Eye-Catching Discount Vs. Peers Closing Price (30/01) €11.35

GREECE | EQUITY RESEARCH | INDUSTRIALS

January 31, 2014

COMPANY UPDATE

METKA Recommendation BUY Target Price €15.00 Eye-catching discount vs. peers Closing Price (30/01) €11.35

Backlog replenishment in progress – According to recent press reports, a Market Cap (mn) €589.6 consortium consisting of METKA, Xanthakis ATE and Thales has made the best offer for a EUR273mn railway project in Greece. The project, commissioned by the Expected Return 33.0% ERGA OSE, relates to construction work at a railway track, to be co-financed by EU Expected Dividend 6.8% funds. Although it has not been officially confirmed by the company, it is our view Expected Total Return 39.8% that the risk for METKA’s consortium not winning the project is minimal, given the significantly higher discount that METKA offered in relation to its competitors and METKA Share Price for this reason, we have included it in our backlog. 14.50 Update on USD1.0bn contract in Iraq – We have no reason to doubt METKA’s ability to complete the Iraqi project in a successful and timely fashion, despite the 13.50 size of the contract and the high execution risk due to geopolitical reasons. As a result, in a long overdue decision, we have opted to include the USD1bn project in 12.50 our backlog although many variables have yet to be determined. We remind 11.50 however that in the past METKA had decided to disengage from a similar project (Megalopoli V sale to GEK TERNA) in order to release capital for re-investment and 10.50 it would not surprise if it opted to disengage from this project as well. Whatever the company opts to do, we believe there is significant value stemming from the 9.50 award of the project, which is now reflected in our valuation. 8.50 Estimates revision – We have re-visited our model for METKA to include the new Jan-13 Apr-13 Jun-13 Aug-13 Nov-13 Jan-14 projects in Greece and Iraq. At the same time, we have streamlined our sales forecasts for the company’s remaining projects. We assume that the mgt’s special Stock Data measures will continue delivering positive results at both projects in Syria and Reuters RIC MTKr.AT Bloomberg Code METTK GA contract execution will progress, albeit at a slower pace than we initially anticipated. For this reason, we factor a small delay in contract execution in the 52 Week High (adj.) €14.00 area, which is partly offset by the two new projects. It is worth highlighting 52 Week Low (adj.) €9.40 however that if our 2014e estimates are confirmed, the group will have managed a significant re-profiling of its backlog with the “Syria risk” being alleviated. Abs. performance (1m) -1.0% Valuation - Despite our earnings revision, we retain our EUR15.0 target price since Abs. performance (YTD) -1.0% the small downgrade in 2014e earnings is offset by an upgrade in 2015e stemming from new projects. Our valuation implies a large upside from current levels and we Number of shares 52.0mn highlight that the stock trades at a much more attractive target multiple than the Avg Trading Volume (qrt) 165.2k rest of our universe (the non-financials in our focuslist trade at a 5.6x 2015e Est. 3yr EPS CAGR 3.7% Free Float 43% EV/EBITDA multiple). In fact, the discount of METKA vs. its global peers on 2014e- 2015e EB/EBITDA multiples has widened significantly to over 50% from 20%-30% Analysts historically. For this reason, we retain our Buy recommendation and also maintain Katerina Zaharopoulou METKA in our Top picks portfolio, taking into account the potential for significant Equity Analyst cash flow generation and dividend capacity. On our target price, the group trades Tel: +30 210 37 20 252 at a 10.0x 2015e PE and a 4.4x EV/EBITDA. E-mail: [email protected]

Estimates John Kalantzis EUR mn 2011a 2012a 2013e 2014e 2015e Head of Research Revenues 1,003.7 547.5 564.3 719.7 721.6 EBITDA 161.4 92.7 95.6 117.1 117.4 Tel: +30 210 37 20 118 Net Profit 115.0 70.1 62.4 76.4 78.1 E-mail: [email protected]

EPS 2.21 1.35 1.20 1.47 1.50 Head of Research DPS* 0.75 0.25 0.77 0.69 0.74 Tel: +30 210 37 20 118

