Electronics Line 3000 Ltd.
April 12, 2013FY 2012: promising H1, subdued H2
For the second time in succession, Electronics Line 3000 Ltd. reports a
positive result for fiscal year 2012. Compared with the previous year,
revenues significantly came down by 41% mainly due to sale of the UK
subsidiary, the shortfall of a major client and the poor development of the
European economies. At the same time, the Company has made rapid
progress in the extension of the customer base (over 20 new distributors
in 2012) which partly compensated the aforementioned revenue losses
and has significantly reduced the formerly prevailing bulk risk.
At year end, the outsourcing process of production to China was
completed with only a small fraction of capacity maintained in-house as a
fallback position in case of production bottlenecks in China. Considering
the adjustments for the UK-transaction, gross profit improved by 5.2 ppts.,
largely due to substantially lower labor and other manufacturing costs as
well as due to the introduction of new products, e.g. iConnect. However, a
weak second half with discounts on product sales for selected larger
customers significantly affected the operating results as costs could not be
adjusted downwards proportionately because of stagnant overhead costs.
This caused the EBIT margin to fall by 0.6 ppts. compared to the last year
(excluding non-recurring items). On an adjusted basis (excluding the
extraordinary gain from the sale of the UK subsidiary in 2011), net profit
decreased by 52.4% and margin by 1.2 ppts.
Operating cash flow turned positive for the first time since restructuring.
Equity ratio improved to 51.5% (2011: 29.0%) due to redemption of loans.
Considering the trend in the last two quarters and the prevailing tense
economic situation in EL’s major markets, we perceive the guidance of
25% sales growth as rather optimistic and adhere to more conservative
estimates.
Based on our DCF and Peer Group analysis, we calculate a fair value of € 0.83 per share and rate the stock as “BUY”.
Key data / Earnings
Year Sales (Mill. $) EBITDA (Mill. $) EBIT (Mill. $) EBT (Mill. $) adj. net (Mill. $) adj. EPS ($) EBIT- Margin Net- Margin 2011a 24.2 2.0 1.5 2.4 1.1 0.08 6.3% 9.7% 2012e 14.3 1.5 1.2 1.1 1.1 0.08 8.7% 7.5% 2013e 16.3 1.0 0.8 0.8 0.6 0.04 5.0% 3.5% 2014e 18.6 1.4 1.2 1.2 1.2 0.09 6.7% 6.6% 2015e 21.2 1.5 1.4 1.3 1.4 0.10 6.4% 6.4% 2016e 23.3 1.7 1.5 1.5 1.5 0.11 6.6% 6.5% Source: BankM-Research
Basic report
Evaluation result Fair value AnalystsDr. Roger Becker, CEFA David Szabadvari +49 69 71 91 838-46, -48
[email protected], [email protected]
BUY
€ 0.83
(previous BUY) (previous € 1.02)
Electronics Line 3000 (red/grey), Performance 1 year vs. DAX Subsector All Communications Technology (black) Source: Bloomberg Sector WKN ISIN Bloomberg/Reuters Accounting standard Financial year
Financial reporting Q1 2013 May 23, 2013 Market segment
Transparency standard
Financial ratios 2013e 2014e 2015e
EV/Sales 0.6 0.5 0.5 EV/EBITDA 9.9 7.0 6.6 EV/EBIT 12.5 8.1 7.5 P/E adj. 18.1 8.5 7.7 Price/Bookvalue 2.5 1.9 1.5 Price/FCF 60.0 13.2 12.6 ROE in % 13.6 22.5 19.9 Dividend yield in % 0.0 0.0 0.0 Number of shares outs. (in '000) 13,713 MarketCap / EV (in million €)
Free float (in %)
Ø daily trading vol. (3M, in €) 1,790 12M high / low (in €; XETRA-close) 1.04 / 0.45 Price Apr. 11, 2013 (in €; XETRA-close) 0.57
Performance 1M 6M 12M
absolute in % -8.9 -13.6 -20.8 relative in % -5.9 -8.4 -14.7 Benchmark index
37.7
DaxSubsec. Comm. Tech. Communication Technol.
10.44 / 10.17 A0B5R7 IL0010905052 ELN GY/ E28.DE IFRS Dec 31
Regulated Market Prime Standard
Electronics Line 3000 Ltd.
- 2/27 - Content April 12, 2013Content
INVESTMENT CRITERIA 3 SWOT ANALYSIS 4 COMPANY PROFILE 5 Business Model 5Corporate and Ownership Structure 5
Products 6
Production 8
Research & Development 9
Major Selling Propositions 9
Marketing & Distribution 9
Management and Board of Directors 10
MARKET & COMPETITIVE ENVIRONMENT 12
Global residential security market 13
European residential security market 13
FINANCIAL ANALYSIS 14
Profit & Loss Account 14
Cash Flow Statement 16
Balance Sheet 17
VALUATION 18
DCF Analysis 18
Peer Group Analysis 20
Valuation Summary 24
Electronics Line 3000 Ltd.
April 12, 2013 Investment Criteria - 3/27 -
Investment Criteria
Electronics Line benefits from the integration into as well as from operative and strategic support by RISCO Group
Through the use of RISCO´s financial, administrative and marketing capabilities, EL saves capital-intensive investments and maintenance costs regarding back-office facilities
The evident commitment by RISCO sends positive signals regarding their believe in EL
Potential upside due to distribution agreement with RISCO Group
Global distribution network in (Europe, Latin America, Asia Pacific), with themajority of revenues being generated in Europe
Enhancement of the brand through extension and strengthening of the distribution channels (+34 new distributors since 2010) with own sales staff for dedicated European regions
EL´s continuous flow of innovation secures competitiveness in a narrow market segment
Almost 30 years of experience within the security industry
Completed outsourcing process of production from Israel to China is likely to increase operating margins
Based on the forecasts for the residential security market as well as the innovation strength of the Company, we are confident, that EL´s sales growth potential will unfold in the near future
Company turned positive in 2012 for the second time in succession because of successful restructuringElectronics Line 3000 Ltd.
- 4/27 - SWOT Analysis April 12, 2013
SWOT Analysis
Strengths
Global distribution network, supported by RISCO´s established distribution channels
State-of-the-art products and technology; special expertise in wireless security solutions
Flexible, customized home and small business security solutions
Experienced management team and lean corporate structure with RISCO Group
Improved capital structure due to consistent loan redemption
Break-even achieved in 2012Weaknesses
Negative track record on capital markets due to turbulent corporate history and not meeting announced operating targets in 2012
Trust has to be reestablished through newstructure and management
Limited information policy due to Israeli regulations
The current low market capitalization and lowtrading volume is not attractive for shareholders, especially for institutional investors
Limited presence in capital market events
Liquidity is tense as of December 31, 2012 ($ 0.8mln); however, worst case unlikely due to RISCO´s financial shield cave: dependency from RISCO increases
Opportunities
Clear commitment for success through a streamlined marketing and distribution strategy and outsourcing of production to China
Clear focus on the residential market with new products and technologies to capture market share
Distribution agreement with RISCO Group generatesupside potential
Extended distributor network reduces bulk riskThreats
Highly competitive market environment Lagging behind the latest market trends will negatively impact brand awareness and market share
A delay in the supply or a shortage of raw materials may impede or delay production
Country-specific risk due to unstable politicalenvironment in the middle-east region (headquarters of EL are in Israel)
Ongoing crisis in Europe may negatively affect future revenues (ca. 85% of revenues were generated in Europe in 2011)Electronics Line 3000 Ltd.
