ab-biotics roce -12.0% 8.9% 26.3% net debt equity 0.4 -0.3 -0 · ab-biotics page 3 investment case...

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Full Company Report Reason: Fundamental report with strategy 13 July 2018

It’s time to generate cash

AB-Biotics is a biotechnology company that, following years of cash burning

to develop a potent pipeline, is now beginning to reap the fruits of its harvest.

The company has two autonomous business units. The first, and main activity in

terms of future growth, is the Probiotic Functional Ingredients division (FI),

tasked with the development of probiotics. The division leans on licenses, in

which AB-Biotics grants licensed pharmaceutical companies the right to market

its products, who then distribute, market and promote the product. The other

main division, Precision Medicine Platform (NFG), currently in a wait and see

mode, focuses on the pharmacogenomics market, marketing genetic tools as

tests, thus providing personalised medicine treatment.

The market for functional ingredients/probiotics is experiencing a high, with

CAGR 2016-25e 7.7%, and expected global increase in size, above EUR 37-

38bn in 2018e. The US stands out as a key driver in the clinically tested

probiotic OTC subsector, and is therefore the Company’s main focus.

During the last four years, the Company has signed 73 license agreements for

its probiotic products, thus assures recurrent revenues for coming years. AB-

Biotics also has over 10 probiotic products in the pipeline, with over 190 long

term patents world-wide, and diversified client portfolio that market products in

40 countries throughout Europe, Asia, America, Latina America, Africa and

Middle East. We positively value the diversification reached.

Last March, the Company signed an agreement with group Kaneka in which the

holding company: i) enters AB-Biotics capital with over 30% stake (current) and

four board members; and ii) has an exclusive marketing license on AB-Biotic’s

pipeline in North America, Japan and Canada.

We estimate that this year AB-Biotics will generate cash, reach positive net

profit and sales growths in coming years. We estimate CAGR 2018-22e sales

27%, including a substantial improvement in margins.

We value the Company via the sum-of-the-parts method, following a DCF

valuation arising from the estimated EBITDA 2018-22e on the two main

divisions, PROBIOTIC FUNCTIONAL INGREDIENTS and PRECISION

MEDICINE PLATFORM (NFG), WACC 12.2% (12.6% terminal value in 2022e

due to the change in debt/equity) and «g» 2%. Consequently, we reach a fair

value of EUR 5/share, implying EV/EBITDA’19e 20x and EV/EBITDA’20e 11.3x,

bearing in mind that our estimated revenues are 20% below the Group’s

guidance for the two main units.

AB-Biotics

Sponsored Research

Investment Research Spain | Healthcare

Analyst(s)

Francisco Ribas Alameda

[email protected]

Victor Peiro

[email protected]

Buy

3.50

closing price as of 12/07/2018

5.00

42.9%Upside/Downside Potential

Target Price unchanged

Recommendation unchanged

Target price: EUR

Share price: EUR

Reuters/Bloomberg ABBO.MC/ABB SM

Market capitalisation (EURm) 44

Current N° of shares (m) 13

Free float 42%

Daily avg. no. trad. sh. 12 mth 10

Daily avg. trad. vol. 12 mth (m) 12.13

Price high/low 12 months 1.35 / 3.80

Abs Perfs 1/3/12 mths (%) 0.00/59.09/114.72

Key financials (EUR) 12/17 12/18e 12/19e

Sales (m) 7 12 14

EBITDA (m) 0 2 3

EBITDA margin 2.9% 15.9% 22.0%

EBIT (m) (1) 1 2

EBIT margin nm 6.0% 14.1%

Net Profit (adj.)(m) (1) 1 2

ROCE -12.0% 8.9% 26.3%

Net debt/(cash) (m) 2 (2) (5)

Net Debt Equity 0.4 -0.3 -0.5

Net Debt/EBITDA 9.9 -1.0 -1.5

Int. cover(EBITDA/Fin.int) 1.0 51.5 (1,103.1)

EV/Sales 2.9 3.4 2.7

EV/EBITDA nm 21.3 12.1

EV/EBITDA (adj.) nm 21.3 12.1

EV/EBIT nm 57.1 19.0

P/E (adj.) nm nm 23.3

P/BV 4.2 5.9 4.4

OpFCF yield 2.0% 6.9% 6.1%

Dividend yield 0.0% 0.0% 0.0%

EPS (adj.) (0.07) 0.05 0.15

BVPS 0.38 0.59 0.79

DPS 0.00 0.00 0.00

Shareholders

Kaneka Europe Holding 38%; Sergi Audivert Brugue 10%;

Miquel Angel Bonachera 10%;

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18

vvdsvdvsdy

AB BIOTICS MAB (Rebased)

Source: Factset

AB-Biotics

CONTENTS

Investment Case 3

Sow R+D, harvest cash 3

Winds in favour from Japan 3

Consolidate agreements & focus on FI 4

Precision Medicine Platform (NFG) 4

Probiotic Functional Ingredients 5

Estimated P&L, Balance and Cash Flow 15

Key momentum for the Company’s potential earnings. Profit & Loss Account 15

Estimated Balance Statement 18

Estimated Cash Flow 19

Discounted cash flow valuation and sensitivity analysis 20

Potential risk scenarios to consider 22

Shareholder structure after Kaneka’s entrance. Possible takeover bid? 22

Drivers and SWOT analysis 24

AB-Biotics

Investment Case

AB-Biotics is a biotechnology company strongly focused on the market and whose

operating strategy is split in two independent business units:

Precision Medicine Platform (NFG): focuses on the pharmacogenomics market,

marketing genetic tools as tests, thus providing personalised medicine treatment.

Probiotic Functional Ingredients (FI). The Company is currently more focused on

this area for future growth. The division leans on licenses, in which AB-Biotics grants

licensed pharmaceutical companies the right to market its products, that then

distribute, market and promote the product. Worth mentioning, is that the functional

ingredients market represents 5 year CAGR 7.7%.

Both business models have differentiated structures, thus an independent decision-making

process, as well as different investment needs and varied lengths with regards to the

implementation of operating strategies. Although FI is more capex intensive – to develop its

pipeline, which must pass all phases until marketing – AB-Biotics has outsourced the R+D

laboratory, and thus reduced the mentioned costs.

Sow R+D, harvest cash

Following years of cash consumption, to create a pipeline oriented to market requirements via the development of probiotics, and using its bacterial strain bank, AB-Biotics has over 190 patents world-wide, as well as a sturdy and highly diversified product range which enabled the possibility of signing 70 licenses with clients around the world, thus assuring recurrent revenues from sales. Having closed 2017 with EUR 7.2m sales (marketing products in over 40 countries) it will be capable of increasing sales in coming years following the entrance of new, heavy weight clients.

The high operating leverage that the Company has achieved will allow net profit to outpace sales volume. We expect a triple digit increase during the first two years and a double digit increase during the last two (CAGR 2018-22e Net Profit 60%).

The above in addition to the over EUR 1m treasury stock sold to Kaneka, to royalties received, financing capex and clinical studies by third parties, etc; will help to reduce debt and will generate high cash levels year after year.

Winds in favour from Japan

As mentioned, the agreement reached between AB-Biotics and Kaneka (holding company) is very important. In this agreement: i) the latter enters AB-Biotics’ capital, currently holding over 30% and represented by 4 members on the board; and ii) has an exclusive marketing license on AB-Biotics’ pipeline in North America, Japan and Canada. Due to Kaneka’s history of acquisitions, we cannot rule out a takeover bid on AB-Biotics in the short/medium term

AB-Biotics

Consolidate agreements & focus on FI

AB-Biotics is a biotechnology company focused on the investigation, development, innovation and production of biotechnological solutions that contribute to improve health and wellbeing, providing services and marketing products related to the aforementioned.

The strategy implemented by the Company during the last year has moved its marketing policy towards strategic products and markets, reducing efforts in the less profitable business lines, markets and products. In this manner, the Biotech seeks to maximise potential growth and introduce products that work best from a marketing stance.

During the last four years, the Company has signed 73 license agreements on its probiotic products, assuring potentially sustained growth in coming years.

Among said agreements, standing out is the strategic alliance with the Japanese holding company, Kaneka Corporation, that will culminate in AB-Biotics incorporation and penetration to the Japanese and American markets. The agreement will allow AB-Biotics to develop in countries with high probiotic consumption. The regions mentioned above are those representing highest growths for the probiotic market, apart from Latin America, which is also a heavy weight in these products.

The key point in developing the strategic plan is the potential in the US market, which is a market that will increasingly focus on the marketing of products with sufficient clinical documentation backing the positive effects of probiotics on health. Clinical testing is one of AB-Biotics’ strong points.

Precision Medicine Platform (NFG)

Personalised medicine treatment is losing weight. Wait and see.

Personalised medicine, on the contrary to standard treatments, is an individualised solution or tailor-made in relation to the medical treatments required by specific patient groups; i.e., a specific treatment that allows the possibility of offering a quality drug adapted to the patient’s specific circumstances. Therefore, the ill are treated not the illness, especially considering that many symptoms have a genetic component.

Pharmacogenetic tests are focused on identifying possible patient responses to a certain drug; the patient’s predisposition to develop resistances to the latter, and define the adequate dosage required to improve efficiency, while reducing toxicity.

The mentioned together with the evident transition from reactive drugs to proactive and predictive drugs - as we shall refer to - grants the sector an interesting future.

However, AB-Biotics’ strategy plan for the next few years includes reducing the weight of personalised medicines to focus on the more strategic and added value activities related to the development and marketing of the Probiotic FI division’s pipeline. Currently, personalised medicines represent little in the company’s revenues (EUR 1m in 2017 over EUR 7.2m total) and dropping in relative weight in coming years.

Consequently, in our opinion, the Company will undertake a wait and see strategy in this business unit, with the intention of gauging the unit’s potential according to market performance in future years. Based on the less strategic relevance, we estimate scarce investments in this unit, relatively stable sales with 50% margin during the estimated period.

Due to the clarity of the Biotech’s corporate strategy (seeking markets and specific added value products to enter via the probiotic division), we cannot rule out, as a subjective opinion from our analysis, potential divestments in this division. We could even consider a larger player possibly acquiring the pharma genome product, Neurofarmagen (genetic test to identify a patient’s pharmacogenetics profile in psychiatric and neurologic illnesses), obtaining synergies, with a strong client portfolio and capacity to develop and invest in this product that in our opinion is quite interesting.

AB-Biotics

Probiotic Functional Ingredients

What are probiotics? Functionality and perspectives

According to the FAO (Food and Agriculture Organisation of the United Nations), probiotics are “live microorganisms which when administered in adequate amounts confer a health benefit on the host”. These organisms (live microbe) are ingested via milk products, infant foods, or via capsules, among other means that, as mentioned, in adequate amounts, could have health benefits. The main intention is to strengthen microbiota or intestinal flora. It is important to highlight that to maintain the mentioned health benefits the bacteria must be consumed regularly, which in our opinion favours demand and client loyalty as they notice improvements following the consumption of products.

