gpi 26 april 2017 initiation - ubi banca 26 april 2017 initiation... · manzana, who still manages...

Initiation of coverage

26 April 2017 – 5:30PM

Healthcare services

Data

Shares Outstanding (m): 15.46

Market Cap. (EURm): 166.92

Enterprise Value (EURm): 181.41

Free Float (%): 32.4%

Av. Daily Trad. Vol. (m): 0.011

Main Shareholder:

Mr. Manzana

62.0%

Reuters/Bloomberg: GPI.MI GPI IM

52-Week Range (EUR) 9.6 10.8

Source: Factset, UbiBanca estimates

Performance

1m 3m 12m

Absolute 12.6% 6.9% 10.8%

Rel. to FTSE IT

9.2% -0.5% -3.1%

Source: Factset

Graph area Absolute/Relative 12 M

Source: Factset

Marco Cristofori Senior Analyst [email protected] Tel. +39 02 6275 3015

Website: www.ubibanca.com/equity-research

Financials priced on 25 April

2016 2017E

Revenues (EURm) 135.12 172.44

EBITDA (EURm) 20.09 25.77

EBITDA margin (%) 14.8% 14.9%

EBIT (EURm) 14.78 19.24

EPS (EUR) 0.42 0.66

CFPS (EUR) -0.16 0.96

DPS (EUR) 0.30 0.33 Source: Company Data, UBI Banca Estimates

GPI Buy

MARKET PRICE: EUR10.80 TARGET PRICE:

Healthy business

We initiate coverage of GPI, a leading provider of healthcare services, mainly IT solutions and BPO (business poutsourcing), with a Buy rating and a targetshare. In our view, the company has several proactive management with an innovative vision of healthcare system, which has prompted the company to enter new businesses, widening its product range and cover almost the entire value chain of the healthcare industry, reaching a leading position in Italy, 2) an outstanding M&A track record, with nine successful deals finalised in the past three years, 3) EUR50.5 million in cash from the business combination which will be used for new acquisitions making GPI a consolidator in the industry, 4) a solid balance sheet with a high capital turnover, 5) an attractive dividend policy offering 3% dividend yield, 6) an average discount to peers 40%, which could narrow with the transfer of the shares to the MTA or STAR segments in the future. This said, the public health sector in Italy has been affected by huge budget constraints in the past and the outlook remains weak with modest organic growth expected in coming years. As a result, we believe that a significant rally in the share price would only be on the back of a new wave of acquisitions.

> GPI is a leading supplier of IT solutions and servhealthcare industry through its innovative proprietary technologieshas a wide customer base and an extended product range. The company is the market leader in BPO (>30% market share) and the second most important company in IT solutions (

> The company grew substantially in 2016 (sales +52% growth +28%) with an adj. EBITDA margin 2015). GPI is controlled and managed by the founderwho owns 62.0% of GPI and 74.4% of the voting on the AIM market following the business combination with the SPAC Capital For Progress 1 in December 2016.

> We forecast a CAGR of 12% in the value of production in the next three years, an EBITDA margin that should risea bottom line of around EUR13 million. Net debt (EUR9.9 million at Dec-16) should turn to cash in 2019.

> Our target price of EUR14.0 per share is based on DCF analysis and a relative valuation, applying a 20% discount,offers nearly 30% upside.

April 2017 2018E 2019E

181.41 190.12

28.56 31.15

15.6% 16.3%

21.69 23.94

0.76 0.84

1.06 1.26

0.36 0.40 Estimates

Ratios priced on

2016 2017E

P/E(x) 23.8 16.3

P/CF(x) 12.8

P/BV(x) 2.5

Dividend Yield 3.0% 3.1%

EV/EBITDA(x) 8.3

Debt/Equity (x) 0.2

Debt/EBITDA (x) 0.5 Source: Company Data, UBI Banca

1

TARGET PRICE: EUR14.00

Healthy business of GPI, a leading provider of healthcare

IT solutions and BPO (business process target price of EUR14.0 per

. In our view, the company has several strengths: 1) an innovative vision of the Italian

the company to enter businesses, widening its product range and enabling GPI to

cover almost the entire value chain of the healthcare industry, ly, 2) an outstanding M&A track

successful deals finalised in the past three the business combination

used for new acquisitions making GPI a consolidator in the industry, 4) a solid balance sheet with a high capital turnover, 5) an attractive dividend policy offering around

nd yield, 6) an average discount to peers of close to %, which could narrow with the transfer of the shares to the

. This said, the public health in Italy has been affected by huge budget constraints in

nd the outlook remains weak with modest organic oming years. As a result, we believe that a

rally in the share price would only be on the back of a

GPI is a leading supplier of IT solutions and services for the novative proprietary technologies. It

a wide customer base and an extended product range. The company is the market leader in BPO (>30% market share) and the

IT solutions (11.9% mkt. share).

The company grew substantially in 2016 (sales +52% with organic ) with an adj. EBITDA margin of 16.1% (vs. 9.0% in

by the founder Mr. Manzana, voting rights. It was listed

the AIM market following the business combination with the SPAC

the value of production in the next rise to 16.3% in 2019 and

a bottom line of around EUR13 million. Net debt (EUR9.9 million at

per share is based on the average of a , applying a 20% discount, and

priced on 25 April 2017 2017E 2018E 2019E

16.3 14.3 12.8

9.9 8.9 8.2

2.6 2.4 2.2

3.1% 3.3% 3.7%

7.0 6.2 5.6

0.1 0.0 -0.0

0.2 0.1 -0.1 UBI Banca Estimates

GPI 26 April 2017

2

Key Financials

(EURm) 2016 2017E 2018E 2019E

Revenues 135.12 172.44 181.41 190.12

EBITDA 20.09 25.77 28.56 31.15

EBIT 14.78 19.24 21.69 23.94

NOPAT 9.90 12.89 14.53 16.04

Free Cash Flow -23.84 8.47 9.09 11.38

Net Capital Employed 71.24 72.08 73.46 73.56

Shareholders’ Equity 60.39 64.84 69.89 75.49

Net Financial Position 9.90 6.01 2.02 -3.79

Source: Company data, UBI Banca estimates

Key Profitability Drivers

2016 2017E 2018E 2019E

Net Debt/Ebitda (x) 0.5 0.2 0.1 -0.1

Net Debt/Equity (x) 0.2 0.1 0.0 -0.0

Interest Coverage (%) 5.9 9.6 12.0 14.9

Free Cash Flow Yield (%) -15.8% 5.1% 5.4% 6.8%

ROE (%) 10.5% 15.8% 16.7% 17.3%

ROI pre-tax (%) 22.0% 23.2% 25.8% 28.2%

ROCE (%) 14.8% 15.5% 17.3% 18.9%


Key Valuation Ratios

2016 2017E 2018E 2019E

P/E (x) 23.8 16.3 14.3 12.8

P/BV (x) 2.5 2.6 2.4 2.2

P/CF (x) 12.8 9.9 8.9 8.2

Dividend Yield (%) 3.0% 3.1% 3.3% 3.7%

EV/Sales (x) 1.2 1.0 1.0 0.9

EV/EBITDA (x) 8.3 7.0 6.2 5.6

EV/EBIT (x) 11.2 9.4 8.2 7.2

EV/CE (x) 2.3 2.5 2.4 2.4


Key Value Drivers

(%) 2016 2017E 2018E 2019E

Payout 72.2% 49.7% 47.6% 47.4%

NWC/Sales 18.4% 15.6% 16.1% 15.9%

Capex/Sales 15.8% 3.7% 4.0% 4.2%


GPI 26 April 2017

3

Investment Case GPI is a leading provider of services to the healthcare industry that range from innovative IT solutions, logistics and robotics for pharmacies and hospitals, monetics, professional IT services to the outsourcing of contact centers and front-end services. The company, founded in 1988, has grown rapidly over the past few years due to several acquisitions and is now the Italian market leader in BPO (business process outsourcing) and the second most important company in IT for healthcare with an 11.9% market share. Its lean cost structure, healthy operating leverage and the quality of its products, has allowed the company to maintain its EBITDA margin at around 15% in the past few years (except in 2015 when it was 9%) and to generate a ROCE >12%. The company is also a strong value creator given its high capital turnover (1.9x in 2016). Our investment case is based on the capacity of GPI’s management team to grow further in the Italian healthcare industry despite the latter suffering from significant public budget constraints (and therefore having only modest organic growth despite the ageing population) due to: � New acquisitions (we estimate a fire power of >EUR30 million that could be

invested in M&A deals while maintaining gearing at 50%, excluding potential share swaps) financed by the EUR50.5 million cash-in from the business combination with the SPAC Capital For Progress 1 finalised in Dec-16;

� Further expansion of its product range into new highly profitable niche areas (for example “virtual care” outside hospitals) while exploiting new technological trends (IoT, Big Data, Cognitive computing);

� Penetration of new regions (Piedmont, Campania, Sicily, Liguria) and growing revenues from outside Italy (just 2% of total sales in 2016).;

� Exploitation of cross-selling synergies that should allow it to sell the products of its various divisions to existing clients;

� An increase in the number of contracts with private healthcare companies. This should give some improvement in profitability (as it would have greater contractual power) while reducing payment terms, which are traditionally very long in the public health sector.

