Mittel ITALY \ Holding
New Coverage NEW AND DYNAMIC MANAGEMENT IN A SOLID INVESTMENT COMPANY
BUY (n.a.) We initiate coverage with a BUY based on high discount to NAV (40%), solid financial structure, lower risk for banking activity than the other Target: € 4.0 (n.a.) banks and upside potential of recently acquired E.Capital and Hopa. Risk: High Target price € 4.0 PS, applying a 15% discount to NAV of € 4.7 PS
(which implies a 43% upside).
STOCK DATA Price € 2.8 Mittel (MIT) is an investment/merchant bank that is simultaneously and Bloomberg Code MIT IM complementarily active in: Market Cap. (€ mn) 198 • Private equity as an active shareholder in both listed and unlisted Free Float 32% companies Shares Out. (mn) 71 • Advisory services for extraordinary finance operations 52-week range 1.92 - 4.6 • Operating Finance Daily Volumes (mn) 0.03 • Investment Management Advisory concerning the creation of indexes and investments decisions via the application of ESG PERFORMANCE 1M 3M 12M (Environmental, Social and Governance) criteria Absolute -9.6% 12.9% -37.3% • Real estate investment typically in residential property development Rel. To Mibtel Index 1.1% 26.9% 7.0%
The company’s main features are: MAIN METRICS 2008 2009E 2010E EPS 47.9 65.2 8.2 • A sound financial structure: holding system net cash at € 11 mn and DPS 15.0 15.0 15.0 over € 500 mn of available credit lines. • Much more diversified portfolio than other Italian holdings since NAV 2008 2009E 2010E no one of the assets worth more than 15% of NAV Nav ps ord - € 4.5 4.7 4.7 • Unusual prevalence of unlisted assets (76% of total asset) Listed assets 27% 24% 24% • High dividend yield (5.3%, to be paid this month and with good Controlling assets 39% 42% 42% visibility for the current year thanks to Moncler deal capital gain).
MULTIPLES 2008 2009E 2010E In the past 3 years (Sep. 2006-08) the company achieved excellent P/E 4.8 x 4.4 x 34.9 x results: net interest income and adj. net profit +18% and +81% CAGR P/NAV 0.51 x 0.60 x 0.60 x PBV 0.4 x 0.5 x 0.5 x respectively, mostly on the back of: (a) operating financing activity profits; INDEBTNESS 2008 2009E 2010E (b) good performance of real estate divisions (avg. net profit of € 5.9 mn); Holding system NFP 10.9 14.5 19.1 (c) an increase in dividends received from main shareholdings. D/E n.m. n.m. n.m. Debt to assets n.m. n.m. n.m. The strategy implemented by new Managing Director G. Gorno Tempini appointed in November 2007 focuses on recently acquired E.Capital able to generate recurrent profits and on Private Equity PRICE ORD. LAST 365 DAYS business brillant track record, fuelled by the successful Moncler deal
4.4 1. 18 (last August monetised, 3 years after entry, with IRR of 88%). 1. 13 3.9 1. 0 8 1. 0 3 3.4 0.98 Applying a 15% discount to our NAV of € 4.7 PS, we fix our target 2.9 0.93 2.4 0.88 price at € 4.0 PS. 0.83 1. 9 0.78 We start our coverage with a BUY recommendation based on the: • High discount to NAV (40% vs an avg. of 10% in the last 2 years);
Rel vs Mibtel index (RHS) M IT IM Equit y (LHS) • Low 2008 P/BV (0.53x vs 0.58x of the italian investment companies); • Sound holding system financial structure; • Risk for its banking activity lower than the comparables average. ANALYSTS Additional potential upsides/catalysts for the stock are: Luigi de Bellis +39 02 6204 375 – [email protected] • Restructuring of HOPA (which has just been acquired) Martino De Ambroggi; +39 02 6204238; • Partial monetisation of the private equity portfolio and merchant [email protected] banks stakes (19% of NAV).
A new buy back program will be approved by BoD on February 12th. February 6, 2009 # 29
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 1
Mittel – February 6, 2009
MAIN FIGURES € mn* 2007 2008 2009E 2010E 2011E 2012E Interest margin 1 3 5 4 5 5 Dividends 23 23 0 0 7 8 Net interest margin 24 26 5 5 12 13 Trading 0 -11 1 1 1 1 TOTAL INCOME 25 21 24 23 31 33 Results from Real Estate 7 4 2 4 4 4 Growth -2% -38% -52% 100% 0% 0% Results from Fin and RE 32 25 26 27 35 37 Growth -57% -21% 4% 1% 31% 5% Operating costs -19 -18 -19 -19 -22 -23 Growth -56.6% -20.9% 4.4% 1.1% 30.9% 5.4% Gross operating profit 13 7 7 8 13 14 Profit before tax 23 64 118 7 12 13 Growth -65.3% 183.6% 85.1% -94.2% 71.2% 8.4% Taxes -1 -1 -2 -1 -2 -2 Tax rate 6% 2% 2% 16% 18% 17% Minoritiy interests -6 -31 -70 0 0 0 Net income reported 15 32 46 6 10 11 Growth -74% 106% 45% -87% 67% 9% Margin 64% 120% 905% 123% 78% 82% Net income adjusted 4 15 4 5 11 12 Growth -17% 295% -75% 26% 142% 8% Margin 15.3% 55.3% 71.1% 96.4% 88.8% 92.0%
STOCK DATA 2007 2008 2009E 2010E 2011E 2012E EPS - € cents 23.3 47.9 65.2 8.2 13.8 15.1 Growth -74% 106% 36% -87% 67% 9% Adj. EPS - € cents 5.6 22.1 5.1 6.5 15.7 16.9 Growth -17% 295% -77% 26% 142% 8% DPS ord - € cents 15.0 15.0 15.0 15.0 15.0 15.0 Nav ps ord - € 5.00 4.52 4.65 4.65 4.65 4.65
VARIOUS - € mn 2007 2008 2009E 2010E 2011E 2012E Capital employed 393 366 328 317 305 294
INDEBTNESS 2007 2008 2009E 2010E 2011E 2012E NFP 29 49 123 130 140 152 D/E n.m. n.m. n.m. n.m. n.m. n.m. Interests cov n.a. n.a. n.a. n.a. n.a. n.a.
MARKET RATIOS 2007 2008 2009E 2010E 2011E 2012E PNAV 1.1 x 0.5 x 0.6 x 0.6 x 0.6 x 0.6 x PBV 0.8 x 0.4 x 0.5 x 0.5 x 0.5 x 0.5 x P/E 22.6 x 4.8 x 4.3 x 34.0 x 20.3 x 18.6 x P/E Adj 94.2 x 10.4 x 54.7 x 43.3 x 17.9 x 16.6 x P/CF 22.2 x 4.8 x 4.3 x 30.3 x 18.9 x 17.4 x
REMUNERATION 2007 2008 2009E 2010E 2011E 2012E Div. Yield 2.9% 6.5% 5.4% 5.4% 5.4% 5.4% Roe 3.7% 7.6% 10.6% 1.3% 2.2% 2.4% ROCE 3.9% 8.6% 14.0% 1.8% 3.2% 3.6% Source: EQUITA SIM estimates and company data * Year end September
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 2
Mittel – February 6, 2009
MITTEL NAV INVESTMENT CASE: INITIATING COVERAGE WITH BUY AND TARGET PRICE OF € 4.0 Assets € mn Listed Assets 82 Direct Participations 69 We initiate coverage of MIT with a BUY and target price of € 4.0 PS (based on Real Estate 40 NAV), which implies 43% upside from current levels Operating Finance 96 Merchant Banks 60 MIT is well positioned to be a winner in today’s volatile environment. We Total assets 347 consider the firm’s diversified model (no one of the assets worth more than 15% NFP 11 of NAV) and sound financial structure (with holding system net cash we HOLDING COSTS -30 calculate at € 11 mn) as key points of differentiation. Total NAV 328
Nr. of Shares (mn) 71
NAV per Ord share € 4.7 Current discount 40% Source: EQUITA SIM estimate
MITTEL – NAV
Asset Sector Stake % # shares € PS € mn % Valuation method Intesa Sanpaolo Banking 0.13% 15.0 2.3 35.1 11% Market Value UBI Banca ScpA Banking 0.68% 4.3 9.1 39.5 12% Market Value RCS Media Group SpA Media 1.3% 9.3 0.7 6.9 2% Market Value TOTAL LISTED SHAREHOLDINGS (1) 81.5 25% Merchant Banks partecipations Merchant bank stakes n.m. 60.5 18% Costs + spread E.Capital Partners Financial Services 100.0% 50.0 15% M&A deal price (P/E 09-10 = 10 – 9.2 x) Property Assets Real Estate 100.0% 40.0 12% Cost + incremental exp as June 08 Mittel Generale Investimenti Financial Services 100.0% 46.2 14% Adj 2009E P/BV 0.7x Azimut-Benetti Luxury Motor Yachts 5.5% 29.2 9% BV as Sep-08 (EV/EBITDA 07-08E 8.2 – 5.8x) Astrim Real Estate Services 13.5% 12.6 4% BV as Sep-08 (EV/EBITDA 07 16.7 x) Tethys (Hopa) Holding 34.0% 10.0 3% BV as Sep-08 (30% discount to NAV as june-08) Moncler (Brands Partners 2) Retail 2.0% 6.0 2% Deal Price Oct-08 /EV/EBITDA 07-08E = 10.2 – 8.5x) Fondo Progressio Investimenti Private Equity Fund 13.5% 5.5 2% BV as Sep-08 Istituto Atesino di Sviluppo S.p.A. Holding 1.8% 2.7 1% BV as Sep-08 (P/BV 07 1.2 x) SIA-SSB IT Services 0.3% 1.4 0% BV as Sep-08 (EV/EBITDA 07 6.5 x) Vimercati Industrial 4.1% 0.6 0% BV as Sep-08 (P/E 07 = 24.5 x) Publimethod Holding 5.7% 0.6 0% BV as Sep-08 (P/E 07 = 5.7 x) TOTAL UNLISTED SHAREHOLDINGS (2) 265 81% ATTRIBUTABLE NFP (3) 11 3% Adj. NFP as today HOLDING COSTS (4) -30 -9% Normalised cash costs net of taxes capitalised @ 10% TAXES ON POTENTIAL CAPITAL GAINS (5) 0 0% TOTAL NET ASSET VALUE (1+2+3+4+5) 328 100% Nr. of Shares (mn) 71 NAV per Ord share € 4.7 Current discount (premium) 40% P/NAV 0.60 Source: Equita SIM estimates and company data
On Dec 24th 2008 MIT acquired, via the subholding company Tethys, a 38.74% equity interest in HOPA (a holding company originally founded by a number of Brescia entrepreneurs led by financier Emilio Gnutti, who withdrew from the business world in 2005 after a series of legal vicissitudes).