April 12, 2013 Company Profile - 5/27 -
Company Profile
Business Model
Electronics Line develops, produces and sells state of the art and high- quality security solutions. It focuses on the low-to-mid-end residential market (small office and home) in Europe, Asia and Africa and thereby complements the product lines of its parent company, RISCO Group, which is engaged in the commercial and high-end residential security market.
The Company offers a wide range of security components and systems with remote solutions such as video surveillance, environment monitoring (fire, flood, gas and temperature) as well as internal and perimeter protection. For the distribution and maintenance of its products, the Company pursues an indirect distribution strategy which does not target the end-user yet, but rather draws on multipliers such as value-added resellers, wholesale distributors and installation and monitoring companies. Since 2010, EL has extended the customer base by 34 new customers who contributed approximately 25% to the period’s revenue growth. It is planned to broaden the target customer group by the end-users through selling the products via do-it-yourself retailers and the Company’s own web store.
Corporate and Ownership Structure
Incorporated as Electronics Line 3000 Ltd. in 2002 and considering its corporate predecessor Electronics Line Ltd., the Company has a history of almost 30 years in the security market. During a restructuring process started in 2009, RISCO Group, a provider of security solutions, gained the controlling majority of EL. In the following, the two companies connected their sales activities and merged their administration departments which resulted in the relocation of ELs headquarter to the administration premises of RISCO in Rishon LeZion, near Tel Aviv, Israel. Production was initially transferred to the hands of RISCO but has gradually been outsourced to a Chinese contract manufacturer. To-date, almost 100% of the production is outsourced with a minor proportion of production remaining at RISCO as a back-up.
To streamline the distribution pipeline, EL shut down or sold several subsidiaries in the US (EL-USA and SecTecGLOBAL), France (SecTec) in 2011 and UK (Elite Security Products) in 2011.
As an outsourced research platform, EL engages the services of the Bulgarian security tech company which belongs to Moshe Alkelai, the chairman of EL’s board of directors.
The Company currently has 34 employees (end 2011: 31).
The last reported shareholder structure is as follows (Free Float: <5% in stake):
Shareholder No. of Shares in %
RISCO Ltd. 7,520,131 54.84%
Jürgen Stahl 1,024,350 7.47%
Free Float 5,168,367 37.69%
Total 13,712,848 100.00%
Source: Deutsche Börse
Focus on the
low-to-mid end residential
security market
Production
Electronics Line 3000 Ltd.
- 6/27 - Company Profile April 12, 2013
Products
With a track record of technological leadership and innovation, Electronics Line offers a rich product portfolio and multiple solutions for the residential security market. The product range covers the four main segments Security, Safety, Connectivity, and Control as shown in the figure below. The components can be remotely managed by the end-user through advanced communication methods such as PSTN (Public Switch Telephone Network), IP (Internet Protocol), GSM (Global System for Mobile Communications) and GPRS (General Packet Radio Service) and are available in both wired and wireless variations.
Security Safety Connectivity Control Personal Childcare, eldercare Environmental Monitoring
Fire, gas, flood, temperature
Communication Features
Two-way full duplex voice
Local control
Home automation of lighting and home appliances
Internal Protection Perimeter Protection
Source: Electronics Line 3000
Security
End users of EL´s residential solutions benefit from interior and perimeter security. The company offers a full-range of intelligent wired and wireless detectors and sensors which provide comprehensive intrusion and burglary protection.
The advanced residential solutions include various options, i.e.
personalized pre-defined arming modes
peripheral security products such as state-of-the-art curtain detectors, pet immune digital motion detectors, magnetic switches, vibration detectors and more
designated home areas can be configured for full, partial or perimeter arming, allowing free movement inside the house while specific areas are armed
a range of dual-technology detectors which provide detection based oncombined PIR and microwave detection, sounding an alarm only when both detection methods are triggered, virtually eliminating false alarms
Broad portfolio of
products for the
residential / mass
market
Interior and perimeter
security with flexible
settings
Electronics Line 3000 Ltd.
April 12, 2013 Company Profile - 7/27 -
Safety
The enhanced safety solutions of Electronics Line consist of a variety of specialized detectors to monitor environmental and safety hazards such as
Fire, gas, flood, temperature
Distress situations: users benefit from personal safety through panic buttons, listen-in and two-way conversation channels
Emergency (childcare, eldercare)Using a safety button, users, especially dependants, are able to notify remote persons, security monitoring services and medical care services in cases of distress. Via a listen-in or two-way voice channel, which will automatically open, remote users and services will be informed to evaluate the severity of an event.
Connectivity and Remote Management
The Company offers a broad range of options to communicate from inside the house to the outside for information / emergency calls or from outside into the house for setting appliances, functions or video look in.
The internal home network for all four segments is connected with the external network through advanced communications such as GPRS, IP, GSM, PSTN (depending on the control device). The external network can be the end user (house owner) who takes care of the remote management of the house as well as a security agency, an emergency organization or service providers. Moreover, service providers benefit from management tools which enable remote programming, maintenance and diagnostics, as well as remote firmware updates. The latest innovation is a smart phone application which allows the end user to access and control the home device via his mobile phone.
Control
Specific home automation features enable control of home appliances and utilities such as heating, lights, sprinklers etc., including pre-scheduled activation for enhanced convenience and energy conservation (weekly scheduling as well as one-off activation is possible). Specific scenario responses - e.g. lights turn on when passing by a detector or when an alarm is activated - and a vacation mode scheduling are available for enhanced comfort and control.
Appliances, functions, applications inside of the house such as washing machines, dishwashers, heating, windows, doors, lights, etc. can be switched on and off and monitored via control functions.
EL offers three control devices with different features and price ranges to meet the individual demands of the end-users: iConnect, Commpact and Prime. The iConnect is Electronics Line’s premium wireless solution, offering security,
safety, connectivity and control with dedicated interactive remote management applications for end-users and providers. The system uses advanced communication technology based on PSTN, IP, GSM, and a GPRS platform. The most significant feature, the two-way wireless communication technology, allows video verification which substantially reduces the probability of false alarm: once the motion detector (passive infra-red motion detector, PIR) is triggered by an intrusion event, an IP camera is activated and sends pictures or clips back to the main panel, which in turn communicates with the monitoring company or with
Environmental and
personal safety
State-of-the-art
multi-channel remote
control
Comfortable control
over home automation
Three different control
devices to meet
Electronics Line 3000 Ltd.
- 8/27 - Company Profile April 12, 2013
the end user via the EL’s proprietary communication platform ELAS (Electronics Line Application Server, see below); The ELAS allows the user to remotely access the security system by several “smart” devices (mobile alert, Email alert, smart phone app).