In addition, the stock could become more attractive as it transfers from the AIM market to the MTA or STAR segments of the stock market (expected to happen in the next twelve months) as this should increase the liquidity of the shares with a consequent reduction in the discount applied by investors to stocks listed on the AIM market. It also has an attractive dividend yield (>3% based on a pay-out ratio of 50% as declared by GPI) and currently trades at a market discount to its peers (nearly 40%). Our estimates, which do not include any potential acquisition, indicate CAGR in sales of 12% in the next three years and an EBITDA margin that should rise to 16.3% in 2019, giving a bottom line of around EUR13 million. Net debt (EUR9.9 million at Dec-16) should turn to net cash in 2019. Our target price of EUR14.0 per share offers nearly 30% upside to the current market price and is based on the average of a DCF analysis and a relative valuation, after having applied a 20% liquidity discount to take account of the AIM listing and the relative low liquidity of the shares. In our view, the main risks to the investment case are further cuts to the public health budget, a technological breakthrough that would make GPI’s IT platform obsolete, possible litigation with clients in the public sector that could result in strong delays in payments from public entities.

GPI 26 April 2017

4

Company profile Founded in 1988 as an IT service company for public and private healthcare by Mr. Manzana, who still manages the company, GPI is one of the leading companies in Italy (ranking second after Dedalus with an 11.9% market share - source: Osservatorio Netics 2016) in the growing Italian healthcare industry. GPI grew rapidly through acquisitions, expanding its product range to include BPO (business process outsourcing), social care, logistics and automation, professional IT services and monetics. It now has an integrated platform of products and services that supply the needs of the public and private healthcare system, generating cross-selling opportunities amongst its different business units. Starting in the Trentino region, where the company has its headquarters, GPI expanded into other Italian regions and abroad. It is now present in Germany, Austria, Poland, Brazil and Chile (however, sales outside Italy represent only 2% of consolidated turnover). The acquisition of Lombardia Contact, finalised in 2015, increased significantly GPI’s presence in the BPO sector (55.7% of revenues in 2016) leading to a turnover of EUR136.2 million in 2016 (EUR170 million on a pro-forma basis including the two companies acquired at the end of 2016), 3,675 employees and 1,300 private and public customers (hospitals, health authorities, private clinics, regions, pharmacies and insurance companies). >90%of revenues come from public entities, in particular public healthcare operators. GPI has a strong focus on R&D (it set up a research centre in 2011) with an average annual spend of around EUR6 million or 5-8% of consolidated revenues. This has given it a unique know-how, an increasingly broad range of products, and a means of attracting new customers.

Figure 1 – Acquisition track record since 2014 (EURm) In 2014-2016 GPI made nine acquisition investing >E UR21 million and adding >EUR35 million of new sales and >EUR7 million of additional EBITDA.

Acquisitions Year Country % Stake Price Sales People

Sferacarta 2014 Italy

Logix 2014 Italy

Riedl 2014 Germany 3.70

Evolvo 2015 Italy 80.0% 1.00 6

Sedoc 2015 Italy 2.30 90

Natisoft 2015 Italy 100.0% 0.70 7

Lombardia Contact 2015 Italy 100.0% 12.50 20.16 970

I&T 2014 Italy 100.0% 0.70 0.70 5

GBIM SrL 2016 Italy 100.0% 1.50 5

Insiel Mercato 2016 Italy 55.0% 1.80 22.70 220

PCS 2016 Austria 100.0% 13.00 9.45 80

Saluris 2017 Poland 60.0%


GPI is structured in five business units:

� BPO and social care (55.7% of sales in 2016). This division manages contact and call centres for hospitals but has also developed innovative web services such as telemedicine and front-end services. Typically, GPI signs a 5-6 year contract after a public tenders held in the various public administrations. Fees are based on contacts (paid EUR1-3 each) plus a fixed recurring fee. Clearly, serving >20 million users, BPO is highly labour intensive (>2,800 employees) and therefore offers limited

GPI 26 April 2017

5

profitability (the EBITDA margin of this division was 8.7% in 2016). However, BPO and social care offer high visibility on future revenues and attractive cross-selling potential;

� IT Solutions (32.7% of sales in 2016). This division offers tailored and integrated IT solutions (administrative processes, accounting, hospital information systems, middleware, food safety, etc.) to public healthcare entities and typically operates on three-year contracts. However, visibility on revenues is high given the high client retention rate (around 95% at contract expiry). GPI had strong growth in this sector due to several small acquisitions and acquiring new clients. It is now the market leader in Italy accounting for around 30% of the Italian healthcare budget in this sector. As most of the revenues (around 58% in 2016) come from maintenance services, profitability is high (EBITDA margin of 31.1% in 2016) and the growth potential, particularly abroad, seems attractive given the know-how developed by GPI. The recent acquisitions of Insiel Mercato (EUR23 million of sales and 220 employees, finalised at end-2016) and PCS (in Austria, with 60 employees and around EUR10 million of sales) should increase further the weight of this business unit on consolidated turnover while new services (for example, medical prevention through Policura Clinic) could increase its average profitability in the mid-term;

� Professional IT Services (5.1% of sales in 2016). This division provides desktop management and business intelligence services with periodic IT maintenance contracts. It is a highly labour intensive business (with around 150 employees) and, therefore, our EBITDA margin estimates for this division are modest (less than 7%). However, we would highlight the strong customer loyalty and potential cross-selling synergies in this division;

� Logistics and Robotics (2.4% of sales in 2016). Through the acquisition of Riedl in 2014, GPI entered this sector that offers automated warehousing for hospitals, local pharmacy logistics and a Buster system for the supply chain management of drugs in healthcare facilities. Although this division is small (EUR3.1 million of revenues), GPI gained the technological leadership in this sector by strongly reducing the inventories of customers (30% reduction in drugs inventories on wards and a 50% reduction in inventories of hospital pharmacies, according to the management). This business offers strong profitability (EBITDA margin of >20%) and, in our view, has significant growth potential, particularly abroad and with private clients as it can leverage on the German brand of Riedl and GPI’s technical leadership;

� Monetics (2.5% of sales in 2016). This division provides tailored payment solutions (electronic payments for fast and secure transactions) to large-scale retail distributors (not necessarily present in the healthcare industry). Revenues are a percentage of the transactions and margins are high (we estimate >25%). GPI entered this business through the acquisition of Argentea in 2011 in order to diversify its product range while exploiting cross-selling synergies.

GPI 26 April 2017

6

Figure 2 – 2016 revenues breakdown

Source: UBI Banca using company data

Figure 3 – 2016 EBITDA breakdown

Source: UBI Banca using company data

GPI Group is made up of GPI S.p.A. that controls 100% of most of the seventeen

manufacturing companies and ten companies in which it has investments. GPI is gradually grouping together some of the companies it controls through internal mergers (three were done in 2016).

Figure 4 – GPI: Group structure

Source: Company data

The company is present in six countries with around 30 branches.

