IMA EV/EBITDA 13.2 x 15.0 x 12.6 x ITALY / Capital Goods ... · On a FY basis, order backlog grew...

IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 1

IMA ITALY / Capital Goods

4Q16 Preliminary results

HOLD (Unchanged) Target: € 65 (Prev. € 57) Risk: Medium

STOCK DATA Ord

Price € 65.5

Bloomberg code IMA IM

Market Cap. (€ mn) 2,525

Free Float 43%

Shares Out. (mn) 38.6

52-week range 45.65 - 66.8

Daily Volumes ('000) 68.26

PERFORMANCE 1M 3M 12M

Absolute 7.7% 12.7% 35.6%

Rel. to FTSE all shares 9.8% -1.6% 25.3%

MAIN METRICS 2015 2016E 2017E

Revenues 1,110 1,311 1,415

Adjusted EBITDA 158 185 209

Net income 70 98 100

Adj. EPS - € cents 186 242 279

DPS ord - € cents 140.0 142.0 144.0

MULTIPLES 2015 2016E 2017E

P/E adj 24.7 x 27.7 x 23.5 x

EV/EBITDA 13.2 x 15.0 x 12.6 x

REMUNERATION 2015 2016E 2017E

Div. Yield ord 3.1% 2.2% 2.2%

FCF yield 1.9% 3.3% 4.0%

INDEBTEDNESS 2015 2016E 2017E

NFP -163 -100 -64

Debt/EBITDA 1.1 x 0.6 x 0.3 x

Interests cov 10.2 x 14.8 x 17.6 x

PRICE ORD LAST 365 DAYS

ANALYSTS Domenico Ghilotti - +39026204249 - [email protected] February 23, 2017 # 67

GROWTH OPPORTUNITIES ARE NOT OVER

IMA reported 2016 preliminary results showing good sales,

profitability and cashflow. Order intake was lower-than-expected, but

growth opportunities for 2017-18 remain robust, driven by tobacco,

coffee and integration of recent acquisitions.

Good P&L and FCF, lower order intake

IMA reported better-than-expected preliminary FY16 P&L and FCF data:

- Sales € 1,311 mn +18% vs. +16% exp. (+10% organic vs. 7.3% exp.)

- Adj EBITDA € 185.1 mn (+17.5%) vs € 184 mn expected. EBITDA

margin was 14.1% vs. 14.3% expected

- EBITDA € 179 mn (+21%) vs € 180 mn exp. (€ 2 mn one-off costs in 4Q16)

- Net debt € 100 mn vs. € 111 expected, probably thanks to working capital

Order backlog stood at € 766 mn vs. € 844 mn expected. The weaker

order backlog (€ 78 mn) was partly the result of higher 4Q16 revenues

(€ 28 mn), partly (we estimate € 20/25 mn) due to the lower contribution

provided by the new Medtech business (which recorded limited orders in

4Q after an outstanding 3Q) and partly due to fewer organic orders (we

estimate a decline of around -5% in 4Q vs. +2% expected).

On a FY basis, order backlog grew by 18%, or +9% organically.

Prospects supported by higher order backlog and opportunities

from tobacco, coffee and integration of recent acquisitions

Full 2016 results will be disclosed on March 14th, but we are revising our

2017-2018 estimates upwards for the following reasons:

- Order backlog was up 9% organically and order intake was

positive again in January;

- We think we underestimated the medium-term opportunities

arising from the tobacco industry, which is facing a shift from the

mature consumption of conventional cigarettes to new kinds of reduced

risk products (RRP) launched by the main tobacco players. IMA has

been able to exploit the opportunity triggered by this evolution by

offering state-of-the-art packaging technology and a high-level

service whilst gaining share in a large and wealthy market

- We remain confident on the opportunity arising from the coffee

business, where we expect a steady growth trend regardless of the

potential orders from Nespresso

- IMA has the opportunity to improve profitability from the integration

of recently acquired companies (like IMA Dairy and Medtech, still

well below the full-stream mid-teens target) and to improve the lower

performing areas (such as Ilapak);

- We expect moderate organic growth (3%) ex-tobacco and M&A

contribution.

All in all, we are lifting 2017-2018 sales by 3-4% and EBITDA by 4-7%, fully

driven by the Food&others division. Adj. EPS has been upgraded by 7-8%,

reaching € 3.1 PS (+19% CAGR 2015-2018).

We are raising our target to € 65, based on a target multiple of 20x

applied to 2019 estimates (from 2018) discounted to present value.

The stock is currently trading at 13-11x EV/EBITDA and 24-21x Adj.