The CommPact is, compared to the iConnect, a trimmed-down and cost-saving wireless control device which offers one-way technology only. As iConnect, it features a broad spectrum of communication modules (PSTN, GSM, GPRS), can be connected to ELAS thus providing an easy remote access by the user. The Prime control system offers basic solutions for home security and automation. It is a one-way wireless device which uses the communication modules PSTN and GSM and features essential functions such as SMS event notification, audio communication and others. It is compatible with all EL peripherals but not ELAS and the downstream smart devices.
ELAS communication platform
EL has developed a proprietary server platform (Electronics Line Application Server) which enables the communication between the on-site installed security system and the end user or the monitoring company. This notification serves the verification of the event for further measures to be taken, e.g. informing police.
Source: Electronics Line 3000
Production
During the restructuring phase in 2011, EL has shut down its own production facilities. In the following, manufacturing of the products has in part been relocated to the production facility of RISCO Group and has in part been outsourced to a contract manufacturer in China. Currently, almost 100% of the
Production fully
Electronics Line 3000 Ltd.
April 12, 2013 Company Profile - 9/27 -
output is produced in China and just a small share at the facilities of RISCO, mainly to reduce potential production bottlenecks. Due to the reduction of costs and the streamlining of production, this reorganization entails positive effects on profitability.
Research & Development
In the last year, EL invested ca. 9% of sales in Research and Development, which is out-sourced to Bulgaria. The Bulgarian company is a small engineering firm (EL´s “think tank”) and has been providing R&D as an exclusive service for Electronics Line already in the past. It was acquired by Moshe Alkelai, the Chairman of the Board of the Company in 2011 from a trust company. During the AGM held in June 2011, the shareholders resolved an Outsourcing Services Agreement for the provision of R&D services to the company. Remuneration for the Services shall be at arm's length on a time and material basis.
Major Selling Propositions
From our point of view, the Company will especially profit from the following demands and competitive advantages, which are already implemented in EL´s various configurations:
Users strive to ensure that their home is a safe, comfortable and pleasant environment
Users prefer comprehensive solutions including internal protection (security), environmental monitoring (safety regarding fire, gas, flood and temperature), communication features (connectivity regarding speaker, microphone and two-way conversation) and control home appliances like lighting, air conditioning, washers, garage door and central heating
Patented method for the recognition of pets (Intelligent Full Area Vision Pet Immunity) to prevent false alarm
Users as well as service providers, like monitoring companies, prefer short installation time (reduced labor costs), quick device registration, non-invasive, no damage to wall decorations, wireless activation devices and enhanced convenience for end-users
Users like to have full control over their household devices via smart phone application or computer access i.e. they like real-time alerts if fire, panic, intruder, power outage or medical distress occur
Users like the trends of miniaturization and slick designMarketing & Distribution
Electronics Line´s sales and marketing departments are located in Israel and UK. Focusing on the residential security market, EL addresses the mass market of private premises and small businesses. Accordingly, the Company specializes on developing products and solutions that meet the private consumer´s demand of interactive, wireless and remote security solutions at prices affordable for private customers.
R&D outsourced to
partner in Bulgaria
Electronics Line 3000 Ltd.
- 10/27 - Company Profile April 12, 2013
Electronics Line doesn’t sell its products to the end customers directly but rather uses multipliers such as web retailers, monitoring companies and electrical wholesalers as distribution channels. The relationships are based on regular or order-by-order purchase agreements and are of an exclusive or non-exclusive nature, the latter one implying a minimum annual volume to be purchased by the distributors with the option to terminate the agreement once the distributor falls short. In the last three years, the Company extended its distribution network by 34 new distributors (22 just in 2012) and thus significantly lowered its dependency to single large customers. EL’s support staff takes care of the distributors which in turn handle inquiries of the end users. The customer care team consists of trained professionals who use advanced computer and communications systems to respond to the technical needs of the Company’s customers. In order to minimize overall service calls and to increase customer satisfaction, the Company’s products and services are specifically designed with remote diagnostic and management tools that allow the customer to troubleshoot and to maintain the system. In addition, this capability enables the Company to provide customers with real-time support if they are dealing with specific issues at an end user’s premise.
The Company concluded a distribution agreement with the parent company RISCO in 2012, which is likely to produce an additional sales upside in the future. The products are marketed under EL’s brand names as well as private labels for selected large customers. In several countries, there is more than one distributor offering different models at various price levels in order to meet the end customer´s specific requirements.
Management and Board of Directors
The board of management consists of Douglas Luscombe (CEO), Ilan Koren (Research and Development), Hezi Shabetav (Customer Service), Tal Rosner (Director of Operations) and Sigal Yehuda, who replaced Lior Meidan as Financial Controller in July 2012. Ms. Sharon Sheep has temporarily been acting for Ms. Sigal Yehuda since September 2012 for private reasons. She was also appointed to the Board of Directors.
1. Board of Management
Douglas Luscombe serves as the Chief Executive Officer of Electronics Line 3000 Ltd. He joined the Company in May 2010. Prior, he served as the Managing Director of RISCO Group UK, an international recognized leader in the global security solutions market. Prior to that, he served as the Managing Director of Rokonet Industries UK and before this as the Sales and Marketing Director, followed by Managing Director and then the Chief Executive Officer for Sesco Security (PTY), South Africa. With more than 20 years of experience in the electronic security industry, he has a vast understanding of technical, product, marketing and sales knowledge as well as business development and management.
Ilan Koren joined RISCO Group in 2000 after serving in various senior management positions in the electronic security industry, including management of large multi-discipline integrated projects in the military defense industry. Mr. Koren has been leading RISCO Group's R&D department since 2001, with responsibility for the full lifecycle of RISCO Group products. Mr. Koren is responsible for numerous innovations and technology implementations in the fields of security, detection technologies and command and control software. Mr. Koren holds anCompany has
extended its
distribution network
for the last 3 years
Electronics Line 3000 Ltd.
April 12, 2013 Company Profile - 11/27 -
MBA degree from Bradford University and a B.Sc in Electronics Engineering from Tel Aviv University.
Hezi Shabetay joined RISCO Group in March 2011, with over 20 years of vast experience in the service management structure with special expertise in setting up, maintenance and customer service units, both in the computer and telephony segments. During his twelve years of military service in the Israeli Air Force and twelve years at Comverse, most recently as EVP Customer Service, Mr. Shabetay led major strategic initiatives in focusing on customers’ needs and support, while providing professional high level service and implementing a supporting infrastructure. Mr. Shabetay leads RISCO Group's service department, responsible for technical support & training, support logistics (RMA), and customer satisfaction. Mr. Shabetay holds an M.Sc degree in Industrial Engineering from Be'er Sheva University, and a B.Sc in Electronics Engineering from Tel Aviv University.
Tal Rosner joined Electronics Line 3000 Ltd. in 1993, as the company's production manager and has been serving as its Director of Operations since 2006. Mr. Rosner brings with vast experience in managing operations' facilities in the Israeli electronic industry. Mr. Rosner holds a Practical Engineer Diploma in Industrial Management from Tel Aviv University.