In our view the structure of deal is very positive due to the: 1. Limited downside risk (in the worst case the maximum cash-out for MIT is € 20 mn) 2. The low entry price: HOPA was paid at a discount of 30% and 22% respectively vs NAV of € 0.13 PS. 3. Triple leverage effect: a. Hopa vis-à-vis lever on industrial assets is 1,9x b. Tethys vis-à-vis lever on Hopa is 1,7x c. Options to increase the exposure at discount to NAV
MIT has the possibility to increase its controlling stake in HOPA from 13.1% to 30.5%.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 3
Mittel – February 6, 2009
If MIT managers are able to increase the value of HOPA industrial assets by 10- 20% the final impact on MIT NAV is ranging from +3.5% up to +11% assuming increase of its exposure via options exercise.
Key risks to our target price include a worsening of private equity and real estate portfolio valuations. Still, we think near-term private equity and real estate returns will fall well below historical average. These concerns offset a depressed valuation: MIT is currently trading at a 40% discount on NAV vs. an average of 10% in the last 2 years.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 4
Mittel – February 6, 2009
INDEX
INVESTMENT CASE: INITIATING COVERAGE WITH BUY AND TARGET PRICE OF € 4.0...... 3 1. GROUP OVERVIEW...... 6 1.1. Operating Finance (MGI)...... 7 1.2. Private Equity (MIT and MPE) ...... 7 1.3. Real Estate (MII)...... 7 1.4. Longstanding Shareholdings ...... 8 1.5. Shareholder Structure...... 8 1.6. Management Approach ...... 9 2. OPERATING FINANCE: MITTEL GENERALE INVESTIMENTI (MGI) ...... 9 2.1. Financing ...... 9 2.2. Merchant-Banking Participations...... 11 3. REAL ESTATE: MITTEL INVESTIMENTI IMMOBILIARI (MII) ...... 13 4. PRIVATE EQUITY...... 14 4.1. A successful track record...... 14 4.2. MPE Participations ...... 16 4.3. MIT’s Direct PE Participations ...... 17 5. LONGSTANDING SHAREHOLDINGS...... 19 6. DIVERSIFICATION AND FUTURE STRATEGY...... 22 6.1. E. Capital Partners...... 22 7. MOST RECENT DEAL: HOPA RESTRUCTURING ...... 24 7.1. Why HOPA?...... 24 7.2. What has MIT done so far? ...... 24 7.3. Valuation...... 26 7.4. Options ...... 26 7.5. The HOPA Portaolio ...... 28 8. TAXATION IS NOT AN ISSUE...... 28 9. ITALIAN HOLDING COMPANIES: TREND OF DISCOUNT ON NAV...... 28 10. MAIN FEATURES COMPARISON vs ITALIAN HOLDING COMPANIES ...... 30 11. PERFORMANCE AND VALUATION...... 33 12. SENSITIVITY TO NAV...... 37 13. STATEMENT OF RISK...... 37 14. SWOT ANALYSIS...... 37 15. APPENDIX...... 38
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 5
Mittel – February 6, 2009
1. GROUP OVERVIEW
Mittel (MIT) is an investment holding company that operates via: 1. The parent company Mittel SpA, which: a. Invests directly and via its 51%-owned subsidiary Mittel Private Equity (MPE) in private equity deals b. Owns some longstanding “historical” stakes in listed companies via its 100%-owned subsidiary Mittel Partecipazioni Stabili Srl (MPS)
2. Two operating sub-holding companies: a. Mittel Generale Investimenti SpA (MGI) in the operating finance segment b. Mittel Investimenti Immobiliari Srl (MII) in the real estate segment.
MITTEL: ORGANIZATION CHART
100% 100% 49%
13.5% Mittel Generale 51% Mittel Investimenti Mittel Astrim SpA Partecipazioni Investimenti SpA Immobiliari Srl Stabili Srl 0.31% Merchant Bank SIA-SSB SpA Partecipations 0.13% Intesa Sanpaolo SpA
100% Holding Partecipazione 30% Mit.Fin Compagnia Nautica - HPNSrl 0.68% Finanziaria SpA UBI Banca ScpA 5.50%
Azimut-Benetti 81% Ma-Tra 1.31% SpA RCS Mediagroup Fiduciaria Srl SpA
Other Assets 38.7% Istituto Atesino di Hopa Sviluppo SpA 1.76% 34% Tethys 95.7% Everel 50.8% Bios Mittel Corporate 0.3% 100% 25.9% Finance (ex E.Capital Sorin Partners SpA) 9.99% Vimercati SpA 51% 100% Mittel Private ECP International SA Equity SpA 40% 100% ECPI Srl Progressio SGR SpA
20% Castello SGR SpA 13.5% Fondo Progressio Investimenti
44.5% 51% Rondine SpA Publimethod SpA 14%
29% 48.78% 36% MutuiPlanet SpA Brands Partners 2 Srl
38.6% 13.50% Chromavis Srl Moncler Srl
59.7% Top Color Spa
Source: EQUITA SIM, Company data
Taking a closer look at Mittel, below we briefly outline its business segments and interests, shareholder structure, and management approach.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 6
Mittel – February 6, 2009
1.1. Operating Finance (MGI)
Operating finance is carried out by MGI (a company registered in the central list of financial intermediaries under Article 107 of the Italian Consolidated Banking Act) and consists of: • Financing • Advisory services in the capital markets and corporate finance fields, including IPOs and M&A • Acquisition of merchant-banking participations (in both listed and unlisted companies), with agreements based on guaranteed way-out options • Group cash management
MITTEL GENERALI INVESTIMENTI: MAIN ACTIVITIES
Expansion capital Family buy out for private companies Leveraged buy out Acquisistion Management buy out of partecipations in private companies
Issue of collateral in extraordinary finance operations Financing to PMI
Analysis, Trading on organisation and financing Equity and in extraordinary bond market finance operations
Source: Company web site
1.2. Private Equity (MIT and MPE)
MIT invests directly and via subscription of specialised closed-end funds (managed by asset management companies promoted and owned via MPE), which invest in unlisted medium-sized companies in a 3-6 year time horizon.
MIT tends to prefer the purchase of: • majority or qualified minority interests ... • ... with significant governance agreements ... • ... and precise way-out prospects ... • ... to date solely in Italy
The choice of investments depends not so much on a preference for certain business sectors (typically excluding the banking, finance & insurance, and real estate sectors in which the group is already present) as on the possibility of involving managers and entrepreneurs of tried and true ability and professional integrity.
1.3. Real Estate (MII)
Exploiting the experience accumulated by MGI in the field of financing of speculative real estate operations, MII operates in the real estate sector directly and via controlled vehicles, each of which generally manages a specific deal. As in the case of its private equity activity, in the real estate activity MIT seeks to give preference to deals in which it is possible to involve managers/entrepreneurs of proven ability and professional integrity responsible for the official approval process – and who often channel new investment opportunities towards the MIT Group.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 7
Mittel – February 6, 2009
Deals undertaken typically relate to: • Residential property development (thus excluding pure trading or long-term investment) ... • ... giving preference to deals featuring limited risk in terms of the administrative approval process ... • ... and typically with an 18-24 month time horizon.
MITTEL INVESTIMENTI IMMOBILIARI: MAIN ACTIVITIES
Direct investments Real Estate Splitting through JV
Real estate Property valuation development
Source: Company web site
1.4. Longstanding Shareholdings
For many years now MIT (via its 100%-owned subsidiary Mittel Partecipazioni Stabili Srl - MPS) has owned shareholdings in 3 listed companies (0.13% in Intesa San Paolo, 0.7% in UBI Banca, and 1.3% in RCS Mediagroup SpA).
At current prices, these stakes are worth about € 85 mn, i.e. about 27% of total NAV. This figure is some 50% lower than it was only 2 years ago due to the stocks’ sharp correction (-59% on average since January 2007).
1.5. Shareholder Structure
MIT’s shareholder base is somewhat fragmented but has been stable for many years:
Shareholder Description Shareholding Owned Carlo Tassara SpA Holding company of the financier Roman Zaleski 19.0% Italmobiliare SpA Holding company of the Pesenti family 12.9% Fondazione Cassa di Risparmio Banking foundation 10.9% Trento e Rovereto Istituto Atesino di Sviluppo SpA Investment holding company present in banking, 9.4% finance, insurance, media, green energy, real estate and industrial sectors – in which MIT in turn owns 1.76% EC Investimenti Srl investment company of the newly acquired E. Capital 6.4% Partner Opera per l’Educazione Cristiana A Roman Catholic religious foundation active in the 4.7% (through La Scuola SpA Diocese of Brescia Manuli Realtor Srl A real estate company owned by the Manuli brothers 4.3% Total longstanding core shareholder group 67.5% FREE FLOAT 32.5% Source: Consob
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 8
Mittel – February 6, 2009
In September 2008 the longstanding core shareholder group was joined by the 6.4% stake owned by EC Investimenti Srl (the investment company of the new acquisition E. Capital Partner – see section 6.1) as a consequence of the reserved capital increase (4.5 mn new ordinary shares, at a price of € 5.55 PS) for partial payment of the acquisition. These shares are subject to lock-up until September 2011 – but we believe they may remain restricted for a longer period.
As stated, MIT’s core shareholder group is stable – but in November/December 2008 rumours of the financial disarray of the lead shareholder Tassara were the cause, in our opinion, of MIT stock’s weak performance due to overhang fears. Tassara is currently undergoing financial restructuring but, as its investment in MIT is modest when compared with its bank exposure (€ -5.4 bn), we believe the overhang risk is limited and that, if the need were to arise, the stake would be acquired by other longstanding shareholders.
1.6. Management Approach
The strategy implemented by the Managing Director Giovanni Gorno Tempini appointed in November 2007 (see also Appendix 3), focuses on: • Increasing businesses featuring recurrent cash flows (an example is the E. Capital acquisition) • Completing important disposals in the private equity segment (monetisation of assets for € 200 mn in FY08 with an average IRR of 90%) • Consequent deleverage (achieving gross debt of approximately € 135 mn with available credit lines totalling over € 500 mn) – a situation particularly appreciable in the present economic environment • Reducing trading portfolio risk (on June 2008 MIT sold the stake in “hedge fund Faro” and today MIT has no exposure toward hedge fund).
For the future MIT aims to:
1. further strengthen ordinary operations to have a recurrent, more predictable revenue flow 2. Increase diversification in order to reduce risk to a more significant extent 3. Continue to develop the real estate business albeit more cautiously 4. Continue to monitor the private equity market to take any opportunities that happen to emerge (as in the recent Hopa deal).
After this brief general overview, we now review the group’s individual business segments in greater depth – also outlining our valuation approach for each of them - starting with operating finance.