PE 2017-2018, in the highest part vs. the historical range and the main

listed peers.

IMA – February 23, 2017


MAIN FIGURES € mn 2013 2014 2015 2016E 2017E 2018E

Revenues 761 855 1,110 1,311 1,415 1,484

Growth 4% 12% 30% 18% 8% 5%

EBITDA 112 130 148 179 209 229

Growth 10% 16% 14% 21% 17% 9%

Adjusted EBITDA 113 132 158 185 209 229

Growth 12% 16% 20% 18% 13% 9%

EBIT 87 108 116 141 169 188

Growth 7% 25% 7% 22% 19% 11%

Profit before tax 79 91 115 150 157 176

Growth 10% 15% 27% 30% 5% 12%

Net income 52 52 70 98 100 113

Growth 8% 0% 36% 41% 1% 13%

Adj. net income 52 56 68 91 108 120

Growth 15% 8% 22% 33% 18% 11%

MARGIN 2013 2014 2015 2016E 2017E 2018E

Ebitda Margin 14.7% 15.2% 13.3% 13.7% 14.8% 15.4%

Ebitda adj Margin 14.9% 15.4% 14.2% 14.1% 14.8% 15.4%

Ebit margin 11.4% 12.6% 10.4% 10.8% 11.9% 12.6%

Pbt margin 10.4% 10.6% 10.4% 11.4% 11.1% 11.9%

Ni rep margin 6.8% 6.0% 6.3% 7.5% 7.0% 7.6%

Ni adj margin 6.8% 6.6% 6.2% 6.9% 7.6% 8.1%

SHARE DATA 2013 2014 2015 2016E 2017E 2018E

EPS - € cents 140.2 140.2 190.2 261.0 258.9 293.3

Growth 8% 0% 36% 37% -1% 13%

Adj. EPS - € cents 141.4 152.6 186.0 241.8 279.5 311.0

Growth 15% 8% 22% 30% 16% 11%

DPS ord - € cents 250.0 135.0 140.0 142.0 144.0 146.0

BVPS - € 3.1 2.8 4.3 7.7 8.8 10.3

VARIOUS - € mn 2013 2014 2015 2016E 2017E 2018E

Capital employed 246 222 322 395 404 402

FCF 45 87 33 83 101 115

Capex 21 23 35 37 38 40

Working capital 30 -16 28 31 35 37

INDEBTNESS - €mn 2013 2014 2015 2016E 2017E 2018E

NFP -130 -118 -163 -100 -64 -4

D/E 1.13 x 1.15 x 1.03 x 0.34 x 0.19 x 0.01 x

Debt/EBITDA 1.2 x 0.9 x 1.1 x 0.6 x 0.3 x 0.0 x

Interests cov 12.8 x 10.2 x 10.2 x 14.8 x 17.6 x 19.7 x

MARKET RATIOS 2013 2014 2015 2016E 2017E 2018E

P/E 19.2 x 24.4 x 24.1 x 25.7 x 25.3 x 22.3 x

P/E adj 19.0 x 22.4 x 24.7 x 27.7 x 23.5 x 21.1 x

PBV 8.5 x 12.2 x 10.6 x 8.5 x 7.4 x 6.3 x

P/CF 12.8 x 16.0 x 16.7 x 19.6 x 17.0 x 15.7 x

EV FIGURES 2013 2014 2015 2016E 2017E 2018E

EV/Sales 1.5 x 1.7 x 1.8 x 2.0 x 1.9 x 1.7 x

EV/EBITDA 10.2 x 11.0 x 13.2 x 15.0 x 12.6 x 11.3 x

EV/EBIT 13.2 x 13.3 x 17.0 x 19.0 x 15.7 x 13.8 x

EV/CE 4.6 x 6.5 x 6.1 x 6.8 x 6.6 x 6.4 x

REMUNERATION 2013 2014 2015 2016E 2017E 2018E

Div. Yield ord 9.3% 3.9% 3.1% 2.2% 2.2% 2.2%

FCF yield 4.6% 6.9% 1.9% 3.3% 4.0% 4.5%

ROE 38.4% 47.1% 53.3% 43.2% 31.4% 30.6%

ROCE 23.7% 31.5% 26.5% 27.0% 29.6% 33.1%

Source: EQUITA SIM estimates and company data



SALES BREAKDOWN - 2015

Pharma rev enues

47%

Food&Others rev enues

53%

Other rev enues

0%

EBIT BREAKDOWN - 2015

Pharma EBIT56%

Food&Others EBIT44%

Other EBIT0%

BUSINESS DESCRIPTION

Established in 1961, IMA S.p.A. is the parent company of a Group world

leader in the design and manufacture of automatic machines for the

processing and packaging of pharmaceuticals, cosmetics, tea, coffee

and foods. Its marketing companies sell and provide customer service in

the relevant geographical areas and an extensive network of agencies in

the areas not covered by the branch offices.