Valuation Sales 2011a 2012a 2013e 2014e 2015e P/E 5.1 8.4 9.5 7.7 7.6 Tel: +30 210 37 20 119

EV/EBITDA 2.7 5.4 4.1 2.9 2.8 Trading EBIT/Interest expense 11.5 7.0 7.9 8.4 9.5 Tel: +30 210 37 20 168/110 Yield 6.6% 2.2% 6.8% 6.1% 6.5% ROE 33.9% 18.9% 15.9% 17.6% 16.5% See Appendix for Analyst Certification and * DPS / Capital return important disclosures

METKA January 31, 2014

Update on new projects

According to recent press reports, a consortium consisting of METKA, Xanthakis ATE and Thales has made the best offer for a EUR273mn railway project in Greece. The project is commissioned by the ERGA OSE (a.k.a.Ergose), a subsidiary of the Greek railway organization OSE responsible for planning, development and management of all ongoing railway projects in the country. It relates to construction work at a railway track (Athens-Patras), to be co- financed by EU funds. It is expected to be completed within two years upon the signing of the contract, which is estimated to take place during the summer. Reportedly, METKA’s consortium has offered the largest discount (17.24%) while other participants in the tender were Archirodon (offering a 9.5% discount) and a consortium consisting of Aktor, J&P Avax and Intrakat (offering a 8.5% discount).

Although it has not been officially confirmed by the company, it is our view that the risk for METKA’s consortium not winning the project is minimal, given the significantly higher discount in relation to its competitors. For this reason, we have included the project in our backlog, adjusting our sales and profitability estimates accordingly. Due to the complexity of the project, we expect it to bear quite decent EBITDA margins (close to those of motorway projects), albeit lower than the group’s average. All in all, we think it is a positive development for METKA which strengthens and further diversifies its backlog.

At the same time, in a long overdue decision, we have opted to include the USD1bn Iraqi project in our backlog despite the fact that many variables have yet to be determined.

Recall that on July 1st, 2013, a consortium consisting of METKA S.A. and its subsidiary METKA Overseas signed an agreement with the Ministry of Electricity in Iraq in relation to the engineering, procurement and construction of a EUR1.0bn turnkey CCGT project in the area. The project relates to the construction of a reported 1,642MW CCGT plant in al-Anbar and will be carried out during a period of 32 months. According to press reports, apart from METKA, Italian Saipem, South Korean Hyundai Engineering, Turkish Gama and a consortium consisting of Italian Techint Engineering and Turkish Calik were in the shortlist to win the project. The company has also given notice that the project will be carried out in collaboration with Chinese state-controlled construction company SEPCO III, which has acquired METKA Overseas. The final details of the project execution agreement are still under negotiation.

We have no reason to doubt METKA’s ability to complete the project in a successful and timely fashion, despite the size of the contract and the high execution risk due to geopolitical reasons and for this reason we have included it in our backlog.

We remind however that in the past METKA had decided to disengage from a similar project commissioned by PPC (Megalopoli V sale to GEK TERNA) in order to release capital for re- investment and it would not surprise if it opted to disengage from this project altogether. Whatever the company opts to do, we believe there is significant value stemming from the award of the project, which is now reflected in our valuation.

METKA January 31, 2014

Estimates revision

We have re-visited our model for METKA to include the aforementioned projects in Greece and Iraq. At the same time, we have streamlined our sales forecasts for the company’s remaining projects. We assume that the mgt’s special measures1 will continue delivering positive results at both projects in Syria and contract execution will progress, albeit at a slower pace than we initially anticipated. For this reason, we factor a small delay in contract execution in the area, which is partly offset by the two new projects. It is worth highlighting that if our 2014e estimates are confirmed, the group will have managed a significant re- profiling of its backlog with the “Syria risk” being alleviated.