2. OPERATING FINANCE: MITTEL GENERALE INVESTIMENTI (MGI)
MGI’s core business is: 1. Financing of medium-sized companies 2. Acquisition of merchant-banking participations featuring guaranteed way-out options.
2.1. Financing
For some 20 years now MIT, via MGI, has been providing finance (directly or in syndicates) to businesses, entrepreneurs, and private or institutional investors active in the financial and real estate markets.
The company executes funding on the wholesale market, earning a spread estimated by us to average 200-250 bps.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 9
Mittel – February 6, 2009
The company features: • High capitalisation (Tangible equity/Total assets = 24% vs. the Italian sector average of about 4%), partly due to regulatory requirements applicable in cases of concentrated exposure (at the end of September 2008, the top 3 clients totalled € 81 mn, i.e. 45% of total financing paid out) • Traditional banking activity, with no exposure to riskier businesses (subprime, CDOs, and pure trading, etc.) – a feature setting it apart from other banks.
In the last three years results net of non-recurrent events have been positive: • Net interest income has continued to be the main source of income • No Loan-loss provisions on loans paid out since they usually have relevant real warranties.
As regards non-recurrent events, we point out: • In 2008: the net loss of € 7.5 mn, primarily caused by the loss of € 8.4 mn made by exit in July 2008 from a hedge fund (the only deviation of strategy from the traditional business) • In 2006: a capital gain of € 32.4 mn made on sale of some investments (€ 18.9 mn from sales of Edison and € 6.7 mn of Banca Intesa ordinary shares, and for the residual from sales of some merchant investments).
MITTEL GENERALI INVESTIMENTI: P&L ACCOUNT (€ mn)
FY06 FY07 FY08E FY09E FY10E FY11E Interest income 9.9 11.9 13.0 12.3 12.5 13.4 Interest expense -4.9 -6.6 -7.6 -7.7 -8.1 -8.2 INTEREST MARGIN 5.0 5.3 5.4 4.7 4.3 5.2 Change n.a. 6% 3% -13% -7% 21% Dividends 3.8 1.0 1.2 0.4 0.4 0.4 NET INTEREST INCOME 8.8 6.2 6.6 5.1 4.7 5.6 Change n.a. -29% 6% -23% -7% 19% Trading activities -4.8 -2.2 -10.5 1.0 1.0 1.0 Net results from hedging activities 0.4 1.0 1.9 0.0 0.0 0.0 Net commissions 0.2 0.3 0.7 0.5 0.5 0.5 Change n.a. 43% 146% -29% 0% 0% Other income 35.5 3.2 0.0 0.0 0.0 0.0 NON INTEREST INCOME 35.1 3.3 -7.9 1.5 1.5 1.5 Change n.a. -91% n.m. n.m. 0% 0% TOTAL INCOME 40.1 8.5 -1.3 6.6 6.2 7.1 Change n.a. -79% n.m. n.m. -5% 14% Staff costs -1.3 -1.2 -1.3 -1.3 -1.4 -1.4 Other costs -1.1 -0.4 -0.4 -0.4 -0.4 -0.4 Change n.a. -67% 12% 2% 2% 2% GROSS OPER. PROFIT 37.7 7.0 -3.0 4.8 4.5 5.3 Change n.a. -81% n.m. n.m. -8% 19% Depreciation -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 OPERATING PROFIT 37.6 6.9 -3.2 4.6 4.3 5.1 Change n.a. -82% n.m. n.m. -8% 20% Loan Loss Provisions 0.0 0.0 0.0 0.0 0.0 0.0 Goodwill 0.0 0.0 0.0 0.0 0.0 0.0 Other provisions -0.2 -0.2 0.0 0.0 0.0 0.0 Investments write-down 0.0 0.0 0.0 0.0 0.0 0.0 Extraordinary items and others 0.1 0.0 0.0 0.0 0.0 0.0 PRE-TAX PROFIT 37.6 6.8 -3.2 4.6 4.3 5.1 Change n.a. -82% n.m. n.m. -8% 20% Tax expenses -4.8 -1.1 -1.1 -1.4 -1.3 -1.5 Minorities 0.0 0.0 0.0 0.0 0.0 0.0 Income from assets due for disposal 0.0 0.0 0.0 0.0 0.0 0.0 NET PROFIT 32.8 5.7 -4.3 3.2 3.0 3.6 Change n.a. -83% n.m. n.m. -8% 20% ADJ NET PROFIT 1.6 3.7 4.3 2.2 2.0 2.6 Change n.a. 133% 19% 12.3 12.5 13.4 Source: EQUITA SIM estimates, Company data * September Fiscal year end
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 10
Mittel – February 6, 2009
MITTEL GENERALI INVESTIMENTI: CONSOLIDATED BALANCE SHEET (€ mn)
FY06 FY07 FY08E FY09E FY10E Cash 0.0 0.0 0.0 0.0 0.0 Bank loans 49.2 51.2 18.3 18.3 18.3 Client loans 134.1 115.0 143.5 172.2 175.6 TOTAL LOANS 183.4 166.2 161.8 190.5 193.9 Held for trading ** 43.5 72.1 36.1 36.1 36.1 Available for sale* 22.2 64.6 59.3 59.3 59.3 Held to maturity 0.0 0.0 0.0 0.0 0.0 TOTAL SECURITIES 65.7 136.7 95.4 95.4 95.4 PERFORMING ASSETS 249.1 302.9 257.1 285.8 289.3 Shareholdings 11.8 4.4 4.4 4.4 4.4 Fixed assets 2.1 2.0 1.9 1.9 1.9 Intangibles 0.0 0.0 0.0 0.0 0.0 Other 4.0 4.2 4.2 4.2 4.2 NON PERFORMING ASSETS 17.8 10.7 10.6 10.6 10.6 TOTAL ASSETS 266.9 313.5 267.7 296.4 299.8
Client debts o/w: 0.0 0.0 0.0 0.0 0.0 Client deposits 0.0 0.0 Bonds 0.0 0.0 0.0 0.0 0.0 Bank debts 106.6 164.6 0.0 0.0 0.0 Subordinated loans 0.0 0.0 167.9 171.2 174.6 INT. BEARING LIABILITIES 106.6 164.6 151.2 168.1 170.2 Other 21.1 6.6 6.6 6.6 6.6 NON INT. BEARING LIABILITIES 21.1 6.6 6.6 6.6 6.6 Minorities 0.0 0.0 0.0 0.0 0.0 TOTAL EQUITY 139.1 142.3 129.1 132.3 135.3 TOTAL LIABILITIES 266.9 313.5 267.7 296.4 299.8 Source: EQUITA SIM estimates, Company data; * Available for sale: merchant banks partecipations;; ** Held for trading: common stock, debts instruments to take profits in the short term
MGI : VALUATION EX MERCHANT In setting a value on this part of the business, BANK PARTICIPATIONS (€ mn) 1. we have stripped out the book value of merchant banking investments (€ 64
2009E book value (a) 133 mn – see section 2.2). partecipations (b) * 64 2. applied a P/BV multiple of 0.67x (as determined by the 2009E Cost of 2009E adj book value ( c) = (a) - (b) 70 equity/ROE ratio). 2009E ROE (d) 6.0% This leads to a valuation solely of the financing business of € 46 mn, Ke (e) 8.9% corresponding to a 2009E P/E multiple of 13x (higher than the present average for Theoretical P/BV (f = d / e) 0.67 the Italian banking sector, justified by the above mentioned lower level of risk). 2009 target value (g = f x c) 46 Source: EQUITA SIM estimates * including Book Value of 49% Mittel Investimenti Immobiliare 2.2. Merchant-Banking Participations
As part of its operating finance activity, MGI also acquires merchant-banking participations, all with a guaranteed way-out, a 3-5 years time horizon, and pre-established return. As in the case of financing deals, MGI takes on only the counterparty risks.
Consequently, regardless of underlying assets’ economic prospects, we think it reasonable, in our NAV calculation, to use: • BV + guaranteed return on the stock when this is known • BV when information on guaranteed return is not available (although we are aware that this value is conservative).
MERCHANT-BANKING PARTICIPATIONS (€ mn)
Investee Company Sector Stake % Valuation Valuation method % of NAV Grandi Magazzini e Supermercati Il Gigante Grocery retail 3.7% 22.8 Book Value as at Sept-08 7% Greenholding Holding 20.0% 19.0 Put exercise period starting 2009 = cost + spread 6% SAT - Aeroporto Toscano G. Galilei Airports 15.0% 15.9 Cost + spread 5% Giallomilano Commerce 45.5% 2.6 Book Value as at Sept-08 1% Officine Meccaniche Lesmo Industrial 20.0% 0.2 Book Value as at Sept-08 0%
Total 60.5 19% Source: EQUITA SIM estimates, Company data
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 11
Mittel – February 6, 2009
The total BV of these participations is € 60.5 mn (19% of NAV) and includes:
a. Grandi Magazzini e Supermercati il Sector Retailing GRANDI MAGAZZINI E SUPERMERCATI Stake 3.7% Gigante SpA: a mass-market retailer via a IL GIGANTE: MAIN FIGURES network of 31 sales outlets (hypermarkets, Weight on NAV 7% Feb-2007 Feb-2008 mini-supermarkets/superstores) located in Revenues 385.1 382 the Lombardy, Piedmont, and Emilia- change -10% -1% Romagna regions. EBITDA 110.3 107.9 change -1% -2% MIT acquired the stake in March 2007 Net Profit 8.3 7.0 (from small shareholders that wanted take change 19% -16% profit from their investment) at price of € Source: Company data 22.7 mn.
Sector Miscellaneous b. Greenholding SpA: a company 70% owned by the Burani family and in turn Stake 20% the parent company of 2 listed companies: Weight on NAV 7% GREENVISION AMBIENTE : MAIN FIGURES Greenvision Ambiente (51.5%): a company active in the renewable energy 2006 2007 sector, in the construction and operation of Revenues 124 185 waste-to-energy, composting, and biogas change 20% 49% plants. EBITDA 11.1 17 change 6% 53%
Net Profit 1.7 5.7
change -19% 235% Source: Company data
Bioera (57.7%): a company that BIOERA: MAIN FIGURES manufactures and markets organic and natural products, natural cosmetics, 2006 2007 food supplements and products featuring Revenues 80.4 111 fruit concentrates, barley, tea, coffee, syrup change 67% 37% EBITDA 7.2 6.6 and lemon juice. It sells the product via change 1% -8% different and complementary channels, Net Profit 1.0 0.6 ranging from mass-market grocery change -29% -40% hypers/supers to herbalist stores and from Source: Company data industry to specialised channels.
MIT acquired the stake in Greenholding in March 2006 from the Burani family at a price of € 16 mn. There is a put option on the stake, the exercise period of which started in January 2009, for a value that we estimate to be around € 19 mn.