A WHO’s report links the possible positive effects from the use of probiotics in the prevention of gastrointestinal illnesses (diarrhoea, helicobacter pylori infection, inflammatory illnesses and intestinal syndrome, constipation, etc), allergies, cardiovascular illnesses, cancer, urogenital tract disorders, bacterial vaginosis, urinary tract infections, control/lower cholesterol and hypertension. Properties of probiotics are also associated to the functionality of the immune system.

Probiotics have been available in the market for years now, contributing to the higher prices and value of products with added probiotics as well as demand. In fact, one of the main claims in this industry is the existing premium on certain products, according to the functionality and brand. This premium can reach up to 100% vs. the price of the traditional product.

The key driver in this market is consumers’ interest to lead a healthier life (probiotic products are considered natural ingredients and compatible with other health products). The increased awareness of probiotics in general, as well as the documented positive effects on health and growing trend in preventive treatments rather than curative, back this market’s growths in coming years.

This market segment has become a commercial niche with high Y/Y growth rates, gaining social acceptance and scientific support, and points to the global market increasing in size, above EUR 37-38bn in 2018, according to Global Market Insights, Euromonitor International and Kaneka estimates.

However, according to the International Probiotics Association, this trend presents a clear exception in the European Union, mainly due to the strict regulation. This was the reason why the EU lost the leading position in the global market for probiotic yoghurts and food supplements held in 2009 down to the third slot in sales, behind China and US (currently US has around 20% market share, very similar to Europe’s, whereas the Asian-Pacific region holds around 50%).

However, the potential threat could be an opportunity for the Company. The growing demand for probiotic products around the world as well as the harsher regulation - namely in Europe – would probably benefit AB-Biotics as a company focused on documenting its Probiotic Functional Ingredients pipeline.

Bearing in mind that the function of these types of ingredients is to improve health, companies that develop these products must document efficacy. This implies investigating and developing clinical documentation similarly to the pharmaceutical industry, but with a more lax regulation that reduces investigation periods and investments required as probiotics are approved as dietary supplements.

The European Food Safety Authority (EFSA) is responsible for the verification and validation of the scientific support of nutritional statements and properties of functional ingredients.

AB-Biotics

The aspects affecting growth in this market mainly come from: i) progressive aging of the population; ii) rise and increasing chronic character of certain illnesses, that will be wider spread and create leverages for other probiotic products (especially regarding cardiovascular illnesses and diabetes); iii) increasing knowledge and studies regarding the benefits of active ingredients; and iv) sensibility regarding preventive treatment vs. the usual reactive, besides the fact that the product has no known contraindications.

In our opinion, the growing demand for organic foods is a rising trend with the increasing rejection of “non-natural” ingredients included in foods such as colouring and preservatives. In the US, the growing regulatory demand to reduce the use of antibiotics could also boost the functional ingredients market.

These products are mainly supplied via dairy products, representing 75% market share vs. supplements and OTC (i.e. encapsulated probiotics) with 20% market share (the remaining 5% is made up by probiotics for animal consumption). The use of encapsulated formats is ever-increasing, outpacing the industry which continues to investigate new marketing formats. In developed markets (Europe, USA) we see a change in trend from the reigning dairy probiotic products towards supplements. In this case, market analysts agree that the more attractive potentials are the sale of probiotic yogurt in Asia and dietary supplements for North America and Europe. In US, for example, probiotic supplements lead the dietary supplement market sales and growths in 2017.

U.S. Probiotic ingredients market by application, 2014 - 2025 (USD Million)

Source: Grand View Research

As mentioned, the US market is moving towards clinical documentation regarding the efficacy of products on sale, considering that many regulations impose tougher restrictions and demand clinical trials to sufficiently back said efficacy and therefore launch specific messages to the market.

The American market has the highest $/household expenditure on probiotic supplements, as well as highest CAGR per geographic areas, followed by Australasia, Eastern Europe and Latin America.

Analysts also refer to the rising demand for probiotic ingredients on behalf of the medical sector. Global demand for probiotic ingredients is estimated to reach CAGR 2016-25e 6.5% - 8.5%, with consensus pointing to 7.7%.

Europe and APAC are the largest probiotic markets in B2B, the latter region possibly dominating growths and global forecasts until 2022. In our opinion, both areas will continue to be strong drivers in the human probiotic arena.

AB-Biotics

Source: Data Kaneka, Elaborated GVC Gaesco Beka

Growing interest for these types of products is evident, as reflected by the over 18,500 documents in PubMed incorporating the term “probiotic” (see the following chart):

Source: PubMed. Elaborated: GVC Gaesco Beka

The factors behind choosing a probiotic are outlined by a report published by IM Farmacias:

1. Price

2. Biological strength: magnitude inversely proportional to the time of stock before consumption

3. CFU (colony forming unit): count of micro-organisms in probiotics according to suitable standardised quantities

4. Variety of strains: total number of strains comprising the probiotic. Diversity can potentially increase expected earnings of a product.

5. Purity of strains: both concentration and functionality conditions the performance of each probiotic.

AB-Biotics

Increasing and refocusing on Probiotic Functional Ingredients. Pipeline.

This is the heavy weight activity in the Company, and will contribute most to growth. We highlight the specific know-how on developing products that are highly innovative and with high operating margins.

The company decided to focus on this activity, with a new competitive strategy concentrated on more strategic products and markets. In addition, with Kaneka, AB-Biotics seeks to enter the market with force in coming years. AB-Biotics intends to face competitors by seeking different probiotic solutions, with specific functionalities and high efficacy.

On the subject of how revenues are generated, it is important to understand that the Company works through licensing. That is, when the company receives an order for a probiotic on behalf of a licensed pharmaceutical company, AB-Biotics requests its bacteria suppliers to manufacture the product (produced under exclusive manufacturing licenses – barred from manufacturing the same product for any other company), to later deliver the order to the pharmaceutical company, who has a marketing license on AB-Biotics’ patents thus can only buy and distribute said product from the Spanish biotech.

This model, apart from cost savings and reducing certain risks, assures a fairly stable and recurrent revenues trend. Regarding the patents, AB-Biotics currently has over 190 patents worldwide, reflecting strong protection capacity and long average lifespan. However, continuing with our prudent criteria, we have assigned probability scenarios of some patents not being adequately protected and the Company consequently losing market share. Therefore a vertical integration via the construction of a fermentation and packing plant or the acquisition of scaling manufacturing companies that ferment strains is interesting as it eliminates the risks of insufficiently protected patents. In addition, in our model, the Biotech would be capable of generating cash exponentially, which opens the possibility of witnessing acquisitions of these types of companies in the future against the rising cash position.

Worth mentioning, it is important to choose the specific probiotic for each function intended to be reinforced in the gastrointestinal system. AB-Biotic’s focus on development and innovation – currently has over 550 strains and different products for each concrete microbiota function – is an important strategic and competitive advantage as we shall see.

Despite probiotic sales reducing in EU due to the tougher regulation1, we consider it a

business opportunity for the Biotech. This is due to the Company’s cutting-edge and expertise research. The strong investments in R+D in recent years and the focus on clinical testing will back its products regarding the European regulatory restrictions, thus the Company will be able to make specific claims regarding its probiotics and the proven benefits of these in detriment of peers that in many cases manufacture products in which claims cannot be made as these do not meet European standards.

Regarding capex in Functional Ingredients, in recent years the Company has invested in developing products and it seems that the usual 5-10 year development period is nearing its end, thus we should witness a strong marketing and develop high cash flow generation stage.

On the main risk factors, included in our estimated WACC, we highlight: i) non-acceptance of products in the market; ii) lack of track record and visibility on recurrent revenues and earnings; iii) inadequate patent protection policies giving way to the loss of market exclusivity and future revenues; iv) regulatory risk; v) risk of not licensing products or negotiations not going ahead; vi) financial risk; vii) risk of new peers; viii) dependence on key persons; ix) acquisition risks; x) market illiquidity.

1 Arising from the implementation of Regulation (EC) No 1924/2006 on nutrition and health claims made on foods (which states that the inclusion of the term "probiotic" requires scientific accreditation of its proven health benefits to the host)

AB-Biotics

Regarding peers, the main operators in the probiotic subsector are divided in two main groups:

The large ingredient suppliers, such as Dupont-Danisco, Chr. Hansen and Lallemand, whose key competences are in manufacturing, as well as the variety of species and strains offered.

Specialised probiotic suppliers, whose key competence is the scientific development of clinically-documented bacterial strains, such as the Swedish BioGaia and Probi; Italian Probiotical, North American UAS Labs (product “LRC-1”) or the Spanish BIOSEARCH (product line “Hereditum”)

It is important to highlight the fact that AB-Biotics’ products are scientifically differentiated from its competitors’ products hence competition is on the same active ingredient but rather the therapeutic concepts. For example, AB-Biotics competes with Biogaia, Probiotical, Chr. Hansen and BIOSEARCH in infant colic, but these products are substantially different in terms of genus, species, clinical action mechanism and level of scientific documentation. Therefore, in the Company’s opinion, there are no peers as such that operate with the exact same product, thus we would be referring mainly to substitute products (parallel) or products in the same shopping basket or whose market target are the same consumers. Moreover, AB-Biotics currently stands out from the rest of its competitors in terms of strategy, opting to license its probiotics to third parties thus is not involved in the production and marketing of the products.

In general lines, the market tendency has varied over the past years:

1) Historically, the market started from more generic probiotics: products with high potential (maximise the number of bacteria in each dose), which were characterised by a lack of clinical documentation supporting its therapeutic activity.

2) The rising market demand for more clinically documented products has made companies focus on providing such type of products (“documented strains”), which are supported by more documentation regarding their effects on health. The new probiotic generation is more competitive, as it adapts to market needs. According to expert probiotic advisors, the market share of companies that bet on documented strains will rise from current 35% to 66% in the next 5 years. AB-Biotics’ client demands these type of products, so, in our opinion, they are well positioned to grow quickly. Moreover, clinically documented products allow marketing at higher prices (EUR 17-22 average RRP). AB Biotics’ key aspect in the market leans more on seeking a differentiating aspect vs. peers in corporate strategy, rather than a war price among various producers.

Within the competitive framework, we consider the Company’s positioning positive, as it is a fairly important brand in the sector (according to management, one of the 10 most relevant brands in the documented probiotic sector). In our opinion, although AB-Biotics is not one of the main players, it is well positioned to grow strongly, also due to its high operating leverage. In our opinion, the company has invested greatly in developing its pipeline thus is now in the marketing phase, with a high leverage thus could report high earnings per marginal unit sold at certain production levels (some EUR 10-10.5m organic sales/12m non-organic sales to reach break-even).

In addition, it is a highly specialised industry requiring strong initial investments, which is also a strong entrance barrier not just for newcomers, but also current players in the specific subsectors or reconverting pipelines that do not have the necessary know-how or with assets through which AB-Biotics has developed its business lines (strains, extraction experience, choosing probiotic strains, necessary qualification etc.,).

In this specific probiotic market with documented products as OTC supplements, we must point out that 80% of consumer spending is focused on intestinal probiotics. There are many players in this type of probiotic market and the prices are lower due to the current high competition, although many niches have risen for other documented probiotics where prices are sustained because of the lower competition.

