure First Capital has been listed on the Italian market (AIM) since 22 December 2010 when shares were sold at an IPO price of EUR0.97 per share. Following the exercise of withdrawal rights and the subsequent placing, the shareholder structure has changed with Strategy Invest increasing its stake to 28.4% (from 22.7%) and the entrance of Next as a new shareholder. Free Float; 35,8% Strategy Invest; 28,4% Aurum SpA; 5,1% Treasury shares; 3,4% Next; 10,0% Paolo Corradino; 5,2% Galaxya SA; 12,3% Source: Company data Figure 6 - NAV breakdown (29 October 2014) First Capital now has substantial liquid assets, ready for investment in accordance with the guidelines given in the business plan. Logistic 22,0% Liquidity 35,3% Health Care 16,0% Other 8,8% White goods 6,6% Electrical components 11,2% Source: UBI Banca estimates 5

6 Financial Projections > We have slightly reduced operating costs, to factor in the savings reported in 1H14. The impact at EPS level is 2.5%. > Although we have left unchanged our estimates of income from equity shareholdings for , we have reduced expected operating costs with a positive impact at EPS level of almost 6%. Figure 7 New vs. old estimates (EURm) 2013A 2014E 2015E 2016E Old New Old New Old New Income from equity participations 2,34 2,87 2,87 3,02 3,07 3,17 3,23 % change -0,2% 1,8% 1,9% Operating costs 1,11 1,15 1,10 1,18 1,13 1,21 1,16 % change -4,7% -4,6% -4,4% Pre-tax profit 1,23 1,72 1,77 1,84 1,95 1,96 2,07 % change 2,8% 5,8% 5,8% Net profit 54 1,38 1,42 1,47 1,56 1,57 1,66 % change 2,5% 6,0% 5,7% EPS 0,051 0,057 0,059 0,061 0,065 0,065 0,069 % Change 2,5% 6,0% 5,7% 6

7 Valuation > NAV currently stands at EUR1.275 per share. Our target price has been fine tuned to EUR1.15 per share (from EUR1.17), offering potential upside of over 22% compared to the current market price. Our target price incorporates a holding company discount of 10% to NAV, which is in line with the average for European Smaller Companies investment trusts. > The discount to NAV has widened to 26.7% from 23% in our last report Hidden value and new opportunities of May 5. The latent capital gain is at EUR6.4 million. > It is important to underline that the valuation method adopted in our NAV calculation values all listed investments at market value, including Mid Industry Capital, which is trading at 42% below its book value at June-14. Assuming a NAV based on the book value of Mid Capital Industry at June 2014 (this methodology is utilized by First Capital when disclosing its NAV) our NAV would increase by EUR0.15 per share to EUR1.43 per share (+12%), thus implying that the current market price trades at a discount of 35% to NAV. Figure 8 - NAV (EUR, EUR m, %) % held on capital Market value Value per share % of total Mid Industry Capital 23,6% 6,25 0,26 32,8% Servizi Italia 2,0% 2,29 0,10 12,0% Cembre 2,0% 3,45 0,14 18,1% Elica 2,1% 2,01 0,08 10,5% Gala 0,2% 0,44 0,02 2,3% Industrial Stars of Italy 1,0% 0,49 0,02 2,6% Mutui on line 0,3% 0,47 0,02 2,5% Eukedos 2,0% 0,51 0,02 2,7% Leone Film Group 0,3% 0,12 0,01 0,7% Eukedos 16-3% 2,11 0,09 11,1% Bomi 03/17 7,25% 0,50 0,02 2,6% Other 0,43 0,02 2,3% Total 19,08 0,79 100,0% Treasury shares 0,75 0,03 Net cash (debt) 10,82 0,45 Total 30,66 1,27 Share number 24,04 Current price Discount NAV per share (ordinary) 1,27 0,94 26,7% Source: Company data, Factset Valuation method: all listed investments at market value 7