We have made no changes to our assumptions for 2013e while we lower our 2014e sales and ebitda estimates by c.5% reflecting a delay in contract execution in Syria, partly offset by increased sales in Iraq and Greece. We also raise our 2015e forecasts by 14% in terms of sales and 10% in terms of EBITDA, reflecting the two aforementioned projects, albeit at slightly lower profitability margins than initially anticipated.

We leave our working capital assumptions unchanged and as a result, we have made no significant changes in our net cash assumptions.

METKA | Estimates Revision 2013e 2014e 2015e EUR mn old est. new est. Revision old est. new est. Revision old est. new est. Revision

Sales 564.3 564.3 0.0% 754.7 719.7 -4.6% 635.1 721.6 13.6%

EBITDA 95.6 95.6 0.0% 127.6 117.1 -8.3% 107.1 117.4 9.6% EBITDA Margin 16.9% 16.9% 0 bps 16.9% 16.3% -65 bps 16.9% 16.3% -60 bps

Net Profit 62.4 62.4 0.0% 83.8 76.4 -8.8% 71.6 78.1 9.0%

DPS 0.77 0.77 0.0% 0.76 0.69 -8.8% 0.68 0.74 9.0%

Group Free Cash Flow * 147.6 147.6 0.0% 100.7 89.8 -10.8% 45.2 48.7 7.9%

Working Capital 166.0 166.0 0.0% 149.4 152.9 2.3% 176.3 182.7 3.6%

Net Debt / (Cash) * -200.4 -200.4 0.0% -262.2 -254.8 -2.8% -272.8 -265.8 -2.6%

Source: Eurobank Equities Research

1 The mgt took special measures and resumed activities at the Deir Ali plant during Q1 2013. It has established an office in Lebanon (2 ½ hour drive from Damascus) and it now has remote control in many operations and is proceeding “in a very specific way and with a lot of extra measures”. 3

METKA January 31, 2014

Valuation

Despite our earnings revision, we retain our EUR15.0 target price since the small downgrade in 2014e earnings is offset by an upgrade in 2015e stemming from new projects. Our valuation implies a large upside from current levels and we highlight that the stock trades at a much more attractive target multiple than the rest of our universe (the non-financials in our focuslist trade at a 5.6x 2015e EV/EBITDA multiple). In fact, the discount of METKA vs. its global peers on 2014e-2015e EB/EBITDA multiples has widened significantly to over 50% from 20%-30% historically. For this reason, we retain our Buy recommendation and also maintain METKA in our Top picks portfolio, taking into account the potential for significant cash flow generation and dividend capacity.

We remind that we have reached to our target price using a blended valuation methodology applying a 50% weight to our DCF and a 50% weight to an assumed exit multiple of 2015e EV/EBITDA of 5.2x, which is in line with 2015e EV/EBITDA multiple of its global peers. On our target price, the group trades at a 10.0x 2015e PE and a 4.4x EV/EBITDA.

METKA | Blended Valuation Target Target Value Prior Value Weight Equity Value Per Share (EUR) Per Share (EUR)

DCF Valuation 50% 745 14.3 14.5 Multiples Valuation 50% 810 15.6 15.5 Target Valuation 777.2 15.0 15.0 Upside / Downside 31.8%

Source: Eurobank Equities Research

Relative Valuation

Our selected universe of EPC contractors2 currently trades at 6.2x 2014e and 5.2x 2015e EBITDA multiples. On our numbers, METKA trades at a heavy >50% discount relative to its global peers on 2014e-2015e EV/EBITDA multiples.

METKA | Relative Valuation EV/EBITDA 2014e 2015e EPC Contractors (BBG Consensus)2 6.2x 5.2

METKA (Eurobank Est.) 2.9x 2.8x Premium / (Discount) -53.7% -47.3% Source: Eurobank Equities Research, Bloomberg

2 Average of JGC, Petrofac, Samsung Engineering, Hyundai Engineering & Construction, AMEC, Jacobs Engineering, AKER Solutions, KBR, GS Engineering & Construction, Daelim Industrial, McDermott, Tecnicas Reunidas, Foster Wheeler, Duro Felguera, Kvaener and Kentz. 4