Sector Transportation c. Società Aeroporto Toscano Galileo SAT: MAIN FIGURES (€ mn) Galilei SpA (SAT): the company manages Airport 2006 2007 9M08 Pisa Airport. This means total operation of Stake 15% Revenues 43.5 52.3 42.7 Weight on NAV 5% the airport site and scheduling and change 21% 20% 10% financing of the airport’s overall EBITDA 9.4 10.3 8.0 development, as regards both air traffic change 16% 10% -7% and passenger infrastructures and Net Profit 2.9 3.3 5.5 services. The results achieved by SAT change 17% 14% 67% feature accounts always in the black from Pax (mn) 3.0 3.7 3.0 1996 onwards and constant growth of change 29% 24% 9% passenger traffic since 1997. Source: Company data
MGI acquired the stake between March and December 2007 (from an undisclosed shareholder) , for a total of € 15.4 mn. We set a value on the stake of € 15.9 mn.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 12
Mittel – February 6, 2009
d. Other participations, of lesser weight (€ 2.8 mn in total), include: - 45.5% of Giallomilano Srl: a company active in the letting of industrial and residential buildings. It ended FY07 with a net loss of € -14k vs. € - 72k in 2006. - 20% of Officine Meccaniche di Lesmo: a company that makes wiredrawing and stranding equipment for the production of metal cables. In the FY ending on 20/08/2007 it achieved revenues of € 28.2 mn (+104% YoY) and net profit of € 0.3 mn (vs. € 0.05 mn in 2006).
3. REAL ESTATE: MITTEL INVESTIMENTI IMMOBILIARI (MII)
The real estate business is managed by MII, which handles all the Group’s real estate initiatives. Here MIT is present both with direct investments and special purpose vehicles.
The property portfolio currently consists of: • Land (valued at cost) • Buildings under construction/refurbishment (valued at cost + asset enhancement costs and capitalisable finance expense) • Complete buildings up for sale (valued at cost)
In the absence of independent appraisals, we have used the book value provided by the company (included in inventory and calculated as outlined above) as the basis for our NAV calculation. The valuation is € 40 mn, i.e. 12% of NAV.
REAL ESTATE PROPERTIES (€ mn)
Proportional Vehicle Stake BV Notes Owner of a 20k-sqm site in Paderno Dugnano (province of Milan). Construction is planned of 150 residential units plus Cad. Imm. 95% 14.0 garages. 20 preliminary sales contracts have already been concluded. Owner of a building in Milan (in Viale Monza) for which the change of use from industrial to residential has been Prisca 51% 11.3 authorised and a building license issued. It is earmarked for the creation of 32 residential units and 72 garages. To date 20 preliminary sales contracts have been concluded. Owner of some 2,600 sqm of offices let to the Allianz-RAS EsseVentuno 90% 10.7 Group and of some garages and parking slots. Owner of a decommissioned industrial site (15,800 sqm of buildings on the outskirts of Como, with characteristics Gamma 3 80% 8.3 suitable for a residential estate and a small office block. The executive project for the residential complex is now being completed. Owner of an industrial building in Bresso (province of Milan). To date land clean-up and reinstatement has been performed at the site. At present the definitive project is nearing Volta Marconi 51% 3.2 completion and will permit conversion of the industrial building into a commercial complex consisting of retail stores, with the aim of making it into a building for medium-scale retailing. Owner of an industrial/artisan complex of some 5,000 sqm in Fede 51% 2.7 Vimodrone (province of Milan) to be refurbished and expanded for subsequent parcelled sale. Owner of a residential prestige building in Como. 1 residential Gamma Uno 100% 1.5 unit remains unsold Spinone 80% 0.1 Owner of some parking slots to be sold Livia 60% 0.0 n.m. Tethyis 100% 0.0 n.m.
Total 51.9 Total (ex minorities) 40.0 Source: EQUITA SIM, Company data
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 13
Mittel – February 6, 2009
4. PRIVATE EQUITY
MIT is active in private equity both directly and via Mittel Private Equity (MPE), of which it owns 51%, and sometimes jointly.
For all private equity players the macroeconomic environment has undoubtedly become more challenging due to: • The greater difficulty in funding and consequently of exploiting financial leverage • Deterioration of individual assets’ business performance.
MIT differs from other pure private equity players as it: • Is also able to finance target companies via MGI • Typically makes less aggressive use of financial leverage • Has banking credit facilities available totalling over € 530 mn. These enable it to finance individual deals unaided even if it increases individual assets’ exposure.
Although we think it inevitable that the assets (especially the more cyclical ones) will be penalised by the present slack economic environment, risk is limited because, apart from Azimut Benetti, all the other participations account for only a modest share of MIT’s NAV.
4.1. A successful track record
MIT features a good track record, fuelled by the success of its deals, most recent examples of which are: • Moncler, above all: partly monetised last August with a cash-in of 58 mn, 3 years after the investment was made, with a 88% IRR (see following sub- section) • Fly Open (that controlled 70.7% of Cantieri Navali San Lorenzo): definitive sold last september with a cash-in of € 41.3 mn, 3 years after the investment was made, with estimated IRR of 56%. • Vimercati, partly monetised last August with cash-in of € 19.4 mn, after an investment of € 8.7 mn in June 2005 (7.7 mn for 43.2% sold on total 49%), with an estimated 59% IRR.
Although the track record to date is no guarantee of future success, it nevertheless demonstrates management’s ability to operate in the sector, enhanced by financial soundness not featured by other sector players.
4.1.1. The Moncler success
The Moncler Group produces and markets apparel, knitwear and accessories under its house brands (Moncler, Marina Yachting, Henry Cottons’ and Coast Weber Ahaus), plus inwardly licensed brands (Cerutti is an example).
The MIT group became the second most important shareholder of Moncler in 2005 (following the bankruptcy of the parent company Finpart), joining Remo Ruffini (who acquired 38% of the company, the new chairman and creative director of the Moncler group, which succeeded in repositioning the brands, launching new products. The measure of success is the growth of the top line (15% CAGR in the 3-year period 2005-07) and of EBITDA margin (from 11% in 2006 to 18% expected for FY08E). Besides financial support, MIT has helped to implement the strategy and provided financial advice.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 14
Mittel – February 6, 2009
MONCLER: MAIN FIGURES (€ mn) REVENUES GEOGRAPHICAL BREAKDOWN
2006 2007 2008E 2006 2007 Revenues 216.7 253.7 290.0 Italy 56% 63% Change 18% 17% 10% EU 16% 20% EBITDA 21.9 43.2 52.0 Rest of World 28% 17% Change n.a. 97% 20% Source: Company data Margin 10% 17% 18% EBIT 9.4 26.6 38.0 Change n.a. 183% 43% Margin 4% 11% 13% Net Profit 6.3 17.9 28.0 Change n.a. 184% 56% Source: EQUITA SIM estimates, Company data
Notwithstanding the challenging macroeconomic climate, there is still considerable unexploited potential given that, at present, the Moncler group is present mainly in Italy (63% of sales) and the flagship Moncler brand still has a limited number of directly operated stores (11).
It is in fact not by chance that: • On 5 August 2008 35.11% was sold to Carlyle for € 143 mn (of which € 58 mn pertaining to MIT and the rest to MPE), equivalent to equity value of € 408 mn for 100%, at a premium on comparables’ multiples at that time and with IRR of 88%
LUXURY AND APPAREL MULTIPLES
EV/ebitda Ebitda margin Expected sales growth 3Y sales P/E 2008 2009 2010 2008 2009 2010 2008 2009 2010 CAGR 2008 2009 2010 Puma 7.1 6.4 5.8 17% 18% 17% 5% 8% 9% 7% 12.0 10.6 9.5 Ralph Lauren 7.7 7.3 n.a. 17% 18% n.a. 4% 7% 15% 9% 16.0 14.0 12.0 Burberry's 7.7 6.9 6.3 23% 24% 24% 12% 10% 9% 10% 13.1 11.3 10.1 Tod's 5.4 6.3 5.5 22% 22% 22% 9% 11% 10% 10% 13.4 11.8 10.5 Coach 5.9 5.3 4.6 38% 38% 39% 14% 12% 10% 12% 11.2 9.8 8.6 Inditex 7.6 6.7 5.9 23% 23% 22% 14% 14% 14% 14% 13.7 12.0 10.6 Geox 8.5 7.6 6.1 24% 23% 24% 18% 14% 16% 16% 14.6 13.7 11.1 H&M 12.3 10.8 9.6 26% 26% 26% 13% 13% 12% 13% 16.9 14.9 13.4 Average 7.8 7.2 6.3 24% 24% 25% 11% 11% 12% 11% 13.9 12.3 10.7 Source: IBES consensus as August 08, EQUITA SIM estimates
• MPE reinvested part of its cash-in, MONCLER DEAL: MAIN FIGURES (€ mn) buying 4.86% of Moncler, paying € 14.6 mn via a leveraged vehicle (in line with Equity Value deal (100%) 408 the Carlyle deal’s valuation). This is also NFP 08E -35 EV 463 the value used in our NAV calculation Moncler EBITDA 08E 52 (Moncler has now decreased to only 2% EV/EBITDA 08E 8.5 of NAV). MPE cash in 143
Book Value Monclear 32 Capital Gain 111
Mittel cash in 58 Capital Gain Mittel 45
Equity paid (MIT) 11 Equity paid 100% 64
Equity Value deal (100%) 408 Exit multiple: P/E 08 14.6 x
Entry multiple: P/E (t+1) 10.1 x IRR 88% Source: EQUITA SIM estimates
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 15
Mittel – February 6, 2009
4.2. MPE Participations
In 2007 MIT sold 49% of MPE to Private Equity Holding di G. De Vivo & Co. Sas for € 18.5 mn (Mr. De Vivo is MIT’s ex-CEO and ex-GM and is currently CEO of MPE).
It should be noted that, in reality, MIT’s economic rights over MPE are just 40.8% and not 51% due to existence of non-voting ordinary shares detained by Private Equity Holding.
MPE: SHAREHOLDER STRUCTURE
% voting right # of shares % economic right # of shares Mittel 51% 2.6 40.8% 2.6 Private Equity H. De Vivo & Co. Sas 49% 2.5 59.2% 3.7 Total # shares (mn) 5.0 6.3 Source: Equita SIM elaboration on company data
Our present valuation of 51% is approximately € 23 mn (see-through, valuing individual assets). This is higher than the above mentioned implicit value in the 2007 deal, mainly because of the success of the Moncler deal (see section 4.1), and also attributable to the change of scope (making data no longer comparable).
