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SEPTEMBER 2012 - TECNOCOM ANALYSIS 1

ANALYSIS OF

TECNOCOM, Telecomunicaciones y Energía, S.A.

Analyst

Miguel Jaureguízar Francés

Noesis Análisis Financiero - Partner

SUMMARY

Tecnocom is one of the leading ITC companies in Spain and is

characterised in recent years for having undergone a process of

transformation from industrial, infrastructural and product activities to

a service, consultancy and in-house solutions model.

Internationalisation is one of the fundamental factors for the company’s

growth, accounting for 15% of sales in 2011 with company forecasts of

20% in 2012 and 30% in 2013.

Tecnocom is successfully carrying out its strategy and in 2011 recovered a

revenue level of close to 400 million euros, growing +11.4% compared

to 2010. According to our estimates, around 70% of this revenue is

recurring.

However, restructuring, growth and diversification costs penalise the

company’s result in terms of profit and operating margins. In 2011, the

EBITDA margin only rose 11.5 bp (5.1% compared to 5.0% in 2010) and

the EBT and NI margin by barely 1.3 bp and 2.3 bp, remaining at 1.6%

and 1.0% respectively.

We expect 2012 to be very similar to 2011 in terms of turnover, margins

and profit. However, we estimate that the company’s strategy and

improvements will become more visible, translating into recovery

results from 2013.

Debt is kept under control at levels of less than 2X/EBITDA.

Tecnocom’s evolution is positive compared to its peers, which in our

opinion reflects effective management and implementation, using the

available resources to implement a strategy in line with the company’s

capacity.

Tecnocom is strongly penalised by the negative market context in

general, as well as for low capitalisation companies and, in particular,

for some of the company’s key sectors such as Finance and Public

Administration.

NovaCaixaGalicia’s 20.1% shareholding renders the company

considerably unattractive in the capital markets, which together with low

capitalisation and very limited liquidity create uncertainty and pressure

regarding its share price.

In light of its size (capitalisation 0.20x against the sector average in

Spain, 0.15x Europe, excluding large multinationals) and diversification

strategy, it could be an obvious target for acquisition.

TECNOCOM

BASIC TRADING DATA (Sept 20th 2012)

Ticker TEC

ISIN ES0147582B12

BLOOMBERG TEC SM

Sector ITC

Last Price € 1.40

Capitalisation 105.04 M

No. of shares issued 75.03M

Free Float 44.2

Max/Min Price - 12 months € 1.94/ € 1.21

Daily 3m average volume €37,021

Source: Bloomberg

Tecnocom vs. IBEX 35, IBEX Smallcaps, IBEX Medium Cap (2008-2012)

0

20

40

60

80

100

120

140

2008 2009 2010 2011 2012TEC IBEX

MIDCAPS SMALL

EVOLUTION compared with the IBEX 35,

IBEX MIDCAPS, IBEX Smallcaps

3M 6M 12M YTD

TEC -6.8% -22.5% -3.5% -1.4%

IBEX 21.7% -3.1% 0.3% -7.4%

MIDC 8.4% -5.9% 0.3% 1.7%

SMLC 9.6% -14.6% -30.2% -20.1%

KEY FINANCIAL DATA

mill. € 2008 2009 2010 2011

SALES 429.7 386.5 355.5 395.9

EBITDA 25.4 22.0 17.7 20.2

NI 14.2 8.9 3.6 4.1

KEY FINANCIAL RATIOS

2009 2010 2011

PER 20.5 41.4 24.6

Debt / EBITDA 1.8 2.5 2.0

EV / EBITDA 11.9 12.3 7.3

Source: prepared by the author


ANALYSIS OF


DESCRIPTION

COMPANY HISTORY

TECNOCOM is a Spanish telecommunications (ITC) company, providing a range of

Consultancy, Outsourcing, Integration, Maintenance, Network Management and

Security services.

TECNOCOM has been listed on the stock market since 1987, yet it only entered the

telecommunications sector at the end of the 90s and in 2005 began to focus

exclusively on ITC. From 2006 it began a process of transformation and corporate

growth through the acquisition of companies, having since carried over 10

takeovers, which is combined with its own organic growth.

2008 is the first year this policy makes a clear impact on the company’s accounts,

by tripling its size: revenue increases from €158M in 2007 to €429M in 2008 and

the number of employees surges from 1,712 to 5,012. This increase is caused by

the takeover in Iberia of B.V. Getronics International, with which a strategic

alliance is established – shareholder with an 11% stake - to strengthen its global

presence and internationalisation process.

Currently, the company’s turnover is around €400 million, having returned in 2011

to increasing revenue after a two year downturn between 2008 (€429M) and 2010

(€355M). It has close to 6,000 employees.

It is amongst the five leading Spanish companies in the ITC sector. Tecnocom has

a historical presence in Spain and Portugal and over the past few years has

recorded turnover in Colombia, Mexico, Peru, Chile, The Dominican Republic and

in other Latin American countries.

SHAREHOLDERS

The Chairman, Ladislao de Arriba Azcona, manages Tecnocom’s corporate project

and currently holds a 13.2% share in the company, with another 13.5% in the

hands of the company’s other historical shareholders. Since the strategic alliance

in 2009, Getronics has an 11% share in the company, upholding a proven

understanding with its Board of Directors.

The most complex case is that of the key shareholder, Corporación

NovaCaixaGalicia, an entity receiving Government aid and whose capital is

therefore underpinned by the FROB (Orderly Bank Restructuring Fund). Given its

precarious financial situation, it could need to sell its shares at any time which is a

considerable source of shareholder instability.

Therefore, the company could be an easier target than the rest of the market for a

hostile takeover from its competitors in the sector, especially considering its low

valuation accentuated by shareholder instability over NovaCaixaGalicia’s 20.1%.

KEY SHAREHOLDERS (2011)

Corp. NovaCaixaGalicia 20.1%

Getronics Internacional 11.0%

Historical Shareholders 26.7%

Free Float 42.2%

Source: Tecnocom

STAFF 2011 2010

Number of employees 5,880 5,402

Var. yoy % 8.8% 4.9%

Sales (€) per employee 67,330 65,809

Var. yoy % 2.3% -12.3%

Source: Tecnocom


ANALYSIS OF


Analyst



ORGANIC GROWTH VS. CORPORATE TAKEOVERS

Since 2006 the company has carried out an acquisitions policy designed to change

its profile in order to move into the ITC sector with a more diverse profile. It has

shifted its focus on industrial - especially telecommunication infrastructures - and

product activities to a broader range with the ability to offer consultancy and

services. For example, in 2011 the company recorded €3M or 200 bp EBITDA margin

in restructuring costs. 85% of revenue is currently (1H 2012) linked to Services.

Today, Tecnocom has built up significant know-how and sectorial specialisation that

is transferred to its new profile with an organic component, whilst corporate

takeovers provide the volume and quota to support the company’s growth,

especially for internationalisation, in addition to providing the company with

product, most importantly in niche sectors such as methods of payment processing.

These takeovers include:

The acquisition of Getronics Iberia in 2007 and alliance with Getronics

leading to the new Group profile in 2008, as previously mentioned.

The acquisition of Open Norte in 2007 and 2009, as part of a process of

integrating associates or peripheral suppliers.

The acquisition in 2010 of Procecard, a Dominican company specialising in

processing credit and debit cards and core banking business. This takeover

provided Tecnocom with an immediate presence in the geographical area

of The Dominican Republic and in the line of payment methods, both

considered as key factors for growth in the corporate strategy.