Sigal Yehuda joined the company in 2010, bringing with her three years of financial and audit experience. Sigal holds a BA in Economics and Accounting from Ben Gurion University, and is a Certified Public Accountant in Israel.2. Board of Directors
Moshe Alkelai is chairman of the Board of Directors of Electronics Line 3000 Ltd. He is the founder of RISCO Group, a privately held company, and serves as its CEO and Chairman of the Board of Directors ever since its inception. Beginning 1978, he became actively involved in the management of several companies in the Group such as Rokonet Electronics, a leading manufacturer of detection technology, and RISCO Ltd., a leading manufacturer of security integration and building management. Led by Moshe Alkelai, RISCO has been growing significantly. In addition, Mr. Alkelai has a proven business track record of turnaround of acquired companies. Mr. Alkelai established RISCO's worldwide sales network and leads the vision of the marketing strategy and of the R&D activity of the group. Mr. Alkelai holds an Electronics Practical Engineer degree from Ort Institute.
Mazal Alkelai joined Electronics Line 3000’s Board in April 2010. Ms. Alkelai began her professional career in 1976 at E. MUND and Co. Accountants. From 1979 to 1982 she worked in MADANY BASAR as a bookkeeper. She joined ROKONET in 1982 and held the position of Finance Manager until 2001. From 2001 until September 2006 Mazal held the position of CEO atLASROC Ltd., RISCO's production arm. From 2007 until today Ms. Mazal Alkelai has been holding the position of RISCO's Director.
Yigal Fatran joined the Board in April 2010. He has over 35 years of financial and industrial experience. Mr Fatran´s resumé includes senior positions at Israeli corporations in the Hi-Tech industries field. He is director on the boards of few Israeli companies (public and private). Mr.Electronics Line 3000 Ltd.
- 12/27 - Market & Competitive Environment April 12, 2013
Fatran holds BSc degrees in Computer Science and Economics, both from Bar Ilan University, Israel.
Raphael Durst has over 14 years of financial experience. His resume includes Assistant to the Accountant General at the Israeli Ministry of Finance, and Deputy Chief Financial Officer at the Israeli Ministry of Finance in New York. He currently holds the position of CFO at Ma'atz - Israeli National Roads company. Mr. Durst holds a Masters degree in social sciences from NYU, an MBA from Bridgeport University in NY and a BA in economics and accounting from the Hebrew University in Jerusalem. Mr. Durst is a Certified Public Accountant in Israel.
Dan Elnathan has over 20 years of accounting and finance experience, in academic positions, research and teaching. He served as Chairman of the Accounting department and Associate Dean at the School of Business Administration of the College of Management, Israel. Prior to that he was faculty member at Tel Aviv University Faculty of Business and University of Southern California School of Accounting. He was also a visiting lecturer at the Vlerick School of Business in Ghent, Belgium and University of Michigan. He is a member of the American Accounting Association and the Institute of Management Accounting. Dr. Elnathan holds Ph.D. (Accounting), from the Wharton School of Business, University of Pennsylvania, M.B.A. (Finance) and B.A. (Accounting & Economics), both from The Hebrew University, Jerusalem, Israel. Dr. Elnathan also served as board member and Chairman of Audit Committees in Israeli & US companies, as well as Not For Profit organizations.Raphael Durst and Dan Elnathan are members of the Board as external directors.
Market & Competitive Environment
Electronics Line operates within the market for residential security for private homes and small businesses. This industry segment consists of solutions for intrusion detection, video surveillance, access control, and fire detection. While the total security market is composed of hardware (e.g. cameras and motion detectors), services (installation and monitoring) as well as after sales maintenance, EL focuses on the development, production and distribution of software and integrated hardware components, which are sold as complete security solutions or as modular components.
The residential security market is highly competitive and largely dominated by global players such as Bosch, GE, Honeywell, Tyco, and Siemens. These large companies are not only highly diversified regarding their product and service portfolio but moreover enjoy significantly higher capital resources compared to EL; however, EL is likely to benefit from its smaller size in terms of flexibility to react to fast changing market trends. This flexibility is backed by a small, highly selected and exclusive R&D think tank which provides the Company with state-of-the-art technology and a continuous flow of innovations (an engineering company privately held by Moshe Alkelai, CEO and chairman of RISCO).
Security market is
dominated by global
players
Electronics Line 3000 Ltd.
April 12, 2013 Market & Competitive Environment - 13/27 -
Global residential security market
A market study performed by MarketsandMarkets, 2011, considers the global residential security market as a sub-segment of the smart homes market with a volume of $ 5.3 bln in 2010. It is expected that the market volume is going to increase to $ 11.0 bln in 2015. This translates into a CAGR of 15.6% for this period. Based on historical figures, we estimate that the residential security market is ca. 25% of the global smart homes market. From our point of view, the future growth of the residential security market (hardware and software components, system solutions) is likely to have the same dynamics as the global smart homes market. This implies a sales volume of the residential security market segment of ca. $ 1.3 bln in 2010 and ca. $ 2.75 bln in 2015.
The market study, which covers the global smart homes market (security, energy management, entertainment, lighting, air conditions etc.), shows, that the residential security market is rather mature. Further, the security segment is characterized by a moderate growth, albeit at high revenues.
Security Lighting HVAC
(Heating, Ventilation & Air Conditioning)
Energy management Entertainment Home health
High growth - Low revenue High growth - High revenue
Low growth - Low revenue Low growth - High revenue
Gr o w th Revenue Source: MarketsandMarkets, 2011
European residential security market
In analogy to the market study covering the global market, the market research from ResearchandMarkets (European Smart Homes and Assisted Living Market 2010-2015, 2011) considers the European residential security market as part of the European smart home market. The residential security market generated revenues of $ 380.5 mln in 2010 and will grow with a 5y-CAGR of 14.3%, translating into sales of ca. $ 741.6 mln in 2015. EL generates ca. 85% of its sales in Europe. Based on EL’s reported 2012 revenues for Europe (ca. $ 12.1 mln) we estimate its current market share in Europe at 2 - 3%.
Global CAGR
2010-2015of
the residential
security market:
15.6%
European CAGR
2010-2015of the residential
security market:
14.3%
Electronics Line 3000 Ltd.
- 14/27 - Financial Analysis April 12, 2013
Financial Analysis
In this chapter we discuss Electronic Line´s operating results, cash flow as well as the balance sheet and present the rationale of our short term forecasts.
Profit & Loss Account
FY 2012 revenues were heavily influenced by the sale of the UK subsidiary (accounting for ca. $ 6.0 mln in 2011) at the end of 2011, the loss of the major customer (accounting for ca. $ 4.0 mln in 2011) due to a merger transaction and by the prevailing economic crisis in Europe. At the same time, the Company extended its client base by 22 new customers in 2012 (34 new customers since 2010) which partly compensated the revenue losses from existing customers and, more importantly, built a more solid basis for future growth. Nevertheless, it did not prevent the biggest customer from contributing 18.5% to total sales revenues. Altogether, revenues dropped significantly from $ 24.2 mln to $ 14.3 mln in 2012, in particular in the second half of the year where only $ 5.6 mln (38.9% of full year sales) were generated.
The graph below shows the actual sales figures and growth rates for the three recent reported periods and our estimates for the current fiscal year.