Figure 5 – GPI: geographical presence


IT Solutions

32.7%

Other

1.7%

Logistic &

robotics

2.3%Monetics

2.4%Professional

IT services

5.1%

Healthcare

services BPO

55.8%

IT Solutions

54.9%

Other

1.4%

Logistic &

robotics

3.7%

Monetics

4.6%

Professional IT

services

2.4%

Healthcare

services BPO

33.0%

GPI 26 April 2017

7

Business combination and shareholders structure GPI was listed on the AIM segment of the Milan Stock Exchange on 29 December

2016 following a reverse merger with Capital For Progress 1 a Special Purpose Acquisition Company (known as a “SPAC”) that was listed on 4 August 2015. It raised EUR51.1 million to research and select acquisition targets within 24 months. It normally buys a minority stake and merges with the target so that the newly merged company (the “Business Combination”) is automatically listed. In September 2016, the framework agreement for the merger with GPI was announced and it was finalised in December. We highlight that no withdrawal rights were exercised by Capital For Progress 1 shareholders.

The main terms of the business combination were the followings:

Valuation: GPI was valued at an equity value of EUR100 million, or 7.3x 2016A EBITDA adjusted, 10.6x EV/EBIT, 1.18x 2016A revenues and 16.0x 2016A P/E. Promoters’ upside : the Capital For Progress 1 promoters converted 25% of their 153,300 B shares (at a 1:6 exchange ratio) when the business combination was finalised, A further 35% will be converted if the GPI share price exceeds EUR11.0 per share for at least 15 days by April 2019; the residual 40% will be converted if the GPI share price exceeds EUR12.0 for at least 15 days by April 2019. This implies a maximum issue of a further 0.93 million shares or around 6% of the company. The promoters are subject to a lock-up period of 12 months following the conversion of each tranche of B shares into ordinary shares. Shareholders’ Lock-up : there is a lock-up period of 28 months from the date on which the merger became effective for previous shareholders (FM and Orizzonte SGR). Warrants: Capital For Progress 1 shareholders were given 3 warrants for every 10 shares held. Therefore, there are 2.55 million outstanding warrants that could be converted at a strike price of EUR9.5 by Dec-21. 1 warrant entitles the holder to one share. This means that GPI could receive a further EUR24.2 million in coming years that would give dilution of around 16% on the number of shares in issue and 12% on EPS (as the cash received would presumably result in lower financial charges).

Following the merger with Capital For Progress 1, GPI has 15.46 million shares of

which 10 million shares are special B shares (these have double voting rights and are owned by FM, the holding company of the Manzana family, and by Orizzonte SGR; they are automatically converted into ordinary shares if sold by the current stakeholders) and 115k special C shares (owned by the promoters), which could be converted into ordinary shares at an exchange ratio of 1:6.

GPI is controlled and managed by the founder Mr. Fausto Manzana; he is the CEO

and controls 62.0% of GPI and has 74.7% of the voting rights. The board of directors is composed of seven members of which one is

independent, two are active in managing the company and three are members of the Manzana family. The Promoters are represented by one board member. The total remuneration of the board is EUR0.77 million p.a.

The management team is led by Mr. Girardi, (the General Manager) in GPI for 12

years while Mr. Corvo is the CFO (2 years in GPI), Mr. Montemartini is the marketing Director (19 years in GPI), Mr. Boschetti is the Sales Director (21 years in GPI) and Mr. Pedri is the Head of Professional IT Services (25 years in GPI).

GPI 26 April 2017

8

Strategy 2016 was a year of strong growth for GPI, with huge investments for new

acquisitions (EUR15 million) in order to exploit its platform and expand its customer base.

The company’s strategy may be summarised as follows:

� Consolidation of the current market position: GPI has already reached the

second position in the Italian healthcare service industry (it was third before the recent acquisitions) and is leader in the BPO business (covering around 32% of the total Italian population). However, it aims to expand further into regions that it does not currently cover (Piedmont, Campania, Sicily, Liguria). We believe its strong relationship with the major healthcare organisations (demonstrated by impressive client loyalty) should allow the company to maintain an organic growth rate at least in line with the growth rate of the reference market (around 4% p.a. according to Osservatorio Netics) while cross-selling synergies could lead to sales of new products to existing customers;

� Product range expansion: GPI aims to widen its product range and expand into new highly profitable niche sectors (for example, “virtual care” outside hospitals) while exploiting new technological trends (IoT, Big Data, Cognitive computing) and increasing complementary applications also through new strategic partnerships with the main technology vendors;

� New clients: GPI will continue to bid for new contracts and/or expand existing ones. In particular, the management aims to increase the number of contracts with private healthcare companies. This should allow some improvement in profitability (as its contractual power increases) while reducing payment times, which are traditionally high in the public healthcare sector;

� Potential acquisitions: GPI could acquire some competitors in order to expand its client base and its technology into new sectors (particularly in logistics and robotics). Following the business combination (and the resulting EUR50.5 million cash-in that is not to be used for debt repayment), we estimate it has fire power of >EUR30 million that could be invested in M&A deals while maintaining gearing at 50%. In addition, the shares with double voting rights owned by the founder family means the company could do a share swap (or a mix of cash and shares), which would significantly increase the number and size of potential acquisitions, without diluting the founder’s family. External growth will be a key issue in a fast consolidating market and currently there are ten potential acquisitions under examination. It is worth remembering that GPI has an outstanding track record in integrating companies it acquires: good examples are Riedl, acquired in 2014 (when it reported deep operating losses), which now has an EBITDA margin of 16% and Lombardia Contact (purchased in 2015), which in just one year improved its EBITDA margin by 100 bps, mostly through efficiency gains;

� Expansion abroad: GPI generated just 2% of its consolidated turnover outside Italy but has a target to take this figure to 50% of sales in the long term. The recent acquisitions of PCS in Austria and Saluris in Poland are steps in this direction.

GPI 26 April 2017

9

Reference market and competitive position The reference market of GPI is the Italian healthcare market and its spend, which

reached EUR148.1 billion in 2014 of which nearly 76% from public healthcare organizations (source: OECD 2016). Demand for healthcare has grown continuously, despite the Italian budget constraints, reflecting the ageing population (21.7% of Italy’s population is >65 years old vs. 18.8% for Europe); this figure is expected to reach 30% of the total population by 2020 according to Eurostat. In addition, there is an increase in chronic diseases and problems related to a sedentary lifestyle. Therefore, the big question mark for Italy is the sustainability of its current healthcare system. The response of governments has been 1) a progressive increase in private healthcare spending (now 24.5% of the total), 2) a strong focus on cost savings in the public sector driven by the dematerialization of the PA and Health sector and, 3) an increase in medical prevention. We would also highlight that Italian healthcare spending remains well below the European average as a percentage of GDP (9.1% compared with 10.3% for the European Union) and per capita (USD 3,077 PPP compared to an European average of USD 4,453 PPP and USD 4,819 in Germany – source: OCSE Health at a glance, 2015).

Figure 6 – Italian healthcare spending (EURbn) as a % of Italian GDP

Source: OECD, Health Statistics, 2016

In this scenario, GPI estimates that its addressable IT market in Italy reached

EUR820 million in 2015 out of a total of EUR1.34 billion for digital healthcare spending in Italy. The 2015 figure fell 2% compared with 2014 (a year of strong growth, +17% vs. 2013) due to the spending review that is expected to continue also in 2017 (the 2016 budget law made further cuts to IT spending in public administration and public health). The IT healthcare market is expected to grow to EUR930 million in 2018 with a CAGR of 4.3% in 2015-18. Clearly, new technological trends (IoT, Big Data. Cognitive computing, Blockchain) could change the rules of the game, but we believe that GPI is well prepared to face a potential new scenario. As for the BPO market, we believe that it should remain relatively stable in coming years as nearly all regions have already outsourced front-end services and contact centres. Therefore, growth for GPI should come from potential new acquisitions, exploiting the current consolidation trend, and from winning new public tenders (we note that GPI has a 25% hit ratio in tenders in BPO).

93.9100.9

106.2 109.2

118.6124.6

131 131.4139.7 141.2 143.7 144.7 142.6 141.2

145.9 148.1

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

0

20

40

60

80

100

120

140

160

Helthcare spending % of GDP

GPI 26 April 2017

10

Figure 7 – GPI’s addressable IT market trend (EURm)


As for market position, GPI should have reached a market share of 11.9% in 2015

(including the acquisition of Insiel Mercato at end-2016) and occupy second position in the IT healthcare industry. The market leader is Dedalus, which, in 2016, acquired Noemalife, the market leader in EMR (Electronic Medial Records, a computerized system to record, store, retrieve and manage patient details). The industry is highly fragmented and large companies, such as Reply and Engineering are not focused only in the IT healthcare industry, but provide IT solutions also to other industries. Clearly, the current ongoing sector consolidation would favor the larger companies.