AB-Biotics

Hence, the Company is focused on developing products in these types of niches. During the next two/three years new probiotic niches are expected to arise, including: obesity, psychological and diabetes. In addition, we see new drivers in new uses of existing strains; for example symbiotic (that include pro and prebiotic products which in turn are indigestible thus allows selective growth of beneficial intestinal bacteria).

Regarding future acquisitions, a possibility that is considered in the presentation to investors as a future strategy plan, we see some advantages in AB-Biotics’ value chain. The presentation mentions possible acquisitions, in line with industrial production. Although not easy to assess due to the variations according to strategy, size and type of company, we estimate that final product manufacturers have around 30% gross margin and bacteria companies have 65%. If AB-Biotics exploits this part of the value chain it could generate another 20 points in gross margin (conservative estimate). We consider this option as a potential form of future development, initially beginning with the acquisition of a bacteria supplier, or organic development via the opening of new plants. We must not forget that, according to our estimates, at the end of 2022 the Company will have over EUR 25m that could serve to finance potential acquisitions.

Source: AB-Biotics

We currently estimate a margin of 42% for the Probiotic Functional Ingredients division (real margin at 2017), although it could increase through future acquisitions

2. Even so, the rise in

production volumes and the trend towards bulk products that the Company will have in coming years will enable stronger negotiating muscle with suppliers to reach ever-increasing gross margins. In fact, 1Q financial statements already points to approximately 45% gross margins in 2018e, although our forecasts for 2018 is slightly lower but does reach said level in 2019e.

Digging deeper into these margins, we must mention that AB-Biotics uses two formats to distribute its product: i) finished product in the form of blisters, applicators, bottles etc.; ii) bulk activity: which is the unprocessed product currently representing some 15% of the Company’s sales although the latter will rise in coming years due to the much higher gross margins in this format (>55-65%).

Furthermore, on the subject of the EBITDA margin, worth mentioning is the fact that during 2017, the Biotech outsourced its laboratory (R+D) and carried out a restructuring process. In this manner, capitalized development expenses are eliminated (accounted as third-party services), implying a lower cost for the Company compared to in-house research and development. In addition, personnel restructuring involves reducing fixed costs by some EUR100k.

In the near future, the strategy plan includes signing new licensing contracts as well as the development of current contracts to increase the amount of products sold to its clients.

2 Not included in our valuation due to existing doubts

AB-Biotics

Following the study on the Company’s type of clients, we consider domestic heavy weight pharmaceuticals as targets. Not as attractive for AB-Biotics are small companies or large multinationals due to the Company’s low negotiating muscle (with multinationals) and the scarce market penetration that a small company could potentially obtain. Hence, the target to boost the company would be domestic heavy weights so as to reduce dependence on key clients (diversify the customer mix to improve the dependence ratio on current licensees).

In addition, the Company’s strategy plan includes increasing penetration in markets not highly exploited but very relevant for the sector. The Company therefore seeks agreements with clients that are leaders in their respective regions (such as the expansion in Russia, Ukraine, and Middle East mainly through Mayoly – one of ABB’s main clients).

Apart from reaching new markets, existing licenses have evolved favourably. Many of the licenses signed a couple of years ago still require development before consolidating the market; thus many of these licenses are expected to see sales evolve exponentially.

Furthermore, in other markets such as Australia, new licenses could be negotiated due to the relevant weight of probiotic online sales in the region. That is, not only will the pipeline development be a growth driver, but also opening new markets for existing products (such as the sale of AB-Kolicare in China) and existing opportunities that the Company could take advantage of (e.g. prices in Russia currently have gross margins of 25%, but market volumes and lack of competition would enable strong negotiating capacity for companies in the region with suppliers and renegotiating prices could increase margins to over 45%). However, also true is that these new markets expose the Company to various regulatory aspects that imply some delays in marketing products compared to the date at which the license is signed.

The new agreements, in our opinion, will increase activity and not replace or cannibalise existing sales as it would take place in niches or poorly exploited markets or via new distribution channels such as online sales or a different consumer target.

Regarding the pipeline, below we have included a chart per products (including the most important representing 80% current sales in Probiotics) and estimated sales per regions.

AB-Biotics

Source: AB Biotics’ sales. Elaborated GVC Gaesco

Functionalities of the products:

AB-KOLICARE (22% total sales)

Probiotic formula for the treatment of infantile colic, affecting around 10-20% nursing babies, which is considered one of the most frequent causes for visiting the paediatrician during the infants first 4 months of life. Currently marketed in all regions where AB-Biotics has licensees.

AB-LIFE (17% total sales)

Probiotic formula, that according to clinical trials, reduces cholesterol levels by an average 12%. In addition, one of the main differentiating characteristics vs. other products is that it not only reduces cholesterol absorbed through the diet, but also the endogenous cholesterol, leading to a decreased blood cholesterol level. Therefore, AB-LIFE has an increased effectiveness on a larger number of people, opening the door to probiotic therapy in the prevention of cardiovascular disease.

Currently marketed in Europe and ASPAC, with low presence in LatAm and MENA and not present in North America although there is high potential for this product.

AB-Biotics

i3.1 (13% total sales)

This product is indicated for the treatment of irritable bowel syndrome (IBS) mainly during diarrhoea and intermittent phases (constipation-diarrhoea). This illness is highly prevalent in developed countries, affecting around 10% of the population. The effects are characterized by abdominal pain, discomfort, bloating and altered intestinal motility and transit. The market for IBS is fairly unpenetrated, lacking adequate therapeutic options due to their limited efficacy and potential side effects.

Currently marketed in Europe and LatAm, with less presence in ASPAC and MENA and not present in North America which are markets with high potential for this product

AB-INTIMUS (10% total sales)

Probiotic useful to prevent recurrent vaginal infections (vaginal candidiasis) and is capable of surviving in an inflamed vaginal mucosa, restore the vaginal ecosystem and a healthy vaginal pH. It is available in various formats, such as vaginal tablets; vaginal and oral capsules.

Vaginal candidiasis (thrush) affects 3 out of 4 women at some point. The bacteria affect around 20% of these with a high recurrent ratio (although 4 out of 5 cases do not have symptoms).

Currently, this product is only marketed in Europe and ASPAC.

AB-DENTALAC (10% total sales)

Used to treat a wide range of oral pathogens (caries, gingivitis, bad breath, etc.,) seeking oral health. AB-DENTALAC under its own brand, as well as the ProLacsan brand (marketed in Europe) continues to grow positively. This product is now marketed in ASPAC, LatAm and MENA, with low penetration levels but great potential.

The largest market is North America, where the product is attaining very good results.

AB-Biotics

Agreement with Kaneka to enter the US and Japanese markets

On 28th March a relevant fact was published in the MAB in which AB-Biotics granted group Kaneka the exclusive rights on manufacturing, imports, fermentation, use, sale and offer of specific AB-Biotic products in Japan and North America, as well as Kaneka’s entrance to AB-Biotics shareholder structure.

This agreement includes royalties such as a percentage of the product sold by Kaneka in target areas (US, Canada and Japan); with a minimum annual amount that assures stable and recurrent revenues for the Spanish Biotech in coming years. The agreement is for 7 years, although we expect an extension of the contract especially considering the group’s weight in AB-Biotics, that we believe will increase, as well as its capacity to take decisions internally as we shall see.

The royalties that this distribution license will report, in our opinion, will grow strongly considering that the Biotech currently lacks the capacity to adequately exploit a growing and extremely important market as North America. With Kaneka, however, the business outlook in the region is very favourable, being a medium term driver in terms of revenues. We must also consider that the Holding has experience in the North American B2B market as well as a client network that will enable to reach high market shares in clinically documented probiotic B2B subsector during the next 7 years.

This development will further reinforce the sector, and will be one of the main triggers behind the Company’s performance in the medium/long term.

Strain bank: valuable resource, rare, inimitable and well used

As mentioned, AB-Biotics has a strain bank with over 550 samples extracted from microbiota samples from habitants in rural areas all over the world with good health, low exposure to modern hygiene, low or no exposure to antibiotics and antifungals, to commercialised fermented or probiotic products and with non-modified microbiota in modern life styles. This is done on a basis of a hygienic hypothesis, seeking populations with conserved microbiota (unmodified), and collecting samples, isolating and storing potentially probiotic bacterial strains.

Currently the company is developing new products, carrying out 13 different studies on potential effects of the strains as probiotics, on over 1,660 patients, to find new concepts. In our opinion developing new strains is a positive future project, considering that earlier studies were carried out on fewer patients. This development, as well as clinical documentation, will boost the Company, reinforcing its position in a growing sector and making AB-Biotics able to reach a more advantageous position.

The bank strain is a valuable resource as it enables to take advantage of all the development opportunities in a sector with high growth rates. Through this resource, the Company can respond quickly and efficiently to the demand for new probiotics with different active ingredients in new niches. Furthermore it reduces potential threats by eliminating the dependence on other organisations with similar assets, and limits the entrance of new peers in certain niches as it has the capacity to patent the probiotics arising from isolating and clinically developing strains.

Although not included in the Company’s assets as it is not easily quantified, we cannot deny that on a qualitative front it is a strategic asset contributing to the Biotech’s competitive advantage. Actually Chr. Hansen has a similar asset with more strains, therefore AB-Biotics could find buyers for its strain bank. Therefore we conclude that the value of this resource is undeniable.

AB-Biotics

It is also a rare resource, because although there are companies with similar resources (few), AB-Biotics’ specific strains are not found in others. In addition the patented strains are unique to AB-Biotics; therefore the patent value is also outstanding.

The resource could also be considered inimitable, because any competitor would face great difficulties and high costs to obtain or replace their existing assets for a similar one.

In our opinion it is a strategic piece in the organisation, which is designed to back this resource, thus makes it an added value asset within the Company’s value chain.

Estimated P&L, Balance and Cash Flow

Key momentum for the Company’s potential earnings. Profit & Loss Account

Without a doubt we are at an important momentum to see if the developments and investments made in recent years have resulted in a profitable, solvent and cash generating company. According to our analysis, we do think so. The high level of investments, strong cash outflow and the initial phases regarding products entering all markets resulted in a company that was incapable of generating profits, which were even lower due to the subsidies and soft loans received.

Now the situation has taken a complete turn:

AB-Biotics generates and will generate (CAGR 2018-22e) positive cash, earnings and EBITDA. Even though it has not been so until this year and in the recent past we have seen flat results in earnings, our estimates point to this trend changing in the short term, reaching an estimated EBITDA of EUR 1.94m and generating substantial cash flow. This is due to the extreme rise in licenses in terms of quantity and size (e.g. the agreement with Kaneka), as well as some drivers as we shall discuss.

Source: GVC Gaesco Beka

Cycle momentum: As is known, the operating cycle of a technological-pharmaceutical project involves three phases: i) exponential initial cash outflow, i.e. negative cash flow (apart from the risk of the project being considered unfeasible thus the capital investment is lost), followed by ii) reducing cash outflow speeds, with low revenues, phases in which a marketing format is looked for and strategic markets are being initially penetrated; and finally iii) high cash generation, with high growths and hardly any cash out flow (assumed during the first two phases)

For a project to be profitable, the cash generated in the last phase (cost of capital considered) must be above the initial outflows. To this regard, and in our opinion, the majority of AB-Biotics’ pipeline is completely developed, thus the revenues generated from these products should greatly surpass the potential investments to be made.