These are MPE’s main equity participations:
PRIVATE EQUITY INVESTMENTS (€ mn)
MPE MPE MIT stake Weigh on Book Value Book Value Our stake * Nav 100% pro quota Valuation Monclear (Brand Partners 2) 4.9% 2.5% 2% 14.6 6.0 6.0 Progressio SGR 40.0% 16.3% 0.1% 1.2 0.2 0.2 Publimethod 14.0% 5.7% 0.2% 1.4 0.6 0.6 Vimercati 9.9% 4.1% 0.2% 0.9 0.6 0.6 Total 18.6 7.4 7.4 * MPE is 51% controlled by MIT Source: Equita SIM estimates, Company data
Sector Luxury Apparel • Moncler (see section 4.1), which we value at € 14.6 mn, equivalent to the Stake 2% (pro-quota) entry price recently paid for purchase of a 4.86% stake. Weight on NAV 2%
• Progressio SGR – dedicated to the Sector Asset gathering PROGRESSIO SGR management of closed-end funds Stake 40% specialised in private equity deals and Weight on NAV 0.1% owned by MPE (40%) together with Fondazione Cassa di Risparmio di
Trento e Rovereto (40%) and Istituto
Atesino di Sviluppo – ISA S.p.A. (20% - see also section 1.5), both longstanding MIT shareholders. MIT also directly owns 13.5% of the fund
managed by the company, which as
at 30/09/2008 was worth € 5.5 mn (2% of NAV). In addition, MIT has a € 20-mn commitment for launch of the new Progressio II fund, which will
have AUM of around € 100 mn.
FY2007 accounts showed a net profit of € 0.4 mn, mainly generated by Source: Company web site management fee income from recognised subscribers of the existing Progressio Investimenti fund.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 16
Mittel – February 6, 2009
Sector Advertising • Publimethod – Italian leader in media bartering (sale of advertising space in Stake 5.7% exchange for goods and services) Weight on NAV 0.2%
• Vimercati – a company that designs and manufactures components Sector Car components (switches, lamp- and LED-holders, Stake 4.1% VIMERCATI: MAIN FIGURES contacts, and infotainment sockets, etc.) for Weight on NAV 0.2% 2006 2007 some leading car makers (BMW, Peugeot- Revenues 37.7 42 Citroen, Renault, and Fiat, etc.). change -4% 11% Last August MIT partly monetised its EBITDA 7.7 7.2 investment in Vimercati, selling 43.2% for € change 3% -6% 19.4 mn (2007 P/E = 74x), after having Net Profit 0.4 0.6 invested € 8.7 mn in June 2005, with change -64% 50% estimated IRR of 59%. P/E 37.8 x 24.5 x Book Value (100%) 15.1 14.7 Source: Company data
4.3. MIT’s Direct PE Participations
MIT’s most important direct participation is in the luxury motor yacht segment, with a 5.5% stake in the global leader, which accounts for 9% of total NAV. More specifically: • Azimut Benetti (via the sub-holding company Holding Partecipazioni Sector Luxury motoryacht Nautiche, HPN), the world’s largest producer of premium luxury yachts, active Stake 5.5% in 3 segments: Weight on NAV 9% - Azimut: fly-bridge motor cruisers (39-62 feet), motor yachts (68-116 feet), and open boats (43-86 feet) - Benetti: mega-yachts in fibreglass and steel (90-210 feet) - Atlantis: open boats with the brands Gobbi (31-42 feet) and Atlantis (39- 55 feet).
LUXURY MOTOR YACHT: TOP 20 PRODUCER
Rank ‘08 Top 20 Producer Tot Lenght (m) Tot Lenght (ft) # projects Avg. Lenght (ft) Rank ‘07 1 Azimut-Benetti 3.603 11.820 98 121 1 2 Ferretti Group (CRN, Custom, Line, Ferretti, Pershing, Riva) 2.845 9.334 89 105 2 3 Rodriguez Group (Mangusta, Léopard) 1.506 4.942 476 105 4 4 Lurssen 1.400 4.593 14 328 8 5 Sunseeker International 1.386 4.546 48 95 3 6 FIPA Group (AB Yachts, CBI Navi, Maiora) 1.304 4.278 40 107 6 7 Sanlorenzo 1.059 3.475 35 99 9 8 Trinity Yachts 990 3.249 19 171 5 9 Camuzzi Nautica (Baglietto, Cantieri di Pisa) 965 3.166 23 138 16 10 ThyssenKrupp (Blohm & Voss, Nobiskrug) 884 2.900 10 290 10 11 Heesen 647 2.123 14 152 12 12 Horizon 613 2.012 20 101 11 13 Westport 553 1.814 14 130 13 14 Perini Navi 552 1.811 11 165 15 15 Amels 500 1.640 8 205 20 16 Ocean Alexander 492 1.616 20 81 -- 17 Kha Shing (w/Hargrave) 438 1.435 14 202 -- 18 Abeking & Rasmussen 396 1.299 6 216 -- 19 Timmerman Yachts 395 1.296 11 118 -- 20 Proteksan-Turquoise 890 1.28 7 183 -- Source: Global Order Book 2008 of Showboats International
According to the report published in the Italian business daily MF on september 2008, the financial year ending in August 2008 featured further growth, i.e. sales up by 14.5% YoY to € 1 bn, EBITDA +69% to € 130 mn, and an order backlog of € 1.6 bn assuring visibility for about 1.5 years.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 17
Mittel – February 6, 2009
AZIMUT BENETTI: MAIN FIGURES
Aug-05 Aug -06 Aug -07 Aug -08E Value of production 545 738 828 960 change n.a. 35% 12% 21% EBITDA 88 101 77 110 change n.a. 15% -24% 43% margin 16% 14% 9% 11% EBIT 68 79 50 n.a. change n.a. 16% -37% margin 12% 11% 6% Net Profit 38 43 27 n.a. change n.a. 13% -37% Net Financial Position n.a. n.a. 98 98
Orderbook n.a. n.a. n.a. 1600 CAPEX n.a. n.a. n.a. 90 Source: Company data
AZIMUT BENETTI: IMPLIED VALUATIONS On 31 July 2008 MIT acquired 49% of the sub-holding company HPN (rising
Price paid for 49% HPN 3.1 to 100% ownership) at an equity value of € 3.1 mn. This corresponds to an 100% HPN 6.3 implicit 2007-08E EV/EBITDA multiple for 100% of Azimut Benetti that we Debt HPN 28.2 estimate to be 9.5-6.6x. The amount joins what MIT paid in 2004 for 51% of EV HPN = Equity 5.5% Azimut Benetti 34.5 HPN, for € 3.9 mn. Our valuation of 5.5% Azimut Benetti 29.2 In our NAV calculation, we value the stake in Azimut Benetti at book value (€ Equity Value (100% Azimut Benetti) 628 29.2 mn, i.e. 07-08E EV/EBITDA = 8.2-5.8x). In our opinion, this is P/E 07 23 x conservative given the higher market multiples at which peers are currently EV/EBITDA 07 9.5 x trading. EV/EBITDA 08 6.6 x In addition, during FY07-08, Azimut Benetti bought back shares at a price of € Source: EQUITA SIM estimates 109.97 PS, implying a 100% equity value for Azimut Benetti of € 715 mn (’07 P/E = 26.6x) or € 39 mn for MIT’s 5.5% stake vs. our valuation of € 29.2 mn.
LUXURY MULTIPLES
PERFORMANCE EV/EBITDA EV/EBIT P/E EBITDA margin Company 1 m 3 m 6 m 1 y 2008 2009 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010 COACH 10.7 -45.5 -57.7 -71.1 5.9 x 7.6 x 6.3 x 7.4 x 11.0 x 8.2 x 7.1 x 9.4 x 6.2 x 13.9% 12.0% 13.5% BURBERRY GROUP 12.8 0.7 -39.6 -35.1 5.4 x 5.7 x 5.7 x 6.2 x 7.0 x 6.7 x 9.0 x 9.9 x 10.1 x 22.8% 20.2% 18.8% HERMES INTL -26.8 -26.2 -28.1 10.0 15.1 x 14.8 x 13.7 x 17.4 x 17.1 x 15.6 x 28.2 x 27.9 x 25.9 x 28.2% 27.2% 27.8% BULGARI SPA -25.7 -48.5 -49.8 -57.0 7.4 x 8.3 x 7.6 x 10.4 x 11.5 x 10.9 x 9.2 x 11.5 x 10.5 x 17.1% 16.1% 16.8% TIFFANY & CO -18.6 -16.1 -47.5 -44.5 5.1 x 5.3 x 6.5 x 6.4 x 7.0 x 8.5 x 9.2 x 9.2 x 11.1 x 21.5% 21.4% 18.7% LVMH MOET HENNES -9.0 -18.1 -37.6 -35.5 6.0 x 6.0 x 5.7 x 7.0 x 7.2 x 6.8 x 10.3 x 11.0 x 10.7 x 24.9% 23.7% 24.0% MEDIAN -9.0 -26.2 -47.5 -44.5 5.9 x 6.8 x 6.4 x 7.2 x 9.1 x 8.3 x 9.2 x 10.5 x 10.6 x 21.5% 20.2% 18.7% AVERAGE 10.8 -27.1 -45.8 -44.4 7.5 x 8.0 x 7.6 x 9.1 x 10.1 x 9.5 x 12.2 x 13.2 x 12.4 x 18.1% 16.2% 16.9% Source: IBES consensus, EQUITA SIM estimates
Sector Property services • Astrim - a company active in facility management, general contracting and Stake 13.5% project management, and property management, in which MIT owns a 13.5% Weight on NAV 4% stake (4% of NAV).
ASTRIM: MAIN FIGURES
2006 2007 Revenues 114 76 change 35% -33% EBITDA 2 4 change -56% 137% Net Profit -3 -1 change n.m. n.m. P/E n.m. n.m. EV/EBITDA 37.6 x 16.7 x Book Value (100%) 93.2 93.2 Net Financial Position 29.7 26.4
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 18
Mittel – February 6, 2009
5. LONGSTANDING SHAREHOLDINGS
MIT has for a long time owned shareholdings in a number of listed companies, i.e. Intesa San Paolo, UBI Banca, and RCS Mediagroup. More specifically:
a. 0.13% of Intesa San Paolo (ISP) The syndicated shareholding (0.13%), together with that held by virtue of beneficial ownership (0.623% - the bare ownership of which belongs to Istituto per le Opere di Religione – IOR – the Vatican’s bank), amounts to 0.753% of voting stock. This is a residual shareholding after the events that, in the 1990s, featured MIT with a much larger financial interest in the bank, i.e. throughout the period when the bank changed itself from Nuovo Banco Ambrosiano to Banco Ambrosiano Veneto (1989), then becoming Banca Intesa and absorbing all the banking assets of Cassa di Risparmio delle Province Lombarde (Cariplo – 1998) and of Banca Commerciale Italiana (Comit – 2001).