Source: Capital IQ, BankM Research estimates
The operating result was influenced by the weak development of total sales in the second half of 2012 as stagnant production fix costs lowered the gross profit and administrative, selling and research costs remained almost stable. We estimate that a part of these costs were generated in the context of the outsourcing process to China. In addition, the claim of one customer for reimbursement in connection with the upgrade of product version was recorded as provision and escalated the COGS in the last quarter by $ 265 ths. which partly explains the relatively low gross profit margin of 20.7% in the fourth quarter. This event diluted the full year gross profit margin by 1.8 ppts.
Top line growth
affected by
losses/sale of
distributors and
economic crisis
Gross margin
declined due to
production overhead
costs and provision
Electronics Line 3000 Ltd.
April 12, 2013 Financial Analysis - 15/27 -
The release of a provision in the context of the premature termination of a lease agreement had a positive one-time effect of $ 404 ths. on EBIT and increased the EBIT margin by ca. 2.8 ppts. to 8.7%. Without this non-recurring event, the EBIT margin would have been 1.7 ppts lower than in the last year (adjusted for the non-recurring expenses of $ 315 ths).
Without any adjustments, net profit more than halved (-53.7%) to $ 1.1 mln compared to $ 2.3 mln in 2011. Excluding non-recurring items, especially other income/expenses and the gain from the sale of the subsidiary (+$ 1.2 mln in 2011), the net profit in 2012 was 52.4% lower ($ 677 ths.) than in 2011 ($ 1.4 mln). Also on an adjusted basis, bottom line margin dropped by 1.2 ppts to 4.7%. The bottom line profited from the cumulated carry forward losses as they saved Electronics Line from paying corporate taxes.
The graph below shows the actual EBIT and Net Profit/Loss of the three recent reported periods and our estimates for the current fiscal year.
Source: Capital IQ, BankM Research estimates
Altogether, the envisaged positive effects of the outsourced production process to China and the introduction of the novel products are not clearly visible in the operating figures. Furthermore, the development in the last two quarters raises some questions. However, we perceive the reported figures as a result of a transition period so that the Company may get its reward in the future periods, especially when considering the extension of the customer base.
Our forecasts are based on market research of the relevant industry sector (see chapter “Markets and Competitive Environment”), which predicts a CAGR2013-2015
of 14.3%. Instead of following the Company’s revenue guidance of 25% for 2013, we rather adhere to the market research data in forecasting the years 2013 - 2015.
Net profit more than
halved in 2012
Electronics Line 3000 Ltd.
- 16/27 - Financial Analysis April 12, 2013
Profit & Loss Account
Fiscal Year 31.12 (IFRS) 2011a 2012a 2013e 2014e 2015e 2016e 12a 13e 14e 15e 16e 4y - CAGR
in T$ Total Sales 24,164.0 14,331.0 16,330.9 18,619.3 21,221.5 23,348.4 -40.7 14.0 14.0 14.0 10.0 13.0 Cost of sales 15,745.0 8,905.0 10,370.1 11,637.0 13,369.5 14,709.5 -43.4 16.5 12.2 14.9 10.0 13.4 in % of total sales 65.2 62.1 63.5 62.5 63.0 63.0 Gross Profit 8,419.0 5,426.0 5,960.8 6,982.2 7,852.0 8,638.9 -35.6 9.9 17.1 12.5 10.0 12.3 in % of total sales 34.8 37.9 36.5 37.5 37.0 37.0
Selling and marketing expenses 2,878.0 1,556.0 1,714.7 1,861.9 2,122.2 2,334.8 -45.9 10.2 8.6 14.0 10.0 10.7
in % of total sales 11.9 10.9 10.5 10.0 10.0 10.0
General and administration expenses 1,977.0 1,678.0 1,959.7 2,197.1 2,461.7 2,661.7 -15.1 16.8 12.1 12.0 8.1 12.2
in % of total sales 8.2 11.7 12.0 11.8 11.6 11.4 R&D expenses 1,733.0 1,349.0 1,469.8 1,675.7 1,909.9 2,101.4 -22.2 9.0 14.0 14.0 10.0 11.7 in % of total sales 7.2 9.4 9.0 9.0 9.0 9.0 Other income 0.0 402.0 0.0 0.0 0.0 0.0 Other expenses 315.0 0.0 0.0 0.0 0.0 0.0 EBIT 1,516.0 1,245.0 816.5 1,247.5 1,358.2 1,541.0 -17.9 -34.4 52.8 8.9 13.5 5.5 in % of total sales 6.3 8.7 5.0 6.7 6.4 6.6 Interest income 51.0 0.0 0.0 0.0 0.0 0.0 Interest expense 405.0 166.0 42.4 42.4 42.4 42.4
Gain from sale of subsidiary 1,224.0 0.0 0.0 0.0 0.0 0.0
EBT 2,386.0 1,079.0 774.1 1,205.1 1,315.8 1,498.6 -54.8 -28.3 55.7 9.2 13.9 8.6
in % of total sales 9.9 7.5 4.7 6.5 6.2 6.4
Taxes on Income (Exp.+/Inc.-) 54.0 0.0 196.7 -27.7 -45.7 -29.9
t/o current income tax (Exp.+/Inc.-) 88.0 0.0 0.0 0.0 0.0 0.0 t/o deferred taxes (Exp.+/Inc.-) -34.0 0.0 196.7 -27.7 -45.7 -29.9
Net profit 2,332.0 1,079.0 577.4 1,232.8 1,361.5 1,528.5 -53.7 -46.5 113.5 10.4 12.3 9.1
in % of total sales 9.7 7.5 3.5 6.6 6.4 6.5
For information purposes
Depreciation and amortization 480.0 273.0 212.4 199.9 189.9 181.9 -43.1 -22.2 -5.9 -5.0 -4.2 -9.6
in % of total sales 0.0 0.0 0.0 0.0 0.0 0.0
EBITDA 1,996.0 1,518.0 1,028.9 1,447.4 1,548.1 1,722.9 -23.9 -32.2 40.7 7.0 11.3 3.2 No. of shares (Ø outstanding) 13,713 13,713 13,713 13,713 13,713 13,713
Net profit / share (EPS) 0.17 0.08 0.04 0.09 0.10 0.11
Adj. net profit / share (adj. EPS) 0.08 0.08 0.04 0.09 0.10 0.11
y-o-y changes in %
Source: BankM Research
Cash Flow Statement
In FY 2012, operating cash flow was positive at $ 617 ths. for the first time since the restructuring after a negative operating cash flow of $ 255 ths. Due to significant repayments of bank loans, total cash flow turned negative to $ 884 ths.
