FIRST CAPITAL
Buy (maintained)
Company Update
30 October 2014
MARKET PRICE: EUR0.94
Financial Holding
TARGET PRICE: EUR1.15 (from EUR1.17)
A cash pile ready to be used
Data
Shares Outstanding (m):
24.04
Market Cap. (EURm):
22.5
NAV (EURm):
30.7
Free Float (%):
35.8
Av. Daily Trad. Vol. (000):
7.5
Strategy Invest
(28.4%)
Main Shareholder:
Reuters/Bloomberg:
FICM.MI FIC IM
52-Week Range (EUR)
0.69
1.10
3m
12m
Performance
1m
Absolute
-0,5%
-6,5%
+33,6%
Rel. to FTSE IT
+6,1%
+2,9%
+34,3%
Next event
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 2014-17 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 2017. 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 2014-17
business plan and we expect new significant investments in the coming
months.
>
We have increased our 2014 forecasts to include cost savings, with a
positive impact on EPS of 2.5%. 2015-16 forecasts have been upgraded to
reflect lower operating costs.
>
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%.
11 November 2014, NAV
Marco Cristofori
[email protected]
Tel. +39 0277814393
Website: www.ubiunity.it
Financials
Ratios
2013
2014E
2015E
2016E
Total income (EURm)
2,34
2,87
3,07
3,23
P/E(x)
2013
2014E
2015E
2016E
13,8
15,9
14,4
13,6
Pre-tax profit (EURm)
1,23
1,77
1,95
2,07
P/BV(x)
0,66
0,90
0,87
0,85
Net Profit (EURm)
1,17
1,42
1,56
1,66
Dividend Yield (%)
4,19%
3,78%
4,85%
5,53%
EPS (EUR)
0,051
0,059
0,065
0,069
ROI (%)
7,20%
7,82%
8,61%
9,18%
BVPS (EUR)
1,05
1,04
1,07
1,09
ROE (%)
4,82%
5,65%
6,05%
6,31%
DPS (EUR)
0,029
0,035
Source: Company Data, UBI Banca Estimates
0,045
0,052
Debt/Equity (x)
-0,30
-0,10
Source: Company Data, UBI Banca Estimates
-0,12
-0,14
1
First Capital
30 October 2014
Key Financials
(EURm)
2013
2014E
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
2014E
2015E
2016E
Source: Company data, UBI Banca estimates
Key Profitability Drivers
2013
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%
2013
2014E
2015E
2016E
P/E (x)
13,8
15,9
14,4
13,6
P/BV (x)
0,7
0,9
0,9
0,9
4,2%
3,8%
4,9%
5,5%
Source: Company data, UBI Banca estimates
Key Valuation Ratios
Dividend Yield (%)
Source: Company data, UBI Banca estimates
2
First Capital
30 October 2014
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 EUR0.0291 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
2014-17 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 2016-9% and Iacobucci 2017-8%) 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)
10.46
11,73
12.1%
Source: Company data
3
First Capital
30 October 2014
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
104,9
115,8
10,4%
215,4
232,0
7,7%
7,8%
14,4%
Sales
EBITDA
30,1
32,5
% margin
28,7%
28,0%
EBIT
10,1
10,8
% margin
9,6%
9,3%
Net Profit
5,2
7,0%
6,2
Net Debt
17,7%
63,7
61,2
70,0
28,4%
30,2%
19,0
27,0
8,8%
11,6%
8,8
12,0
69,7
66,0
42,1%
36,4%
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, %)
Sales
1H13A
1H14A
% Change
2013A
2014E
% Change
52,3
56,6
8,3%
104,5
112,1
7,3%
19,3%
15,4%
EBITDA
10,1
12,1
% margin
19,3%
21,3%
8,0
9,7
15,2%
17,2%
EBIT
% margin
Net Profit
5,2
6,8
Net Debt (Cash)
3,77
-2,55
22,1%
31,2%
20,4
23,6
19,5%
21,0%
15,8
18,8
15,1%
16,7%
10,5
12,8
-5,90
-8,55
18,7%
21,9%
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%
4,3
4,0
6,9
12,3
% margin
2,2%
2,0%
1,8%
3,1%
Net Profit
1,4
0,7
1,4
5,3
64,43
60,93
56,70
51,55
EBIT
Net Debt (Cash)
-5,9%
-45,2%
78,3%
275,0%
Source: Company data,, Factset
4
First Capital
30 October 2014
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.
Strategy Invest;
28,4%
Free Float;
35,8%
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 2014-17 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
First Capital
30 October 2014
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 2015-16, we have reduced expected operating costs with a positive impact at EPS
level of almost 6%.
Figure 7 – New vs. old estimates
(EURm)
Income from equity participations
2013A
2,34
2014E
Old
New
Old
New
Old
New
2,87
3,02
3,07
3,17
3,23
-0,2%
1,11
1,15
1,23
1,72
% change
Pre-tax profit
% Change
1,18
1,77
54
1,38
1,42
0,057
0,059
2,5%
1,21
1,95
1,47
1,56
0,065
6,0%
2,07
5,8%
1,57
6,0%
0,061
1,16
-4,4%
1,96
5,8%
2,5%
0,051
1,13
1,9%
-4,6%
1,84
2,8%
% change
EPS
1,10
1,8%
-4,7%
% change
Net profit
2016E
2,87
% change
Operating costs
2015E
1,66
5,7%
0,065
0,069
5,7%
Source: Company data, UBI Banca estimates
6
First Capital
30 October 2014
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
100,0%
19,08
0,79
Treasury shares
0,75
0,03
Net cash (debt)
10,82
0,45
Total
30,66
1,27
Share number
24,04
NAV per share (ordinary)
1,27
Source: Company data, Factset
Current price
0,94
Discount
26,7%
Valuation method: all listed investments at market value
7
First Capital
30 October 2014
Figure 9 - NAV, market cap and discount to NAV trend
The discount to NAV has recently widened and is now about 27%.
35.000
0,0%
-5,0%
30.000
-10,0%
25.000
-15,0%
20.000
-20,0%
15.000
-25,0%
-30,0%
10.000
-35,0%
5.000
-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
Source: Company data, UBI Banca estimates
8
First Capital
30 October 2014
Income Statement
(EURm)
2013
2014E
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
(EURm)
2013
2014E
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
(EURm)
2013
2014E
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
Source: Company data, UBI Banca estimates
Balance Sheet
Source: Company data, UBI Banca estimates
Cash Flow Statement
Source: Company data, UBI Banca estimates
9
First Capital
30 October 2014
Financial Ratios
(%)
2013
2015E
2016E
Debt/Equity
-0,30
2014E
-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%
Source: Company data, UBI Banca estimates
Per Share Data
(EUR)
2013
2014E
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
(x)
2013
2014E
2015E
2016E
P/E
13,8
15,9
14,4
13,6
P/BV
0,7
0,9
0,9
0,9
4,9%
5,5%
Source: Company data, UBI Banca estimates
Stock Market Ratios
Dividend Yield (%)
4,2%
3,8%
Source: Company data, UBI Banca estimates
10
First Capital
30 October 2014
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 (www.ubiunity.,it) “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 www.ubiunity.it.
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 www.ubiunity.it.
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First Capital
30 October 2014
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. 16190 dated 29.10.2007..
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 www.ubiunity.it.
Historical ratings and target prices
Date
Rating
Target Price (EUR)
Market Price (EUR)
05 May 2014
Buy
1.17
1.00
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