METKA January 31, 2014

Group Financial Statements

Balance Sheet EUR mn 2011a 2012a 2013e 2014e 2015e

Non-current Assets Property, Plant & Equipment (net) 59.4 57.5 57.3 57.0 56.5 Set-up Expenses (net) 0.1 0.0 0.0 0.0 0.0 Goodwill (net) 1.8 1.8 1.8 1.8 1.8 Investments 11.3 13.8 8.0 8.0 8.0 Deferred Tax Asset 0.7 6.5 6.5 6.5 6.5 Total Non-current Assets 73.2 79.6 73.6 73.3 72.8

Inventories 45.5 37.4 45.0 40.0 40.0 Trade Receivables 456.6 452.0 344.7 357.2 369.7 Other receivables 43.5 50.9 50.9 50.9 50.9 Cash & Equivalents * 168.1 143.3 200.4 254.8 265.8 Current Assets 713.7 683.6 641.0 702.9 726.4

Total Assets 786.9 763.2 714.6 776.2 799.2

Share Capital & Premium 16.6 16.6 16.6 16.6 16.6 Reserves 305.2 336.2 358.7 399.1 438.9 Minority Interest 17.2 17.2 17.7 18.2 18.7 Total Equity 339.1 370.0 392.9 433.9 474.2

LT Loans 0.9 2.7 0.0 0.0 0.0 Provisions 1.3 1.2 1.2 1.2 1.2 Deferred Tax Liability 27.5 45.8 45.8 45.8 45.8 Other Non-current liabilities 65.7 77.0 33.9 72.0 72.2 Long Term Liabilities 95.4 126.8 80.9 119.0 119.2

ST Loans 14.2 48.4 0.0 0.0 0.0 Trade Payables 331.0 207.7 230.5 213.0 195.5 Other Payables 7.4 10.3 10.3 10.3 10.3 Current Liabilities 352.5 266.5 240.8 223.3 205.8

Total Equity & Liabilities 786.9 763.2 714.6 776.2 799.2

Source: Company, Eurobank Equities Research

* In 2012, METKA, through the group’s subsidiary Mytilineos Financial Partners proceeded with an investment in 3-month and 6-month corporate bonds totaling EUR41.3mn (3-month Euribor +6.15% and 4.5% respectively). Although classified under IFRS as a receivable from connected parties, we treat this as a cash equivalent.

METKA January 31, 2014

P&L EUR mn 2011a 2012a 2013e 2014e 2015e

Turnover 1,003.7 547.5 564.3 719.7 721.6 change 72.7% -45.4% 3.1% 27.5% 0.3%

Gross Profit (excl. depreciation) 191.3 118.0 122.6 144.4 144.7 Gross margin 19.1% 21.5% 21.7% 20.1% 20.1% Selling, Administrative & Other Expenses -21.4 -21.8 -21.1 -21.4 -21.4 Fees -8.5 -3.5 -6.0 -6.0 -6.0

EBITDA 161.4 92.7 95.6 117.1 117.4 change 59.3% -42.6% 3.1% 22.5% 0.3% EBITDA margin 16.1% 16.9% 16.9% 16.3% 16.3% Depreciation -4.9 -4.7 -4.2 -4.4 -4.5

EBIT 156.5 88.0 91.3 112.7 112.9 change 62.1% -43.8% 3.8% 23.4% 0.2% EBIT margin 15.6% 16.1% 16.2% 15.7% 15.6% Net Financial Expense / Income -10.6 -7.3 -6.4 -8.8 -6.7 Adjustments 2.9 3.7 0.0 0.0 0.0

Earnings Before Tax 148.8 84.4 84.9 103.9 106.2 change 18.7% -43.3% 0.6% 22.3% 2.2% EBT margin 14.8% 15.4% 15.1% 14.4% 14.7%

