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

(1)

FIRST CAPITAL

Company Update

Buy (maintained)

30 October 2014

MARKET PRICE:

EUR0.94

TARGET PRICE:

EUR1.15 (from EUR1.17)

Financial Holding

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 Main Shareholder:

Strategy Invest

(28.4%)

Reuters/Bloomberg:

FICM.MI FIC IM

52-Week Range (EUR)

0.69

1.10 Performance

1m

3m

12m

Absolute

-0,5%

-6,5%

+33,6%

Rel. to FTSE IT

+6,1%

+2,9% +34,3%

Next event

11 November 2014, NAV

Marco Cristofori

marco.cristofori@ubibanca.it

Tel. +39 0277814393

Website:

www.ubiunity.it

A cash pile ready to be used

We confirm our positive stance on First Capital and fine tune our target price

to EUR1.15 (from EUR1.17) while applying a holding company discount of

10% to NAV, in line with the average of European Smaller Companies

investment trusts. The discount to NAV has increased to 27% from 23% in

our last report “Hidden value and new opportunities” of May 5. The

company now has substantial liquidity (EUR11.7 million at June-14,

representing >50% of its market capitalization), ready for investment to

implement its 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%.

Financials

2013

2014E

2015E

2016E

Total income (EURm)

2,34

2,87

3,07

3,23

Pre-tax profit (EURm)

1,23

1,77

1,95

2,07

Net Profit (EURm)

1,17

1,42

1,56

1,66

EPS (EUR)

0,051

0,059

0,065

0,069

BVPS (EUR)

1,05

1,04

1,07

1,09

DPS (EUR)

0,029

0,035

0,045

0,052

Source: Company Data, UBI Banca Estimates

Ratios

2013

2014E

2015E

2016E

P/E(x)

13,8

15,9

14,4

13,6

P/BV(x)

0,66

0,90

0,87

0,85

Dividend Yield (%)

4,19%

3,78%

4,85%

5,53%

ROI (%)

7,20%

7,82%

8,61%

9,18%

ROE (%)

4,82%

5,65%

6,05%

6,31%

Debt/Equity (x)

-0,30

-0,10

-0,12

-0,14

Source: Company Data, UBI Banca Estimates

(2)

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

Source: Company data, UBI Banca estimates

Key Profitability Drivers

2013

2014E

2015E

2016E

Net Debt/Equity (x)

-0,30

-0,10

-0,12

-0,14

Cost/Income (%)

_55,0%

_33,0%

_31,7%

_31,1%

ROI (%)

_7,2%

_7,8%

_8,6%

_9,2%

ROE (%)

_4,8%

_5,7%

_6,1%

_6,3%

Key Valuation Ratios

2013

2014E

2015E

2016E

P/E (x)

13,8

15,9

14,4

13,6

P/BV (x)

0,7

0,9

Dividend Yield (%)

4,2%

3,8%

4,9%

5,5%

(3)

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%

(4)

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

Sales 104,9 115,8 10,4% 215,4 232,0 7,7% EBITDA 30,1 32,5 7,8% 61,2 70,0 14,4% % margin 28,7% 28,0% 28,4% 30,2% EBIT 10,1 10,8 7,0% 19,0 27,0 42,1% % margin 9,6% 9,3% 8,8% 11,6% Net Profit 5,2 6,2 17,7% 8,8 12,0 36,4% Net Debt 63,7 69,7 66,0

Source: Company data, Factsets

Figure 3 - Cembre: 1H14 results and forecasts

Cembre beat expectations in the firt half of the year and consensus estimates for 2014

have been increased. The shares have risen 12.2% since the start of the year.

Sales 52,3 56,6 8,3% 104,5 112,1 7,3% EBITDA 10,1 12,1 19,3% 20,4 23,6 15,4% % margin 19,3% 21,3% 19,5% 21,0% EBIT 8,0 9,7 22,1% 15,8 18,8 18,7% % margin 15,2% 17,2% 15,1% 16,7% Net Profit 5,2 6,8 31,2% 10,5 12,8 21,9%

Net Debt (Cash) 3,77 -2,55 -5,90 -8,55

Source: Company data, Factsets

Figure 4 - Elica: 1H14 results and forecasts

Elica has been impacted by restructuring costs in 1H14 while consensus estimates for

2014 have been slightly reduced. The shares have fallen 10.4% since the start of the

year.