Figure 8 – 2015 market shares in the IT healthcare Italian market

Source: Osservatorio Netics 2016

In healthcare services (BPO), GPI claims to have reached a market share of 32%

of the total population due to its leading position in the most populated regions of Italy (Lombardy, Veneto, Emilia Romagna, Lazio, Trentino-Alto Adige).

796

820

865

895

930

700

750

800

850

900

950

2014 2015 2016 2017 2018

14.4%

11.9%11.4%

6.1%

4.6%

1.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Dedalus GPI Engineering Reply Exprivia Data

Processing

GPI 26 April 2017

11

SWOT Analysis

Figure 9 - SWOT Analysis

Strengths Weaknesses

Leading position in a market with high barriers to entry: In the BPO sector, GPI is one of the few companies able to meet all the tender requirements

Limited free cash generation due to high average capex and NWC absorption

Wide and innovative product range covering almost the entire healthcare value chain

High trade receivable (>180 days in 2016) due to long payment periods from public entities

Stable profitability and sound balance sheet with a high capital turnover (1.64x in 2016)

High exposure to the Italian market (98% of total sales), which suffers from a shortage of adequate public funds to support the set up of new technological infrastructure in the health sector

Outstanding M&A track record and effective integration of acquired companies with rapid improvements in profitability

Modest growth in the Healthcare IT market (~3% p.a.)

Opportunities Threats

Expansion outside Italy, particularly in Europe Reduction in the IT spend in public health, as has already happened in the past two years.

Strong cross-selling opportunities New breakthrough technology, particularly in IT healthcare systems

New acquisitions to penetrate new regions supported by the cash-in from the business combination.

Increasing competition and potential entry of large international entities

Moving to MTA or Star segment of the Milan stock market (possible in the next twelve months)

The Italian healthcare market suffers from a lack of adequate financial support from the government and a postponement of several investments

Source: UBI Banca estimates

GPI 26 April 2017

12

2016 results

In 2016, GPI adopted the international accounting standards (IFRSs) for the first time instead of accounting under Italian GAAP. The main difference for GPI is the treatment of goodwill amortisation (over 5-8 years and EUR12.4 million in 2015 under Italian GAAP), which is not permitted under IAS (as goodwill is required to be subjected to an annual impairment test). 2016 was a positive year for GPI: revenues increased 52% (+28% organic growth and +24% from acquisitions) and profitability rose significantly with EBITDA of EUR20 million (EUR21.9 million on an adjusted basis, stripping out restructuring costs and the costs of the merger), a margin of 14.8% on sales compared with a margin of 9.0% in 2015.

Figure 10 - 2016 results

(EURm) 2015A * 2016A % Chg.

Sales 89.37 136.16 52.4%

EBITDA Adj. 8.04 21.89 172.1%

% margin 9.0% 16.1%

EBITDA 8.04 20.09 149.7%

% margin 9.0% 14.8%

EBIT Adj. 2.46 16.60 574.8%

% margin 2.8% 12.2%

EBIT 2.79 14.78 428.9%

% margin 3.1% 10.9%

Pre tax 0.69 12.21 nm

Net attributable result (0.41) 6.23 nm

Net debt/(cash) 37.76 9.90 -73.8%

Source: Company data * Reclassified under IFRS

The main cost remained personnel costs although these fell to 58.5% of sales vs.

60% in 2015. In addition, the company cut service costs to 22.2% of sales vs. 25.7% in 2015.

After D&A of EUR5.3 million, EBIT was EUR14.8 million (EUR16.6 million on an

adjusted basis), which gave a pre-tax result of EUR12.2 million and a net attributable result of EUR6.2 million after a tax rate that was close to 47%.

Net debt fell to just EUR9.9 million (vs. EUR37.8 million at Dec-15) due to the

EUR50.5 million cash-in from the business combination. Without the latter, net debt would have grown by >EUR20 million. We would highlight that GPI had a significant amount of cash (EUR15.7 million at Dec-16) even though gross financial debt exceeded EUR50 million. EUR31.75 million is bonds (GPI issued three mini-bonds of 5-7 years duration, with fixed coupons of 4.3%-5.5%). Operating NWC was EUR24.8 million (or 18.2% of sales) with trade receivables at 181 days, trade payables at 126 days and inventories equal to 11 days. Fixed assets totalled EUR57.8 million, of which EUR38.3 million were intangible assets: these included EUR11.8 million of goodwill and EUR10.7 million of “non-recurring costs related to clients” or capitalized costs for the acquisition of the contract with the Lombardy region that will be amortised over five years. Total net invested capital was EUR74.1 million, +56% on the figure of EUR47.4 million reported at Dec-15, giving a ROI of >22%.

GPI 26 April 2017

13

Financial projections GPI is present in several sectors with different business models (perpetual and

recurring licence fees, pay-per-contact, professional activities, maintenance), and therefore with different margins. In other words, the product mix could strongly affect profitability. In particular, the BPO division, a highly labour intensive activity, has a lower margin than IT Solutions and other divisions (8.7% EBITDA margin in 2016 compared with 31.1% for IT Solutions and around 9% for the other divisions combined). Having acquired Insiel Mercato (a company with nearly EUR23 million of sales with a low margin) at end-16, which will be included within the IT Solutions sector, GPI should experience slight erosion of its gross operating margin (expected to be 15.3% on an adjusted basis vs. 16.1% in 2016).

Figure 11 - Revenues and EBITDA margin trends by division

(EURm) 2015A 2016A 2017E 2018E 2019E CAGR 2016-19

BPO Sales 49.1 75.9 79.0 84.3 89.1 5.5%

% growth 54.7% 4.1% 6.6% 5.7%

BPO EBITDA 6.6 7.3 8.0 8.8 10.0%

% Margin 8.7% 9.2% 9.5% 9.9%

IT Solutions Sales 26.5 44.5 78.4 81.5 84.8 24.0%

% growth 68.0% 76.1% 4.0% 4.0%

IT Solutions EBITDA 13.9 17.2 19.2 20.9 14.6%

% Margin 31.1% 22.0% 23.5% 24.6%

Other sectors Sales 13.8 15.7 16.1 16.7 17.4 3.4%

% growth 14.0% 2.5% 3.8% 3.8%

Total Sales 89.4 136.1 173.5 182.5 191.3 12.0%

% growth 52.3% 27.5% 5.2% 4.8%

Total EBITDA 8.0 20.1 25.8 28.6 31.2 15.8%

% Margin 9.0% 14.8% 14.9% 15.6% 16.3%

Total EBITDA Adjusted 21.9 26.5

% Margin 16.1% 15.3%


In 2017, we expect organic growth of below 3%, assuming that the reduction of the

budget for public health in Italy would not impact the reference market of GPI as IT, BPO and logistic spending are the main drivers to cut the global health spending (a good example is the Buster system for the supply chain management of drugs in healthcare facilities which can significantly reduce pharmaceutical expense). The acquisitions finalised at end-16 should add around EUR34 million to revenues giving an increase in consolidated revenues of 27.4%. Excluding potential acquisitions that are the main strategic growth driver of GPI, we estimate organic growth of around 5% for 2018-19, which is conservative given GPI’s historical average (around 15% in 2013-16) but is above the average growth rate of GPI’s reference market. This would come from cross-selling synergies (GPI estimates cross-selling synergies contributed 10%-11% in sales in 2015-16) as products of the various divisions are sold to existing clients. The top line should exceed EUR190 million in 2019 with a 2016-19 CAGR of 12%. The EBITDA margin is expected to slow in 2017 on an adjusted basis i.e. deducting EUR0.7 million of non-recurring costs for the MTA listing and EUR1.8 million in 2016 for the merger with Capital For Progress 1 and for restructuring costs. It should increase slightly in 2018-19 due to efficiencies, economies of scale and operational leverage to reach 16.3% in 2019, which is broadly in line with 2013-14 margins (calculated under Italian GAAP while our estimates are based on IFRS adopted by GPI from 2016).