IMA features:

- Around 5,000 employees

- More than € 1,300 mn sales, of which about 90% outside of Italy

- More than 1,400 patents worldwide

IMA’s most relevant markets are:

1. Packaging and processing machinery for the pharmaceutical

sector (47% of group sales in 2015), a market still fragmented and

dominated by Italian and German players, with high barriers to entry

and strong customer loyalty;

2. Machinery for food packaging, with undisputed worldwide

leadership in some market niches (tea bag machinery, soup cubes,

processed cheese) and exposure to high growth segments (e.g. coffee

capsules);

3. Flexible packaging machinery, addressed mainly through the Ilapak

acquisition (leader in solutions for bakery, cheese, meat and wet wipe

industries);

4. Machinery for the packing of tobacco;

5. Machinery for assembling plastic components (Medtech business),

addressed by GIMA and by the recent acquisitions (Komax assets,

Telerobot).

7-YEARS HISTORICAL RESULTS (€ mn)

IMA 2009 2010 2011 2012 2013 2014 2015

Revenues 506 503 669 734 761 855 1110

EBITDA 83 60 92 101 113 132 158

Net Profit 36 25 39 45 52 56 68

NFP -113 -114 -157 -132 -130 -118 -163

In the period 2015-18E, we expect c20% adj. EPS CAGR, driven by:

1. Mid-single-digit organic growth in pharma and food divisions

2. Full integration of recent acquisitions in new end-markets

3. Full development of new initiatives in coffee capsules and tobacco.

IMA is 57% controlled by the Vacchi family.

Strenghts/opportunities Weaknesses/threats

Leading position in almost all segments

operated

Product innovation led by strong R&D

skills

High customer loyalty and strong barriers

to entry

Flexible business model (outsourced

production)

Good FCF and dividend yield and limited

financial leverage

M&A opportunities

Limited operating leverage and scalability

on the organic performance, due to

outsourced production

Moderate end-market growth, given the

low cyclical nature of end-market demand

Risk of integration of acquired companies



GOOD P&L AND FCF, LOWER-THAN-EXPECTED ORDER INTAKE

IMA reported better-than-expected preliminary 2016 P&L and FCF data:

- Sales € 1,311 mn +18% vs. +16% exp. (+10% organic vs. 7.3% exp.)

- Adj EBITDA € 185.1 mn (+17.5%) vs € 184 mn expected. EBITDA margin was

14.1% vs. 14.3% expected

- EBITDA € 179 mn (+21%) vs € 180 mn exp. (€ 2 mn one-off costs in 4Q16)

- Net debt € 100 mn vs. € 111 expected, probably thanks to working capital

Order backlog stood at € 766 mn vs. € 844 mn expected. The weaker order

backlog (€ 78 mn) was partly the result of higher 4Q16 revenues (€ 28 mn), partly

(we estimate € 20/25 mn) due to the lower contribution provided by the new

Medtech business (which recorded limited orders in 4Q after an outstanding 3Q)

and partly due to fewer organic orders (we estimate a decline of around -5% in 4Q

vs. +2% expected).

On a FY basis, order backlog grew by 18%, or +9% organically.

PROSPECTS SUPPORTED BY ORDER BACKLOG AND OPPORTUNITIES

FROM TOBACCO, COFFEE AND INTEGRATION OF RECENT ACQUISITIONS

Full FY16 results will be disclosed on March 14th, but we are revising our 2017-

2018 estimates upwards for the following reasons:

- Order backlog was up 9% organically and order intake was positive

again in January, lending weight to 2017 growth expectations;

- We remain confident on the opportunity arising from the coffee

business, where we expect a steady growth trend regardless of potential big

orders from Nespresso. Indeed, IMA is expanding its product range with the

very recent acquisition of Mapster (closing expected in 1Q17) and is targeting

customers with a dedicated salesforce.

- IMA has the opportunity to improve profitability from the integration of

recently acquired companies (like IMA Dairy and Medtech, still well below

the full-stream mid-teens target) and to improve the lower performing areas

(such as Ilapak);

- We expect moderate organic growth (3%) ex-tobacco and M&A

contribution;

- We think we underestimated the medium-term opportunities arising from

the tobacco industry, which is facing a shift from the mature consumption of

conventional cigarettes to new kinds of reduced risk products (RRP) launched

by the main tobacco players. The growth has been particularly strong after the

introduction of tobacco heating products, offering a lower exposure to

toxicants but a better consumer experience vs. electronic cigarettes.