The acquisition in 2011 of Primma Software, a Spanish consultancy

company that implements business solutions for the insurance sector. This

takeover provided access to a vertical line of solutions for the insurance

sector, which borders and is linked to one of the Group’s main sectors

(Banking and finance).

We estimate that Tecnocom will continue carrying out corporative takeovers under

the prudence principle, mainly in Latin America and maintaining a controlled capex,

in small scale operations. In this regard, we will use the debt under 2x/EBITDA

measure as the main reference of strategic valuation.

The increased number of staff in 2011 was mainly due to office staff, and to a

much lesser degree, to postgraduates, reflecting adaptation to greater

structural management needs due to the expansion of the Group.

CORPORATE TAKEOVERS

FROM 2006

2006 EuroComercial

2006 Scorpion

2006 Open Solutions

2006 SoftGal

2007 Getronics Iberia

2007 Open Norte (80%)

2009 Open Norte (100%)

2009 Eurovía Mantenimiento

2010 ProceCard (80%)

2011 PRIMMA Software

Source: Tecnocom

STAFF DISTRIBUTION (2011)

Post-Graduates 611

Graduates 267

Specialists / Others 4,184

Office staff 818

Source: Tecnocom


ANALYSIS OF


Analyst



ORGANISATION OF SERVICES BY SECTOR

TECNOCOM has a presence in the following economic sectors:

Finance and Insurance

Public Administration and Health Care

Industry

Telecoms and Media

FINANCE AND INSURANCE

Services for this sector are based on the introduction of solutions and services with special emphasis on outsourcing and providing

added value. Firstly, in the Banking sector traditional services are offered orientated towards core banking business and payment

methods. In addition, all peripheral management, customer care and content management processes, as well as efficiency

concepts such as automation and specialised CRM (Customer Relationship Management: technological management of the commercial

relationship with existing and potential customers to optimise the companies’ commercial relationship). More recently, the service

range has been broadened to include Mobile Banking and Micro-App solutions.

In the provision of added value there is a strong element of technological consultancy and of business development in retail

banking, complemented by a broad range of solutions such as Business Intelligence, transactionality, e-banking, SOA architecture

(Service Orientated Architecture; use of services to support the business structure), security, Social Media, etc.

Secondly, in the Insurance sector core systems are also offered complemented by security and peripheral BI (Business Intelligence)

elements, content management, CRM and Mobile Insurance. In this regard, the presence of Primma Software in the mix of solutions,

whose Aneto software is their most representative product, plays an important role.

The provision of added value in this sector is seen mainly in infrastructure management and remote management systems, as well

as security. These are complemented by BI, SOA architecture, optimisation systems and channels.

PUBLIC ADMINISTRATION AND HEALTH CARE

Services offered in this sector are directly very specifically towards consultancy, optimisation solutions and BI on the one hand and

on the other, towards online administration, involving development of portals, multi-channel, online voting, online processes and

internal management. Within this general category, the specific sectors are:

1. Justice

2. Health

3. Education

4. Taxes and Land Registry

5. Others

The solutions offered focus on managing and improving efficiency as well as vertical solutions and to a lesser degree on content

management and mobility.


ANALYSIS OF


INDUSTRY

Services for Industry are grouped into diverse sectors and are organised around four sections:

1. Transport, Tourism and Services: management, operation, control and maintenance solutions. As well as mobility, e-

commerce and payment methods. Vertical ERPs (Enterprise Resource Planning; systems integration for internal and external

management information) for various business lines.

2. Production: horizontal SAP and Microsoft solutions (Management and CRM). Also commercial, logistical and mobility

processes. In other fields, Business Intelligence and sectorial solutions.

3. Energy: management and payment methods for service stations and water management systems in utilities. Also commercial

and mobility processes and BI.

4. Commerce: management, payment methods and e-commerce for retail and shops. Peripherally, CRM and infrastructures.

As seen above, the proposed solutions focus mainly on management and maintenance, with a growth component in payment

methods, mobility and business intelligence.

TELECOMS AND MEDIA

For the Telecoms sector, services are offered primarily in network infrastructure, both in installation and maintenance, as well as

management systems and services. In addition, BI and CRM systems, virtualisation and portability platforms. Peripherally, there are

vertical solutions and added value services in the area of mobility and processes.

For Media, the solutions focus on content analysis and generation of advertising and distributed marketing, as well as content

management and digital assets. Peripherally, specific services such as MHP for local operators.

Furthermore, within the Telecoms and Media line sales from the Telephony and Network Infrastructure unit are included in the

turnover, which until 2010 were offered separately. The solutions focus heavily on design, supply, construction, roll-out and full

maintenance of cellular networks, satellite systems, multiservice networks, SDH, DWDM, Trunking, etc., as well as Conditioning and

Energy Systems.


ANALYSIS OF


ANALYSIS OF SALES BY SECTOR

SALES FOR VERTICAL SECTORS (2011) 2010 2009 2008

in % of total Sales

Financial 44.4% 44.3% 43.3% 44.6%

PA & Health Care

12.2% 13.0% 13.0% 10.3%

Industry 22.1% 23.6% 23.1% 23.9%

Telecoms & Media

21.3% 19.2% 20.6% 21.1%


in € millions

Finance 175.8 157.5 167.4 191.6

PA & Health Care 48.3 46.2 50.2 44.3

Industry 87.5 83.9 89.3 102.7

Telecoms & Media

84.3 68.3 79.6 90.7


% yoy

Finance 11.6% -5.9% -12.7% -

PA & Health Care

4.5% -8.0% 13.5% -

Industry 4.3% -6.0% -13.1% -

Telecoms & Media

23.5% -14.3% -12.2% -

Source: Tecnocom and prepared by the author


ANALYSIS OF


FINANCE AND INSURANCE

The Finance and Insurance sector represents the Company’s greatest source of income, remaining stable at around 44.4% in recent

years. In absolute terms, after two years of losses in 2009 and 2010, in 2011 it registered a positive variation of +11.6%.

Tecnocom is positioned in the majority of the primary local market companies and participates in the corresponding fusion and

integration process that came to be the norm during 2010 and 2011 and which we estimate will continue in 2012 and part of 2013.

We estimate recurring revenue of 70%-80%.

The concentration of the Spanish financial system constitutes both an opportunity and a risk for Tecnocom, since it could benefit

from its strong positioning, range of services and economy of sale, like other larger scale suppliers, but at the same time its margins

would suffer a considerable blow. Performance in 2011, with the sector contracting but Tecnocom still registering growth, suggests

a greater competitive ability. In 2012, we expect to see zero growth or even a slight downturn in sales, less than the sector as whole

yet reflecting the pressure on the same, with a better outlook in the following two years.

The most noteworthy areas of growth in the local market are outsourcing services and improving competitiveness (Business

Intelligence). Primma Software’s strong performance (insurance sector) provides support in this regard. However, maintaining core

banking and insurance services is fundamental for income statement stability and will therefore be a critical line to consider in

terms of margins.

The international market is registering a strong performance, showing signs of expansion, and is mainly characterised by

opportunities in the payment methods section, where Procecard is also performing well. There are opportunities in core banking and

insurance, with broader development and exploitation periods.