GPI 26 April 2017

14

Figure 12 – Revenues, EBITDA and EBIT margin trend

Source: Company data, UBI Banca estimates * Under Italian GAAP

D&A costs, which include depreciation of the capitalised “non-recurring costs

related to clients”, should remain above EUR6 million p.a. giving an operating profit of about EUR19.2 million in 2017, EUR21.7 million in 2018 and almost EUR24 million in 2019.

Below the operating line, GPI is expected to report financial charges of slightly below EUR2 million p.a. This seems high considering the average net debt of below EUR2 million in our 2017-19 estimates. This is due to the three mini-bonds issued by the company in 2015-16 for a total of nearly EUR32 million (of which EUR12 million will be reimbursed in mid-2018 and a further EUR7.2 million in 2019-20) that carry an average coupon of around 5%. We highlight that recently the credit rating of GPI has been upgraded to A3.1 (from B1.1) by Cerved Rating Agency (corresponding to A- of S&P, A3 of Moody’s and A-1 of Fitch).

Figure 13 – Outstanding mini-bonds (EURm)

Type Amount Rate Emission Maturity

Fixed rate 2015-18 12,000 5.50% 23/12/2013 30/06/2018

Fixed rate 2015-25 4,750 4.25% 29/12/2015 31/01/2025

Fixed rate 2016-23 15,000 4.30% 01/06/2016 31/10/2023

Total 31,750


The tax rate should decline due to the “ACE tax benefit” - aid for economic growth

linked to the listing - that gives the company a reduction of EUR2 million in its taxable base, and the reform of IRAP that makes labour costs deductable for permanent employees (previously IRAP was 3.9% of pre-tax profit plus labour costs). As a result, net profit should reach EUR10.3 million in 2017 with a gradual increase in 2018-19. The tax charge is expected to stabilize at about 40% in the years after 2017. The company announced a dividend of EUR0.30 per share on 2016 results (a pay-out ratio of 74% and a 2.9% yield at the current market price) and it has indicated a dividend policy with a pay-out ratio of 50% in coming years. This indicates a DPS

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

0.0

50.0

100.0

150.0

200.0

250.0

2013 * 2014 * 2015 2016 2017E 2018E 2019E

Sales EBITDA margin EBIT margin

GPI 26 April 2017

15

of EUR0.33 per share for 2017, EUR0.36 for 2018 and EUR0.40 for 2019 implying an attractive yield of 3.2%-3.8%. GPI reported net debt of EUR9.9 million at Dec-16 with gearing of 0.16x and a net debt/EBITDA ratio of 0.5x, strongly down on the figure for 2015 due to the EUR50.5 million cash-in from the business combination with Capital For Progress 1. In coming years, free cash flow generation should improve thanks to lower capex (expected to remain around EUR5 million p.a.) reaching EUR15 million in 2017 and almost EUR20 million in 2019. Therefore, we estimate net debt of EUR6 million at Dec-17 turning to net cash of EUR3.8 million in 2019 excluding any new acquisitions.

Figure 14 – Financial structure (EURm) Net debt sh ould decli ne due to higher operating cash flow and lower capex.

Source: Company data, UBI Banca estimates * 2013-14 under Italian GAAP, 2015-19 under IFRS

Figure 15 – Net fixed assets and operating NWC Net fixed assets should decrease slightly in 2017-19 as D&A exceeds capex while operating NWC is expected to remain at around 16% of revenues.

Source: Company data, UBI Banca estimates * * 2013-14 under Italian GAAP, 2015-19 under IFRS

GPI’s operating net working capital has always been high (an average of 170 days for trade receivables in 2014-16 vs. around 100 days for trade payables) but we expect a gradual improvement as revenues to private institutions, which normally have shorter payment periods, increase and as the business mix changes. Net fixed assets have grown significantly in the past two years to over 42% of the value of production in 2016 due to the presence of significant goodwill (EUR11.8 million) and capitalized “non-recurring costs related to clients” (EUR10.7 million at Dec-16). This resulted in average capital turnover (sales / capital employed) of 1.88x in the past four years and gave a ROCE of 12.4% in 2016, a sound improvement compared with 2013-15. We forecast a gradual improvement in capital turnover in 2017-19 to 2.6x in 2019 mainly due to higher revenues, lower capex and a stable NWC/sales ratio, giving a ROCE that should be 19.5% in 2019. ROCE should remain well above the WACC (estimated at 5.7%) in 2017-19 with good value creation, even if there were no new acquisitions.

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2013 2014 2015 2016 2017E 2018E 2019E

Net Equity Net Debt Gearing Net debt /EBITDA

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2013 2014 2015 2016 2017E 2018E 2019E

Net fixed assets Operating NWC Op. NWC/ Sales

GPI 26 April 2017

16

Figure 16 – NOPAT margin, Capital Turnover and ROCE trend

Source: Company data, UBI Banca estimates * Under Italian GAAP

Figure 17 – ROACE Tree


0.00

0.50

1.00

1.50

2.00

2.50

3.00

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2013 * 2014 * 2015 2016 2017E 2018E 2019E

Nopat margin (LH) ROCE (LH) Capital turnover (RH)

Raw materials/Sales

4.1%

Services/Sales

EBIT/Sales 27.3%

11.1% Personnel/Sales

Pre-tax ROACE 51.9%

11.1% Other/Sales

ROCE tree (2017E) ROACE 1.9%

16.0%

Cash tax rate on EBIT NWC/Sales

40.0% 15.6%

Sales/CE Net fixed assets/Sales

2.41 32.4%

Other/Sales

0.0%

GPI 26 April 2017

17

Valuation

Our target price of EUR14.0 per share, excluding any conversion of warrants, is based on the average of a DCF analysis (50% weight) and a relative valuation (50% weight), after having applied a 20% liquidity discount for the listing on the AIM market and the modest liquidity of the shares. The discount would certainly narrow if the shares transfer to the MTA or the STAR segments of the stock market as this would guarantee an increase in the liquidity of the shares. At our target price, GPI trades at 9.0x 2017 EV/EBITDA, which remains well below the average multiple of our peer sample (12.5x). For comparative purposes, it is worth noting that in June 2016 Dedalus, the main competitor of GPI and the leader in the Italian market with a 14.4% market share (source: Osservatorio Netics 2016) acquired 100% of Noemalife, a listed company active in healthcare software for nearly EUR62 million (including the cost of the subsequent tender offer), which is a 2015 (the last available financial statement) EV/EBITDA of 8.0x, an EV/Sales of 1.39x, an EV/EBIT of 36.0x and a P/E of 70.5x. These multiples are well above the current 2016A multiples of GPI (EV/EBITDA 8.3x, EV/Sales 1.22x, EV/EBIT 10.9x and P/E 23.8x) and above the implied multiples of the business combination (EV/EBITDA 7.3x, EV/Sales 1.18x, EV/EBIT 10.6x and P/E 16.0x).

Figure 18 – Valuation summary

(EUR) Weight

DCF Valuation 17.79 50.0% 8.89

Relative Valuation 17.18 50.0% 8.59

Fair value 17.48

20% discount

(3.50)

Target price 14.00

Current price

10.80

Potential upside

29.5%


DCF Our prudent DCF model (below the 20% discount) gives a fair value of EUR17.79

per share. Our model incorporates the following assumptions: > a risk-free rate of 2.5%, which is our long-term assumption for the interest rate

on Italian bonds (2% inflation target of ECB plus 0.5% real interest, in line with the long term historical average);

> a market risk premium of 4.5%;

> a leveraged beta of 0.75 (0.70 unleveraged), based on the average of the Software (systems and applications), Healthcare support services and Healthcare information and technology industries in Europe (source: Damodaran Jan-17);

> A debt spread of 3%;

> A target debt/equity ratio of 10/90, which is in line with our 2019E forecasts and similar to 2016 (14/86);

> A terminal growth rate of 1% and an operating margin of 11.5% at terminal

GPI 26 April 2017

18

value, which is in line with the 11.2% EBIT margin reported in 2016.

We calculated a WACC of 5.65%.