Cash Flow Statement
Fiscal Year 31.12 (IFRS) 2011a 2012a 2013e 2014e 2015e 2016e 12a 13e 14e 15e 16e 4y - CAGR
in T$
Net profit 2,332.0 1,079.0 577.4 1,232.8 1,361.5 1,528.5 -53.7 -46.5 113.5 10.4 12.3 9.1
+ Depreciation and amortization 480.0 273.0 212.4 199.9 189.9 181.9 -43.1 -22.2 -5.9 -5.0 -4.2 -9.6
+ Chg. in long-term provisions -99.0 3.0 0.0 0.0 0.0 0.0
= Cash Earnings 2,713.0 1,355.0 789.8 1,432.7 1,551.4 1,710.4 -50.1 -41.7 81.4 8.3 10.2 6.0
+ Other non-cash items -2,790.0 -373.0 -256.0 0.0 0.0 0.0
- Chg. in net working capital 144.0 365.0 406.7 465.3 529.1 432.5
- def. taxes from carry forward losses 34.0 0.0 -196.7 27.7 45.7 29.9
= Operating Cash Flow -255.0 617.0 323.9 939.7 976.6 1,248.1 n.a. -47.5 190.1 3.9 27.8 19.3
- Capex -1,838.0 260.0 150.0 150.0 150.0 150.0
= Free Cash Flow 1,583.0 357.0 173.9 789.7 826.6 1,098.1 -77.4 -51.3 354.1 4.7 32.8 32.4
+ Other net items -8.0 0.0 0.0 0.0 0.0 0.0
+ Bank loans & receipt from rel. parties -871.0 -1,241.0 0.0 0.0 0.0 0.0
= Incr. in Cash (+)/Decr. in Cash (-) 704.0 -884.0 173.9 789.7 826.6 1,098.1 -225.6 -119.7 354.1 4.7 32.8 84.8 y-o-y changes in %
Electronics Line 3000 Ltd.
April 12, 2013 Financial Analysis - 17/27 -
Balance Sheet
As a consequence of the loan repayments, equity ratio improved from 29.0% in 2011 to 51.5% in 2012.
Inventory significantly increased to $ 4.0 mln (+184.0%) due to a strategic change of the inventory management: The Company targets higher inventory to serve the demand of its customers timely. The development of the receivables went in the opposite direction and decreased by $ 3.1 mln (-78.9%). In tandem with the redemption of the bank loans, the net working capital remained almost constant at $ 2.9 mln (compared to $ 2.6 mln in 2011).
The broader measure for liquidity, the current ratio, advanced from 1.4 to 1.8 indicating an improvement in covering short term obligations. The cash ratio deteriorated from 0.34 to 0.26 showing potential challenges to finance short term obligations, albeit we do not anticipated any financial distress as the Company still has open credit lines and we are confident that the Company enjoys a fallback position through RISCO.
Balance Sheet
Fiscal Year 31.12 (IFRS) 2011a 2012a 2013e 2014e 2015e 2016e 12a 13e 14e 15e 16e in T$
Assets
Tangible assets 524.0 609.0 547.2 497.8 458.2 426.6 8.6 7.1 5.4 4.2 3.3
Intangible assets 403.0 303.0 302.4 301.9 301.5 301.2 4.3 3.9 3.3 2.8 2.4
Deferred tax 483.0 498.0 301.3 328.9 374.6 404.5 7.0 3.9 3.6 3.4 3.2
Other fixed assets 80.0 17.0 0.0 0.0 0.0 0.0 0.2 0.0 0.0 0.0 0.0
Total Fixed Assets 1,490.0 1,427.0 1,150.9 1,128.6 1,134.4 1,132.3 20.1 15.0 12.2 10.4 8.9 Inventories 1,423.0 4,042.0 4,606.1 5,251.5 5,985.4 6,585.3 56.9 60.0 56.9 54.7 51.6 Accounts receivable & prepayments 3,929.0 828.0 943.5 1,075.8 1,226.1 1,349.0 11.7 12.3 11.7 11.2 10.6 Total liquid funds 1,687.0 803.0 976.9 1,766.6 2,593.2 3,691.3 11.3 12.7 19.2 23.7 28.9 Total Current Assets 7,039.0 5,673.0 6,526.5 8,093.9 9,804.7 11,625.6 79.9 85.0 87.8 89.6 91.1 Balance Sheet Total 8,529.0 7,100.0 7,677.4 9,222.5 10,939.1 12,757.9 100.0 100.0 100.0 100.0 100.0
Shareholder's Equity / Liabilities
Subscribed capital 15,933.0 15,933.0 15,933.0 15,933.0 15,933.0 15,933.0 224.4 207.5 172.8 145.7 124.9 Share premium 6,474.0 6,584.0 6,584.0 6,584.0 6,584.0 6,584.0 92.7 85.8 71.4 60.2 51.6 Retained earnings and other reserves -19,936.0 -18,857.0 -18,279.6 -17,046.8 -15,685.3 -14,156.9 -265.6 -238.1 -184.8 -143.4 -111.0 Shareholders Equity 2,471.0 3,660.0 4,237.4 5,470.2 6,831.7 8,360.1 51.5 55.2 59.3 62.5 65.5 Long term liabilities 1,093.0 322.0 348.4 365.3 384.0 404.5 4.5 4.5 4.0 3.5 3.2
t/o Provisions 140.0 143.0 169.4 186.3 205.0 225.5 2.0 2.2 2.0 1.9 1.8 t/o Interest bearing 527.0 179.0 179.0 179.0 179.0 179.0 2.5 2.3 1.9 1.6 1.4 t/o Other liabilities 426.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
ST Liab. < 1 year 4,965.0 3,118.0 3,091.6 3,387.0 3,723.5 3,993.3 43.9 40.3 36.7 34.0 31.3
t/o Acc. payable & pre-paymts. 2,796.0 1,956.0 2,229.0 2,541.3 2,896.5 3,186.8 27.5 29.0 27.6 26.5 25.0 t/o Bank loans 1,244.0 351.0 351.0 351.0 351.0 351.0 4.9 4.6 3.8 3.2 2.8 t/o other current liabilties 925.0 811.0 511.6 494.7 476.0 455.6 11.4 6.7 5.4 4.4 3.6
Total Liabilities 6,058.0 3,440.0 3,440.0 3,752.3 4,107.4 4,397.8 48.5 44.8 40.7 37.5 34.5 Balance Sheet Total 8,529.0 7,100.0 7,677.4 9,222.5 10,939.1 12,757.9 100.0 100.0 100.0 100.0 100.0
In % of Balance Sheet Total
Electronics Line 3000 Ltd.
- 18/27 - Valuation April 12, 2013
Valuation
In order to calculate a fair value for Electronics Line 3000 Ltd., we have applied two methods which allow for mutual validation and thus sensitize for the plausibility of each of the derived values:
1. Analysis of Free Cash Flows (DCF analysis) 2. Multiple analysis (peer group comparison)
The calculated values are being equally weighted and translate into our fair value.
DCF Analysis
For the analysis of Free Cash Flows we apply a 3-stage model:
Phase I 2013 – 2016 (short-term planning with pronounced growth)
Phase II 2017 – 2020 (mid-term prognosis with estimated CAGR)
Phase III Terminal Value
The forecasts of future cash flows implemented in our model are based on the following sources:
The Company´s FY 2012 reporting
Company presentation
Discussions with Electronics Line´s management
Analysis of the relevant marketsTime-weighted discounting of Free Cash Flows is a central element within the DCF valuation. Currently, fundamental quantitative analysis is faced with methodical problems in calculating a risk premium by means of a market portfolio proxy (a broadly diversified index). Geometric returns over longer periods (CAGR over 5 – 10 years) are still not suitable due to their sharp decline in recent years. For example, on USD-basis the MSCI World and S&P 500 indices show a 10y-performance, expressed as CAGR, of 9.5% and 8.5%, respectively. Moreover, during the preceding 12 months, the MSCI World and the S&P 500 indices have gained 12.6% and 14.0%, respectively (index data as of April 11, 2013).