Last February 3th 2008 we have changed our view from positive to neutral on ISP. Our move is not motivated by the risk of a capital increase, which we consider manageable and whose dilution already priced-in. We mainly fear that weak 2009 figures could trigger a sell-off after an incredible outperformance (since 1/12/2008 +10% vs -10% for European banks). The target price is now € 2.60 PS.
INTESA SANPAOLO: SHAREHOLDER STRUCTURE INTESA SANPAOLO: PERFORMANCE
Compagnia di San Paolo 7.7% 5.5 Credit Agricole 5.5% Assicurazioni Generali 5.1% 5.0 Fondazione Cassa di Risparmio delle Province Lombarde 4.7% 4.5 Carlo Tassara 4.6% Fondazione Cassa di Risparmio di Padova e Rovigo 4.2% 4.0
Ente Cassa di Risparmio di Firenze 3.4%
Fondazione Cassa di Risparmio 3.5 in Bologna 2.7% Others 62.2% 3.0
Source: CONSOB 2.5
2.0
1.5
Jul-08 Apr-08 Oct-08 Jun-08 Jan-09 Jan-08 Feb-08 Mar-08 Aug-08 Sep-08 Nov-08 Dec-08 May-08
Source: Company data
b. 0.7% of UBI Banca (UBI) UBI Banca is the ultimate result of a series of mergers, including that with Banca Lombarda (born in turn from the merger of Credito Agrario Bresciano and Banca San Paolo di Brescia), of which MIT had been a shareholder for over 15 years. We currently have a neutral view on UBI (Hold, target price € 9.5 PS) because we believe current multiples - which imply a 10+% premium on sector average - already factoring in the low leverage (as reflected in a core Tier 1 ratio of >6.5%), whereas the market is underestimating the risk embedded in the bank’s asset primarily consisting of exponential growth in the consumer credit segment over the last 12 months.
As far as the rumoured merger project with Banco Popolare (BP) is concerned (this was officially denied in a press released dated 7 January 2009) so far we
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 19
Mittel – February 6, 2009
confirm our opinion that the deal is unlikely to happen due to the lack of visibility on BP’s strategy concerning (a) buyout of Banca Italease, (b) capital deficit, and (c) balance sheet clean-up.
UBI: SHAREHOLDER STRUCTURE UBI: PERFORMANCE
Carlo Tassara 2.3% 20 Fondazione Cassa di Risparmio di Cuneo 2.3% Fondazione Banca del Monte di 18 Lombardia 2.3% Others 93.2% Source: CONSOB 16
14
12
10
8
Jul-08 Apr-08 Oct-08 Jun-08 Jan-09 Jan-08 Feb-08 Mar-08 Aug-08 Sep-08 Nov-08 Dec-08 May-08
Source: Company data
c. 1.3% of RCS Mediagroup (RCS) RCS owns the leading Italian national daily newspaper Corriere della Sera (CdS). MIT’s interest stems from the stake it had owned for over 20 years in what was then Gemina SpA (a holding company whose shareholders originally included the Agnelli family and Mediobanca). Gemina acquired the RCS publishing group (which had been on the brink of bankruptcy) in 1984. In 1997 Gemina spun off its publishing & media and fashion assets into HdP, which later exited from the loss-making fashion business and merged with RCS, taking on the name of RCS Mediagroup in 2003. As well as publishing Corriere della Sera and the leading sports daily Gazzetta della Sport, the group is also active in magazines, books, radio, advertising, and digital media, and has extended its business to Spain, France and the USA, also via acquisitions. Over the years MIT has increased its stake to the 1.3% interest it owns today.
On RCS we have a neutral view (Hold, target price € 1.0 PS) as we believe the publishing scenario is set to be extremely negative in the short term and is also likely to remain negative in the medium term. RCS has in any case already been severely punished (performance = -79% since January 2007) and, at present, accounts for just 2% of MIT’s NAV.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 20
Mittel – February 6, 2009
RCS: PERFORMANCE
3.0
2.5
2.0
1.5
1.0
0.5
Jul-08 Apr-08 Oct-08 Jan-08 Jun-08 Jan-09 Feb-08 Mar-08 Aug-08 Sep-08 Nov-08 Dec-08 May-08
Source: Company data
RCS: SHAREHOLDER STRUCTURE RCS: SYNDACATED PACT
% on ord % in synd Mediobanca 14.2% shares pact Giovanni Agnelli & C. SAPA 10.5% Mediobanca 13.7% 21.6% Efiparind 7.7% Fiat Partecipazioni 10.3% 16.2% Banco Popolare 6.0% Gruppo Italmobiliare 7.4% 11.7% Della Valle Diego 5.5% Della Valle Diego 5.4% 8.5% Premafin 5.5% Fondiaria SAI 5.3% 8.3% Pirelli & C. 5.2% Pirelli & C. 5.2% 8.2% Edizione Srl 5.1% Intesa Sanpaolo 4.9% 7.8% Intesa 5.1% Assicurazioni Generali 3.7% 5.8% SI.TO Financiere SA 5.1% Sinpar 2.0% 3.2% Rotelli Giuseppe 3.9% Merloni Invest 2.0% 3.1% Assicurazioni Generali 3.8% Mittel 1.3% 2.0% Sinpar Società di Investimenti 2.1% ER.FIN. - Eridano Finanziaria 1.2% 1.9% Merloni Francesco 2.1% Edison 1.0% 1.6% Others 18.3% Total shares 63.5% 100.0% Source: CONSOB
d. MIT’s longstanding shareholdings also include the unlisted financial company, i.e. 1.76% Istituto Atesino di Sviluppo (ISA, 1% of NAV). ISA is in turn a core shareholder of MIT with a 9.4% and maintains an excellent business relationship with the group in the financial and real estate fields. ISA is also a shareholder like MIT in Progressio SGR and in Castello SGR – a company managing real estate funds and created in July 2007 following acquisition of the real estate asset management business of Banca Profilo.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 21
Mittel – February 6, 2009
6. DIVERSIFICATION AND FUTURE STRATEGY
6.1. E. Capital Partners
In August 2008 MIT acquired 100% of E. Capital Partners (ECP), an independent group founded in 2000 by a team of professors from Milan’s Bocconi University and Business School and professionals experienced in the financial field with the aim of developing the still unexpressed potential (both in Italy and in the rest of Europe) of ethicality studies applied to financial markets (such as development and calculation of market indexes and advisory assistance in the creation of tailor- made investment products).
The acquisition of E. Capital Partners was completed at a price of € 50 mn (08-09E P/E = 13x-10x) of which: • 50% in cash (€ 25 mn) • 50% attributing approximately 4.5 mn of new MIT shares (about 6.38% of MIT’s post-increase capital) via a reserved right issue, with exclusion of option rights, at € 5.55 PS, with a 3-year lock-up for EC Investimenti Srl.
E.CAPITAL PARTNERS: STRUCTURE
Holding & Operating Co. Corporate Finance
MittelMittel Corporate Corporate CorporateCorporate FinanceFinance Finance SpA Finance SpA DivisionDivision (ex(ex E.E. CapitalCapital Partners)Partners)
Investment Management Real Estate 100%Advisory 100% 20%
ECP S.r.l. ECP International Castello SGR ECP S.r.l. ECP International Castello SGR (LUX) S. A. S. p.A. (LUX) S. A. S. p.A.
Real Estate CLESIOCLESIO Fund CosimoCosimo II RERE FundFund RERE FundFund
Source: Company data
The ECP Group is active in 3 businesses: 1. IMA (Investment Management Advisory): via its subsidiaries ECPI and ECP International (Luxembourg), the group provides advisory services to banks, institutional advisors and assets concerning the creation of indexes and investment decisions via the application of ESG (Environmental, Social and Governance) criteria. The focus is based on assessment of certain qualitative aspects of a company rather than on purely quantitative analysis. This involves the application of ethical screening criteria to evaluate companies as regards their attitude and conduct concerning ESG aspects. This is a market growing very fast both in Europe and in the USA because of the heightened consciousness of the risks associated with often inadequate corporate governance.
The ECPI database counts around 400 financial companies and approximately 5.5% of them have been excluded from the eligible universe due to poor ESG performance (F-rated companies, i.e. unsustainable companies). Exclusions include some of the most recently troubled corporations, i.e. - Citigroup - AIG - Bear Stearns - Fannie Mae Moreover, ECPI excluded Madoff Feeder-Funds from its eligible universe in 2005.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 22
Mittel – February 6, 2009
2. CFA (Corporate Finance Advisory): provision of corporate advisory services for extraordinary operations (M&A) and finance (including grant finance and soft financing).
3. Real estate: promotion, creation and management of closed-end real estate funds focusing on those reserved for qualified investors through Castello SGR (controlled at 20%).
E. CAPITAL PARTNER: MAIN FIGURES (€ MN)
2005 % 2006 % 2007 % 2008E % 2009E % 2010E % Investment Management Advisory 1.5 31.7% 4.5 51.3% 8.3 69.6% 13.3 73.7% 13.0 78.1% 13.0 75.7% Corporate Finance Advisory 3.3 68.3% 4.3 48.7% 3.6 30.4% 4.7 26.1% 3.1 18.4% 3.1 17.8% Castello SGR (dividends only) 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.2% 0.1 0.5% 0.1 0.6% Private Equity 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.5 3.0% 1.0 5.8% Revenues 4.8 100% 8.9 100% 11.9 100% 18.1 16.7 17.2 Change 85% 35% 51% -8% 3% Professionals -0.8 -16.6% -0.9 -9.8% -0.9 -7.2% -1.3 -7.0% -1.2 -7.4% -1.3 -7.5% Partners -1.2 -24.5% -1.4 -15.5% -1.4 -12.1% -4.7 -26.0% -4.3 -26.0% -4.5 -26.0% Other Direct Costs -0.5 -11.3% -0.7 -8.4% -2.1 -17.4% -4.0 -22.0% -2.6 -15.5% -2.4 -14.0% Overheads -0.7 -15.4% -1.0 -11.5% -1.2 -10.1% -1.4 -7.5% -1.3 -8.0% -1.4 -8.0% EBITDA 1.5 32.2% 4.9 54.9% 6.3 53.1% 6.8 37.5% 7.2 43.1% 7.7 44.5% Change 216% 30% 7% 6% 7% Depreciation & Amortizations -0.1 -2.8% -0.2 -2.3% -0.3 -2.2% -0.3 -1.8% -0.5 -3.0% -0.5 -2.9% EBIT 1.4 29.4% 4.7 52.6% 6.1 51.0% 6.4 35.7% 6.7 40.1% 7.2 41.6% Change 232% 31% 6% 4% 7% Net Interests -0.1 -1.2% 0.0 -0.1% 0.1 0.5% 0.1 0.4% 0.0 0.0% 0.1 0.6% Extraordinary items and others 0.0 -0.6% -0.1 -0.6% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% PRE-TAX PROFIT 1.3 27.6% 4.6 51.8% 6.1 51.5% 6.5 36.1% 6.7 40.1% 7.3 42.2% Change 248% 34% 6% 3% 9% Partners Bonus -1.0 -21.5% -3.8 -42.4% -0.8 -6.7% 0.0 0.0% 0.0 0.0% 0.0 0.0% Tax expenses -0.2 -4.6% -0.5 -5.6% -1.0 -8.8% -1.6 -9.0% -1.7 -10.0% -1.8 -10.5% Minorities 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% NET PROFIT 0.1 1.5% 0.3 3.9% 4.3 36.0% 4.9 27.1% 5.0 30.1% 5.4 31.6% Change 368% 1156% 14% 3% 9% ADJ NET PROFIT 0.1 2.1% 0.4 4.5% 4.3 36.0% 4.9 27.1% 5.0 30.1% 5.4 31.6% Change 290% 979% 13.3 73.7% 13.0 78.1% 13.0 75.7% Source: Equita SIM estimates * Partner Bonus only until 2007
6.1.1. Objectives
• Strengthen the more recurrent revenue base in all areas of business (including IMA, M&A mandate, private equity) to achieve € 8-10 mn of revenues by the end of 2010 • Maintain exposure to non-recurrent revenues relating to extraordinary operations (CFA, ie M&A advisory, project finance..) to achieve about € 8- 10 mn of revenues by the end of 2010 • Achievement total revenues of some € 20-30 mn between 2010 and 2012 • In the medium-long term, develop ECP businesses in Europe, together with possible entry of the USA and Asian markets.