AB-Biotics

High operating leverage. We must consider that the Company was close to reaching EBITDA break-even, thus as soon as sales rise these will be almost entirely reflected in gross margins (operating leverage, calculated as ∆%𝐸𝐵𝐼𝑇/∆%𝑆𝑎𝑙𝑒𝑠, of 2018-19e 9.47x; 2019-20e 3.81x; 2020-21e 2.55x and 2021-22e 2.14x).

To get an idea of the P&L account, we can sum it up as:

1) Gross margins (Sales – COGS) between 42% (2018e) and 49% (2022e) over sales;

2) Relatively stable operating and fixed personnel costs, around EUR 3-4m per year;

3) Services to capitalise and small provisions on commercial operations (below EUR 1m/year throughout the estimated period);

4) Amortisation decreasing between EUR 1.21m (2018e) and EUR 0.83m (2022e);

5) Financial result hardly affected due to the decreasing debt weight, the majority soft loans (MINECO – Ministry of Economy - at 0.38%).

This means that once the total gross margin surpasses said fixed costs (around EUR 11.65m sales at 45% gross margin) the entire gross margins in sales will be profits. In this manner, we can see growing EBITDA mg/sales, due to the mentioned operating structure.

Strong cost reduction and improving operating margins. Mainly due to: i) personnel restructuring process carried out in 2017; ii) outsourcing the laboratory, thus the R+D process is no longer internal which involved high cash outflow; also reflected in the non-existing revenues from activations but rather capitalization on outsourcing services. In addition, capex and working capital investments are low, due to the current cycle, as well as the almost non-relevant and stable stock levels. On the other hand, studies under way are sponsored and financed by the licensees; therefore do not imply new investments or cash out flows on behalf of the Company.

Capacity to be profitable without requiring subsidies or soft loans. In our model, the soft loan drops drastically in the estimated period (debt variations from EUR -900k to EUR -400k), bearing in mind that for 2022e we estimate less than EUR 2m soft loan and a long term target equity ratio of 95%; which means that the capital employed by the Company is almost entirely equity. Even so, the Company is capable of obtaining profits.

AB-Biotics

Estimated P&L Account

Accounting year (EUR m) 2017 2018e 2019e 2020e 2021e 2022e

Sales Probiotic Functional Ingredients 6.19 11.22 13.51 18.25 21.25 23.07

Sales Precision Medicine Platform 1.05 0.94 0.99 1.04 1.09 1.14

TOTAL 7.24 12.16 14.50 19.28 22.34 24.21

SALES 7.24 12.16 14.50 19.28 22.34 24.21

Activations 0.51 0.00 0.00 0.00 0.00 0.00

Upfronts 0.06 0.29 0.23 0.23 0.22 0.21

Cost of Sales -4.36 -7.36 -7.82 -9.70 -10.47 -10.69

Operating Costs (Excluding Personnel) -1.22 -1.02 -1.23 -1.47 -1.77 -2.12

Personnel Expenses -1.67 -1.61 -1.77 -1.94 -2.14 -2.35

Services to capitalize -0.24 -0.45 -0.63 -0.63 -0.63 -0.63

Provisions for Commercial operations -0.27 -0.08 -0.10 -0.13 -0.15 -0.16

Non Recurrent Expenses (Income) 0.17 0.00 0.00 0.00 0.00 0.00

Operative EBITDA (reported) -0.47 1.65 2.96 5.41 7.18 8.25

EBITDA (reported) 0.21 1.94 3.19 5.64 7.40 8.47

EBITDA margin 0.00 0.00 0.00 0.00 0.00 0.00

Depreciation & Ammortization -1.14 -1.21 -1.15 -1.03 -0.93 -0.83

EBIT (reported) -0.92 0.72 2.04 4.61 6.47 7.63

Interests received 0.00 0.02 0.05 0.06 0.10 0.14

Interests paid -0.22 -0.06 -0.04 -0.03 -0.02 -0.01

Foreign Exchange Gain / (Loss) 0.00 0.00 0.00 0.00 0.00 0.00

Other Non Recurrent Items 0.22 0.00 0.00 0.00 0.00 0.00

EBT -0.92 0.69 2.04 4.64 6.55 7.76

Remaining BINS 11.70 11.22 9.79 6.54 3.27 0.00

Tax 0.03 -0.05 -0.15 -0.35 -0.82 -1.12

Tax rate 3.2% 7.5% 7.5% 7.5% 12.5% 14.5%

Normative tax rate 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%

Net Profit (reported) -0.89 0.64 1.89 4.29 5.73 6.64

Net Profit (adj.) -0.89 0.64 1.89 4.29 5.73 6.64

Fuente: GVC Gaesco Beka

AB-Biotics

Estimated Balance Statement

It is interesting to see that fixed assets drop due to the capex investments below the depreciation of previously activated projects under development. While investments remain at a low EUR 0.63m/year, the amortization of projects under development and patents activated in the past are high [EUR 1.21m 2018e; EUR 0.83m 2022e] – although shrinking. However, lower fixed assets do not weaken the balance as it is widely offset with the increasing treasury and, in general, current assets during the period.

Regarding liabilities and net equity, the Company generates net profit thus is capable of reducing bulky negative results seen in the past (EUR 12.7m at 2017), thus increasing net equity. In addition, we must include the treasury stock sold to Kaneka this year for EUR 1.14m.

On the other hand, cash flow generation (see following table) together with the conversion of a balance with bulky debt to a set of financial statements where debt is reduced and therefore cash is obtained (post-debt payment) grants the Balance Sheet a robustness that in our opinion is very positive.


Net Tangible Assets 0.28 0.25 0.23 0.21 0.20 0.19

Net Intangible Assets 6.29 5.56 5.07 4.68 4.40 4.20

Goodwill 0.00 0.00 0.00 0.00 0.00 0.00

Net Financial Assets & Others 0.68 0.68 0.68 0.68 0.68 0.68

Total Fixed Assets 7.26 6.50 5.98 5.58 5.28 5.08

Net Working Capital 0.28 0.27 0.53 0.69 0.82 0.86

Inventories 0.28 0.28 0.28 0.28 0.28 0.28

Trade recivables gross 1.95 3.29 3.71 4.67 5.10 5.20

Trade receivables net 1.95 3.21 3.54 4.37 4.66 4.59

Otros deudores/cuentas a cobrar 0.19 0.33 0.39 0.52 0.60 0.65

Other Current Assets 0.06 0.06 0.06 0.06 0.06 0.06

Total Current Assets 4.91 9.51 11.72 17.16 23.46 30.37

Total Assets 12.17 16.00 17.70 22.74 28.74 35.44

Minorities equity 0.00 0.00 0.00 0.00 0.00 0.00

Total equity (inc. minorities) 4.74 7.41 9.97 14.89 21.25 28.52

Net Debt 2.10 -2.03 -4.71 -9.77 -16.23 -23.62

o/w Cash and Marketable Securities -2.43 -5.64 -7.46 -11.93 -17.87 -24.80

o/w Short Term Debt 1.05 0.84 0.64 0.50 0.38 0.27

o/w Long-Term Debt 3.48 2.77 2.11 1.66 1.26 0.91

Trade payables 2.15 3.62 3.85 4.77 5.16 5.27

Other current liabilities 0.58 1.19 0.97 0.74 0.52 0.31

Total Current Liabilities 3.78 5.65 5.45 6.02 6.06 5.85

Other Long Term Liabilities 0.17 0.17 0.17 0.17 0.17 0.17

Total Long Term Liabilities 3.65 2.94 2.27 1.83 1.42 1.07

Total Liabilities and Shareholders' Equity 12.17 16.00 17.70 22.74 28.74 35.44

CHECK LINE FOR BALANCE SHEET 0.00 0.00 0.00 0.00 0.00 0.00

Net Capital Employed / Invested (CE or CI) 7.54 6.76 6.51 6.27 6.11 5.93

AB-Biotics

Estimated Cash Flow

AB-Biotics is capable of generating cash during the analysed period that could later be used to pay dividends or acquire companies in the industrial production sector.

Regarding debt reduction, as mentioned, the Company (with a high weight in soft loans) will progressively reduce debt according to the established terms. Future finance will be practically via equity (estimated target of 95%).

Worth mentioning is that 2018 capex will be entirely financed by Kaneka, according to the released data, which could also partially finance asset investments in 2019.


EBT -0.92 0.69 2.04 4.64 6.55 7.76

Payments for Tax 0.12 -0.05 -0.15 -0.35 -0.82 -1.12

+ Net Interest paid/received 0.21 0.03 0.00 -0.03 -0.07 -0.11

+ Depreciation & Amortization 1.14 1.21 1.15 1.03 0.93 0.83

+ Change in provisions 0.05 0.08 0.10 0.13 0.15 0.16

+ Impairment losses adjustments 0.49 0.00 0.00 0.00 0.00 0.00

+/- Gains/Losses on Disposals of NC Assets -0.42 0.00 0.00 0.00 0.00 0.00

- Allocation of grants -0.10 0.00 0.00 0.00 0.00 0.00

+/- Deferred revenues and others 0.10 0.90 0.00 0.00 0.00 0.00

- Upfronts with no cash effect - -0.29 -0.23 -0.23 -0.22 -0.21

+ Services to capitalize - 0.45 0.63 0.63 0.63 0.63

= OCF before investment in NWC 0.66 3.02 3.53 5.82 7.15 7.94

+/- NWC change -0.15 0.01 -0.27 -0.16 -0.13 -0.03

= OCF before investment in NC Assets 0.52 3.03 3.27 5.66 7.02 7.90

+/- Sales (Purchases) of NC Assets (CapEx) -0.11 0.00 -0.59 -0.63 -0.63 -0.63

= Operative Free Cash Flow (OFCF) 0.40 3.03 2.68 5.03 6.39 7.27

- Net Interest paid/received -0.21 -0.03 0.00 0.03 0.07 0.11

+/- Increase (Repayment) in Debt -0.66 -0.92 -0.86 -0.58 -0.53 -0.46

= Free Cash Flow to Equity (FCFE) -0.47 2.08 1.81 4.48 5.93 6.93

+ Sale of shares 0.15 1.14 0.00 0.00 0.00 0.00

+ Grants and donations received 0.26 0.00 0.00 0.00 0.00 0.00

- Dividend payments 0.00 0.00 0.00 0.00 0.00 0.00

- Share repurchases -0.19 0.00 0.00 0.00 0.00 0.00

= Net Cash Increase -0.26 3.21 1.81 4.48 5.93 6.93

Initial Cash 2.69 2.43 5.64 7.46 11.93 17.87

Final Cash 2.43 5.64 7.46 11.93 17.87 24.80

AB-Biotics


To sum up, in our opinion, we are referring to a stable and solvent company, with high liquidity, profitability, low debt and that is a cash generator. The keys behind our valuation are the positive P&L account and sturdy balance that will progressively leave past negative results behind. Even so, we do not rule out potential risks such as financial and operating seen in the company and included in our SWOT analysis.