In our derivation of cost of equity we feel comfortable with a postulated market return of 10%. Regarding risk, we account for the Country Specific Risks (CRP) for Israel (headquarter of EL) with currently 1.28% and China (production) with currently 1.05%.
In our calculation of the weighted average cost of capital (WACC) we assume a target capital structure of 90:10 (equity at market value : debt at book value).
Electronics Line 3000 Ltd.
April 12, 2013 Valuation - 19/27 -
DCF - Analysis
Terminal
2012a 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e Value
in T$ Basis 1 2 3 4 5 6 7 8
Growth -40.7% 14.0% 14.0% 14.0% 10.0% 0.0%
Revenues 14,331 16,331 18,619 21,222 23,348 24,516 25,742 27,029 28,380 28,380
EBIT 1,245 817 1,247 1,358 1,541 1,618 1,699 1,784 1,873 1,873
- Tax 0 0 0 0 0 0 0 0 0 468
+ Depreciation and amortization 273 212 200 190 182 176 170 166 163 150
+ Change in long-term provisions 3 0 0 0 0 0 0 0 0 0
- Change in net working capital 365 407 465 529 432 237 249 262 275 0
- Other non-cash items 0 0 0 0 0 0 0 0 0 0
- Capex 260 150 150 150 150 150 150 150 150 150
= Free Cash Flow 896 472 832 869 1,140 1,406 1,470 1,539 1,611 1,405
Terminal Value 12,912
Discount factor n.a. 0.90 0.82 0.74 0.67 0.60 0.54 0.49 0.44 0.44
NPV of Free Cash Flows n.a. 427 679 640 759 846 798 755 714
NPV of Terminal Value 5,721
Valuation Proportion of EV
Result of Future Cash Flows 5,618 50% + Result of Terminal Value 5,721 50% = Value of the Entity 11,339
+ Cash (as of Dec 31, 2012) 803 - Debt (as of Dec 31, 2012) 530 = Value of Equity 11,612 Current No. of Shares (in '000) 13,713 Price per Share (in $) 0.85
Phase 1 Phase 2
Forecast
CAGR = 5.0%
Source: BankM Research
Sensitivity analysis NPV Terminal Value (TV)
in $ 8.00% 9.00% 10.00% 10.88% 11.00% 12.00% 13.00% -2.00% 0.87 0.83 0.80 0.77 0.77 0.75 0.73 -1.00% 0.93 0.88 0.84 0.81 0.80 0.78 0.75 0.00% 1.00 0.93 0.88 0.85 0.84 0.81 0.78 1.00% 1.08 1.00 0.94 0.89 0.89 0.85 0.81 2.00% 1.20 1.09 1.01 0.95 0.94 0.89 0.85 in $ 4.00% 5.00% 6.00% 6.60% 7.00% 8.00% 9.00% -2.00% 0.64 0.69 0.74 0.77 0.80 0.85 0.90 -1.00% 0.66 0.72 0.77 0.81 0.83 0.89 0.95 0.00% 0.68 0.75 0.81 0.85 0.87 0.94 1.00 1.00% 0.71 0.78 0.85 0.89 0.92 0.99 1.06 2.00% 0.75 0.82 0.90 0.95 0.98 1.06 1.14 Growth in Terminal Value
Discount rate of Terminal Value
Growth in Terminal
Value
EBIT Margin in TV
Source: BankM Research
Our DCF analysis returns an equity value of $ 11.18 mln translating into $ 0.85 per share. Applying the exchange rate of 1.3113 $/€ as of April 12, 2013 (11.30 am CET), this results in € 0.65 per share.
DCF-derived value:
€ 0.65
Phase I Phase II
Key Model Assumptions
Riskfree Return 1.30% 1.30%
10 Year Government Bond (GER)
Sector Beta (12M vs. MSCI World) 0.87 0.87
Beta in Terminal Value = 1
Market Return 10.00% 10.00%
Country Risk Premium Israel* 1.28% 1.28% Country Risk Premium China* 1.05% 1.05% Cost of Equity 11.23% 11.23% Target Weight 90.00% 90.00% Cost of Debt 8.00% 8.00% Target Weight 10.00% 10.00% Tax Shield 25.00% 25.00% TV WACC 10.71% 10.71% 10.88%
Growth Rate Terminal Value 0.0% *Country Risk based on Damodaran Estimates
Electronics Line 3000 Ltd.
- 20/27 - Valuation April 12, 2013
Peer Group Analysis
Within the residential security market, we were able to identify only a limited number of publicly listed closest comparables owing to a mismatch in size and / or a much higher grade of product / service diversification (e.g. Tyco, Siemens, GE).
In order to perform a meaningful multiple analysis we have included publicly listed companies, which are operating in the residential security market, albeit with a different focus regarding product portfolio. We perceive these companies at least as “near” comparables (Market-Cap as of April 05, 2013).
Source: Electronics Line
NAPCO SECURITY TECHNOLOGIES, INC., together with its subsidiaries, engages in the manufacture and sale of security products, including intrusion and fire alarms, building access control systems, and electronic locking devices worldwide. It offers access control systems that comprise identification readers, control panel and personal computer.
Revenues 2012: € 55.5 mln; Market Capitalization: € 60.7 mln.
Source: Capital IQ
Optex Co., Ltd. engages in the development and marketing of environmental management, automatic door, industrial use, and security system sensors. Its security system sensors include intruder detectors and visual security products. The company's automatic door sensors comprise sensors for transom or ceiling mounting; beam sensors; sensors for industrial doors; toilet door sensors; wireless push switches; and sensors for door jamb mounting. It also offers
Electronics Line 3000 Ltd.
April 12, 2013 Valuation - 21/27 -
infrared thermometers; and image, pressure, displacement, and photoelectric sensors for industrial use. Optex Co. operates in Japan and other parts of Asia, North America, and Europe. The company was established in 1979 and is headquartered in Shiga, Japan.
Revenues 2012: €168.7 Mill.; Market Capitalization: €168.7 Mill.
Source: Capital IQ
Vicon Industries Inc. designs, manufactures, assembles, and markets video systems and system components for use in security, surveillance, safety, and control purposes. The company’s product line consists of various elements of a video system, including digital video and network video recorders; video encoders, decoders, servers, and related physical security information management software.
Revenues 2012: € 38.9 mln; Market Capitalization: € 9.5 mln
Source: Capital IQ
George Risk Industries Inc. engages in the design, manufacture, marketing, and sale of computer keyboards, push-button switches, security/burglar alarm components and systems, pool alarms, thermostats, the company sells security burglar alarm products through distributors and private board customers, as well as keyboard products to original equipment manufacturers and distributors of off-the-shelf keyboards. The company was incorporated in 1967 and is based in Kimball, Nebraska.