Income Tax -32.4 -13.5 -22.1 -27.0 -27.6 Greek levies 0.0 0.0 0.0 0.0 0.0 Effective Tax Rate 21.8% 16.0% 26.0% 26.0% 26.0% Earnings After Tax 116.3 70.9 62.9 76.9 78.6 Minorities -1.3 -0.8 -0.5 -0.5 -0.5

Net Profit 115.0 70.1 62.4 76.4 78.1 change 32.2% -39.1% -11.0% 22.4% 2.3% Net Profit margin 11.5% 12.8% 11.1% 10.6% 10.8%

EPS 2.21 1.35 1.20 1.47 1.50

DPS (regular & special gross) 0.75 0.25 0.77 0.69 0.74

Source: Company, Eurobank Equities Research

METKA January 31, 2014

Cash Flow Statement EUR mn 2011a 2012a 2013e 2014e 2015e

Net Profit 115.0 70.1 62.4 76.4 78.1 Depreciation of Fixed Assets 4.9 4.7 4.2 4.4 4.5 Changes in Working Capital 8.8 104.8 -79.2 -13.1 29.8 Other Adjustments 6.0 9.9 0.0 0.0 0.0

Net Inflows (Outflows) from Operating Activities 117.1 -20.1 145.8 93.8 52.7

Capex 3.9 2.3 4.0 4.0 4.0 Other 0.4 39.0 -5.8 0.0 0.0

Net Inflows (Outflows) from Investing Activities 4.3 41.3 -1.8 4.0 4.0

Free Cash Flow - adjusted 112.9 -61.4 147.6 89.8 48.7

Purchase of bonds * 0.0 41.3 0.0 0.0 0.0

Free Cash Flow - reported 112.9 -20.1 147.6 89.8 48.7

Source: Company, Eurobank Equities Research

*In 2012, METKA, through the group’s subsidiary Mytilineos Financial Partners proceeded with an investment in 3-month and 6-month corporate bonds totaling EUR41.3mn (3-month Euribor +6.15% and 4.5% respectively), recorded under investments (other) for cash flow purposes. Although classified under IFRS as a receivable from connected parties, we treat this as a cash equivalent.

Ratios 2011a 2012a 2013e 2014e 2015e

P/E 5.1 8.4 9.5 7.7 7.6 P/BV 1.8 1.7 1.6 1.4 1.3 P/Sales 0.6 1.1 1.0 0.8 0.8

EV/EBITDA 2.7 5.4 4.1 2.9 2.8 EV/Sales 0.4 0.9 0.7 0.5 0.4

EBIT/Interest expense * 11.5 7.0 7.9 8.4 9.5 Net Debt/EBITDA -0.9 -1.0 -2.1 -2.2 -2.3

Dividend Yield (gross) 6.6% 2.2% 6.8% 6.1% 6.5% ROE 33.9% 18.9% 15.9% 17.6% 16.5%

Cash Flow Yield 19.9% -3.4% 24.7% 15.9% 8.9% Payout Ratio 33.9% 18.5% 64.0% 47.0% 49.0%

Source: Company, Eurobank Equities Research

* Interest expense refers to LoCs cost.

METKA January 31, 2014

Eurobank Equities Investment Firm S.A. 10 Filellinon Street Member of Athens Exchange, 105 57 Athens, Greece Cyprus Stock Exchange and Eurobank Ergasias S.A. Telephone: +30 210-3720 000 Regulated by the Hellenic Capital Markets Commission Facsimile: +30 210-3720 001 Authorisation No: 6/149/12.1.1999 Website: www.eurobankequities.gr VAT No: 094543092, Reg. No. 003214701000 E-mail: [email protected]