Discounted cash flow valuation and sensitivity analysis

We have carried out a discounted cash flow calculation, based on our estimated sales and costs for each individual division, reaching a common EBITDA. The estimated amortization descends because capex is not as high but, however, the balance continues to reflect the high development costs and patents seen in the past as depreciable assets (resulting in net fixed assets shrinking), reaching an EBIT margin over sales of 12% (2018e) and 32% 2022e, based on the high operating leverage.

On the subject of capex, we estimate EUR 630,000 maintenance capex as from 2019, which would allow to continue developing the pipeline (capitalize on services, R+D), maintaining the current investments in patents and developments. This capex (EUR 450,000 2018e) will be entirely financed by Kaneka this year and partially financed (EUR 40,000, according to our estimates) next year.

Investments in working capital exist but will drop during the estimated period because, despite the substantial rise in sales (that could greatly vary WC), the ratio over sales is low.

The Biotech will also be capable of renegotiating payment days with clients and suppliers by increasing production and sales volume. In this manner, the Company will offset the volume effect from clients/suppliers with actual payment days, resulting in a small rise in WC/sales.

On the other hand, to apply the over EUR 11.5m negative tax bases pending compensation, we have applied the current regulation in Spain

3 to reflect the correct effect of future

compensations, including the implied cost of capital. We must note that if Kaneka decides to acquire the company the negative tax bases could be discounted thus increasing the value of AB-Biotics due to the cost of capital effect.

3 70% limited compensation of the tax base for turnover below EUR 20m; 50% for EUR 20-60m.

AB-Biotics

Consequently we reach a valuation of EUR 5/share. Estimating EV/EBITDA’19e 20x, which we deem reasonable according to the more direct peers (BioGaia, Probi, Chr Hansen) that currently trade between 20-25x.


DCF VALUATION 2018e 2019e 2020e 2021e 2022e Terminal Value

Revenues 12.16m 14.50m 19.28m 22.34m 24.21m

(growth) 19% 33% 16% 8%

EBITDA 1.94m 3.19m 5.64m 7.40m 8.47m 8.47m

(EBITDA margin) 16% 22% 29% 33% 35%

EBIT 0.72m 2.04m 4.61m 6.47m 7.63m

(EBIT margin) 6% 14% 24% 29% 32%

FCF BEFORE CHANGES IN NWC 3.02m 3.53m 5.82m 7.15m 7.94m

CHANGE IN NET WORKING CAPITAL 0.01m -0.27m -0.16m -0.13m -0.03m

CapEx 0.00m -0.59m -0.63m -0.63m -0.63m

FREE CASH FLOW (OFCF) 3.03m 2.68m 5.03m 6.39m 7.27m 72.52m

Nº periods to be discounted 0 1 2 3 4 4

Present value OFCF + BINS 3.03m 2.38m 3.99m 4.52m 4.58m 45.15m

EV in NPV 63.67m

PV Flujos de Caja (2018-2022) 18.52m

PV Terminal Value 45.15m % over EV 71%

Net Debt 0.69m

Equity Value 62.98m

Number of shares 12.59m

Per Share Value 5.00 €

5.00 € 1.00% 1.50% 2.00% 2.50% 3.00%

14.2% 4.10 4.23 4.36 4.50 4.66

13.2% 4.36 4.50 4.65 4.82 5.01

12.2% 4.65 4.82 5.00 5.21 5.43

11.2% 5.00 5.20 5.42 5.67 5.95

10.2% 5.41 5.66 5.94 6.25 6.60

5.00 € 6.57 x 7.57 x 8.57 x 9.57 x 10.57 x

14.6% 3.98 4.37 4.76 5.15 5.54

13.6% 4.07 4.47 4.88 5.28 5.69

12.6% 4.17 4.58 5.00 5.42 5.84

11.6% 4.27 4.70 5.13 5.57 6.00

10.6% 4.37 4.82 5.27 5.72 6.17

WA

CC

Perpetuity Growth (g)

TV/EBITDA

WA

CC

TV

Ke 13.27% Perp. Growth (g) 2.00%

Risk premium 5.00% Beta 1.95

Risk free rate 3.50% Kd 8.5%

Targ. Eq. Ratio 85% WACC 12.2%

Tax Rate 25%

WACC TV 12.6%

TV/EBITDA 8.57 EV/EBITDA('19E) 20

AB-Biotics

Potential risk scenarios to consider

Firstly we must mention that among the potential risk scenarios is the possibility that AB-Biotics does not receive enough orders on behalf of licensees so as to cover the sales estimated in our model. However, one of the more interesting aspects of the company is that it presents guaranteed minimum sales per contract (minimum purchase obligations) above 50% of our estimates for the period. Below is a sensitivity analysis of the share price to the percentage of our estimated orders.

Sales 50% (MPO)

Sales 75% Sales 100% Sales 125% Sales 150%

EUR/share 2 3.62 5 6.63 8


On the subject of non-renewal of contracts due to the lack of acceptance of products or potentially inadequate protection policy in patents included in our scenarios, the diversification undertaken by AB-Biotics – geographically, and in products and clients – substantially reduces said risks. However, we have included it as a risk (in WACC calculations) and in our estimated sales scenario (conservative). Even so, AB-Biotics will continue with said diversification policy to reduce potential geographic, marketing and on pipeline risks that we consider potentially damaging.

Lastly, we have considered the effects of a change in regulation regarding the compensation of past negative tax bases, bearing in mind the high amount in AB-Biotics. According to our estimates, the negative tax bases contribute EUR0.56/share, therefore if there was a change in regulation eliminating the possibility of compensating said bases our fair value would be EUR4.44/share.

Shareholder structure after Kaneka’s entrance. Possible takeover bid?

The Biotech was founded in April 2004 by Miquel Angel Bonachera Sierra, Sergi Audivert Brugué and Buenaventura Guamis López (the first two are the main shareholders), as a spin-off from the Universitat Autonoma de Barcelona.

Following a number of changes to the shareholders structure, the Biotech debuted on the MAB in July 2010, via a public subscription offer on 38% capital at EUR 2.53/share. The Company obtained EUR 3.5m, EV EUR 15.75m pre-money and EUR 19.25m post-money.

In March 2018, the Company announced a licensing agreement with the US KANEKA AMERICAS HOLDING, INC granting the exclusive right to manufacture, import, ferment, use, sale and offer specific AB-Biotics’ products in Japan and North America. As an inseparable part of the operation KANEKA decided to enter AB-Biotics’ capital via KANEKA EUROPE HOLDING COMPANY NV, initially acquiring 26.859% capital and 500,000 treasury stock, thus the current 37.77% stake. The holding company is therefore AB-Biotics’ main shareholder even though it does not hold a controlling stake.

Kaneka was founded over 60 years ago; has 9,666 employees and at June 2018 capitalised EUR 2.7bn, sales EUR 4.6bn and EBITDA over EUR 510m (at 2017).

AB-Biotics

AB Biotic’s current shareholder structure:

It is important to bear in mind the implications of a global strategic partner that capitalises EUR 2.7bn, that is leader in chemical manufacturing; and considering that AB-Biotics capitalises some EUR 47m. Kaneka’s strategy includes global expansion, increasing presence in key markets and strategic subsectors.

Therefore, we do not rule out Kaneka possibly acquiring the Spanish Biotech, based on the synergies in terms of activity, the strain bank to develop its own fermentation products and strong entrance to niche markets currently exploited by AB Biotics by acquiring the patents, contracts; and considering that AB-Biotics is currently in a good earnings cycle. Kaneka traditionally prefers to acquire strategic companies to continue developing and for its international expansion.

Source: Factset. In USD millions

AB-Biotics

Drivers and SWOT analysis

Short/medium term drivers

Substantial rise in sales with new licensing agreements, the agreement with Kaneka and market penetration arising from licenses signed 2-3 years ago, which results in much higher operating earnings due to the high operating leverage.

Cost reduction and improving margins, thus cash generation and creating a more profitable model in the short/medium term.

Entry into the capital and strategic agreement with a multinational holding company of proven importance such as Kaneka, which has four seats on the Board. This agreement contributes know-how and to the Biotech’s development. There is also the possibility of Kaneka launching a takeover bid, which is precisely the reason for the rise in the share price in recent months. This aspect was discounted by the market since the relevant fact was released.

SWOT Analysis

Strengths Weakness

Licenses as stable and recurrent revenues; high DOL

Strain bank as a strategic resource

Low capex and WC requirements

Management; innovation and clinical documentation

Not dependant on public incentives

Exposed to the health sector – anti-cyclic character

Long period to recover capital invested

Small size

Relatively high dependence on certain clients

Opportunities Threats

M&A with Kaneka

Develop new market niches

Sustained growth in probiotic market (CAGRe 7.7%)

Alliances with larger sector players

Integration of the value chain

Potentially inadequate protection of patents

No product licenses, low number of contracts.

Dependence on key persons

New players with more resources in probiotics.

Non-acceptance of product; higher Nº. of alternatives.

Intense regulation in the sector.