PUBLIC ADMINISTRATION AND HEALTH CARE

As for Public Administration, in 2011 this sector registered growth of +4.5% although its contribution to the total reduced from

13.0% in 2010 to 12.2% in 2011. Revenue comes mainly from the Central Administration, with Regional and Local governments,

with lesser presence, showing a weaker performance. Margins have been affected by around 5% although the contraction that

should contribute to reducing the turnover cuts is maintained. We estimate recurring revenue of 60%-70%.

This is the smallest contributor to the sales of this group and in a very complicated context for the national public system, with new

cuts on the horizon we estimate this line will contribute least to profits over the next few years, in addition to the penalisation

suffered by the sector in terms of non-payment and delays. We do not expect significant variations in annual terms due to the 2011-

2012 election periods although moderate seasonal abnormalities could arise due to the transfer of investments between quarters.

The international market is in the early stages of growth, with the main possibilities being adaptation of vertical solutions in

established areas and software development. Given the need for modifications to individual regulations and for local partners, we

do not expect to see a significant impact in 2012, being possibly still moderate in 2013.

INDUSTRY

In 2011, the Industrial sector registered growth of 4.3%, accounting for 22.1% of the company’s earnings. The energy sub-sector is

the sector’s main contributor, a field complicated by regulation and the downturn in industrial consumption. We estimate recurring

revenue of 65%-75%.


ANALYSIS OF


In general, economic downturn has been a critical factor for this sector which has seen its contribution fall from nearly 24% in 2008;

we expect to see moderate, albeit still positive, growth in 2012, closely linked to the evolution of general economic activity.

The international market is developing in conjunction with the expansion of local market clients, which we see as cost effective but

with broader development periods and certain penalisation in margins, therefore we expect only a moderate impact in 2012.

Development of the sale of in-house solutions will be a very important factor.

TELECOMS AND MEDIA

Finally, Telecoms and Media is the best performing sector with a +23.5% growth in sales in 2011, after two years of double digit

recession in 2010 and 2009. We estimate recurring revenue of 70%-80%. Consultancy is being well received in both the national

market (process of evolution and competitiveness) and in Latin America (expansion and modernisation).

The Latin American market is registering a substantial contribution to the group’s accounts in this sector and we expect it will

continue to do so over the next two years, with a cycle of incorporating project solutions and subsequent applications into

consultancy services. We expect this sector to contribute significantly to the growth of earnings in 2012.

In addition, international alliances are being forged in this sector, such as that signed with Telefónica Digital which in our opinion is

appropriate in a highly competitive sector requiring enhanced volume to achieve profitability. The fact that this alliance is based

on payment methods presents an additional opportunity for cross-sales.

ORGANISATION OF SERVICES BY BUSINESS LINES

The company’s services are structured around four key pillars:

Projects and Applications

Application Management

Infrastructure Management

Integration of Systems and Technology

PROJECTS AND APPLICATIONS (P&A)

The business solutions component encompasses three multi-sector lines of activity:

1. Business Consultancy, helping clients to make decisions relating to the most appropriate exploitation of technology,

focusing on aspects such as innovation, planning, project management and ITC governance.

2. Business Management Tools, focusing on consultancy and introduction of SAP and Microsoft Dynamics solutions.

3. Intelligent Information Management, providing the best cover in terms of business intelligence, digital channels, mobility

and document and process management.

The operations element encompasses project execution and highly specialised services, for both the three areas mentioned above and

for specialised areas in Banking-Insurance, Industry, Government and Telecoms.


ANALYSIS OF


APPLICATION MANAGEMENT (AM)

This includes Application Management solutions based on Service Level Agreements (SLA), Global Delivery Application Management

(Software Factory), Application Management and testing and Managed Services for Engineering of Software Processes.

INFRASTRUCTURE MANAGEMENT (IM)

This includes Technological Infrastructure Management, Efficient Management for workstations (Micro-computing and Service

Desk), Hosting and Exploitation of Systems and Managed Banking Services.

INTEGRATION OF SYSTEMS AND TECHNOLOGY (IST)

This includes Consolidation and roll-out of ITC infrastructure, Network Integration, System Integration, Multimedia and audio-

visual Systems and Telecoms Infrastructure.

Likewise, these can be viewed in the follow table:

BU

SIN

ESS

CO

NSU

LTA

NC

Y (B

C)

BU

SIN

ESS

SOLU

TIO

NS Projects

and Applications

Introduction of management solutions

Application Management

Advanced services for global

application management

BU

SINESS P

RO

CESS O

UTSO

UR

CIN

G (B

PO

)

TEC

HN

OLO

GY

SO

LUTI

ON

S

Integration of Systems and Technology

Integration of networks,

infrastructures and technology systems

Infrastructure Management

Advanced services for

management and maintenance of technological

infrastructures

Consultancy Development and Integration

Outsourcing

Source: Tecnocom


ANALYSIS OF


Analyst



SALE ANALYSIS PER BUSINESS LINE

PROJECTS AND APPLICATIONS (P&A)

In terms of the group, this line contributes 21.5%, with strong growth from 18.1%

in 2010 that should continue in the following years. We estimate recurring revenue

of 60%. It is the main component of increased revenue, translating those 340 bp

into +31.9% yoy. The main focus of growth is the Latin American market, and

therefore its evolution will be critical in order to affect overall growth in 2012. For

2012 we expect continuity, although matching the figures achieved in 2011 both for

volume and number of clients (18), will be challenging and especially with reduced

recurring revenue.

APPLICATION MANAGEMENT (AM)

This line has seen its contribution to the group’s earnings fall from 24.8% (2010) to

23.0% in 2011. In terms of revenue evolution, this line contributes least with

barely +3.4% of growth. Although it boosts the volume of clients and projects, it

reduces the tariff and the margin, receiving the full impact of economic downturn.

We estimate recurring revenue of 80%-85%. The speed with which Tecnocom can

restructure its business model towards software factories and development of the

incipient Latin American market will be critical for this line to not penalise the

Group as a whole in 2012, being in 2013 when greater recovery can begin.

INFRASTRUCTURE MANAGEMENT (IM)

The 20.5% of total sales from 2011 are stable compared to the previous year,

suggesting +9.7% growth during the year. We estimate recurring revenue of 80%-

85%. Together with P&A this line forms the nucleus of sales growth, even though

they are still the two smallest lines. The services offered by Tecnocom in this

sector fall into outsourcing and increasing efficiency and as such, we expect this

line to be more highly favoured in Spain than the sector as a whole. In contrast,

the ability to deliver value in Latin America will be the main factor in the

international market.

INTEGRATION OF SYSTEMS AND TECHNOLOGY (IST)

As with AM, this line’s presence in the revenue mix is also in decline, in favour of

the growing P&A and IM lines. We estimate recurring revenue of 60%. The 130bp

reduction in the mix translated into a 7.4% increase in turnover in 2011, which

despite demonstrating certain strength, we do not expect to continue in 2012,

where we expect net turnover cuts. The critical element will be the ability to

translate current flexibility in resource generation into securing a greater volume

of business in markets such as Latin America, reducing costs in line with the

maintenance margins in Spain and Portugal.