Electronics Line 3000 Ltd.
- 22/27 - Valuation April 12, 2013
Source: Capital IQ
AlarmForce Industries Inc. provides security alarm and personal emergency response monitoring, and related services primarily to the residential market subscribers in Canada and the United States. The company manufactures, installs, and services a wireless two-way voice system, which facilitate two-way voice communication between subscriber and the company’s communications center. Its products include AlarmForce, a home security product that comprise panic buttons, additional motion detectors, and smoke detectors; AlarmPlus, which sends a wireless signal to the AlarmForce central monitoring station when telephone lines are tampered; and AlarmCare, a personal emergency response system. The company was founded in 1988 and is headquartered in Toronto, Canada.
Revenues 2012: € 34.5 mln; Market Capitalization: € 110.9 mln
Source: Capital IQ
MOBOTIX AG operates as a software company with in-house hardware development in the area of digital, high resolution, and network-based video security solutions. Its product portfolio includes M12 (DualNight Camera), M24 (Allround Camera), D12 (DualDome Camera), D24 (MonoDome Camera), V12 (Vandalism Camera), and Q24 (Hemispheric 3600 Camera). The company also offers MxControlCenter, a video management solution, as central control center software, which integrates cameras from other manufacturers, and MxEasy, a video management solution for the consumer and semi-professional segment. The company’s product range also includes T24 door stations, Mx2wire systems, CamIO input/output modules, and ExtIO modules. In addition, it offers various
Electronics Line 3000 Ltd.
April 12, 2013 Valuation - 23/27 -
accessories, including cables; lenses and sensors; and housing, mounting, and power supply accessories. MOBOTIX was founded in 1999 and is headquartered in Langmeil, Germany.
Revenues 2012: € 82.7 mln; Market Capitalization: € 216.9 mln
Source: Capital IQ
primion Technology AG engages in the development, production, and sale of software and hardware-based systems for access control, time recording, and integrated security technology in Germany. The company’s system solutions for recording time include work time management, manpower planning, and production data capture modules; for integrated security technology comprise hazard detection and video technology modules; and for access control and integrated security technology consist Prime key technology and mechatronic system components modules. Technology AG focuses on the development, production, and sale of system technology in the areas of electronic access control equipment and facility management, as well as for Internet applications, security technology, and the provision of related services. The company was formerly known as AZS Datentechnik GmbH. primion Technology AG was founded in 1995 and is headquartered in Stetten am kalten Markt, Germany. As of December 11, 2008, primion Technology AG operates as a subsidiary of Azkoyen SA.
Revenues 2012: € 51.0 mln; Market Capitalization: € 17.6 mln
Electronics Line 3000 Ltd.
- 24/27 - Valuation April 12, 2013
Peer Group - Analysis
Mkt Cap EV
Peer Group prev. Day prev. Day 2012a 2013e 2014e 2012a 2013e 2014e 2012a 2013e 2014e
(EUR Mill.)
NAPCO Security Technologies In 77.57 92.39 70.93 - - 6.09 - - 2.29 -
-Optex Co Ltd 222.35 161.22 259.49 261.19 292.23 27.03 - - 10.34 12.85 14.99
Alarmforce Industries Inc 132.80 121.18 44.64 49.41 57.11 6.24 12.09 15.11 1.16 5.17 6.92
George Risk Industries Inc 35.25 9.21 10.29 - - 3.20 - - 2.65 -
-Mobotix AG 276.94 278.93 105.97 115.09 129.51 30.61 30.07 34.07 17.78 17.28 19.62
Vicon Industries Inc 13.93 5.32 49.65 - - -0.80 - - -1.38 -
-Primion Technology AG 22.29 39.85 - - -
-Electronics Line 3000 Ltd 10.44 10.17 24.16 14.33 16.33 2.00 1.52 1.03 2.33 1.08 0.58 *If EV prev. day is not available, the EV current day is displayed without further notice
Mkt Cap EV
Peer Group prev. Day prev. Day 2012a 2013e 2014e 2012a 2013e 2014e 2012a 2013e 2014e
Multiples
NAPCO Security Technologies In 77.57 92.39 1.19 - - 13.86 - - 30.43 -
-Optex Co Ltd 222.35 161.22 0.49 0.62 0.55 4.68 - - 19.08 17.31 14.84
Alarmforce Industries Inc 132.80 121.18 2.96 2.45 2.12 21.20 10.03 8.02 124.70 25.71 19.19
George Risk Industries Inc 35.25 9.21 0.88 - - 2.83 - - 13.31 -
-Mobotix AG 276.94 278.93 3.03 2.42 2.15 10.47 9.28 8.19 17.93 16.03 14.12
Vicon Industries Inc 13.93 5.32 0.09 - - neg. - - neg. -
-Primion Technology AG 22.29 39.85 - - -
-Median 77.57 92.39 0.88 1.52 1.35 7.58 9.28 8.19 18.50 16.67 14.48
Mean (for information purposes, only) 111.59 101.16 1.13 1.52 1.35 7.96 9.28 8.19 20.19 16.67 14.48
Electronics Line 3000 Ltd 10.44 9.96 0.46 0.77 0.67 5.51 6.70 9.88 4.84 9.67 18.08 *Multiple based on historical price as of Dec 31 prev. year (not shown); as of publication date, some figures for 2011 may still be estimates
Enterprise Value Electronics Line 3000 n.a. 21.79 22.09 n.a. 14.08 8.42 n.a. 17.99 8.36
-net debt n.a. -0.27 -0.27 n.a. -0.27 -0.27
Value of the Equity n.a. 22.06 22.36 n.a. 14.35 8.70 n.a. 17.99 8.36
Year 2013 2014 2013 2014
Implicit Price in $ 1.32 0.96
Equity value based on EV/Revenues ($ mln) 22.06 22.36 Equity value based on EV/EBITDA ($ mln) 14.35 8.70 Equity value based on P/E ($ mln) 17.99 8.36
Mean 18.13 13.14
No. of shares ('000) 13,713 13,713
Price/share ($) 1.32 0.96
Revenues EBITDA Net Profit
EV/Revenues EV/EBITDA P/E
On the basis of the peer group´s median, equally weighted market multiples 2013 (EV/sales, EBITDA/sales and P/E), we derive an implicit price for EL´s share of $ 1.32; based on the multiples for 2014, we derive an implicit price per share of $ 0.96. Applying the exchange rate of 1.3113 $/€ as of April 12, 2013 (11.30 am CET), this results in € 1.01 per share and € 0.73 per share, respectively.
Valuation Summary
Our DCF analysis returns a price of € 0.65 /share; the multiple analysis, based on market multiples 2013, results in a price of € 1.01.
Equally weighted we calculate a fair value of € 0.83 per Electronics Line share. Currently, the stock is trading at € 0.57 implying a potential of 46%. According to our rating scheme (potential > 15%), we rate the stock as “BUY”.
Considering a 2013 P/E of 9.7 vis-à-vis the peer group´s median P/E of 16.7, Electronics Line´s stock is currently under-valued.