AB-Biotics

AB-Biotics : Summary tables

PROFIT & LOSS (EURm) 12/2017 12/2018e 12/2019e 12/2020e

Sales 7.2 12.2 14.5 19.3

Cost of Sales & Operating Costs -6.0 -9.0 -9.6 -11.6

Non Recurrent Expenses/Income 0.2 0.0 0.0 0.0

EBITDA 0.2 1.9 3.2 5.6

EBITDA (adj.)* 0.0 1.9 3.2 5.6

Depreciation -1.1 -1.2 -1.1 -1.0

EBITA -0.9 0.7 2.0 4.6

EBITA (adj)* -1.1 0.7 2.0 4.6

EBIT -0.9 0.7 2.0 4.6

EBIT (adj.)* -1.1 0.7 2.0 4.6

Net Financial Interest -0.2 0.0 0.0 0.0

Other Financials 0.0 0.0 0.0 0.0

Associates 0.0 0.0 0.0 0.0

Other Non Recurrent Items 0.2 0.0 0.0 0.0

Earnings Before Tax (EBT) -0.9 0.7 2.0 4.6

Tax 0.0 -0.1 -0.2 -0.3

Tax rate 3.2% 7.5% 7.5% 7.5%

Discontinued Operations 0.0 0.0 0.0 0.0

Minorities 0.0 0.0 0.0 0.0

Net Profit (reported) -0.9 0.6 1.9 4.3

Net Profit (adj.) -0.9 0.6 1.9 4.3

CASH FLOW (EURm) 12/2017 12/2018e 12/2019e 12/2020e

Cash Flow from Operations before change in NWC 0.7 3.0 3.5 5.8

Change in Net Working Capital -0.1 0.0 -0.3 -0.2

Cash Flow from Operations 0.5 3.0 3.3 5.7

Capex -0.1 0.0 -0.6 -0.6

Net Financial Investments 0.0 0.0 0.0 0.0

Free Cash Flow 0.4 3.0 2.7 5.0

Dividends 0.0 0.0 0.0 0.0

NOPLAT -0.8 0.5 1.5 3.5

BALANCE SHEET & OTHER ITEMS (EURm) 12/2017 12/2018e 12/2019e 12/2020e

Net Tangible Assets 0.3 0.3 0.2 0.2

Net Intangible Assets (incl.Goodwill) 6.3 5.6 5.1 4.7

Net Financial Assets & Other 0.7 0.7 0.7 0.7

Total Fixed Assets 7.3 6.5 6.0 5.6

Inventories 0.3 0.3 0.3 0.3

Trade receivables 2.0 3.2 3.5 4.4

Other current assets 0.1 0.1 0.1 0.1

Cash (-) -2.4 -5.6 -7.5 -11.9

Total Current Assets 4.7 9.2 11.3 16.6

Total Assets 12.0 15.7 17.3 22.2

Shareholders Equity 4.7 7.4 10.0 14.9

Minority 0.0 0.0 0.0 0.0

Total Equity 4.7 7.4 10.0 14.9

Long term interest bearing debt 3.5 2.8 2.1 1.7

Provisions 0.0 0.0 0.0 0.0

Other long term liabilities 0.2 0.2 0.2 0.2

Total Long Term Liabilities 3.6 2.9 2.3 1.8

Short term interest bearing debt 1.1 0.8 0.6 0.5

Trade payables 2.1 3.6 3.8 4.8

Other current liabilities 0.6 1.2 1.0 0.7

Total Current Liabilities 3.8 5.7 5.5 6.0

Total Liabilities and Shareholders' Equity 12.2 16.0 17.7 22.7

Net Capital Employed 6.8 5.2 5.0 4.8

Net Working Capital 0.3 0.3 0.5 0.7

GROWTH & MARGINS 12/2017 12/2018e 12/2019e 12/2020e

Sales growth 68.1% 19.2% 33.0%

EBITDA (adj.)* growth 5069.6% 64.5% 77.0%

EBITA (adj.)* growth n.m. 181.6% 125.9%

EBIT (adj)*growth n.m. 181.6% 125.9%

AB-Biotics

AB-Biotics : Summary tables

GROWTH & MARGINS 12/2017 12/2018e 12/2019e 12/2020e

Net Profit growth n.m. 197.5% 127.0%

EPS adj. growth n.m. 197.5% 127.0%

DPS adj. growth

EBITDA (adj)* margin 0.5% 15.9% 22.0% 29.2%

EBITA (adj)* margin -15.2% 6.0% 14.1% 23.9%

EBIT (adj)* margin n.m. 6.0% 14.1% 23.9%

RATIOS 12/2017 12/2018e 12/2019e 12/2020e

Net Debt/Equity 0.4 -0.3 -0.5 -0.7

Net Debt/EBITDA 9.9 -1.0 -1.5 -1.7

Interest cover (EBITDA/Fin.interest) 1.0 51.5 n.m. n.m.

Capex/D&A

Capex/Sales 1.6% 0.0% 4.1% 3.3%

NWC/Sales 3.8% 2.2% 3.7% 3.6%

ROE (average) 10.5% 21.7% 34.5%

ROCE (adj.) -12.0% 8.9% 26.3% 61.8%

WACC 12.2% 12.2% 12.2% 12.2%

ROCE (adj.)/WACC -1.0 0.7 2.2 5.1

PER SHARE DATA (EUR)*** 12/2017 12/2018e 12/2019e 12/2020e

Average diluted number of shares 12.6 12.6 12.6 12.6

EPS (reported) -0.07 0.05 0.15 0.34

EPS (adj.) -0.07 0.05 0.15 0.34

BVPS 0.38 0.59 0.79 1.18

DPS 0.00 0.00 0.00 0.00

VALUATION 12/2017 12/2018e 12/2019e 12/2020e

EV/Sales 2.9 3.4 2.7 1.7

EV/EBITDA n.m. 21.3 12.1 6.0

EV/EBITDA (adj.)* n.m. 21.3 12.1 6.0

EV/EBITA -23.0 57.1 19.0 7.3

EV/EBITA (adj.)* -19.4 57.1 19.0 7.3

EV/EBIT n.m. 57.1 19.0 7.3

EV/EBIT (adj.)* n.m. 57.1 19.0 7.3

P/E (adj.) n.m. n.m. 23.3 10.3

P/BV 4.2 5.9 4.4 3.0

Total Yield Ratio 0.1% -2.6% 0.0% 0.0%

EV/CE 3.1 6.8 6.6 6.0

OpFCF yield 2.0% 6.9% 6.1% 11.4%

OpFCF/EV 1.9% 7.3% 6.9% 15.0%

Payout ratio 0.0% 0.0% 0.0% 0.0%

Dividend yield (gross) 0.0% 0.0% 0.0% 0.0%

EV AND MKT CAP (EURm) 12/2017 12/2018e 12/2019e 12/2020e

Price** (EUR) 1.58 3.50 3.50 3.50

Outstanding number of shares for main stock 12.6 12.6 12.6 12.6

Total Market Cap 20 44 44 44

Net Debt 2 -2 -5 -10

o/w Cash & Marketable Securities (-) -2 -6 -7 -12

o/w Gross Debt (+) 5 4 3 2

Other EV components -1 -1 -1 -1

Enterprise Value (EV adj.) 21 41 39 34

Source: Company, GVC Gaesco Beka estimates.

Notes* Where EBITDA (adj.) or EBITA (adj)= EBITDA (or EBITA) -/+ Non Recurrent Expenses/Income and where EBIT (adj)= EBIT-/+ Non Recurrent Expenses/Income - PPA amortisation

**Price (in local currency): Fiscal year end price for Historical Years and Current Price for current and forecasted years

Sector: Healthcare/Pharmaceuticals

Company Description: AB Biotics is a biotechnological company engaged in two business units. The main activity of the company is the

development and licensing of probiotics. Personalized medicine, through genetic tests, is their second SBU.

AB-Biotics

European Coverage of the Members of ESN

A ero space & D efense M em(*) Bnp Paribas CIC K+S Ag EQB Atria OPG

Airbus Se CIC Bper BAK Kemira OPG Baywa EQB

Dassault Aviation CIC Bpi CBI Kws Saat EQB Bonduelle CIC

Latecoere CIC Caixabank GVC Lanxess EQB Campari BAK

Leonardo BAK Commerzbank EQB Linde EQB Coca Cola Hbc Ag IBG

Lisi CIC Credem BAK Siegfried Holding Ag EQB Corbion NIBC

M tu Aero Engines EQB Credit Agrico le Sa CIC Symrise Ag EQB Danone CIC

Ohb Se EQB Creval BAK Tikkurila OPG Ebro Foods GVC

Rheinmetall EQB Deutsche Bank EQBElectro nic & Electrical

EquipmentM em(*) Enervit BAK

Safran CIC Deutsche Pfandbriefbank EQB Euromicron Ag EQB Fleury M ichon CIC

Thales CIC Eurobank IBG Neways Electronics NIBC Forfarmers NIBC

A lternat ive Energy M em(*) Intesa Sanpaolo BAK Rexel CIC Heineken NIBC

Daldrup & Soehne EQB Liberbank GVC Vaisala OPG Hkscan OPG

Siemens Gamesa Re GVC M ediobanca BAK Viscom EQB La Doria BAK

Sif Group NIBC M erkur Bank EQB F inancial Services M em(*) Lanson-Bcc CIC

Solaria GVC National Bank Of Greece IBG Amundi CIC Laurent Perrier CIC

A uto mo biles & P arts M em(*) Natixis CIC Anima BAK Ldc CIC

Bittium Corporation OPG Nordea OPG Athex Group IBG Lucas Bols NIBC

Bmw EQB Piraeus Bank IBG Azimut BAK M assimo Zanetti BAK

Brembo BAK Poste Italiane BAK Banca Farmafactoring BAK Naturex CIC

Continental EQB Procredit Holding EQB Banca Generali BAK Olvi OPG

Daimler Ag EQB Rothschild & Co CIC Banca Ifis BAK Orsero BAK

Delfingen Industry CIC Societe Generale CIC Banca Sistema BAK Pernod Ricard CIC

Elringklinger EQB Ubi Banca BAK Bb Biotech EQB Raisio OPG

Ferrari BAK Unicredit BAK Bolsas Y M ercados Espanoles Sa GVC Refresco Group NIBC

Fiat Chrysler Automobiles BAK B asic R eso urces M em(*) Capman OPG Remy Cointreau CIC

Hella Gmbh & Co. Kgaa EQB Acerinox GVC Cir BAK Suedzucker EQB

Indelb BAK Altri CBI Comdirect EQB Takeaway.Com NIBC

Kamux OPG Arcelormittal GVC Corestate Capital Holding S.A. EQB Telepizza GVC

Landi Renzo BAK Corticeira Amorim CBI Corp. Financiera Alba GVC Tipiak CIC

Leoni EQB Ence GVC Digital M agics BAK Vapiano EQB

Nokian Tyres OPG Europac GVC Dobank BAK Vidrala GVC

Norma Group EQB M etka IBG Dws EQB Vilmorin CIC

Piaggio BAK M etsä Board OPG Eq OPG Viscofan GVC

Pwo EQB M ytilineos IBG Eurazeo CIC Vranken Pommery M onopole CIC

Schaeffler EQB Outokumpu OPG Eyemaxx Real Estate EQB Wessanen NIBC

Sogefi BAK Semapa CBI Ferratum EQB F o o d & D rug R etailers M em(*)

Stabilus EQB Ssab OPG Ffp CIC Ahold Delhaize NIBC

Stern Groep NIBC Stora Enso OPG Finecobank BAK Carrefour CIC

Volkswagen EQB Surteco EQB Grenke EQB Casino Guichard-Perrachon CIC

B anks M em(*) The Navigator Company CBI Hypoport Ag EQB Dia GVC

Aareal Bank EQB Tubacex GVC M lp EQB Jeronimo M artins CBI

Aktia OPG Upm-Kymmene OPG Ovb Holding Ag EQB Kesko OPG

Alpha Bank IBG C hemicals M em(*) Patrizia EQB M arr BAK

Banca Carige BAK Air Liquide CIC Rallye CIC M etro Ag EQB

Banca M ps BAK Arkema CIC Tip Tamburi Investment Partners BAK Sligro NIBC

Banco Sabadell GVC Avantium NIBC Unipol Gruppo Finanziario BAK Sonae CBI

Banco Santander GVC Brenntag EQB Wendel CIC

Bankia GVC Evonik EQB F o o d & B everage M em(*)

Bankinter GVC Fuchs Petro lub EQB Acomo NIBC

Bbva GVC Holland Colours NIBC Advini CIC

Bcp CBI Imcd NIBC Altia OPG

AB-Biotics

General Industria ls M em(*) Korian CIC Schaltbau Holding Ag EQB Royal Bam Group NIBC

2G Energy EQB M erck EQB Smt Scharf Ag EQB Sacyr GVC

Aalberts NIBC Oncodesign CIC Talgo GVC Saint Gobain CIC

Accell Group NIBC Orio la-Kd OPG Technotrans EQB Salini Impregilo BAK

Arcadis NIBC Orion OPG Valmet OPG Sias BAK

Aspo OPG Orpea CIC Wacker Neuson Se EQB Sonae Industria CBI

Cembre BAK Pihlajalinna OPG Wärtsilä OPG Srv OPG

Huhtamäki OPG Recordati BAK Zardoya Otis GVC Tarkett CIC

Kendrion NIBC Siemens Healthineers Ag EQB Industria l T ranspo rtat io n M em(*) Thermador Groupe CIC