Figure 19 - WACC and embedded DCF assumptions

WACC assumptions Embedded DCF assumptions

Risk-free rate 2.5% Revenue CAGR 2017-2025 (%) 3.4%

Debt spread (%) 3.0% Target EBIT margin 2025 (%) 11.5%

Cost of debt [net] (%) 3.7% D&A. on sales (avg. 2017-2025) (%) 3.9%

Market risk premium (%) 4.5% Capex on sales (avg. 2017-2025) (%) 5.1%

Beta (x) 0.75

Cost of equity (%) 5.9%

Weight of Debt 10%

Weight of Equity 90%

WACC 5.65%


Figure 20 – DCF Valuation

Our DCF valuation implies an EV/EBITDA of 7.8x at t erminal value

Valuation (EUR m) % Weight Per share (EUR)

Sum of PV 2017-25 FCF 85.6 30% 5.61

Terminal value 200.2 70% 13.11

Total Enterprise value 285.8 100% 18.72

- minorities 0.0 0.00

- Pension provision (4.4) (0.29)

- Net cash (debt) (9.9) (0.65)

Total Equity value 271.5 17.79

Number of shares outstanding (m) 15.3

Fair value per share (EUR) 17.79


Our valuation shows limited sensitivity to the terminal growth rate (increasing it from 1% to 2% our fair value would increase by 21%) and WACC although a lower beta and/or stronger growth would increase our DCF fair value.

Figure 21 – Sensitivity analysis

g / WACC 0.00% 0.50% 1.00% 1.50% 2.00%

6.50% 13.77 14.59 15.57 16.74 18.17

6.00% 14.67 15.64 16.81 18.23 20.01

5.50% 15.72 16.88 18.29 20.07 22.35

5.65% 15.36 16.46 17.79 19.44 21.54

4.50% 18.43 20.19 22.45 25.46 29.67

4.00% 20.26 22.51 25.50 29.70 35.99

3.50% 22.57 25.55 29.73 35.99 46.43


GPI 26 April 2017

19

Relative valuation GPI has no directly comparable peers that are listed, although there are several

listed companies, particularly in the US, active in healthcare services and IT solutions for private and public healthcare systems (see appendix for more details) that include four companies with market capitalisations of over EUR2 billion. Our sample of companies reported high single digit average growth sales in the past few years with an average EBITDA margin of around 23% in 2015-16, well above that of GPI. We have excluded McKesson Corporation from our sample given its significant size (revenues of >USD190 billion) and because it is mainly a distributor (and consequently has very low margins). We also excluded two Italian companies (Exprivia and Reply) that generate a limited part of their total business from the healthcare industry.

Figure 22 – Peer sample and comparison of sales and EBITDA

(EURm) Market Country Sales EBITDA % margin

Company Cap 2015 2016 2017 2015 2016 2017 2015 2016 2017

Allscripts Healthcare Solutions 1,991 USA 1,276 1,482 1,575 223 286 309 17.5% 19.3% 19.6%

Athenahealth 4,327 USA 851 1,004 1,178 170 231 282 19.9% 23.0% 23.9%

Cegedim 342 France 510 441 468 79 61 69 15.4% 13.9% 14.8%

Cerner Corporation 17,941 USA 4,074 4,515 4,739 1,334 1,458 1,563 32.7% 32.3% 33.0%

CompuGroup Medical 2,328 Germany 543 562 637 112 126 152 20.6% 22.4% 23.9%

Computer Programs and Systems 334 USA 168 252 249 36 46 45 21.2% 18.1% 18.2%

Craneware 378 UK 40 47 53 13 15 17 33.0% 31.7% 31.3%

EMIS Group 667 UK 212 183 198 68 57 60 32.1% 31.3% 30.1%

NEXUS 330 Germany 97 108 116 19 21 24 19.8% 19.6% 20.9%

Pharmagest Interactive 580 France 114 128 141 31 35 39 27.4% 27.2% 27.4%

Quality Systems 804 USA 453 463 477 77 77 85 17.0% 16.6% 17.8%

Total sales / Average EBITDA margin 8,337 9,184 9,833 23.3% 23.2% 23.7%

GPI 167 89 136 174 8 20 26 9.0% 14.8% 14.9%

Source: Company data, Factset, UBI Banca estimates

Overall, GPI is trading at a significant discount to its direct peers (38% on average), mainly due to its smaller size compared to other competitors and its lower margins. Based on a relative 2017-1 P/E, GPI would be valued at EUR15.07 per share while on EV/EBITDA it would be valued at EUR19.29 per share. The average of these two valuations gives EUR17.18 per share. If we were to apply the average multiples of Italian peers (Exprivia and Reply, that were, however, excluded from our sample) the fair value would be EUR11.67 per share.

GPI 26 April 2017

20

Figure 23 – Peer comparison and valuation based on multiples (priced on 25 April 2017)

Company Market Cap P/E EV/EBITDA Share performance

(EURm) 2017E 2018E 2017E 2018E One Month Three months One year

Allscripts Healthcare Solutions 1,991 19.2 x 16.7 x 9.1 x 8.6 x -1.02% 2.59% 13.37%

Athenahealth 4,327 48.6 x 39.3 x 15.6 x 12.8 x 8.94% -4.98% 9.81%

Cegedim 342 17.5 x 11.8 x 8.2 x 6.8 x -6.12% -14.65% -6.83%

Cerner Corporation 17,941 23.8 x 21.5 x 11.4 x 10.1 x 1.77% 11.82% 21.15%

CompuGroup Medical 2,328 23.8 x 19.0 x 17.2 x 14.4 x 7.51% 16.34% 12.33%

Computer Programs and Systems 334 15.6 x 14.2 x 10.4 x 9.2 x -0.18% 18.55% 10.24%

Craneware 378 32.4 x 28.5 x 19.9 x 17.0 x -1.94% -8.46% -9.63%

EMIS Group 667 18.6 x 17.9 x 10.9 x 10.8 x 4.16% -5.01% -6.71%

NEXUS 330 28.5 x 24.0 x 12.9 x 10.8 x 6.54% 6.36% 17.32%

Pharmagest Interactive 580 24.8 x 23.1 x 13.1 x 11.7 x 9.29% 9.13% 9.44%

Quality Systems 804 16.7 x 15.9 x 8.9 x 7.8 x -5.60% 0.39% 3.29%

Average 24.5 x 21.1 x 12.5 x 10.9 x 2.12% 2.92% 6.71%

Median 23.8 x 19.0 x 11.4 x 10.8 x 1.77% 2.59% 9.81%

GPI at market price 167 16.3 x 14.3 x 7.0 x 6.2 x 12.56% 6.93% 3.35%

Premium (discount) to average -33.6% -32.3% -43.7% -42.8%

Valuation of GPI based on median 15.79 14.34 18.81 19.76

Source: Factset, UBI Banca estimates

At our EUR14.00 per share target price, GPI would trade at 9.0x 2017 EV/EBITDA, which is still below the average multiple of our sample of peers (12.5x) and on a P/E of 21.1x (vs. an average of 24.5x).