PRODUCT RANGE: FROM CONVENTIONAL CIGARETTES TO REDUCED RISK PRODUCTS

Source: BAT presentation

IMA has been able to exploit the opportunity triggered by this evolution by

offering state-of-the-art packaging technology and a high-level service whilst

gaining share in a large and wealthy market. We think IMA reached around € 100

mn sales in 2016 after essentially starting from a greenfield situation in 2013. We

now believe this trend could continue over the medium term (we assume € 20

mn additional sales per year over the 2017-2020 period), given the rapid take-up

of RRPs reported by the major tobacco companies and the still early

development of these projects compared to mass market conventional cigarette

consumption.

For example, Philip Morris International sold just 7 bn units in 2016 of its HeatStick

products vs. sale of more than 800 bn units for its conventional products and has

announced to reach a 50 bn unit capacity in 2017 from 15 bn in 2016 for its

leading RRP platform IQOS (an investment which has already supported the

strong growth in IMA’s tobacco sales and order backlog) while British American

Tobacco targets to double capacity in 2018 vs. 2017.



IQOS EXPANSION CAPACITY TARGETS

Source: Philip Morris International presentation

PHILP MORRIS INTERNATIONAL REDUCED RISK PRODUCT PLATFORMS


IQOS MARKETING LAUNCH PLAN


In light of these elements, despite the weaker-than-expected order intake booked

in 4Q16, we are raising 2017-2018 sales by 3-4% and EBITDA by 4-7%. Adj.

EPS has been upgraded by 7-8%, reaching € 3.1 PS (+19% CAGR 2015-2018).



ESTIMATE REVISION (€ mn)

2015A 2016E 2016E 2017E 2017E 2018E 2018E

Prev. Curr. Prev. Curr. Prev. Curr.

Revenues 1,109.5 1,282.9 1,310.8 1,369.4 1,414.6 1,434.1 1,484.2

% chg 2.2% 3.3% 3.5%

Abs chg 28 45 50

Adj. EBITDA 157.5 184.0 185.1 200.7 209.5 214.6 229.0

% chg 0.6% 4.4% 6.7%

Abs chg 1 9 14

EBITDA 148.1 179.6 179.2 200.7 209.5 214.6 229.0

% chg -0.2% 4.4% 6.7%

Abs chg 0 9 14

EBIT 115.6 141.8 141.3 160.2 168.8 173.2 187.5

% chg -0.4% 5.4% 8.2%

Abs chg -1 9 14

Net income 69.9 98.6 98.2 93.1 99.7 102.8 113.0

% chg -0.3% 7.1% 9.9%

Abs chg 0 7 10

Adj. EPS 186.0 240.0 239.2 262.1 279.5 287.0 311.0

% chg -0.3% 6.6% 8.4%

Abs chg -1 17 24

Order Intake 1,164.4 1,406.0 1,358.7 1,445.2 1,463.0 1,480.0 1,533.0

% chg -3.4% 1.2% 3.6%

Abs chg -47 18 53

Order backlog 649.9 844.1 766.2 919.9 821.0 965.8 869.8

% chg -9.2% -10.7% -9.9%

Abs chg -78 -99 -96

NFP -163.1 -111.9 -99.9 -78.4 -63.5 -36.2 -4.2

% chg -10.7% -19.0% -88.5%

Abs chg 12 15 32

DPS ord - € cents 140.0 142.0 142.0 144.0 144.0 146.0 146.0

% chg 0.0% 0.0% 0.0%

Abs chg 0 0 0 Source: EQUITA SIM estimates

REVENUES BREAKDOWN (€ mn)

2013 2014 2015 2016E 2017E 2018E

Pharma revenues 452 453 519 550 561 578

Food&Others revenues 309 401 590 761 853 906

Revenues 761 855 1,110 1,311 1,415 1,484

Pharma revenues -1% 0% 14% 6% 2% 3%

Food&Others revenues 10% 30% 47% 29% 12% 6%

Revenue growth (reported) 4% 12% 30% 18% 8% 5% Source: Company data and EQUITA SIM estimates

EBITDA BREAKDOWN (€ mn)

2013 2014 2015 2016E 2017E 2018E

Pharma EBITDA 59 63 74 85 87 91

Food&Others EBITDA 53 68 75 94 122 138

EBITDA 112 130 148 179 209 229

Pharma - EBITDA margin 13.1% 13.9% 14.3% 15.5% 15.6% 15.7%

Food&Others - EBITDA margin 17.0% 16.8% 12.8% 12.4% 14.3% 15.3%

EBITDA margin 14.7% 15.2% 13.3% 13.7% 14.8% 15.4% Source: Company data and EQUITA SIM estimates



VALUATION RAISED TO € 65 TO FACTOR IN THE REVISED ESTIMATES

We are raising our target to € 65, based on a target multiple of 20x applied to

2019 estimates and discounted to present value.