8 Figure 9 - NAV, market cap and discount to NAV trend The discount to NAV has recently widened and is now about 27% ,0% -5,0% -10,0% -15,0% -20,0% -25,0% -30,0% -35,0% -40,0% -45,0% NAV (EUR 000) Market cap (EUR 000) Discount (RH) Source: Company data up to June 2014, UBI Banca estimates Figure 10 - First Capital s NAV vs. FTSE all share and FTSE small cap indexes First Capital s NAV appears to strongly outperform the Italian stock indexes (+29% vs. FTSE all share and +69% vs. FTSE small cap). 140,00 130,00 120,00 110,00 100,00 90,00 80,00 70,00 60,00 50,00 NAV FTSE All share FTSE small cap 8

9 Income Statement (EURm) E 2015E 2016E Dividends 0,33 0,35 0,37 0,40 Other financial income 0,32 0,40 0,41 0,44 Trading profit/(loss) 1,69 2,12 2,28 2,40 Total income 2,34 2,87 3,07 3,23 D&A -0,15-0,15-0,15-0,15 Operating (cost)/income -0,97-0,95-0,97-1,00 Pre-tax profit 1,23 1,77 1,95 2,07 Taxes -0,06-0,35-0,39-0,41 Net profit 1,17 1,42 1,56 1,66 Balance Sheet (EURm) E 2015E 2016E Net working capital 0,10 0,10 0,10 0,10 Net Fixed assets 0,24 0,23 0,21 0,20 Net financial assets 16,70 22,28 22,28 22,28 M/L term funds 0,01 0,01 0,01 0,02 Capital employed 17,05 22,62 22,61 22,60 Shareholders' equity 24,29 25,03 25,74 26,31 Shareholders' funds 24,29 25,03 25,74 26,31 Net financial debt/(cash) -7,24-2,41-3,13-3,70 Cash Flow Statement (EURm) E 2015E 2016E NFP Beginning of Period -5,78-7,24-2,41-3,13 Group Net Profit 1,17 1,42 1,56 1,66 Minorities 0,00 0,00 0,00 0,00 D&A 0,15 0,15 0,15 0,15 Change in Funds & TFR 0,00 0,00 0,00 0,00 Gross Cash Flow 1,32 1,57 1,71 1,81 Change In Working Capital 0,00 0,00 0,00 0,00 Other 0,14-0,14-0,14-0,14 Operating Cash Flow 1,46 1,43 1,57 1,67 Net Capex 0,00 0,00 0,00 0,00 Other Investments 0,00-5,58 0,00 0,00 Free Cash Flow 1,46-4,15 1,57 1,67 Dividends Paid 0,00-0,68-0,85-1,09 Other & Chg in Consolid. Area 0,00 0,00 0,00 0,00 Chg in Net Worth & Capital Incr. 0,00 0,00 0,00 0,00 Change in NFP 1,46-4,83 0,72 0,58 NFP End of Period -7,24-2,41-3,13-3,70 9

10 Financial Ratios (%) E 2015E 2016E Debt/Equity -0,30-0,10-0,12-0,14 Cost/Income 55,0% 33,0% 31,7% 31,1% ROI 7,2% 7,8% 8,6% 9,2% ROE 4,8% 5,7% 6,1% 6,3% Per Share Data (EUR) E 2015E 2016E EPS 0,05 0,06 0,06 0,07 DPS 0,03 0,04 0,05 0,05 Op. CFPS 0,06 0,06 0,07 0,07 BVPS 1,05 1,04 1,07 1,09 Stock Market Ratios (x) E 2015E 2016E P/E 13,8 15,9 14,4 13,6 P/BV 0,7 0,9 0,9 0,9 Dividend Yield (%) 4,2% 3,8% 4,9% 5,5% 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 1998, 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 and Nomad for First Capital 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 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 11

12 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) 05 May 2014 Buy