Nedap NIBC Silmaasema OPG Bollore CIC Titan Cement IBG

Pöyry OPG Terveystalo OPG Ctt CBI Trevi BAK

Saf-Holland EQB H o useho ld Go o ds M em(*) Logwin EQB Uponor OPG

Serge Ferrari Group CIC De Longhi BAK Insurance M em(*) Vicat CIC

Tkh Group NIBC Elica BAK Allianz EQB Vinci CIC

General R etailers M em(*) Fila BAK Axa CIC Volkerwessels NIBC

Beter Bed Holding NIBC M aisons Du M onde CIC Banca M edio lanum BAK Yit OPG

Ceconomy Ag EQB Signify NIBC Catto lica Assicurazioni BAK M edia M em(*)

Elumeo Se EQB Industria l Engineering M em(*) Generali BAK Alma M edia OPG

Fielmann EQB Accsys Technologies NIBC Hannover Re EQB Arnoldo M ondadori Editore BAK

Fnac Darty CIC Aixtron EQB M apfre Sa GVC Atresmedia GVC

Folli Fo llie Group IBG Alstom CIC M unich Re EQB Axel Springer EQB

Fourlis Holdings IBG Ansaldo Sts BAK Sampo OPG Cairo Communication BAK

Grandvision NIBC Biesse BAK Talanx Group EQB Cofina CBI

Hornbach Holding EQB Caf GVC Unipolsai BAK Cts Eventim EQB

Inditex GVC Cargotec Corp OPGM aterials, C o nstruct io n &

InfrastructureM em(*) Digital Bros BAK

Jumbo IBG Carraro BAK Abeo CIC Digitouch BAK

Ovs BAK Cnh Industrial BAK Abertis GVC Gedi Gruppo Editoriale BAK

Rapala OPG Danieli BAK Acs GVC Gl Events CIC

Stockmann OPG Datalogic BAK Aena GVC Impresa CBI

Takkt Ag EQB Duerr EQB Aeroports De Paris CIC Io l BAK

Tokmanni OPG Emak BAK Astaldi BAK Ipsos CIC

Unieuro BAK Envipco NIBC Atlantia BAK Jcdecaux CIC

Windeln.De EQB Exel Composites OPG Boskalis Westminster NIBC Lagardere CIC

Zalando EQB Fincantieri BAK Buzzi Unicem BAK M 6-M etropole Television CIC

H ealthcare M em(*) Gea Group EQB Capelli CIC M ediaset BAK

4Sc EQB Gesco EQB Caverion OPG M ediaset Espana GVC

Abivax NIBC Groupe Gorge CIC Cramo OPG Nrj Group CIC

Advicenne NIBC Heidelberger Druck EQB Eiffage CIC Publicis CIC

Amplifon BAK Ima BAK Eltel OPG Rcs M ediagroup BAK

Atrys Health GVC Indus Holding Ag EQB Ezentis GVC Relx NIBC

Bayer EQB Interpump BAK Fcc GVC Rtl Group EQB

Biocartis NIBC Koenig & Bauer EQB Ferrovial GVC Sanoma OPG

Biotest EQB Kone OPG Groupe Poujoulat CIC Solocal Group CIC

Cellnovo CIC Konecranes OPG Groupe Sfpi S.A. CIC Syzygy Ag EQB

Cerenis CIC Krones Ag EQB Heijmans NIBC Teleperformance CIC

Crossject CIC M anitou CIC Herige CIC Tf1 CIC

Diasorin BAK M anz Ag EQB Imerys CIC Ubisoft CIC

El.En. BAK M ax Automation Ag EQB Lafargeholcim CIC Vivendi CIC

Epigenomics Ag EQB M etso Corporation OPG Lehto OPG Wolters Kluwer NIBC

Fermentalg CIC Outotec OPG M aire Tecnimont BAK Xing Se EQB

Genfit CIC Pfeiffer Vacuum EQB M aisons France Confort CIC

Gerresheimer Ag EQB Ponsse OPG M ota Engil CBI

Guerbet CIC Prima Industrie BAK Obrascon Huarte Lain GVC

Heidelberg Pharma EQB Prysmian BAK Ramirent OPG

AB-Biotics

Oil & Gas P ro ducers M em(*) Deutsche Euroshop EQB Ei Towers BAK Autogrill BAK

Ecoslops CIC Grivalia IBG Enav BAK Beneteau CIC

Eni BAK Hispania Activos Inmobiliarios GVC Fiera M ilano BAK Compagnie Des Alpes CIC

Galp Energia CBI Igd BAK Inwit BAK Elior CIC

Gas Plus BAK Lar España GVC Lassila & Tikanoja OPG Europcar CIC

Hellenic Petro leum IBG M erlin Properties GVC Openjobmetis BAK Finnair OPG

M aurel Et Prom CIC Realia GVC Rai Way BAK Gamenet BAK

M otor Oil IBG Technopolis OPGT echno lo gy H ardware &

EquipmentM em(*) I Grandi Viaggi BAK

Neste Corporation OPG Wcm Ag EQB Adeunis CIC Iberso l CBI

Qgep CBI So ftware & C o mputer Services M em(*) Asm International NIBC Int. A irlines Group GVC

Repsol GVC Agile Content GVC Asml NIBC Intralo t IBG

Total CIC Akka Technologies CIC Besi NIBC Kotipizza OPG

Oil Services M em(*) Alten CIC Ericsson OPG M elia Hotels International GVC

Bourbon CIC Altran CIC Evolis CIC Nh Hotel Group GVC

Cgg CIC Assystem CIC First Sensor Ag EQB Opap IBG

Fugro NIBC Atos CIC Gigaset EQB Sodexo CIC

Gaztransport Et Technigaz CIC Axway Software CIC Hf Company CIC Sonae Capital CBI

Rubis CIC Basware OPG Nokia OPG Trigano CIC

Saipem BAK Ctac NIBC Osmozis CIC Utilit ies M em(*)

Sbm Offshore NIBC Digia Plc OPG Roodmicrotec NIBC Acciona GVC

Technipfmc Plc CIC Econocom CIC S&T Ag EQB Acea BAK

Tecnicas Reunidas GVC Esi Group CIC Slm Solutions EQB Albioma CIC

Tenaris BAK Exprivia BAK Stmicroelectronics BAK Derichebourg CIC

Vallourec CIC F-Secure OPG Suess M icrotec EQB Direct Energie CIC

Vopak NIBC Gft Technologies EQB Teleste OPG Edp CBI

P erso nal Go o ds M em(*) Groupe Open CIC Va-Q-Tec EQB Edp Renováveis CBI

Adidas EQB Ict Group NIBC T eleco mmunicat io ns M em(*) Enagas GVC

Adler M odemaerkte EQB Indra Sistemas GVC 1&1 Drillisch Ag EQB Endesa GVC

Amer Sports OPG Intershop Communications Ag EQB Acotel BAK Enel BAK

Basicnet BAK Nemetschek Se EQB Bouygues CIC Erg BAK

Cie Fin. Richemont CIC Neurones CIC Deutsche Telekom EQB Eydap IBG

Geox BAK Nexus Ag EQB Dna OPG Falck Renewables BAK

Gerry Weber EQB Novabase CBI Elisa OPG Fortum OPG

Hermes Intl. CIC Ordina NIBC Euskaltel GVC Gas Natural Fenosa GVC

Hugo Boss EQB Psi Software Ag EQB Freenet EQB Hera BAK

Kering CIC Reply BAK Iliad CIC Iberdro la GVC

Luxottica BAK Rib Software EQB Kpn Telecom NIBC Iren BAK

Lvmh CIC Rovio Entertainment OPG M asmovil GVC Italgas BAK

M arimekko OPG Scout24 EQB Nos CBI Public Power Corp IBG

M oncler BAK Seven Principles Ag EQB Orange CIC Red Electrica De Espana GVC

Puma EQB Sii CIC Ote IBG Ren CBI

Safilo BAK Software Ag EQB Tele Columbus EQB Snam BAK

Salvatore Ferragamo BAK Sopra Steria Group CIC Telecom Italia BAK Terna BAK

Sarantis IBG Tieto OPG Telefonica GVC

Swatch Group CIC Tomtom NIBC Telefonica Deutschland EQB

Technogym BAK Visiativ CIC Telia OPG

Tod'S BAK Suppo rt Services M em(*) Tiscali BAK

R eal Estate M em(*) Amadeus GVC United Internet EQB

Adler Real Estate EQB Asiakastieto Group OPG Vodafone BAK

Beni Stabili BAK Batenburg NIBC T ravel & Leisure M em(*)

Citycon OPG Cellnex Telecom GVC Accor CIC

Demire EQB Dpa NIBC Aegean Airlines IBG

LEGEND: BAK: Banca Akros; CIC: CM CIC Market Solutions; CBI: Caixa-Banco de Investimento; GVC: GVC Gaesco Beksa, SV, SA; EQB: equinet bank; IBG: Investment Bank of Greece, NIBC: NIBC Bank N.V: OPG: OP Corporate Bank:;as of 2

nd July 2018

AB-Biotics

List of ESN Analysts (**)

Artur Amaro CBI +351 213 89 6822 [email protected] Jean-Christophe Lefèvre-Moulenq CIC +33 1 53 48 80 65 [email protected]

Stefan Augustin EQB +49-69-58997-430 [email protected] João Miguel Lourenço CBI +35 121 389 6841 [email protected]

Helena Barbosa CBI +351 21 389 6831 [email protected] Konstantinos Manolopoulos IBG +30 210 817 3388 [email protected]

Winfried Becker EQB +49 69 58997-416 [email protected] Katharina Mayer EQB +49 69 58997-432 [email protected]

Javier Bernat GVC +34 91 436 7816 jav [email protected] Fanny Meindre, PhD CIC +33 1 53 48 80 84 [email protected]

Dennis Berzhanin, CFA EQB +49 69 58997 434 [email protected] Dustin Mildner EQB +49 69 58997-438 [email protected]

Dimitris Birbos IBG +30 210 81 73 392 [email protected] Henri Parkkinen OPG +358 10 252 4409 [email protected]

Agnès Blazy CIC +33 1 53 48 80 67 [email protected] Victor Peiro Pérez GVC +34 91 436 7812 [email protected]

Charles Edouard Boissy CIC +33 01 53 48 80 81 [email protected] Alexandre Plaud CIC +33 1 53 48 80 90 [email protected]

Rafael Bonardell GVC +34 91 436 78 71 [email protected] Francis Prêtre CIC +33 4 78 92 02 30 [email protected]

Andrea Bonfà BAK +39 02 4344 4269 [email protected] Francesco Previtera BAK +39 02 4344 4033 francesco.prev [email protected]

Jean-Baptiste Bouchet CIC +33 1 53 48 80 69 [email protected] Jari Raisanen OPG +358 10 252 4504 [email protected]