6.1.2. Valuation
In our NAV calculation we valued the stake in E. Capital at deal price, i.e. € 50 mn (2009-10E P/E =10x-9.2x).
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 23
Mittel – February 6, 2009
7. MOST RECENT DEAL: HOPA RESTRUCTURING
On Dec 24th 2008 MIT acquired, via the subholding company Tethys, a 38.74% equity interest in HOPA (a holding company originally founded by a number of Brescia entrepreneurs led by raider Emilio Gnutti, who withdrew from the business world in 2005 after a series of legal vicissitudes). This executed an agreement signed in August 2008 with the co-investor Equinox Two, the lender banks Banca Monte Paschi di Siena (BMPS) and Banco Popolare (BP) and with HOPA’s previous parent co. Fingruppo Holding (now being wound up).
Hopa owns several small-medium sized different assets apparently with no synergies and no clear strategy.
7.1. Why HOPA?
The deal is consistent with MIT’s core business as it envisages financial restructuring and portfolio rationalisation through enhancement/monetisation of participations in a private equity perspective.
7.2. What has MIT done so far?
MIT has been responsible for ordinary management of HOPA since last September (when Mr. Gorno Tempini was appointed chairman) and It already:
• Restructured HOPA’s debt via rescheduling with the lender banks (today the duration is 5 years).
• Negotiated a price for the stake in Bios (sub holding controlling 25.9% of italian listed biomedical Sorin) equal to zero. Thys is a very important step because: 1. at current Sorin market price Bios NAV is negative by € 76 mn, due to € 135 mn of debt due to mature on Sep 30th 2010 (recently rescheduled – vs previous maturity of sep-08). 2. Moreover MIT will have no commitment besides existing equity investment meaning Bios minimum value is equal to zero.
If we would value Bios as a call option, its valuation could be even positive. Nevertheless, at current Sorin market price (deeply out of the money) time value is very low (€ 0.9 mn).
We assume Bios as a call option • expiring on Sep 30th 2010 (debt expiry) • with a strike equivalent to Sorin market price of € 1.11 PS, or when Bios Net Asset Value is equal to zero.
BIOS VALUATION: SENSITIVITY TO SORIN PRICE
% change Sorin Price Option value BIOS Value (€ mn)
100.0% 0.97 0.16 19.7 80.0% 0.87 0.11 14.0 60.0% 0.78 0.08 9.1 40.0% 0.68 0.04 5.3 20.0% 0.58 0.02 2.6 10.0% 0.53 0.01 1.6 Current Sorin mkt price 0.49 0.01 0.9 -10.0% 0.44 0.00 0.4 -20.0% 0.39 0.00 0.1 Source: Equita SIM estimates
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 24
Mittel – February 6, 2009
HOPA: NET ASSET VALUE (€ MN) AS JUNE-08
Current Valuation (€ mn) % Partecipations 336.7 189% Receivables v/financial istitutions 149.2 84% Receivables 15.3 9% Bond 4.6 3% Other assets 30.8 17% Fixed and Intangible assets 0.8 0% Financial Debt -266.1 -149% Other liabilities -20.0 -11% Provisions fund -35.0 -20% Consolidated Net Asset 216.3 121% Minorities -38.1 -21% Adj. Net Asset Value 178.2 100% # of shares 1382 NAV PS 0.13 Source: Prospectus for acquisition of 38.74% of HOPA
TETHYS: EQUITY SHAREHOLDERS (€ MN)
% Investment Mittel 34.0% 10.1 Equinox 32.6% 9.8 MPS 16.7% 5.0 Banco Popolare 16.7% 5.0 Total Equity 29.9 Source: Prospectus for acquisition of 38.74% of HOPA
The special purpose vehicle Tethys was incorporated via: • A capital increase subscribed by MIT (34%), Equinox Two (32.68%), BMPS (16.66%) and BP (16.66%) for a total amount of € 30 mn. MIT invested € 10.1 mn; • Loans agreed with BP and BMPS totalling € 22.5 mn.
HOPA CONTROLLING STRUCTURE
Source: Equita SIM elaboration on company data
HOPA: DEAL PRICE Tethys acquired 38.74% of HOPA:
Price paid for 35.32% of Hopa • 35.32% from Fingruppo for € 43.9 mn (or € 0.09 PS); 43.9 from Fingruppo (€ mn) • 3.42% from the lender banks (BP and BMPS) for € 4.7 mn (or € 0.10 PS), HOPA 100% implied valuation (€ mn) 124 equivalent to a discount of 30% and 22% respectively vs NAV of € 0.13 PS. HOPA Price PS 0.09
Price paid for 3.42% of Hopa 4.7 In addition, Tethys: from Banks (€ mn) • Purchased from Fingruppo the 25% interest in Markfactor (active in non- HOPA 100% implied valuation (€ mn) 138 HOPA Price PS 0.10 recourse and recourse factoring - the remaining 75% is owned by HOPA) for € Source: EQUITA SIM estimates 1.15 mn, as well as the 0.28% interest in Bios.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 25
Mittel – February 6, 2009
• Will acquire from Fingruppo 4.37% of Sangemini SpA (an important italian player in the mineral water segment) and 3.86% of Sangemini Holding (the rest of capital is owned by HOPA) for a total of € 3.61 mn.
It is worth underlying that, although Tethys owns only 38.74% of HOPA, by virtue of the shareholder agreement with the other most important shareholder BP and BMPS it can appoint and/or remove the majority of Board members and also controls strategy.
7.3. Valuation
TETHYS: NAV In our NAV calculation we value the Tethys participation at book value (€ HOPA € PS € mn % 10 mn), i.e. implicitly valuing HOPA at Hopa 0.09 49 166% € 0.10 PS or 22% discount on NAV Bios (0.28%) 0 7% as of 30 June 2008 (Source: Others 3 4% Debt -23 -77% Prospectus for acquisition of 38.74% NAV 29 100% of HOPA). Mittel pro quota 34% 10
Source: EQUITA SIM estimates
7.4. Options
A set of options is in place at various levels, i.e.
For Tethys: • The possibility of rising to 60.2% its stake in HOPA exercising an American call option expiring in 2013 to purchase the remaining HOPA stake owned by the banks (21.56%) at a price of € 29.8 mn or 22% discount to NAV (€ 0.10 PS).
For MIT: • The possibility of rising to 50.7% its stake in Tethys. Since: - MIT holds a call option on Tethys, valid until December 2013, that will enable MIT and Equinox to buy, also on a disjoined basis, the banks’ stakes for a total of € 10 mn (or € 0.10 PS implicit valuation for HOPA) - Each of the 2 banks has a put option on Tethys exercisable 6 months after 23/12/2013, at a price, for each bank, equal to the lowest between € 5 mn and 16.7% of Tethys NAV.
In our view the structure of deal is very positive due to the: 1. Limited downside risk (in the worst case the maximum cash-out for MIT is € 20 mn) 2. The low entry price: HOPA was paid at a discount of 30% and 22% respectively vs NAV of € 0.13 PS. 3. Triple leverage effect: a. Hopa vis-à-vis lever on industrial assets (1,9x) b. Tethys vis-à-vis lever on Hopa (1,7x) c. Options to increase the exposure at discount to NAV
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 26
Mittel – February 6, 2009
HOPA: NET ASSET VALUE (€ MN) AS JUNE-08
ASSET VALUATION SCENARIO Current
Valuation (€ mn) % 10% upside 20% upside Partecipations 336.7 189% 370.4 404.0 Receivables v/financial istitutions 149.2 84% 149.2 149.2 Receivables 15.3 9% 15.3 15.3 Bond 4.6 3% 4.6 4.6 Other assets 30.8 17% 30.8 30.8 Fixed and Intangible assets 0.8 0% 0.8 0.8 Financial Debt -266.1 -149% -266.1 -266.1 Other liabilities -20.0 -11% -20.0 -20.0 Provisions fund -35.0 -20% -35.0 -35.0 Consolidated Net Asset 216.3 121% 250.0 283.6 Minorities -38.1 -21% -38.1 -38.1 Adj. Net Asset Value 178.2 100% 211.9 245.5 # of shares 1382.0 1382.0 1382.0 NAV PS 0.129 0.153 0.178 Change vs base case 19% 38% Source: Prospectus for acquisition of 38.74% of HOPA; EQUITA SIM estimates
TETHYS NAV: SENSITIVITY TO HOPA VALUATION
HOPA € mn % HOPA € mn HOPA € mn € PS € PS € PS Hopa (38.7% stake) 0.09 49 163% 0.153 82 0.178 95 Bios (0.3% stake) 0 0% 0 0 Markfactor 4 13% 4 4 Debt -23 -75% -23 -23 NAV 30 100% 63 76 Mittel pro quota 34% 10 22 26 MITTEL NAV PS 4.71 4.87 4.93 Mittel pro quota (if exercise options on Tethys) 51% 15 32 39 Cash out for exercise of options -5 -5 -5 Mittel pro quota ex cash out 10 27 34 MITTEL NAV PS 4.70 4.95 5.04 % change vs base case 5% 7% Source: Prospectus for acquisition of 38.74% of HOPA; EQUITA SIM estimates
TETHYS NAV: SENSITIVITY TO HOPA VALUATION
HOPA € mn % HOPA € mn HOPA € mn € PS € PS € PS Hopa (60.2% stake) 0.10 79 264% 0.153 128 0.178 148 Bios (0.3% stake) 0 0% 0 0 Markfactor 4 13% 4 4 Debt (if exercise options on HOPA) -52 -175% -52 -52 NAV 31 102% 79 99 Mittel pro quota 34% 10 27 34 MITTEL NAV PS 4.71 4.94 5.04 Mittel pro quota (if exercise options on Tethys) 50.7% 15 40 50 Cash out for exercise of options -5 -5 -5 Mittel pro quota ex cash out 10 35 45 MITTEL NAV PS 4.70 5.06 5.20 % change vs base case 7% 11% Source: Prospectus for acquisition of 38.74% of HOPA; EQUITA SIM estimates
With these options MIT has the opportunity of benefiting from a strong vis-à-vis leverage effect if restructuring of HOPA is successful.