The stock is currently trading at 13-11x EV/EBITDA and 24-21x Adj. PE 2017-

2018, in the highest part vs. the historical range and the main listed peers. This

premium is justified by a higher-than-peers underlying performance and higher

growth arising from more recent opportunities (tobacco/coffee/recent acquisitions).

MULTIPLE VALUATION SENSITIVITY ANALYSIS

(A) 2019E multiple 20.0 x 16.0 x 18.0 x 20.0 x 22.0 x 24.0 x

(B) 2019 fully diluted eps @ target (€) 3.4 3.4 3.4 3.4 3.4 3.4

(C)=(A)x(B) Stock value (€) 69 55 62 69 76 83

(D) Dividends to be cashed-in (€) 4.3 4.3 4.3 4.3 4.3 4.3

(E) = (C)+(D) Total stock value (€ PS) 73 59 66 73 80 87

(F) Discount (1+Ke)n 1.12 1.12 1.12 1.12 1.12 1.12

(G)=(E)/(F) Target (€ PS) 65 53 59 65 72 78 Source: EQUITA SIM estimates

MAIN FOOD MACHINERY PEERS MULTIPLES

STOCKS Mkt cap Performance EV/EBITDA EV/EBIT PE EBIT MARGIN

Name (€ mn) 1m 3m 12m 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018

KRONES AG 3,126 6 12 -1 8.7 7.9 7.1 12.2 11.0 9.8 19.0 17.8 16.5 7% 7% 7%

GEA GROUP AG 7,384 2 15 -7 12.9 11.2 10.0 15.1 13.3 11.8 21.2 19.7 15.5 11% 12% 13%

ALFA LAVAL AB 7,252 5 20 19 13.4 13.1 12.3 17.9 18.1 16.4 16.8 21.4 20.2 13% 13% 13%

Average 11.7 10.8 9.8 15.1 14.1 12.7 19.0 19.6 17.4 10% 10% 11%

IMA 2,558

8 12 34 14.7 13.3 12.2 17.0 15.5 14.1 28.0 25.1 22.9 12% 13% 13% Source: Bloomberg consensus

DCF VALUATION

ASSUMPTIONS IMA DCF (€ mn)

g 1.0%

2017E 2018E 2019E 2020E 2021E Beyond

WACC 5.9%

Sales 1,415 1,484 1,553 1,619 1,687 1,704

Change % 8% 5% 5% 4% 4% 1%

EBITDA 209 229 246 261 274 267

Change % 16.9% 9.3% 7.4% 5.9% 5.2% 16.7%

Margin 14.8 15.4 15.8 16.1 16.2 15.7

D&A -29 -29 -30 -31 -32 -45

Valuation (€ mn)

EBITA 181 200 216 229 242 222

Change % 18.0% 10.3% 8.1% 6.3% 5.5% -8.2%

NPV of Free Cash Flows (2017-21) 567

Margin 12.8 13.4 13.9 14.2 14.3 13.0

NPV of Terminal Value 2,258

Taxes -61 -68 -73 -78 -82 -76

Estimated Enterprise Value 2,825

EBIT after Tax 119 132 142 151 160 147

2016A NFP -100

Change % 18.0% 10.3% 8.1% 6.3% 5.5% 3.0%

Adj. to NFP -10 IMA Equity 2,715

Capex -38 -40 -41 -43 -45 -45

Peripherals & other -60.5

(increase) decrease in NWC -4 -3 -3 -3 -3 -3

Total Equity 2,655

Free Cash Flow before minorities 106 119 129 137 144 144

FCF Minorities 0 0 0 0 0 0

# of shares (mn) 38.6

Free Cash Flow after minorities 106 119 129 137 144 144

Target Price (€) 69

Discount Factor 0.99 1.05 1.11 1.17 1.24 1.24

Upside 5%

PV of FCF 107 113 116 117 116 116 Source: EQUITA SIM estimates and company data



IMA: DCF SENSITIVITY (€)