SALES PER BUSINESS LINE

(2011) 2010

in % of total Sales

Projects and Applications 21.5% 18.1%

Application Management 23.0% 24.8%

Infrastructure Management 20.5% 20.8%

Integration Systms. + Tec. 34.9% 36.2%

Source: Tecnocom y prepared by the author

SALES PER BUSINESS LINE

(2011) 2010

in € millions

Projects and Applications 85.1 64.5

Application Management 91.1 88.1

Infrastructure Management 81.3 74.1

Integration Systms. + Tec. 138.3 128.8

% yoy

Projects and Applications 31.9% -

Application Management 3.4% -

Infrastructure Management 9.7% -

Integration Systms. + Tec. 7.4% -

Source: Tecnocom y prepared by the author


ANALYSIS OF


MARKET CONTEXT

INTERNATIONAL SALES ANALYSIS

One of the critical factors in the company’s strategy is internationalisation,

initiated before the crisis and resulting now in increased growth and mitigation of

risks from exposure to the local market. Expansion is being centred in Latin

America, with a mix of organic growth and takeovers.

In 2011 foreign sales amounted to 15% (14% turnover), with the company looking to

see this reach to more than 20% in 2012 and 30% in 2013. This growth must

essentially occur in Latin America given Portugal’s decreasing contribution.

A positive factor in terms of profitability is the allocation of all adaptation costs

from the Latin American projects to the initial investments in the first projects,

which will project better margins for current projects and future developments in

the region.

In fact, certain transactions in foreign currency appear in the company’s figures

which are higher than the turnover in 2011; therefore we consider this to strength

the prospects of the appearance of an order portfolio.

In addition, Tecnocom’s increased visibility progressively allows for improving

contractual conditions with regards to advanced collection, financing, etc. which

will have a positive effect on earnings, as well as providing access to larger tenders.

In the strategic plan, new acquisitions in the local market are expected should the

opportunity arise. Furthermore, alliances have been signed in this area with Indra,

Telefónica y Credibanco (Visa Colombia).

In the analysis of the breakdown of figures (Annex 1) we can see the growing

impact of international sales, mainly Latin American market, as Portugal’s

contribution to the group is decreasing both in absolute and relative terms. The

majority of the countries in which Tecnocom is present contribute between 65 and

90 bp of growth in its weighting within the group portfolio, with very high growth

in terms of percentage in sales, brought about by its small size. However, Colombia

presents an interesting case, which with 4.4% of the Group’s turnover nonetheless

achieves growth of +58.7% in 2011 and increases its presence in the sales

weighting by 126 bp.

In order for the company to meets its 2012 target of 20% turnover in foreign

markets, an exact repeat of the 2011 growth patterns would need to occur, and a

repeated of the same in 2013 would lead to 35% of foreign sales (30% company

target). In our opinion, Tecnocom’s targets are feasible given the evolution of

certain business lines.

TURNOVER BY COUNTRY

(2011) 2010

in % of turnover

Spain 86.1% 89.3%

Portugal 3.2% 4.4%

Latin America 10.7% 6.4%

Source: Tecnocom (annual reports)


ANALYSIS OF


Analyst



THE IT SECTOR: LOCAL AND INTERNATIONAL SITUATION

Spain, as the most mature market, displays strong price sensitivity at a time of an intense concentration of suppliers, especially in

the Finance and Insurance sector. In some cases, this context favours larger companies in the acquisition of shares, since they can

benefit from their broader range of services and economy of sale. However, margins are under threat since clients demand the

repercussions of these factors.

The size of the local IT sector is estimated at around 20,600 million euros, with growth forecasts of 0.2% in 2012 and +4.2% in 2012,

stabilising after the 2009-2011 fluctuations (-9.1%, +6.6%, -3.5%). Software and IT Services, where Tecnocom focuses its presence,

experienced practically zero growth in 2011 with forecasts for 2012 of growth of between 1% and 2%. Considering the company’s

improved performance in 2011 (+9.5% local market sales) we expect that the local market, in line with that established above, will

not bring down the income figures.

IT Expenditure in Spain 2008 2009 2010 2011 2012e 2013e

in € millions

Hardware 8,252 6,761 8,324 7,573 7,392 7,869

Var. yoy % -18.1% 23.1% -9.0% -2.4% 6.5%

Software 2,814 2,824 2,920 2,902 2,933 3,015

Var. yoy % 0.4% 3.4% -0.6% 1.1% 2.8%

IT Services 10,985 10,456 10,125 10,142 10,327 10,634

Var. yoy % -4.8% -3.2% 0.2% 1.8% 3.0%

IT TOTAL 22,051 20,041 21,369 20,617 20,651 21,518

Var. yoy % -9.1% 6.6% -3.5% 0.2% 4.2%

Source: IDC - Computing Yearbook 2012 (December 2011)

In the foreign markets - Latin America -, the business

and financial cycle is in a more expansive phase, in

which investments of a broader scope can be found

without such a marked pressure on prices and with

longer term development cycles, which are in the

majority of cases of an infrastructural nature. This

scenario is proving favourable for Tecnocom, even

though business volumes are still below those of the local

and European markets.

Exports are in excess of 1,600 million euros, of which 770 million were destined for the Latin American market, where growth of the

same is generally greater, more specifically of +16.1% compared with +9.9% of the total. In our opinion, this strengthens Tecnocom's

bid for Latin American as their priority market.

IT sector exports 2009 2010 2011

in € millions

Latin America 570.84 663.57 770.41

Var. yoy % 16.2% 16.1%

TOTAL DESTINATIONS 1,340.28 1,489.98 1637.00

Var. yoy % 11.2% 9.9%

Source: AMETIC


ANALYSIS OF


TECNOCOM IN FIGURES

SALES, MARGINS AND PROFIT EVOLUTION

Income Statement 2008 2009 2010 2011 2012e 2013e 2014e

in € millions

Income 429.7 386.5 355.5 395.9 398.8 418.8 440.9

Var. yoy % -10.1% -8.0% 11.4% 0.7% 5.0% 5.3%

Gross Margin 116.2 102.5 90.3 100.3 101.6 109.4 118.7

Var. yoy % -11.8% -11.9% 11.1% 1.3% 7.7% 8.5%

EBITDA 25.4 22.0 17.7 20.2 20.7 24.1 27.4

Var. yoy % -13.4% -19.4% 13.9% 2.7% 16.2% 13.7%

EBIT 18.9 14.2 9.0 10.7 11.1 13.0 15.5

Var. yoy % -24.9% -36.6% 18.9% 3.7% 17.5% 18.9%

Pre-tax profits 12.9 8.8 5.7 6.4 6.5 7.1 8.0

Var. yoy % -31.8% -35.2% 12.3% 1.6% 9.8% 12.0%

Attributable net profit 14.2 8.9 3.6 4.1 4.3 5.5 6.0

Var. yoy % -37.3% -59.6% 13.9% 3.9% 27.9% 10.8%

Source: Tecnocom, CNMV, Bloomberg and prepared by the author

After a run of negative years, 2011 has been a year of recovery for Tecnocom with +11.4% growth in earnings from operations,

results achieved in the context of an economic crisis that especially affects the ITC sector (on average, the sector contracted by

2.1%). Improvements in the key figures, of over 10%, suggest a turning point compared to previous years. We expect these

improvements to continue in the coming years, even with a very low increase in revenue generation in 2012 due to low economic

forecasts on a global scale and in particular in ITC and in Tecnocom’s target sectors. Clearer recovery is expected from 2013.

In terms of profits, we estimate a more sustained increase of the growth rates, reflecting a greater proportional contribution to

the EBITDA and EBIT, again from 2013 onwards, with modest results in 2012. In fiscal terms, Tecnocom has sufficient provisions

for taxes, therefore, although we expect the effective rate will rise it will not have an excessive impact on final earnings.

The visibility of earnings after 2014 is less clear due to continued restructuring and the assimilation of international operations,

in addition to the probability of new corporate takeovers which could affect profits.