Figure 24 – Implicit multiples based on our EUR14.0 target price

(x) 2017E 2018E 2019E

P/E 21.09 x 18.50 x 16.60 x

EV/EBITDA 8.99 x 8.01 x 7.18 x

EV/EBIT 12.05 x 10.55 x 9.35 x

EV/Sales 1.34 x 1.25 x 1.17 x

P/BV 3.34 x 3.10 x 2.87 x

P/CF 14.55 x 13.20 x 11.11 x

EV/ Capital employed 3.22 x 3.11 x 3.04 x


GPI 26 April 2017

21

Appendix: short description of listed competitors

Allscripts Healthcare Solutions engages in the provision of clinical, financial, connectivity, information solutions, and related professional services. It operates through Clinical and Financial Solutions, and Population Health segments. The Clinical and Financial Solutions segment involves the sale of clinical software applications and financial and information solutions. The Population Health segment offers health management and coordinated care solutions. The company was founded in 1986 and is headquartered in Chicago (USA). Athenahealth provides cloud-based business services and mobile applications for medical groups and health systems. It also provides ongoing billing, clinical-related, and other related services to customers. The company offers practice management and electronic health record services. Its service offerings are based on proprietary web-native practice management and electronic health record software, which offer payer knowledge-base and integrated back-office service operations and care coordination services. Athenahealth was founded in 1997 and is headquartered in Watertown (USA). Cegedim is in the medical analytics industry. Its services include data collection, distribution, management, and processing. The company products are technological tools and software for information flow. It also offers services to the healthcare industries, life sciences companies, healthcare professionals and insurance companies. Cegedim was founded in 1969 and is headquartered in Boulogne-Billancourt, France. Cerner Corp. designs, develops, markets, installs, hosts and supports health care information technology, health care devices, hardware and content solutions for health care organizations and consumers. It also provides a wide range of value-added services, including implementation and training, remote hosting, operational management services, revenue cycle services, support and maintenance, health care data analysis, clinical process optimization, transaction processing, employer health centers, employee wellness programs and third party administrator services for employer-based health plans. Cerner was founded in 1979 and is headquartered in North Kansas City (USA). CompuGroup Medical provides e-Health solutions for the healthcare industry. It operates through the following segments: Health Provider Services I, Health Provider Services II, and Health Connectivity Services. The Health Provider Services I segment deals with software solutions for physicians, dentists, and pharmacists. The Health Provider Services II segment includes developing and selling hospital, laboratory, and special care information systems. The Health Connectivity Services segment offers products and services to facilitate networking. Founded in 1987, the company is headquartered in Germany. Computer Programs & Systems provides healthcare information technology solutions. It designs, develops, markets, installs, and supports computerized information technology systems. It offers health information and clinical management, strategic decision support, resource planning management, and enterprise application to healthcare organizations. The company was founded in 1979 and is headquartered in Mobile (USA). Craneware is active in the development, licensing and ongoing support of computer software for the U.S. healthcare industry. Its software-as-a-service solutions help hospitals and other healthcare providers. It offers revenue cycle, access management & strategic pricing, supply management, audit & revenue recovery and professional services. The company was founded in May 1999 and is headquartered in Edinburgh (UK).

GPI 26 April 2017

22

EMIS Group provides healthcare software and services. Its solutions include healthcare setting from primary and community care, street pharmacies, secondary care and specialist services. The company also focuses on hospital pharmacy, mental health, order communications and patient administration systems under Ascribe and Digital Healthcare brands. It operates through three segments: Primary & Community Care, Community Pharmacy and Secondary & Specialist Care. EMIS Group was founded in 1987 and is headquartered in Yeadon, UK. NEXUS develops and sells software and hardware solutions for hospitals, psychiatric institutions, and rehabilitation and social institutions. It operates its business through Healthcare Software and Healthcare Services segments. The Healthcare Software segment provides software products. The Healthcare Services provides Information technology outsourcing services for institutions in the healthcare system in Germany. NEXUS is headquartered in Germany. Pharmagest Interactive develops management software packages for drugstores. Its services include training of employees, software technical support and assistance, provision of computer equipment and technical expertise services. The company was founded in 1996 and is headquartered in Villers-les-Nancy, France. Quality Systems develops and markets systems for electronic health records, practice management, revenue cycle management, and interoperability solutions. Its services include software suites sold to dental group organizations, integrated clinical, financial and connectivity solutions for ambulatory and dental provider organizations, revenue cycle management optimization services enabled by technology including billing and collections, claims submissions and reconciliation, electronic remittance and payment posting, accounts receivable management, patient client service, advance analytics. The company was founded in 1974 and is headquartered in Irvine (USA). McKesson Corp . is a health services and information technology company, which provides medicines, pharmaceutical and care management products. It distributes ethical and proprietary drugs, medical-surgical supplies and equipment and health and beauty care products throughout North America and also provides specialty pharmaceutical solutions for biotech and pharmaceutical manufacturers and sells financial, operational and clinical solutions for pharmacies. In addition, the company provides software, automation, business services and consulting to hospitals, physician offices, imaging centers and home healthcare. It also provides interactive connectivity services that streamline clinical, financial and administrative communication between patients, providers, payers, and pharmacies. The company was founded in 1833 and is headquartered in Wilmington, (USA). Exprivia provides process consultancy, technology services and Information Technology (IT) solutions. It operates in the following market segments which are supported by the group's specialists: Banks, Financial Institutions and Insurance; Industry and Aerospace; Energy; Telecommunications and Media; Health and Healthcare; Utilities and Public Administration. The Health and Healthcare segment specializes in innovative solutions for all areas of patient care, including for the management and control at regional level and for local care provided by local healthcare providers and for hospital care. The company was founded in 2005 and is headquartered in Molfetta, Italy. Reply creates and implements solutions based on new communication channels and digital media. It supports the main European industrial groups in defining and developing new business models utilizing big data, cloud computing, customer relationship management, mobile, social media and Internet of Things paradigms. It also offers consultancy, system integration and application management and business process outsourcing. The company was founded in 1996 and is headquartered in Turin, Italy.

GPI 26 April 2017

23

Income Statement

(EURm) 2016 2017E 2018E 2019E

Net Revenues 136.16 173.52 182.52 191.26

EBITDA 20.09 25.77 28.56 31.15

EBITDA margin 14.8% 14.9% 15.6% 16.3%

EBIT 14.78 19.24 21.69 23.94

EBIT margin 10.9% 11.1% 11.9% 12.5%

Net financial income /expense -2.46 -1.94 -1.74 -1.54

Associates & Others 0.00 0.00 0.00 0.00

Profit before taxes 12.32 17.29 19.95 22.41

Taxes -5.72 -6.75 -7.94 -9.05

Minorities & discontinuing ops -0.26 -0.29 -0.31 -0.33

Net Income 6.34 10.26 11.70 13.03


Balance Sheet

(EURm) 2016 2017E 2018E 2019E

Net working capital 25.02 27.09 29.42 30.34

Net Fixed assets 57.80 56.18 55.15 54.61

M/L term funds -11.58 -11.19 -11.12 -11.38

Capital employed 71.24 72.08 73.46 73.56

Shareholders' equity 60.39 64.84 69.89 75.49

Minorities 0.95 1.23 1.54 1.87

Shareholders' funds 61.34 66.07 71.43 77.36

Net financial debt/(cash) 9.90 6.01 2.02 -3.79


Cash Flow Statement

(EURm) 2016 2017E 2018E 2019E

NFP Beginning of Period 37.76 9.90 6.01 2.02

Group Net Profit 6.34 10.26 11.70 13.03

Minorities 0.26 0.29 0.31 0.33

D&A 5.17 6.39 6.71 7.05

Change in Funds & TFR 0.00 0.00 0.00 0.00

Gross Cash Flow 11.77 16.94 18.72 20.40

Change In Working Capital -14.14 -2.07 -2.33 -0.92

Other 0.00 0.00 0.00 0.00

Operating Cash Flow -2.37 14.87 16.39 19.48

Net Capex -21.46 -6.40 -7.30 -8.10

Other Investments 0.00 0.00 0.00 0.00

Free Cash Flow -23.84 8.47 9.09 11.38

Dividends Paid -1.80 -4.58 -5.10 -5.56

Other & Chg in Consolid. Area 3.10 0.00 0.00 0.00

Chg in Net Worth & Capital Incr. 50.50 0.00 0.00 0.00

Change in NFP 27.96 3.89 3.99 5.82

NFP End of Period 9.80 6.01 2.02 -3.79


GPI 26 April 2017

24

Financial Ratios

(%) 2016 2017E 2018E 2019E

ROE 10.5% 15.8% 16.7% 17.3%

ROI 22.0% 23.2% 25.8% 28.2%

Net Fin. Debt/Equity (x) 0.2 0.1 0.0 -0.0

Net Fin. Debt/EBITDA (x) 0.5 0.2 0.1 -0.1

Interest Coverage 5.9 9.6 12.0 14.9

NWC/Sales 18.4% 15.6% 16.1% 15.9%

Capex/Sales 15.8% 3.7% 4.0% 4.2%

Pay Out Ratio 72.2% 49.7% 47.6% 47.4%


Per Share Data

(EUR) 2016 2017E 2018E 2019E

EPS 0.42 0.66 0.76 0.84

DPS 0.30 0.33 0.36 0.40

Op. CFPS -0.16 0.96 1.06 1.26

Free CFPS -1.56 0.55 0.59 0.74

BVPS 3.96 4.20 4.52 4.88


Stock Market Ratios

(x) 2016 2017E 2018E 2019E

P/E 23.8 16.3 14.3 12.8

P/OpCFPS nm 11.2 10.2 8.6

P/BV 2.5 2.6 2.4 2.2

Dividend Yield (%) 3.0% 3.1% 3.3% 3.7%

Free Cash Flow Yield (%) -15.8% 5.1% 5.4% 6.8%

EV (EURm) 166.0 181.4 178.2 173.1

EV/Sales 1.22 1.05 0.98 0.91

EV/EBITDA 8.3 7.0 6.2 5.6

EV/EBIT 11.2 9.4 8.2 7.2

EV/Capital Employed 2.3 2.5 2.4 2.4


Growth Rates

(%) 2016 2017E 2018E 2019E

Growth Group Net Sales 52.4% 27.4% 5.2% 4.8%

Growth EBITDA 149.7% 28.3% 10.8% 9.1%

Growth EBIT nm 30.2% 12.8% 10.4%

Growth Net Profit nm 64.7% 14.0% 11.4% Source: Company data, UBI Banca estimates

GPI 26 April 2017

25

Disclaimer Analyst Declaration

This research report (the “Report”) has been prepared by Marco Cristofori on behalf of UBI