IMPORTANT DISCLOSURES

This report has been issued by Eurobank Equities Investment Firm S.A., a member of the Athens Exchange, a member of the Cyprus Stock Exchange and a member of EUROBANK Ergasias S.A. Eurobank Equities Investment Firm S.A.. is regulated by the Hellenic Capital Markets Commission (HCMC) with authorisation number 6/149/12.1.1999.This report may not be reproduced in any manner or provided to any other persons. Each person that receives a copy by acceptance thereof represents and agrees that it will not distribute or provide it to any other person. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell securities mentioned herein. The investments discussed in this report may be unsuitable for investors, depending on their specific investment objectives and financial position. The investments discussed in this report are subject to risks and in respect of some investments there is risk for multiplied losses to be caused in respect to the capital invested. The information contained herein has been obtained from sources believed to be reliable but it has not been verified by Eurobank Equities Investment Firm S.A.. The opinions expressed herein may not necessarily coincide with those of any member of the Eurobank Group. No representation or warranty (express or implied) is made as to the accuracy, completeness, correctness, timeliness or fairness of the information or opinions herein, all of which are subject to change without notice. No responsibility of liability whatsoever or howsoever arising is accepted in relation to the contents hereof by Eurobank Equities Investment Firm S.A. or any of its directors, officers or employees. Eurobank Equities Investment Firm S.A. follows procedures under Eurobank Group policies that set up Chinese Walls, restricting communication between Research and other departments inside the Company or the Group so that Eurobank Equities Investment Firm S.A. complies with regulations on confidential information and market abuse. Eurobank Equities Investment Firm S.A., or any of its related legal persons, does not hold shareholdings exceeding 5% of the total issued share capital in METKA. None of the subject companies mentioned in this report holds shareholdings exceeding 5% of the total issued share capital of Eurobank Equities Investment Firm S.A., or any of its related legal persons. Eurobank Equities Investment Firm S.A., or any of its related legal persons, is not a market maker of METKA. Eurobank Equities Investment Firm S.A., or any of its related legal persons, is not a party to an agreement relating to the production of this report with METKA. EUROBANK Equities Investment Firm S.A, or any of its related investment banking services’ legal persons, has not received compensation for investment banking services provided within the last twelve months from METKA. Eurobank Equities Investment Firm S.A. occasionally trades for own account on investment instruments related to METKA.

Analyst Certification: This report has been written by Katerina Zaharopoulou and John Kalantzis (Equity Analysts).

Analyst Compensation: The remuneration of Katerina Zaharopoulou and John Kalantzis is not tied to the investment banking services performed by Eurobank Equities Investment Firm S.A. or any of its related legal persons. Katerina Zaharopoulou and John Kalantzis did not receive or purchase the shares of METKA prior to a public offering of such shares. Katerina Zaharopoulou and John Kalantzis do not have a significant financial interest in one or more of the financial instruments which are the subject of this report or a significant conflict of interest with respect to the subject companies mentioned in this report a) that are accessible or reasonably expected to be accessible to the persons involved in the preparation of this report or b) known to persons who, although not involved in the preparation of this report, had or could reasonably be expected to have access to this report prior to its dissemination to customers or the public.

Planned Frequency of Updates: Eurobank Equities Investment Firm S.A. provides daily and monthly updates as well as updates on companies based on company-specific developments or quarterly financial results announcements or any other publicly available information.

12-month Rating History of METKA: Date Rating Stock price Target price 31/01/2014 Buy € 11.35 € 15.00 20/11/2013 Buy € 13.50 € 15.00 09/08/2013 Buy € 11.97 € 13.40 17/05/2013 Buy € 12.50 € 13.40 28/03/2013 Buy € 9.40 € 12.70 15/01/2013 Buy € 11.00 € 13.70

Eurobank Equities Investment Firm S.A. Rating System: Stock Ratings Coverage Universe Investment Banking Clients Count Total Count Total Buy 9 31% 3 33% Hold 10 34% 2 20% Sell 4 14% 0 0% Restricted 2 7% 1 50% Under Review 4 14% 0 0% Total 29 100%

Analyst Stock Ratings: Based on a current 12-month view of total shareholder return (percentage change in share price to projected target price plus projected Buy: dividend yield), we recommend that investors buy the stock. Hold: We adopt a neutral view on the stock 12-months out and, on this time horizon, do not recommend either Buy or Sell. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock. Restricted: Under Eurobank Group policy and / or regulations which do not allow ratings Under Review: Our estimates, target price and recommendation are currently under review