ANALYSIS OF


Income Statement 2008 2009 2010 2011 2012e 2013e 2014e

in % of Income

Gross Margin 27.0% 26.5% 25.4% 25.3% 25.5% 26.1% 26.9%

Var. yoy bp -52.2 -111.9 -6.6 14.2 64.6 80.0

EBITDA 5.9% 5.7% 5.0% 5.1% 5.2% 5.8% 6.2%

Var. yoy pbs -21.9 -70.5 11.5 9.8 55.4 46.0

EBIT 4.4% 3.7% 2.5% 2.7% 2.8% 3.1% 3.5%

Var. yoy pbs -72.4 -114.2 17.1 8.1 33.0 40.2

Pre-tax profits 3.0% 2.3% 1.6% 1.6% 1.6% 1.7% 1.8%

Var. yoy pbs -72.5 -67.3 1.3 1.3 7.5 11.0

Attributable net profit 3.3% 2.3% 1.0% 1.0% 1.1% 1.3% 1.4%

Var. yoy pbs -100.2 -129.0 2.3 3.3 23.3 6.9


On the other hand, as seen by analysing

the income statement in terms of

margins, earnings in 2011 and those

forecast for 2012 are practically

identical to those of the previous year.

The gross margin even fell in 2011 by -

6.6 pb. EBITDA and EBIT barely improve

11.5 and 17.1 pb and EBT and NI barely

1.3 and 2.3 pb. We believe this

stagnation is due to restructuring of the

business, amortisations and start-up

costs of new operations, that is, growth

without margins.

This is in keeping with the strategy

announced by the company, even though

it reduces financial appeal. However,

we expect pressure to ease on

progressive restructuring, amortisation -

always dependant on new operations -

and start-up costs for new operations in

2011, according to the company’s strong initial allocation policy in the Latin American market, resulting in a certain improvement of

margins from 2013.

Therefore, we consider a 5.8% EBITDA margin for 2013 and 6.2% for 2012 as a reasonable target.


ANALYSIS OF


GEOGRAPHICAL BREAKDOWN OF PRE-TAX PROFITS

In terms of profits before tax (Annex 1), Spain represents practically the entire contribution, with the group of international

sections being held up by The Dominican Republic (Procecard), and to a less and deceasing extent, by Portugal. Clearly, the

international units are in a growth phase, providing sales volumes but draining margins. Therefore one of Tecnocom’s main

challenges will be to render them financially effective in the least amount of time possible in order to finance subsequent units,

Portugal’s decline and a possible negative scenario in Spain. This balance, as stressed throughout this report, is vital for execution

of Tecnocom’s mid and long-term strategy.

DEBT

The company is in a relatively comfortable debt situation in terms of Net Financial Debt (NFD), which is held at levels close to €40M

or 2X EBITDA. This level acts as a reference point for the company and we consider it to be a key factor to monitor when evaluating

the financial situation and possible corporative takeovers. We expect continuous improvement of this ratio, after the 20% recovery

in 2011, even though the possibility that acquisitions will be carried out that would maintain it in 2X is considerable.

Debt 2008 2009 2010 2011 2012e 2013e 2014e

in € millions

Net Financial Debt 47.3 39.7 44.6 40.5 40.1 32.4 25.6

Var. yoy % -16.0% 12.3% -9.2% -1.0% -19.2% -21.0%

Net Var. yoy -7.6 4.9 -4.1 -0.4 -7.7 -6.8

Long-Term Debt 42.0 33.9 21.9 13.9 37.1 29.1 17.1

Var. yoy % -19.1% -35.4% -36.6% 166.8% -21.6% -41.2%

Net var. yoy -8.0 -12.0 -8.0 23.2 -8.0 -12.0

Short-Term Debt 21.4 24.4 34.5 38.5 12.3 13.2 20.3

Var. yoy % 13.8% 41.5% 11.7% -68.1% 7.3% 53.8%

Net var. yoy 3.0 10.1 4.0 -26.2 0.9 7.1

Total Debt 63.4 58.3 56.4 52.4 49.4 42.3 37.4

Var. yoy % -8.0% -3.2% -7.1% -5.8% -14.4% -11.6%

Net var. yoy 3.0 7.1 -6.1 -30.3 27.1 6.2

L/T Debt over total 66.2% 58.2% 38.9% 26.5% 75.1% 68.8% 45.7%



ANALYSIS OF


With regards to the temporal structure of its debt, the company holds a syndicated loan from 2008 with €17M pending amortisation

which in April 2012 was cancelled with the subscription of a new five year loan, with a one year grace period, to the sum of €30M,

again transforming the temporal profile of the debt by bringing it into the long-term. The loan differential has varied from +125pb

to +425pb (currently +375pb thanks to the PIs success relating to the NFD/EBITDA ratio) and as a result, financial expenses will show

a certain increase, in line with the general financial situation. However, we believe that improved access to credit and widening of

the visibility period thoroughly compensate this increase and can be considered a very important stability factor for future years.

Debt 2008 2009 2010 2011 2012e 2013e 2014e

expressed as per unit (X)

NFD / EBITDA 1.86 1.80 2.52 2.00 1.93 1.34 0.93

Var. yoy pbs -3.0% 39.4% -20.3% -3.6% -30.5% -30.5%

NFD / EBIT 2.50 2.80 4.96 3.79 3.61 2.48 1.65

Var. yoy pbs 11.8% 77.3% -23.6% -4.6% -31.2% -33.5%

NFD / Capitalisation 0.20 0.18 0.26 0.39

Var. yoy pbs -9.4% 44.1% 49.2%

NFD by share 0.69 0.53 0.59 0.54 0.53 0.43 0.34

Var. yoy pbs -23.7% 12.3% -9.2% -1.0% -19.2% -21.0%


With regards to the capitalisation of R+D expenses, in 2011 €3.7 mill. was activated for a technological updating project

(PROCECARD), although in general, the company looks to keep this line below €1M per year, in line with other years. There is a

considerable level of amortisations due to acquisitions and the management systems of the acquired companies which we expect to

reduce sharply from 2013.


ANALYSIS OF


BALANCE SHEET AND AMORTISATIONS

Balance (ASSETS) 2008 2009 2010 2011 Balance (LIABILITIES) 2008 2009 2010 2011

in € millions in € millions

Goodwill 88.3 88.6 92.5 95.7 Parent Company Equity 170.9 177.9 172.8 173.9

Var. yoy % 0.3% 4.4% 3.5% Var. yoy % 4.1% -2.9% 0.6%

Intangible Fixed Assets 9.3 13.1 12.5 15.3 Minority interests 0.7 0.9 1.4 2.0

Var. yoy % 40.9% -4.6% 22.4% Var. yoy % 28.6% 55.6% 42.9%

Tangible Fixed Assets 16.8 16.7 14.1 13.4 Net Equity 171.6 178.8 174.2 175.9

Var. yoy % -0.6% -15.6% -5.0% Var. yoy % 4.2% -2.6% 1.0%

Property Investments 4.3 4.3 4.2 4.2 Non-current Provisions 2.0 2.9 2.3 2.2

Var. yoy % 0.0% -2.3% 0.0% Var. yoy % 45.0% -20.7% -4.3%

Non-current financial assets 1.2 2.6 2.4 1.8 Debts with credit institutions 42.0 34.0 21.9 13.9