LONG-TERM GROWTH

0.5% 1.0% 1.5%

5.4% 71 77 86

WACC 5.9% 64 69 76

6.4% 58 63 68 Source: EQUITA SIM estimates

STATEMENT OF RISK

The primary factors that could negatively affect our view on IMA are the following:

Weaker/stronger order intake, able to change IMA growth prospects;

Ability/inability to integrate acquired companies;

Ability/inability to provide proper service to clients;

Ability/inability to execute orders without relevant cost overruns;

Ability/inability to protect proprietary technology and patents;

Change in the competitive pressure in Pharma and Food segments

Exchange rate fluctuations, in particular a weakening/strengthening of the USD

vs. EUR

Deterioration/improvement of the economic cycle;

Change in interest rates



APPENDIX

ACQUISITIONS IN THE SEGMENT OF PLASTIC ASSEMBLY MACHINES

In March 2016, IMA announced two acquisitions in the sector of plastic

assembly machines (Medtech business).

IMA has acquired three companies owned by the Komax group based in

Switzerland, USA and Malaysia which produce machines used to assemble

plastic self-medication devices (inhalers, insulin syringes). The acquired

companies are expected to generate sales of CHF 84 mn and EBITDA of

CHF 5.6 mn (6.7% margin) in 2016, with EV estimated at CHF 30 mn (CHF 36 mn

including an earn-out on the minorities of the Malaysian subsidiary), corresponding

to around 6x EV/EBITDA. IMA expects to generate commercial and logistical

synergies (by changing the current production set-up) in order to improve

profitability to almost 10% initially, and subsequently move it in line with the

group average of 13-15%.

The second acquisition involves Telerobot, an Italian company that produces

assembly machines for plastic food packaging. Telerobot is forecast to generate

sales of € 10 mn and € 1 mn EBITDA in 2016 and was valued € 3 mn.

The deals strengthen IMA's position in the sector of industrial automation,

where it was already present via some assets operated by Gima that have

now reached a more significant size (sales of approximately € 100 mn), with an

estimated positive impact on EPS of 4-5% by 2018, factored in our estimates at

the time of the announcement.

MEDTECH BUSINESS

Source: company presentation



IMA DAIRY&FOOD ACQUISITION

In December 2014, IMA announced the acquisition of an 80% interest in five

companies (Benhil, Erca, Hassia, Hamba and Gasti) grouped under the

Dairy&Food holding (now called “IMA Dairy&Food”) and leaders in packaging for

the food industry, the dairy segment in particular. The acquired companies

have some 850 employees spread over 8 assembly facilities located in Germany,

France, Spain and India and 1 sales and service centre based in USA.

The acquisition was closed on February 28th 2015 and the companies have been

consolidated as of March 2015 under the Food&Others division.

The acquired companies are world leaders in 3 key technologies for the food

packaging industry:

- # 1 global positioning in cup Form, Fill and Seal (FFS), a technology

providing automatic machinery able to form, fill and seal plastic

cups/trays/bags. This market is worth some € 165 mn in terms of sales and is

expected to grow by close to 5% per year;

- Among the top 4 players in Fill and Seal (FS), a technology providing

automatic machinery able to fill and seal pre-formed cups and trays. This

market is worth € 309 mn and is expected to grow by around 6% per year;

- # 1 position in primary packaging Wrapping. This market is worth € 124 mn, of

which around € 40 mn (related to butter/margarine wrapping) is currently

addressed by the companies and € 20 mn (related to soft/cream cheese) will be

addressable in the near future. Market growth is expected at around 4.2% per year.

DAIRY&FOOD KEY TECHNOLOGIES

Source: company presentation

The target was valued on a debt free basis at € 65 mn (for the 80% stake) or a

multiple of around 6x 2014 EV/EBITDA.

IMA Dairy&Food contributed € 143 mn sales and € 3 mn EBITDA to 2015

numbers, well below original expectations (€ 165 mn sales and € 15 mn EBITDA)

due to some extra-costs linked to projects executed by IMA Dairy&Food before the

change of ownership. The lower profitability generated by IMA Dairy&Food in

2015-2016 led IMA to repurchase the 20% minorities in 2Q16 for € 4 mn, a much

lower price than initially negotiated, generating a € 19 mn capital gain.