Banca S.p.A. (“UBI Banca”). UBI Banca is an Italian bank supervised by the European

Central Bank and is duly authorised to provide investment services pursuant to Article 1,

Paragraph 5, letter a), b), c), c-bis), e) and f) of the Legislative Decree 24 February 1998, n°

58 under the supervision of Consob. UBI Banca has its head office at Piazza Vittorio Veneto

8, 24122 Bergamo.

The analyst who prepared the Report, and whose name and role appear on the front page,

certifies that:

a. the views expressed on the company mentioned herein (the “Company”)

accurately reflects his personal views. It does not represent the views or opinions

of UBI Banca, its management or any other company which is part of or

affiliated to the UBI Banca group (the “UBI Banca Group”). It may possible that

some UBI Banca Group’s employees may disagree with the views expressed in

this Report;

b. he has not received and will not receive any direct or indirect compensation in

exchange for any views expressed in this Report;

c. the analyst does not own any securities and/or any other financial instrument

issued by the Company or any financial instrument whose price depends on or is

linked to any securities and/or any financial instrument issued by the Company;

d. neither the analyst nor any member of the analyst’s household serves as an

officer, director or advisory board member of the Company;

e. the remuneration of the analyst is not directly tied to transactions in services of

investment firms or other type of transactions it or any legal person part of the

same group performs, or to trading fees it or any legal person that is part of the

same group receives;

f. the analyst named in the document is member of AIAF.

General disclosure

This Report is for information purposes only. This Report (i) is not, nor may it be construed,

to constitute, an offer for sale or subscription of or a solicitation of any offer to buy or

subscribe for any securities issued or to be issued by the Company, (ii) should not be

regarded as a substitute for the exercise of the recipient’s own judgement. In addition, the

information included in this Report may not be suitable for all recipients. Therefore the

recipient should conduct his own investigations and analysis of the Company and securities

referred to in this document and make his own investment decisions without undue

reliance on its contents. Neither UBI Banca, nor any other company of the UBI Banca

Group, nor any of its directors, managers, officers or employees, accepts any direct or

indirect liability whatsoever (in negligence or otherwise), and accordingly no direct or

indirect liability whatsoever shall be assumed by, or shall be placed on, UBI Banca, or any

other company of the UBI Banca Group, or any of its directors, managers, officers or

employees, for any loss, damage, cost, expense, lower earnings howsoever arising from

any use of this Report or its contents or otherwise arising in connection with this Report.

The information provided and the opinions expressed in this Report are based upon

information and data provided to the public by the Company or news otherwise public and

refers to the date of publication of the Report. The sources (press publications, financial

statements, current and periodic releases, as well as meetings and telephone

conversations with the Company’s representatives) are believed to be reliable and in good

faith, but no representation or warranty, express or implied, is made by UBI Banca as to

GPI 26 April 2017

26

their accuracy, completeness or correctness. Past performance is not a guarantee of future

results. Any opinions, forecasts or estimates contained herein constitute a judgement as at

the date of this Report, and there can be no assurance that the future results of the

Company and/or any future events involving directly or indirectly the Company will be

consistent with any such opinions, forecasts or estimates. Any information herein is subject

to change, update or amendment without notice by UBI Banca subsequent to the date of

this Report, with no undertaking by UBI Banca to notify the recipient of this Report of such

change, update or amendment.

Organizational and administrative arrangements to prevent conflicts of interests

UBI Banca maintains procedures and organizational mechanism (physical and non physical

barriers designed to restrict the flow of information between the unit which performs

investment research activity and other units of UBI Banca) to prevent and professionally

manage conflicts of interest in relation to investment research.

For further information please see UBI Banca’s website (www.ubibanca.com/equity-

research) “Informativa sintetica sull’attività di ricerca”.

Disclosure of potential conflicts of interest

In relation to the Company the following potential conflict of interest have been found:

> UBI Banca acts as Specialist for GPI

> UBI Banca may have long or short positions with the issuer

On the basis of the checks carried out no other conflict of interest arose.

Frequency of updates

UBI Banca aims to provide continuous coverage of the companies in conjunction with the

timing of periodical accounting reports and any exceptional event that occurs affecting the

issuer’s sphere of operations and in any case at least twice per year. The companies for

which UBI Banca acts as Sponsor or Specialist are covered in compliance with regulations

of the market authorities.

For further information please refer to www.ubibanca.com/equity-research

Valuation methodology

UBI Banca’s analysts value the Company subject to their recommendations using several

methods among which the most prevalent are: the Discounted Cash Flow method (DCF),

the Economic Value Added method (EVA), the Multiple comparison method, the SOP

method and the NAV method.

The analysts use the above valuation methods alternatively and/or jointly at their

discretion. The assigned target price may differ from the fair value, as it also takes into

account overall market/sector conditions, corporate/market events, and corporate

specifics (i.e. holding discounts) reasonably considered to be possible drivers of the

company’s share price performance. These factors may also be assessed using the

methodologies indicated above.

For further information please refer to www.ubibanca.com/equity-research.

Ranking system

UBI Banca’s analysts use an “absolute” rating system, not related to market performance.

The explanation of the rating system is listed below:

GPI 26 April 2017

27

Buy: if the target price is 10% higher than the market price, over the next 12 months.

Hold: if the target price is 10% below or 10% above the market price, over the next 12

months.

Sell: if the target price is 10% lower than the market price, over the next 12 months.

No Rating: the investment rating and target price have been suspended as there is not

sufficient fundamental basis for determining an investment rating or target. The previous

investment rating and target price, if any, are no longer in effect. Alternatively, No Rating

is assigned in certain circumstances when UBI Banca is acting in any advisory capacity in a

strategic transaction involving the Company.

Target price: the market price that the analyst believes that the share may reach within a

one-year time horizon.

Market price: closing price on the day before the issue date of the report, appearing on the

first page.

Distribution

Italy: This document is intended for distribution in electronic form to “Professional Clients”

and “Qualified Counterparties” as defined by Legislative Decree 24 February 1998, n. 58

and by Consob Regulation n. 16190 dated 29.10.2007, as further amended and

supplemented.

This Report has been released within 30 minutes from the timing reported on the front

page.

Copyright

This Report is being supplied solely for the recipient’s information and may not be

reproduced, redistributed or passed on, directly or indirectly to any other person or

published, in whole or in part, for any purpose without prior written consent of UBI Banca.

The copyright and intellectual property rights on the data are owned by UBI Banca Group,

unless otherwise indicated. The data, information, opinions and valuations contained in

this Report may not be subject to further distribution or reproduction, in any form or via

any means, even in part, unless expressly consented by UBI Banca.

By accepting this Report the recipient agrees to be bound by all of the forgoing provisions.

Distribution of ratings

Equity rating dispersion in the past 12 months

Buy Hold Sell No Rating

92.3% 3.8% 0.0% 3.8%

Proportion on issuers to which UBI Banca has supplied investment banking services

relating to the last 12 months

Buy Hold Sell No Rating

100% 100% - 100%

For further information regarding yearly and quarterly rating statistics and descriptions,

please refer to www.ubibanca.com/equity-research.

gpi 26 april 2017 initiation - ubi banca 26 april 2017 initiation... · manzana, who still manages...

Documents