Var. yoy % 116.7% -7.7% -25.0% Var. yoy % -19.0% -35.6% -36.5%

Tax Assets 41.7 45.4 44.7 44.1 Other financial liabilities 41.7 1.0 1.0 1.0

Var. yoy % 8.9% -1.5% -1.3% Var. yoy % -97.6% 0.0% 0.0%

Non-current assets 161.8 170.7 170.4 174.5 Deferred tax liabilities 1.9 1.9 0.8 0.8

Var. yoy % 5.5% -0.2% 2.4% Var. yoy % 0.0% -57.9% 0.0%

Inventories 38.1 27.1 39.2 42.6 Other non-current liabilities 6.0 6.8 5.2 3.1

Var. yoy % -28.9% 44.6% 8.7% Var. yoy % 13.3% -23.5% -40.4%

Trade debtors and others 147.7 121.2 99.6 105.4 Non-current liabilities 51.9 46.6 31.2 20.9

Var. yoy % -17.9% -17.8% 5.8% Var. yoy % -10.2% -33.0% -33.0%

Tax Assets 5.4 5.0 4.6 4.1 Debts with credit institutions 21.0 24.4 34.5 38.5

Var. yoy % -7.4% -8.0% -10.9% Var. yoy % 16.2% 41.4% 11.6%

Other current assets 6.6 4.5 7.8 4.1 Trade creditors and others 60.3 51.3 44.0 47.9

Var. yoy % -31.8% 73.3% -47.4% Var. yoy % -14.9% -14.2% 8.9%

Cash and cash equivalents 12.7 18.7 11.9 11.9 Tax liabilities 16.5 15.9 15.4 17.4

Var. yoy % 47.2% -36.4% 0.0% Var. yoy % -3.6% -3.1% 13.0%

Current assets 210.5 176.5 163.1 168.2 Other current liabilities 51.0 30.2 34.1 42.1

Var. yoy % -16.2% -7.6% 3.1% Var. yoy % -40.8% 12.9% 23.5%

Current liabilities 148.8 121.8 128.1 145.9

Var. yoy % -18.1% 5.2% 13.9%

TOTAL ASSETS 372.4 347.3 333.5 343.0 TOTAL LIABILITIES 372.4 347.3 333.5 343.0

Var. yoy % -6.7% -4.0% 2.8% Var. yoy % -6.7% -4.0% 2.8%

Source: Tecnocom, CNMV


ANALYSIS OF


Analysis of the Balance Sheet highlights the increasing growth and relative size of intangible assets: firstly Goodwill, which in the past

two years increased by +4.4% (€3.9M) and +3.4% (€3,2M). In 2010 this was largely due to the acquisition of Procecard S.A.

(€4.21M) and in 2011 to the acquisition of Primma Software S.L.U. (€5.21M), which were incorporated in these years into the

consolidation parameter. In the first case, the goodwill paid was based on the use of the client base as a means of penetrating the

Central American / Caribbean market and in particular in payment methods. In the second case, it was based on the core insurance

solution in order to compete both in Spain and Latin American. There are no intangible assets to reclassify.

The Allocation of Goodwill to each of the Cash Generating

Units (CGU) is as follows in the following breakdown (please

note: the 100% growth in 2011 is allocated to P&A)

(Please note: in the case of Procecard, there is a payment

of €1.29M pending for 2012 after €1.79M in 2011 and

€1.33M in 2010. For Primma Software, €0.3M is pending

payment with no fixed date).

The valuation of Goodwill is carried out, in accordance with

the IFRS, from January 2004, with impairment tests in that

year and each of those to follow.

For Intangible Assets, at the close of 2011 totally amortised

items amounted to €6.03M (€5.54M 2010).Growth in this

section is largely due to acquisition of SAP (€2.22M 2011;

€1.50M 2010; €2.59M 2009) and Microsoft licences (€0.44M

2011; €0,04M 2010; €0,19M 2009).

Work carried out by the company on its own property rose to

€4,70M in 2011 (€1,08M 2010; €2,61M 2009).

Intangible assets are amortised on a straight-line basis

depending on the estimated years of useful life according to

the attached table. Tangible Assets are amortised in the

same way.

VALUE IMPAIRMENT

“Impairment Tests” are carried out annually for Goodwill in

line with the obligatory general practices. For estimation for

the value in use, the individual annual business plans for each CGU are used, employing the forecasts and estimations available for

the Group.

For Tecnocom, forecasts are carried out every 3 years, using 0.5% growth rates for estimating cash flows, which we believe are

conservative for the sector in the mid-term. Discount rates used in 2011 for calculating the current value have fluctuated between

9.67% and 10.04% (9.4%-11% 2010, 9.5%-11.5% 2009), which we consider appropriate and in line with the sector (figures of reference

in Spain of 8% to 10% in 2011), conforming to the prudence criterion during testing.

No impairment adjustments were recorded in 2009, 2010 and 2011.

Goodwill 2011 2010

Thousands of euros

Projects and Applications (P&A) 49,130 45,918

Application Management (AM) 24,057 24,057

Integration of Systems and Technology (IST)

8,420 8,420

Infrastructure Management (IM) 9,513 9,513

TTR and Metrocall 4,553 4,553

TOTAL 95,673 92,461

Estimated years of useful life

INTANGIBLE FIXED ASSETS

Computer applications 5

Maintenance expenses 5

Concessions, patents, licenses, trademarks 3

TANGIBLE FIXED ASSETS

Buildings and Constructions 33-50

Plant and Equipment 5-15

Furniture, Fixtures and Fittings 3-10

Vehicles 3-10

Information processing equipment 3-4

Other assets 10


ANALYSIS OF


In the case of Goodwill, the weekly sensitivity analysis carried out by the Group since 2010, with views of a possible impairment of

the same, is also of note. Based on WACC growth of 50 basic points and a perpetual growth rate of 0.5%, impairment of €1.89M is

calculated that would derive from the CGU IST. The balance point for not generating impairment is a growth rate of 1.1%. In 2010

the same test based on WWCC growth of 100bp predicted impairment of €1.15M with a balance point of 2% growth during 2 years.

Tax Assets (€44.1M 2011 compared with €44.7M 2010) are mainly comprised

of the following sections:

- Losses to Offset from tax consolidation: €24.91M

- Losses to Offset outside of tax consolidation: €7.68M

- Pre-paid Taxes: €10.22M

As can be seen in the breakdown of the tax bases, the first indications of

compensation from negative tax bases appears in 2015 with €5.38M

(x0.3=€1.61M of losses to compensate). No substantial variation is indicated

until 2021.

These bases are totally activated in 2011 and 2010.

With regards to deductions, at the close of 2011 Tecnocom has deductions

pending collection amounting to €18.49M compared with €20.36M in 2010.

At the close of the year, €7.76M (42%) of these deductions is activated and as

a result, the company maintains a rather broad activation margin.

We believe there are potential impairment risks, especially in the CGU IST,

which we have taken into account in the valuation, but for now, these are

contained and have no significant impact on the analysis orientated towards

a 2013-2014 visibility.