We think the deal is strategically, industrially and financially attractive:

- It strengthens the group’s position in the food packaging business, where

IMA thus reaches the n° 2 position worldwide, not far off the market leaders

Bosch and Coesia;

- It rebalances IMA’s exposure between pharma and food (we now estimate

a very similar EBITDA contribution from the two segments);

- It enlarges IMA’s product portfolio, now featuring worldwide leadership in

three new technologies (FFS, FS and Wrapping technologies);

- It offers opportunities to generate industrial and distribution synergies

thanks to IMA’s more efficient supply chain, improved ability to provide turn-key

solutions to tier1 clients and post-sale services and higher critical mass;



P&L 2013 2014 2015 2016E 2017E 2018E

Revenues 761 855 1,110 1,311 1,415 1,484

Growth 4% 12% 30% 18% 8% 5%

Total opex -658 -727 -956 -1,158 -1,219 -1,270

Growth 3% 10% 31% 21% 5% 4%

Margin -87% -85% -86% -88% -86% -86%

EBITDA 112 130 148 179 209 229

Growth 10% 16% 14% 21% 17% 9%

Margin 15% 15% 13% 14% 15% 15%

Depreciation&amortization -24 -21 -32 -37 -39 -40

Provisions -2 -2 -1 -1 -1 -1

Depreciation&provision -25 -22 -32 -38 -41 -41

EBIT 87 108 116 141 169 188

Growth 7% 25% 7% 22% 19% 11%

Margin 11% 13% 10% 11% 12% 13%

Net financial profit/Expenses -9 -13 -15 -12 -12 -12

Profits/exp from equity inv 1 1 1 2 0 0

Other financial profit/Exp 0 -4 -3 0 0 0

Total financial expenses -8 -16 -17 -10 -12 -12

Non recurring pre tax 0 -2 16 19 0 0

Profit before tax 79 91 115 150 157 176

Growth 10% 15% 27% 30% 5% 12%

Taxes -30 -34 -37 -46 -53 -59

Tax rate 38% 37% 32% 31% 34% 33%

Minoritiy interests -3 -5 -8 -6 -4 -4

Non recurring post tax 6 0 0 0 0 0

Net income 52 52 70 98 100 113

Growth 8% 0% 36% 41% 1% 13%

Margin 7% 6% 6% 7% 7% 8%

Adj. net income 52 56 68 91 108 120

Growth 15% 8% 22% 33% 18% 11%

Margin 7% 7% 6% 7% 8% 8%

CF Statement 2013 2014 2015 2016E 2017E 2018E

Cash Flow from Operations 73 77 92 122 143 157

(Increase) decrease in OWC 8 43 -38 -2 -4 -3

(Purchase of fixed assets) -21 -23 -35 -37 -38 -40

(Other net investments) 39 -29 -56 -58 -10 0

(Distribution of dividends) -83 -46 -51 -53 -55 -55

Rights issue 0 0 29 91 0 0

Other -15 -10 14 0 0 0

(Increase) Decrease in Net Debt 1 12 -45 63 36 59

Source: EQUITA SIM estimates and company data



INFORMATION PURSUANT TO ARTICLE 69 ET SEQ. OF CONSOB (Italian securities & exchange commission) REGULATION no. 11971/1999 This publication has been prepared by Domenico Ghilotti on behalf of EQUITA SIM SpA (licensed to practice by CONSOB resolution no. 11761 of December 22nd 1998 and registered as no. 67 in the Italian central register of investment service companies and financial intermediaries)

In the past EQUITA SIM has published studies on IMA EQUITA SIM is distributing this publication to more than 700 qualified operators and to unqualified operators via Borsa Italiana website today: February 23, 2017 The prices of the financial instruments shown in the report are the reference prices posted on the day before publication of the same.

EQUITA SIM intends to provide continuous coverage of the financial instrument forming the subject of the present publication, with a semi-annual frequency and, in any case, with a frequency consistent with the timing of the issuer’s periodical financial reporting and of any exceptional event occurring in the issuer’s sphere of activity. The information contained in this publication is based on sources believed to be reliable. Although EQUITA SIM makes every reasonable endeavour to obtain information from sources that it deems to be reliable, it accepts no responsibility or liability as to the completeness, accuracy or exactitude of such information. If there are doubts in this respect, EQUITA SIM clearly highlights this circumstance. The most important sources of information used are the issuer’s public corporate documentation (such as, for example, annual and interim reports, press releases, and presentations) besides information made available by financial service companies (such as, for example, Bloomberg and Reuters) and domestic and international business publications. It is EQUITA SIM’s practice to submit a pre-publication draft of its reports for review to the Investor Relations Department of the issuer forming the subject of the report, solely for the purpose of correcting any inadvertent material inaccuracies. This note has been submitted to the issuer. EQUITA SIM has adopted internal procedures able to assure the independence of its financial analysts and that establish appropriate rules of conduct for them.