Christian Bruns, CFA EQB +49 69 58997 415 [email protected] Hannu Rauhala OPG +358 10 252 4392 [email protected]

Giada Cabrino, CIIA BAK +39 02 4344 4092 [email protected] Matias Rautionmaa OPG +358 10 252 4408 [email protected]

Niclas Catani OPG +358 10 252 8780 [email protected] Eric Ravary CIC +33 1 53 48 80 71 [email protected]

Pierre Chedeville CIC +33 1 53 48 80 97 [email protected] Iñigo Recio Pascual GVC +34 91 436 7814 [email protected]

Emmanuel Chevalier CIC +33 1 53 48 80 72 [email protected] John David Roeg NIBC +31 (0)20 550 86 46 [email protected]

David Da Maia CIC +33 1 53 48 89 36 [email protected] Jean-Luc Romain CIC +33 1 53 48 80 66 [email protected]

Edwin de Jong NIBC +312 0 5508569 [email protected] Vassilis Roumantzis IBG +30 2108173394 [email protected]

Martijn den Drijver NIBC +312 0 5508636 [email protected] Zafer Rüzgar EQB +49 69 58 99 74 12 [email protected]

Christian Devismes CIC +33 1 53 48 80 85 [email protected] Antti Saari OPG +358 10 252 4359 [email protected]

Andrea Devita, CFA BAK +39 02 4344 4031 [email protected] Paola Saglietti BAK +39 02 4344 4287 [email protected]

Enrico Esposti, CIIA BAK +39 02 4344 4022 [email protected] Francesco Sala BAK +39 02 4344 4240 [email protected]

Rafael Fernández de Heredia GVC +34 91 436 78 08 [email protected] Tim Schuldt, CFA EQB +49 69 5899 7433 [email protected]

Gabriele Gambarova BAK +39 02 43 444 289 [email protected] Cengiz Sen EQB +4969 58997 435 [email protected]

Eduardo Garcia Arguelles GVC +34 914 367 810 [email protected] Pekka Spolander OPG +358 10 252 4351 [email protected]

Alexandre Gérard CIC +33 1 53 48 80 93 [email protected] Kimmo Stenvall OPG +358 10 252 4561 [email protected]

Philipp Häßler, CFA EQB +49 69 58997 414 [email protected] Natalia Svyrou-Svyriadi IBG +30 210 81 73 384 [email protected]

Simon Heilmann EQB +49 69 58 997 413 [email protected] Manuel Tanzer, CFA EQB +49 69 58997-418 [email protected]

Dr. Knud Hinkel, CFA EQB + 49 69 58997 419 [email protected] Luigi Tramontana BAK +39 02 4344 4239 [email protected]

Ebrahim Homani CIC +33 1 53 48 80 94 [email protected] Johan van den Hooven NIBC +312 0 5508518 [email protected]

Carlos Jesus CBI +351 21 389 6812 [email protected] Dylan van Haaften NIBC +31 (0)61 191 54 85 [email protected]

Mark Josefson EQB +4969-58997-437 [email protected] Sebastian Winkler NIBC +31 6 21 16 17 94 [email protected]

(**) excluding: strategists, macroeconomists, heads of research not covering specific stocks, credit analysts, technical analysts

AB-Biotics

Information regarding Market Abuse and Conflicts of Interests and recommendation history available in our web page: www.valores.gvcgaesco.es and our offices The information and opinions contained in this document have been compiled by GVC Gaesco Beka S.V., S.A., from sources believed to be reliable. This document is not intended to be an offer, or a solicitation to buy or sell relevant securities. GVC Gaesco Beka S.V., S.A., will not take any responsibility whatsoever for losses which may derive from use of the present document or its contents, GVC Gaesco Beka S.V., S.A., can occasionally have positions in some of the securities mentioned in this report, through its trading portfolio or negotiation. Additionally, there can exist a commercial relation between GVC Gaesco Beka S.V., S.A., and the mentioned companies. As of the date of this report, GVC Gaesco Beka S.V., S.A.,

acts as registered advisor, agent or liquidity provider for the following companies: AB-Biotics; ADL Bionatur Solutions, SA; Catenon SA; Clever Global SA, Euroespes, S.A., Facephi Biometría SA., Griñó Ecologic SA, Lleidanetworks Serveis Telematics SA., NBI Bearings Europe S.A. Trajano Iberia Socimi, SA; Asgard Investment Hotels (prev: Obsido Socimi SA, Eurona Telecom SA; Secuoya Grupo de Comunicación SA; Mercal Inmuebles Socimi SA; Neuron Bio SA; Student Properties Spain (SOCIMI); Solaria Casiopea (MARF bonds); Atrys Health, Quonia (Socimi); tier1.

has participated and/or participates as lead or co-lead manager in corporate operations with the following companies: Clever Global SA; Dogi International Fabrics SA; Lleidanetworks Serveis Telematics SA, MasMovil Ibercom; Solaria (Globalsol Villanueva), ADL Bionatur Solutions

has, during the last year, performed a significant amount of business with: Bankia; Ferrovial, Codere.

has a contractual relationship to provide financial services, through which GVC Gaesco Beka S.V.,S.A., executes orders on the treasury stocks of the following companies: CaixaBank S.A., Grupo Ezentis S.A.

has a liquidity contract as outlined by the CNMV's Circular 1/2017 with: Indra Sistemas; Melia Hotels International.

has signed a Corporate Brokerage agreement that includes a contractually agreed provision of research services and in return, GVC Gaesco Beka receives a compensation. These reports have been or could have been previously shown to the companies: Agile Content, Atrys Health

Source: Factset & ESN, price data adjusted for stock splits. This chart shows GVC Gaesco Beka continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. Current analyst: Francisco Ribas Alameda (since 12/07/2018)

Recommendation history for AB BIOTICS

Date Recommendation Target price Price at change date11-Jul-18 Buy 5.00 3.50

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Jun17

Jul17

Aug17

Sep17

Oct17

Nov17

Dec17

Jan18

Feb18

Mar18

Apr18

May18

Jun18

Jul18

Buy Accumulat Neut Reduce Sell Not rated

Price history Target price history

AB-Biotics

ESN Recommendation System

The ESN Recommendation System is Absolute. It means that each stock is rated on the

basis of a total return, measured by the upside potential (including dividends and capital

reimbursement) over a 12 month time horizon.

The ESN spectrum of recommendations (or ratings) for each stock comprises 5

categories: Buy (B), Accumulate (A), Neutral (N), Reduce (R) and Sell (S).

Furthermore, in specific cases and for a limited period of time, the analysts are allowed to

rate the stocks as Rating Suspended (RS) or Not Rated (NR), as explained below.

Meaning of each recommendation or rating:

Buy: the stock is expected to generate total return of over 15% during the next 12 months time horizon

Accumulate: the stock is expected to generate total return of 5% to 15% during the next 12 months time horizon

Neutral: the stock is expected to generate total return of -5% to +5% during the next 12 months time horizon

Reduce: the stock is expected to generate total return of -5% to -15% during the next 12 months time horizon

Sell: the stock is expected to generate total return under -15% during the next 12 months time horizon

Rating Suspended: the rating is suspended due to a change of analyst covering the stock or a capital operation (take-over bid, SPO, …) where the issuer of the document (a partner of ESN) or a related party of the issuer is or could be involved

Not Rated: there is no rating for a company being floated (IPO) by the issuer of the document (a partner of ESN) or a related party of the issuer

Certain flexibility on the limits of total return bands is permitted especially during higher phases of volatility on the markets

GVC Gaesco Ratings Breakdown

For full ESN Recommendation and Target price history (in the last 12 months) please see ESN Website Link

Date and time of production: 13 July 2018: 10:17 CET First date and time of dissemination: 13 July 2018: 10:22 CET

Buy50%

Accumulate25%

Neutral15%

Reduce7%

Sell3%

http://www.esnpartnership.eu/research_and_database_access

AB-Biotics

Disclaimer: These reports have been prepared and issued by the Members of European Securities Network LLP (‘ESN’). ESN, its Members and their affiliates (and any director, officer or employee thereof), are neither liable for the proper and complete transmission of these reports nor for any delay in their receipt. Any unauthorised use, disclosure, copying, distribution, or taking of any action in reliance on these reports is strictly prohibited. The views and expressions in the reports are expressions of opinion and are given in good faith, but are subject to change without notice. These reports may not be reproduced in whole or in part or passed to third parties without permission. The information herein was obtained from various sources. 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or refer to the local disclaimer of the Members, or contact directly the Member www.bancaakros.it regulated by the CONSOB - Commissione Nazionale per le Società e la Borsa

www.caixabi.pt regulated by the CMVM - Comissão do Mercado de Valores Mobiliários

www.cmcicms.com regulated by the AMF - Autorité des marchés financiers

www.equinet-ag.de regulated by the BaFin - Bundesanstalt für Finanzdienstleistungsaufsicht

www.ibg.gr regulated by the HCMC - Hellenic Capital Market Commission

www.nibc.com regulated by the AFM - Autoriteit Financiële Markten

www.op.fi regulated by the Financial Supervision Authority

www.valores.gvcgaesco.es regulated by CNMV - Comisión Nacional del Mercado de Valores

Members of ESN (European Securities Network LLP)

Banca Akros S.p.A. Viale Eginardo, 29 20149 MILANO Italy Phone: +39 02 43 444 389 Fax: +39 02 43 444 302

GVC Gaesco Beka, SV, SA

C/ Marques de Villamagna 3 28001 Madrid Spain Phone: +34 91 436 7813

Caixa-Banco de Investimento

Avenida João XXI, 63 1000-300 Lisboa Portugal Phone: +351 21 313 73 00

Fax: +351 21 389 68 98

CM - CIC Market Solutions 6, avenue de Provence 75441 Paris Cedex 09 France Phone: +33 1 53 48 81 93

equinet Bank AG

Gräfstraße 97 60487 Frankfurt am Main Germany Phone:+49 69 – 58997 – 212 Fax:+49 69 – 58997 – 299

OP Corporate Bank plc

P.O.Box 308 Teollisuuskatu 1, 00013 Helsinki Finland Phone: +358 10 252 011 Fax: +358 10 252 2703

NIBC Bank N.V.

Gustav Mahlerlaan 348 P.O.Box 235 1082 ME Amsterdam The Netherlands Phone: +31 20 550 8500 Fax: +31 20 626 8064

Investment Bank of Greece

32 Aigialeias Str & Paradissou, 151 25 Maroussi, Greece

Phone: +30 210 81 73 383

http://www.esnpartnership.eu/research_and_database_access/insite

http://www.bancaakros.it/

http://www.caixabi.pt/

https://mail.esnpartnership.eu/owa/redir.aspx?C=8Zt3eXAOIkqYEQDE_-yjO4gceHQnAtMIAKuq5wlXoeMctWfJzR5HnUAHD5WapHeCCa8AyfgTFB4.&URL=http%3a%2f%2fwww.cmcicms.com

http://www.equinet-ag.de/

http://www.ibg.gr/

http://www.op.fi/

http://www.valores.gvcgaesco.es/

ab-biotics roce -12.0% 8.9% 26.3% net debt equity 0.4 -0.3 -0 · ab-biotics page 3 investment case...

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