Breakdown of negative tax bases

and deductions from the Tax Group

Year 2011 2010 Max. period to

pay

in € thousands 1996 - 4,116 2011

1997 5,384 5,384 2015

1998 418 418 2016

1999 4 4 2017

2000 673 673 2018

2001 2,168 2,168 2019

2002 2,933 2,933 2020

2003 24,084 24,084 2021

2004 3,881 3,881 2022

2005 20,342 20,342 2023

2006 12,588 12,588 2024

2007 4,001 4,001 2025

2008 6,543 6,543 2026

TOTAL 83,019 87,135


Breakdown of deductions

2011 2010 Max. period for

payment

in € thousands - 3,255 2011

3,254 3,254 2012

2,285 2,285 2013

1,858 1,858 2014

1,289 1,289 2015

2,932 2,932 2016

402 402 2017

1,044 1,044 2018

2,199 2,199 2019

2,211 2,211 2020

1,019 - 2021

18,493 20,729



ANALYSIS OF


KEY FINANCIAL RATIOS

Financial ratios 2008 2009 2010 2011 2012e 2013e 2014e

Profit per Share (PPS) 0.21 0.12 0.05 0.05 0.06 0.07 0.08

Var. yoy % -43.0% -59.6% 13.9% 3.9% 27.9% 10.8%

PER 15.73 20.45 41.43 24.56 21.58 12.01 12.95

Var. yoy % 30.0% 102.6% -40.7% -12.1% -44.3% 7.8%

EV / EBITDA 11.3 11.9 12.3 7.3 6.2 5.6 5.4

Var. yoy % 5.5% 3.5% -40.7% -15.1% -9.0% -4.7%

ROE 9.5 5.1 2.0 2.4 2.5 3.3 3.7

Var. yoy % -46.5% -60.2% 17.3% 5.2% 32.0% 12.1%

ROCE 4.5 2.5 3.9 4.3 5.9 6.4

Var. yoy % -43.7% 56.8% 9.3% 37.2% 8.5%


Overall, the key ratios have improved in 2011 after two very negative years. We expect a very modest 2012 in this regard, and subsequently a

continuation of this improvement trend, yet always within the pressure on the company’s margins in order to maintain a balanced growth

structure. This evolution of ratios would lead to a convergence with the sector as we shall see in the following paragraph.

VALUATION

PEER GROUP

There is sufficient variety in Tecnocom’s activity sector (ITC) for establishing a series of stock-market peers. Our selection is based on

the most similar business models, with special focus on local peers (Indra, Amper and Ezentis), together with European peers (15

countries) and two North American peers (Accenture y CSC). The companies Reditus and Glintt have been removed from the selection

as insufficient figures rendered their forecasts unrepresentative.

Certain Tecnocom competitors, such as Telefónica, IBM, HP, Siemens, Alcatel or Fujitsu have not been included in the comparison,

since their business models presented obvious differences, in addition to the large difference in size and areas of activity. Nor have

unlisted companies such as Everis, Oesía, Sadiel, T-Systems, Ibermática, Iecisa or Unitronics been included, for obvious reasons.


ANALYSIS OF


RATIOS AND VALUATION

We have taken the following data into account, with their forecasts for 2012 and 2013, from the market consensus provided by

Factset and Bloomberg:

Peers PER Price/Cash Flow EV/SALES EV/EBITDA Capitalisation

2011

(thousand) 2012e 2013e 2012e 2013e 2012e 2013e 2012e 2013e

Indra 9.44 8.45 6.80 6.07 0.67 0.65 6.88 6.36 1601.5

Amper 29.04 32.86 17.13 13.14 0.52 0.50 8.46 7.10 52.4

Ezentis 0.56 0.51 11.67 7.92 82.9

Atos Origin 13.22 11.26 8.04 7.01 0.48 0.47 4.74 4.28 2826.9

Cap Gemini 11.95 10.93 8.89 8.11 0.50 0.48 5.37 5.03 3707.9

Accenture 17.12 15.94 13.13 12.22 1.44 1.38 9.29 8.80 26192.5

Tieto 12.10 10.26 7.22 5.85 0.61 0.60 5.79 4.98 786.2

Logica PLC 9.84 8.92 11.97 8.10 0.53 0.52 6.65 6.22 1190.2

Ascom 11.35 7.55 6.90 5.02 0.72 0.69 7.20 4.93 238.7

Sopra Group 7.48 6.71 6.81 5.45 0.63 0.60 6.49 6.01 423.8

Alten Ltd 11.77 10.99 10.87 9.89 0.67 0.63 6.28 5.88 581.5

Altran Technologies 12.18 10.46 9.15 8.32 0.64 0.62 6.59 5.96 404.0

Groupe Steria 5.88 5.08 4.30 3.57 0.32 0.31 4.08 3.50 404.9

GFI Informatique 8.58 7.69 6.99 6.02 0.35 0.34 6.24 5.94 122.7

Novabase SGPS 10.05 9.33 4.78 4.78 0.28 0.28 3.47 3.41 65.6

SoluCom 9.97 11.68 0.62 0.60 5.73 5.37 100.4

Devoteam 16.37 8.43 12.38 6.81 0.21 0.21 4.79 3.57 106.8

Reply SpA 6.47 5.86 5.03 0.47 0.44 3.67 3.42 144.5

Comp. Scien. Corp 15.45 4.51 0.45 3.95 5366.7

Microgen PLC 15.29 14.62 2.37 2.25 7.82 7.68 125.9

AVERAGE 12.12 11.18 8.77 7.18 0.66 0.63 6.38 5.52 2226.30

TECNOCOM 39.44 24.48 8.88 8.11 0.42 0.41 9.18 8.18 105.04

Source: Market Consensus by Factset and Bloomberg


ANALYSIS OF


The prices implied in the market consensus for the PER, Price/Cash-flow, EV/Sales

and EV/EBITDA ratios, compared with our forecasts, present the valuation ranges

indicated in the table. Firstly, it is notable that in general, the market consensus

shows very prudent figures for 2013 in comparison with 2012, mainly due to the lack

of revenue visibility and the pressures on general economic recovery. We forecast a

better performance for Tecnocom, which nonetheless balances the valuation range.

Secondly, the large difference between ratios is also highlighted, the PER valuation

being 0.69e 2012e compared to the EV/Sales ratio of 3.00e 2012e; in our opinion,

this effect clearly reflects Tecnocom’s situation as a growing company, where our

forecasts of pressure on profits and operational margins during the following years

translate to an increase of the company’s total value that would bring about higher

valuation figures in relation to the sector. However, profits need to improve in

order for this evolution to take place, given that if the current amounts persist the

valuation will be lower.

All things considered, we believe the various effects are balanced and therefore the 1.61e 2012 and 1.60e 2013 valuation is

reasonable and we calculate the average point of the range for 2013-2014 at €1.60, within certain conservative provisions for the

company and pressures for the sector as a whole. This price can be considered as a central scenario, towards which the company is

heading in the current context, but with a very wide margin of variation both upwards and downwards, as shown by the different

ratios.

CONCLUSION

STRONG POINTS

Growing company, successfully implementing, for now, a process of transformation that has led to positive results in

2011 despite the general global economic situation and, more specifically, that of the ITC sector.

Improved prospects from 2013.

Ability to generate cash-flows and other healthy financial results, although still below its potential and that of other

companies in the sector.

Controlled debt and proven access to financing.

Balance between organic growth and acquisitions, and of these with debt and cash-flow generation.

Growth Project in Latin America.

High levels of recurring income.

Proven experience in Spain with the current management team. Accumulation of know-how.

In-house solutions and positioning in niche markets.

Balanced profile and medium size that is well suited to concentration processes.

Possibility of a friendly takeover due to its relatively small size and diversification strategy.