Furthermore, it is pointed out that EQUITA SIM SpA is an intermediary licensed to provide all investment services as per Italian Legislative Decree no. 58/1998. Given this, EQUITA SIM might hold positions in and execute transactions concerning the financial instruments covered by the present publication, or could provide, or wish to provide, investment and/or related services to the issuers of the financial instruments covered by this publication. Consequently, it might have a potential conflict of interest concerning the issuers, financial issuers and transactions forming the subject of the present publication.

Equita SIM S.p.A. has placed/has executed an ABB/RABB in the last 12 months for financial instruments issued by Industria Macchine Automatiche IMA SPA Equita SIM S.p.A. provides or has provided in the last 12 months investment banking services for Industria Macchine Automatiche IMA SPA Equita SIM S.p.A. perform or has performed in the last 12 months the role of specialist for financial instruments issued by Industria Macchine Automatiche IMA SPA

In addition, it is also pointed out that, within the constraints of current internal procedures, EQUITA SIM’s directors, employees and/or outside professionals might hold long or short positions in the financial instruments covered by this publication and buy or sell them at any time, both on their own account and that of third parties.

The remuneration of the financial analysts who have produced the publication is not directly linked to corporate finance transactions undertaken by EQUITA SIM.

The recommendations to BUY, HOLD and REDUCE are based on Expected Total Return (ETR – expected absolute performance in the next 12 months inclusive of the dividend paid out by the stock’s issuer) and on the degree of risk associated with the stock, as per the matrix shown in the table. The level of risk is based on the stock’s liquidity and volatility and on the analyst’s opinion of the business model of the company being analysed. Due to fluctuations of the stock, the ETR might temporarily fall outside the ranges shown in the table.

EXPECTED TOTAL RETURN FOR THE VARIOUS CATEGORIES OF RECOMMENDATION AND RISK PROFILE

RECOMMENDATION/RATING Low Risk Medium Risk High Risk

BUY ETR >= 10% ETR >= 15% ETR >= 20%

HOLD -5% <ETR< 10% -5% <ETR< 15% 0% <ETR< 20%

REDUCE ETR <= -5% ETR <= -5% ETR <= 0%

The methods preferred by EQUITA SIM to evaluate and set a value on the stocks forming the subject of the publication, and therefore the Expected Total Return in 12 months, are those most commonly used in market practice, i.e. multiples comparison (comparison with market ratios, e.g. P/E, EV/EBITDA, and others, expressed by stocks belonging to the same or similar sectors), or classical financial methods such as discounted cash flow (DCF) models, or others based on similar concepts. For financial stocks, EQUITA SIM also uses valuation methods based on comparison of ROE (ROEV – return on embedded value – in the case of insurance companies), cost of capital and P/BV (P/EV – ratio of price to embedded value – in the case of insurance companies).

MOST RECENT CHANGES IN RECOMMENDATION AND/OR IN TARGET PRICE (OLD ONES IN BRACKETS):

Date Rec. Target Price (€) Risk Comment

Nil

DISCLAIMER The purpose of this publication is merely to provide information that is up to date and as accurate as possible. The publication does not represent to be, nor can it be construed as being, an offer or solicitation to buy, subscribe or sell financial products or instruments, or to execute any operation whatsoever concerning such products or instruments. EQUITA SIM does not guarantee any specific result as regards the information contained in the present publication, and accepts no responsibility or liability for the outcome of the transactions recommended therein or for the results produced by such transactions. Each and every investment/divestiture decision is the sole responsibility of the party receiving the advice and recommendations, who is free to decide whether or not to implement them. Therefore, EQUITA SIM and/or the author of the present publication cannot in any way be held liable for any losses, damage or lower earnings that the party using the publication might suffer following execution of transactions on the basis of the information and/or recommendations contained therein. The estimates and opinions expressed in the publication may be subject to change without notice.

EQUITY RATING DISPERSION AS OF DECEMBER 31, 2016 (art. 69-quinquies c. 2 lett. B e c. 3 reg. Consob 11971/99)

COMPANIES COVERED COMPANIES COVERED WITH BANKING RELATIONSHIP

BUY 41.4% 58.3%

HOLD 58.0% 41.7%

REDUCE 0.6% 0.0%

NOT RATED 0.0% 0.0%

The list of all conflicts of interest, rating dispersion and other important legal disclaimers are available on www.equitasim.it in the “avvertenze legali” section.

http://www.eurosim.it/

IMA EV/EBITDA 13.2 x 15.0 x 12.6 x ITALY / Capital Goods ... · On a FY basis, order backlog grew...

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