Sales 195,0 195,7 0,4% 391,8 398,6 1,7% EBITDA 12,3 12,3 0,5% 22,9 28,4 24,0% % margin 6,3% 6,3% 5,8% 7,1% EBIT 4,3 4,0 -5,9% 6,9 12,3 78,3% % margin 2,2% 2,0% 1,8% 3,1% Net Profit 1,4 0,7 -45,2% 1,4 5,3 275,0%

Net Debt (Cash) 64,43 60,93 56,70 51,55

(5)

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% Aurum SpA; 5,1% Galaxya SA; 12,3% Paolo Corradino; 5,2% Next; 10,0% Treasury shares; 3,4% Free Float; 35,8%

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% Health Care 16,0% Electrical components 11,2% White goods 6,6% Other 8,8% Liquidity 35,3%

(6)

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) 2013A 2014E 2015E 2016E

Old New Old New Old New

Income from equity participations 2,34 2,87 2,87 3,02 3,07 3,17 3,23

% change -0,2% 1,8% 1,9% Operating costs 1,11 1,15 1,10 1,18 1,13 1,21 1,16 % change -4,7% -4,6% -4,4% Pre-tax profit 1,23 1,72 1,77 1,84 1,95 1,96 2,07 % change 2,8% 5,8% 5,8% Net profit 54 1,38 1,42 1,47 1,56 1,57 1,66 % change 2,5% 6,0% 5,7% EPS 0,051 0,057 0,059 0,061 0,065 0,065 0,069 % Change 2,5% 6,0% 5,7%

(7)

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 19,08 0,79 100,0%

Treasury shares 0,75 0,03

Net cash (debt) 10,82 0,45

Total 30,66 1,27

Share number 24,04 Current price Discount

NAV per share (ordinary) 1,27 0,94 26,7%

(8)

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%.

-45,0% -40,0% -35,0% -30,0% -25,0% -20,0% -15,0% -10,0% -5,0% 0,0% -5.000 10.000 15.000 20.000 25.000 30.000 35.000

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).

50,00 60,00 70,00 80,00 90,00 100,00 110,00 120,00 130,00 140,00

NAV FTSE All share FTSE small cap

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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

Operating (cost)/income

-0,97

-0,95

-0,97

-1,00

Pre-tax profit

1,23

1,77

1,95

2,07

Taxes

-0,06

-0,35

-0,39

-0,41

Net profit

1,17

1,42

1,56

1,66

Balance Sheet

(EURm)

2013

2014E

2015E

2016E

Net working capital

0,10

Net Fixed assets

0,24

0,23

0,21

0,20

Net financial assets

16,70

22,28

M/L term funds

0,01

0,02

Capital employed

17,05

22,62

22,61

22,60

Shareholders' equity

24,29

25,03

25,74

26,31

Shareholders' funds

24,29

25,03

25,74

26,31

Net financial debt/(cash)

-7,24

-2,41

-3,13

-3,70

Cash Flow Statement

(EURm)

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

D&A

0,15

Change in Funds & TFR

0,00

Gross Cash Flow

1,32

1,57

1,71

1,81

Change In Working Capital

0,00

Other

0,14

-0,14

Operating Cash Flow

1,46

1,43

1,57

1,67

Net Capex

0,00

Other Investments

0,00

-5,58

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

Chg in Net Worth & Capital Incr.

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

(10)

First Capital

30 October 2014

Financial Ratios

(%)

2013

2014E

2015E

2016E

Debt/Equity

-0,30

-0,10

-0,12

-0,14

Cost/Income

55,0%

33,0%

31,7%

31,1%

ROI

7,2%

7,8%

8,6%

9,2%

ROE

4,8%

5,7%

6,1%

6,3%

Per Share Data

(EUR)

2013

2014E

2015E

2016E

EPS

0,05

0,06

0,07

DPS

0,03

0,04

0,05

Op. CFPS

0,06

0,07

BVPS

1,05

1,04

1,07

1,09

Stock Market Ratios

(x)

2013

2014E

2015E

2016E

P/E

13,8

15,9

14,4

13,6

P/BV

0,7

0,9

Dividend Yield (%)

4,2%

3,8%

4,9%

5,5%

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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.

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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)