Implicit prices

on the sector average

2012e 2013e

PER 0.69 0.81

PCF 1.52 1.37

EV/SALES 3.00 2.98

EV/EBITDA 1.24 1.25

AVERAGE 1.61 1.60


ANALYSIS OF


WEAK POINTS

20% of share capital in the hands of NovaCaixaGalicia (FROB); a significant factor of uncertainty in the company’s

shareholder composition.

Low capitalisation, both absolute (€103M) and relative to Earnings (26% 2011 compared to 55% in 2008).

Very low liquidity (€37,000 per day, <€10M per year).

Highly volatility (around an annualised 55%).

Exposure to the financial sector (44% sales 2011).

Exposure to Public Administration (12% sales 2011) although mainly to Central Gov.

Exposure to Spain (85% sales 2011, 82% sales 1H 2012).

Margin cuts in the ITC sector.

Risk of intangible asset impairment.

CONCLUSION

Tecnocom is a company of considerable growth in the ITC sector, in a highly advance process of converting its business from

product and infrastructures to in-house services and solutions, as well as from a presence mainly in Spain and Portugal giving way to

an international project with a significant presence in Latin American.

It is a growth project and this is reflected in the financial margins and recorded profit. These parameters are expected to improve

considerable, especially from 2013. In our opinion, the company’s current price reflects some conservative forecasts for the same

and a sectorial downturn which we do not expect to fully materialise in the company, whose strategy of repositioning and

internationalisation should bear its fruits, as previous indicated, in 2013, although the visibility of this development is still unclear.

We consider the valuation of the peer comparison model of €1.60 to be suitable for the current situation, even though it should

progressively be including the improved performance compared with the sector, the dissolution of uncertainties related to the

NovaCaixaGalicia shareholding and the possibility of a friendly takeover by larger competitors who could benefit from the

company’s good positioning, low relative debt and ability to generate cash-flows. On the other hand, the economic crisis, risk of

impairment and cuts forecast in 2012 bring to light considerable risks suggesting national revenue and the cost of debt may not be

able to recover fast enough, with the best figures coming from international business.

In the current context of uncertainty, near zero growth expected from the 2012 results and considering current prices we recommend

HOLDING, since the price accurately reflects the company’s situation, maintaining strict monitoring of the key risks and ratios that

have been being defined. In addition, and considering the risk associated with the uncertainties described, volatility and low liquidity,

PURCHASE could be an approach in anticipation of the development of positive factors, especially from 2013, including the possibility

of a friendly takeover.


ANALYSIS OF


ANNEX I: GEOGRAPHICAL BREAKDOWN

NET TURNOVER AMOUNT COUNTRY (2011) 2010 2009 2008

in € millions

Spain 341.85 312.31 350.65 383.78

Var. yoy % 9.5% -10.9% -8.6%

Colombia 17.67 11.14 17.11 20.73

Var. yoy % 58.7% -34.9% -17.5%

Portugal 12.62 15.30 15.87 15.72

Var. yoy % -17.6% -3.5% 0.9%

Peru 12.06 7.44 7.26 8.39

Var. yoy % 62.1% 2.4% -13.4%

Chile 6.01 2.93 0.76 1.04

Var. yoy % 105.5% 283.9% -26.4%

Dominican Republic 3.62 0.75 - -

Var. yoy % 381.9% - - -

Mexico 3.27 - - -

Var. yoy % - - - -

NET TURNOVER AMOUNT COUNTRY (2011) 2010 2009 2008

in % of turnover

Spain 86.1% 89.3% 89.5% 89.3%

Var. yoy pbs -317.78 -26.60 20.90

Colombia 4.4% 3.2% 4.4% 4.8%

Var. yoy pbs 126.63 -118.55 -45.68

Portugal 3.2% 4.4% 4.1% 3.7%

Var. yoy pbs -119.67 32.29 39.23

Peru 3.0% 2.1% 1.9% 2.0%

Var. yoy pbs 91.02 27.21 -9.82

Chile 1.5% 0.8% 0.2% 0.2%

Var. yoy pbs 67.75 64.15 -4.63

Dominican Republic 0.9% 0.2% - -

Var. yoy pbs 69.77 - - -

Mexico 0.8% - - -

Var. yoy % 82.27 - - -


ANALYSIS OF



PRE-TAX PROFITS (2011) 2010 2009 2008

In € millions Spain 6.78 6.84 10.91 10.31

Var. yoy % -0.9% -37.3% 5.9%

Colombia -0.62 -1.70 -0.81 1.54

Var. yoy % -63.5% 110.9% -152.2%

Portugal 0.38 1.42 0.54 1.15

Var. yoy % -73.3% 160.6% -52.6%

Peru -0.36 -1.11 -1.38 0.49

Var. yoy % -68.0% -19.0% -380.8%

Chile -0.15 0.03 -0.31 -0.23

Var. yoy % -586.7% -109.8% 30.3%

Dominican Republic 1.32 0.40 - -

Var. yoy % 227.6%

Mexico -0.64 - - -

Var. yoy %

Italy -0.34 -0.20 -0.18 -0.31

Var. yoy % 65.8% 12.8% -41.7%

in % of turnover Spain 1.7% 2.0% 2.8% 2.4%

Var. yoy pbs -24.80 -83.22 38.75

Colombia -0.2% -0.5% -0.2% 0.4%

Var. yoy pbs 32.98 -28.01 -56.49

Portugal 0.1% 0.4% 0.1% 0.3%

Var. yoy pbs -30.93 26.58 -12.78

Peru -0.1% -0.3% -0.4% 0.1%

Var. yoy pbs 22.85 3.29 -46.54

Chile 0.0% 0.0% -0.1% -0.1%

Var. yoy pbs -4.53 8.65 -2.34

Dominican Republic 0.3% 0.1% - -

Var. yoy pbs 21.68 - - -

Mexico -0.2% - - -

Var. yoy pbs -16.07 - - -

Italy -0.1% -0.1% 0.0% -0.1%

Var. yoy % -8.44 -5.77 -4.57 -



PREPARED BY:


The information and data used in this report have been obtained from sources considered to be reliable, based on the best knowledge of the analysed company, the sector in which it operates and the capital markets in which it is listed. At the time of preparing this report, the analyst declares that he neither holds nor held during the last twelve months, nor will hold over the next twelve months any positions in the security. Neither the analyst nor NOESIS ANÁLISIS FINANCIERO, S.L. accept any liability for possible errors contained in this report and decline all responsibility deriving from the purchase/sale of shares in the analysed company or any other investment operation carried out in relation to this report. This document is drawn up purely for informative purposes.

The Spanish Financial Analysts Institute (Instituto Español de Analistas Financieros, hereinafter: "IEAF") provides the IN RESEARCH service in collaboration with Bolsas y Mercados Españoles Sistemas de Negociación S.A. (hereinafter, "BME"). Neither BME nor IEAF have participated in the preparation of this report, which they recognise belongs to the issuer of the security or financial instrument analysed and/or the subscribing analyst or company. Therefore, BME and IEAF decline any responsibility in relation to any investment decisions made based on the report and/or any direct or indirect damages or losses incurred by anyone formalising operations based on said report. This report does not constitute an investment recommendation, nor an invitation offer, request or obligation on the part of BME or IEAF to carry out any operation or transaction in respect of the security or financial instrument analysed in the report. Neither BME nor IEAF are responsible for the content, accuracy or veracity of the report or for any financial loss or decision taken based on the information contained in the report. Neither BME nor IEAF, their directors, representatives, partners, subsidiary companies, managers, shareholders, employees or advisors assume any responsibility in respect of the information contained in the report, or any use made thereof.

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