PEGAS NONWOVENS S.A. Team H January 28, 2015 Investment Highlights - - PowerPoint PPT Presentation

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PEGAS NONWOVENS S.A. Team H January 28, 2015 Investment Highlights - - PowerPoint PPT Presentation

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PEGAS NONWOVENS S.A. Team H January 28, 2015 Investment Highlights 766 CZK BUY TARGET PRICE Recommendation Non-cyclical and growing industry 19% Market position and solid customer base upside Good growth prospects 642 CZK December 18,

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PEGAS NONWOVENS S.A.

Team H January 28, 2015

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642 CZK

December 18, 2014

766 CZK

TARGET PRICE

19%

upside Non-cyclical and growing industry Market position and solid customer base Good growth prospects Sound financials

Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Investment Highlights

BUY

Recommendation

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SLIDE 3

Business Description

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SLIDE 4

Introduction

Revenue Breakdown by Product (% of sales 2013)

Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion Hygiene Commodity Hygiene – Technologically Advanced Non-hygiene

Leading nonwoven textile producer in the Europe, Middle East and Africa market

Market Profile (ticker PGSNsp.PR)

Closing price 18/12/2014 (CZK) 642 52-week price range (CZK) 588.50 – 659.80 Average daily volume 6,191 As % of shares outstanding 0.0671% Free float 100% Market capitalization (CZK mil) 5,999.110

Hygiene sector: baby diapers, feminine and adult incontinence products

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SLIDE 5

Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Business Description

Annual revenue (EUR thousand)

1992 1996 1998 2000 2001 2004 2007 2011 2013

50000 100000 150000 200000 250000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

New production lines timeline

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SLIDE 6

Industry Overview & Competitive Positioning

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Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Industry traits

Threat of New Entrants Threat of Substitute Products Bargaining Power of Customers Bargaining Power of Suppliers Competitive Rivalry in the Industry

Porter‘s Five Forces Model Non-cyclicality Growth potential High barriers to entry Low threat of substitutes

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Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Competitive Advantage

1,000 2,000 3,000 4,000 5,000 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Investment in Research & Development (EUR thousands)

Polymers 75% Electricity 5% Staff costs 5% Depreciation 7% Others 6.5 %

R&D 1.5%

Technologically advanced, unique processes Superior quality Vertical integration of R&D

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Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Competitive Advantage

50,000 100,000 150,000 200,000 250,000 300,000 350,000 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Standard textiles for hygiene products Light-weight + bico materials for hygiene Non-hygiene products

Modernization of production lines Location of production sites

Changing revenue composition as a basis for growth

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Procter & Gamble partnership

Cost composition (2013)

Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Costs and Customers in the Industry

Procter & Gamble 45% Other 4 largest customers 33% Others 22%

Polymer granules as the main epense

Share of sales by customer (2013)

Strong relations with key large customers

Recognition awards Multi-year contract on Egyptian production Mutual dependency

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Valuation

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Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Discounted Cash Flow Valuation Key Assumptions

Key drivers

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Increasing revenue per ton

Revenue per ton (EUR thousands)

Growth in sales of special materials in hygiene (high-tech and ultra light-weight)

50,000 100,000 150,000 200,000 250,000 300,000 350,000 2012A 2013A 2014E 2015E 2016E 2017E 2018E Sales of special hygiene Sales of standard hygiene Sales of non-hygiene

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Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Discounted Cash Flow Valuation

  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 20% 25% 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

Capital expenditures stabilization vs Revenue growth

Capital expenditures (EUR thousand) Revenue growth

747 CZK

One-year target price Components of WACC

Risk-free rate 4% Market risk premium 6.18% Beta 0.65 Error term 0.06 Cost of equity 13.99% Cost of debt 3.24% Corporate tax rate 19% WACC 10.04%

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Price/Earnings EV/EBITDA Price/Book value 13.2 9.0 1.85 890 CZK 778 CZK 764 CZK

Multiples Valuation

Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

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766 CZK

One-year target price 19% upside

Price/Earnings EV/EBITDA Price/Book value

Discounted Cash Flow

Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Target Price

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Financial Performance

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Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Financial Performance

50,000 100,000 150,000 200,000 250,000 300,000 350,000 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Strong forecasted revenue growth

EUR/CZK exchange rate

January 28, 2014 – January 27, 2015 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E EBITDA margin 21.7% 20.3% 19.4% 20.5% 19.6% 18.1% 16.6% 15.5% Net profit margin 8.4% 11.1% 0.7% 9.6% 9.6% 9.0% 8.4% 7.9% Operating profit margin 16.2% 14.1% 12.8% 14.7% 14.6% 13.5% 12.5% 11.6%

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Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Financial Performance

0.00 0.50 1.00 1.50 2.00 2.50 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Progressive dividend policy

Gross dividend (EUR/share) 0% 50% 100% 150% 200% 250% 300% 350% 400% 450% 2012A 2013A 2014E 2015E 2016E 2017E 2018E 125,000 130,000 135,000 140,000 145,000 150,000 155,000 160,000 165,000

Decrease in long term debt levels

Long term debt Debt as % of EBITDA

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Risk Analysis

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Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Risk matrix

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100%

78% 45%

  • all customers
  • 5 customers
  • 1 customer

Sensitivity of the target price to energy and staff costs

Composition of customers as % of sales (2013) Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Key Customers and Costs

Importance of the large corporate customers

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Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Expansion to Egypt: Upside Risk

642 CZK

December 18, 2014

19%

upside

827 CZK ZK

UPSIDE TARGET PRICE

766 CZ CZK

TARGET PRICE

29%

upside Upside scenario: annual revenue (EUR thousand)

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Conclusion

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BUY

Industry traits

non-cyclicality and growth

Competitive position

location of production sites, innovation and quality, customer relations

Strong performance

financial performance, constant growth, dividend payouts

Expansion in Egypt

Company Overview Industry Positioning Valuation Financial Performance Risks & Opportunities Conclusion

Conclusion

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Thank you for your attention!

Team H January 28, 2015