If they are able to increase the value of HOPA industrial assets by 10-20% the final impact on MIT NAV is ranging from +3.5% in our base case up to +11% assuming increase of its exposure via options exercise.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 27
Mittel – February 6, 2009
7.5. The HOPA Portaolio
The equity interests owned by HOPA include:
HOPA PORTFOLIO
Holinvest (100%): a financial company F Leasing (100%): a company in automotive and equipment financial leasing Montini (70%): a company active in the production and sale of cast iron manhole covers and drains Fonderie Regali (70%): a company active in the production and sale of engineering cast iron and alloy cast iron products Markfactor (45%): a company active in non-recourse and recourse factoring Bios (95.7%): a holding company that owns 25.89% of the listed company Sorin (our rating: Hold, target price € 0.80 per share), active in the production and sale of heart-surgery systems and products and of haemodialysis systems Everel Group (50.84%): a listed company active in the supply of electromechanical components for household appliances and industrial equipment, as well as to the automotive industry. Unipol (1%): an Italian listed based insurance, banking and financial services company. Source: Prospectus for acquisition of 38.74% of HOPA
8. TAXATION IS NOT AN ISSUE
Like for almost all Italian holding companies, also for MIT so far taxation is not an issue because: • Currently existing taxation is not penalising: - Capital gains tax on qualified shareholdings: since 1 January 2008: 27.5% on 5% of capital gain (in practice 1.375%) on condition that the shareholding had been owned for at least 12 months; for shorter periods, full tax rate (27.5% of corporate income tax (IRES) + 3.9% of regional business tax (IRAP) = 31.4%) - Dividend income: since 1 January 2008: 27.5% of IRES on 5% of amount received (or 1.38%). • We do not calculate taxes on “historical” assets (the listed ones) since we do not believe they will be sold
Differently from other holdings MIT does not use sub-holding companies in tax havens.
9. ITALIAN HOLDING COMPANIES: TREND OF DISCOUNT ON NAV
In our basic study on Italian Holding Companies we presented our method to fix the discount in getting our target price and for each holding company, we have reconstructed the historical series of discount to NAV on: • An annual basis in the period 2004-06 (based on December figures); • A monthly basis in the period January 2006 - December 2007; • A weekly basis since January 2008. • A daily basis since September 29th 2008.
As regards this, it should be noted that: • For MITTEL: the historical series starts in January 2007 • For ASTM: the historical series starts in October 2007 following transformation from an operating company to a pure holding company (with transfer of operations to SIAS) as part of group reorganisation • For IMMSI: in the months prior to the listing of Piaggio, for the latter we have assumed the IPO price (€ 2.6 PS)
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 28
Mittel – February 6, 2009
Restricting the period of observation to the last 19 months – from end of June 2007, in parallel with the market downturn (Italian MIBTEL index –52%) - on average the Italian holding companies covered by us: • Featured a 95% increase in discounts on NAV • Currently have an average discount on NAV of 43% (excluding Premafin currently trading at 78% premium to NAV and) not far from the 5-year peak achieved on January 23th 2009; • Underperformed the Italian MIBTEL index (-18% relative), sometimes also penalised by low liquidity.
DISCOUNT TO NAV vs MARKET TREND
40% 60% % change in Mibtel Index ** Holding Avg. disc. (ex Mediobanca) Adj.* Holding Avg. disc. (ex Mediobanca) Holding Avg. disc. (ex see-through & MB) 30% 50% 20%
10% 40%
0% 30% -10%
NAV to Avg. discount -20% 20%
MIBTEL index change vs Dec-05 * excluding non recurrent events ** starting date: Dec-05 (Mibtel = 26,778) -30% * monthly since Jan-06; weekly since Jan-07 and daily since Sep-08 10% -40%
-50% 0% Jan-06 Jan-07 Dec-07 Mar-08 Jun-08 Sep-08 Oct-08 Oct-08 Nov-08 Nov-08 Dec-08 Jan-09 Jan-09
Source: EQUITA SIM estimates
ITALIAN HOLDNG COMPANIES: CURRENT AND HISTORICAL NAV AND DISCOUNTS
Company Val. method NAV (€ PS) Disc. / (Prem.) to NAV listed assets 2004 * 2005 * 2006 * 2007 * 2008 * Current 2004 * 2005 * 2006 * 2007 * 2008 * Avg. ** Current ASTM market price n.a. n.a. n.a. 20.9 10.7 10.1 n.a. n.a. n.a. 25% 47% 36% 49% COFIDE see through 1.32 1.47 1.52 1.64 1.03 0.92 36% 30% 28% 35% 68% 39% 58% CIR market price 2.66 2.91 3.05 3.28 2.15 1.93 22% 22% 18% 24% 65% 30% 59% EXOR ord. (1) see through 16.0 18.6 31.2 35.7 15.9 15.5 37% 24% 29% 34% 63% 37% 53% IMMSI market price n.a. n.a. 2.60 2.12 1.23 1.16 n.a. n.a. 19% 35% 44% 33% 42% ITALMOBILIARE ord. (3) market price 77.1 97.2 122.3 93.1 53.1 48.6 37% 42% 36% 32% 49% 39% 44% MEDIOBANCA (4) market price 12.8 16.4 17.4 16.4 14.3 8.5 21% 5% 7% 3% 51% 17% 17% CAMFIN see through 2.39 1.86 1.79 2.37 0.49 0.32 24% 1% 20% 40% 40% 25% 20% PIRELLI & C. ord. (2) market price 0.97 0.86 0.82 0.98 0.44 0.40 12% 10% 10% 20% 41% 18% 42% PREMAFIN market price 1.72 2.26 3.29 2.67 0.56 0.57 28% 11% 28% 26% -91% 0% -140% AVERAGE 27% 18% 22% 27% 38% 26% 24% AVERAGE (ex Premafin***) 43% MITTEL market price n.a. n.a. n.a. 5.00 4.52 4.70 n.a. n.a. n.a. 49% 22% 38% 40%. (1) referring to pref. shares until 2007 and ord. shares afterwards; assuming 20% pref. discount vs ord. shares until March 2006 and 15% afterwards; (2) using total number of shares (ord. + sav.) (3) adj. number shares: before Nov-07 based on market discount; after Nov-07 applying avg. between 3-month and market discounts (4) year-end June * based on estimated year-end net debt and listed assets valued at December avg. market price ** historical 5-year arithmetical average (2004-07) *** having an unjustified premium on NAV Source: Equita SIM estimates
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 29
Mittel – February 6, 2009
10. MAIN FEATURES COMPARISON vs ITALIAN HOLDING COMPANIES
MIT has some features differentiating it vs the other Italian holding companies (as already showed in our basic study n. 72 on Italian Holding Companies dated March 18th 2008):
1. No existence of shareholders’ pact, while Italian holding companies are typically firmly held by a family or by a shareholders’ pact with over 50% of ordinary share capital. Nevertheless we do not take into account any potential speculative appeal knowing the shareholders structure is extremely stable.
MAIN SHAREHOLDERS (% on ord. capital)
Company Main shareholder / company Controlling stake ASTM Gavio family Aurelia/Argo 51% COFIDE De Benedetti family 47% CIR De Benedetti family Cofide 46% EXOR * Agnelli family Giovanni Agnelli S.a.p.a. 57% IMMSI Colaninno family Omnia Invest 44% ITALMOBILIARE Pesenti family 47% MEDIOBANCA Sindicated pact 46% CAMFIN Tronchetti Provera family GPI 54% PIRELLI & C. Tronchetti Provera family Camfin 26% PREMAFIN Ligresti family 49% AVERAGE 47% MITTEL Roman Zaleski Carlo Tassara 19% * resulting from the merger between IFI and IFIL to be finalised by March Source: EQUITA SIM estimates
2. Not prevalence of listed assets (representing “only” 25% on total assets), differently from the majority of Italian Holding companies (61% on average). This is partially due to the weak performance of listed assets and the most recent new investment in unlisted assets (like E.Capital and Hopa).
LISTED ASSETS WEIGHT
1% 100% 4% 20% 90% 27% 20% 26% 80% 39% 50% 48% 70% 82% 76% 60% 76%
50% 99% 96% 40% 80% 80% 73% 74% 30% 61% 50% 52% 20% 24% 24% 10% 18%
0% ASTM Cofide Cir Exor Immsi Italmobiliare Mediobanca Camfin Pirelli & C. Premafin Mittel Average Listed Assets Unlisted Assets
Source: EQUITA SIM estimates
3. Less than 50% of assets controlled with outright majority stakes vs predominance of controlled assets for other holding companies (on average 87% of total assets). This is due to • merchant bank participations which are typically minority stakes; however, having a guaranteed way-out they can be considered quasi cash • stakes in listed banks not participating in the syndicated pact; taking into account they are very long-term investment they could be considered as they were part of it.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 30
Mittel – February 6, 2009
CONTROLLING STAKE WEIGHT
100% 3% 3% 3% 5% 10% 7% 10% 7% 7% 7% 90% 1% 5% 17% 15% 15% 10% 20% 80% 8%
33% 56% 70%
60%
50% 97% 91% 95% 90% 88% 2% 40% 82% 82% 87% 73% 75%
30% 57%
42% 20% 10%
0% ASTM Cofide Cir Exor Immsi Italmobiliare Mediobanca Camfin Pirelli & C. Premafin Mittel Average
Controlling Relevant * Minorities**
Source: EQUITA SIM estimates
4. Historical assets (IntesaSanPaolo, UBI and RCS stakes) are not predominant while Italian holding companies usually have clear predominance of one (or two) “historical/original” asset(s), typically accounting for at least 50% of total assets. MIT has much higher diversification: to reach 50% of total assets we need to sum up the first 5 assets; this is also due to the fact that listed assets owned by MIT suffered a very bad performance over the past 18 months reducing their weight.
5. Clear predominance of “Italian” assets (meaning country of origin) in line with other holding companies.
“ITALIAN” ASSETS WEIGHT 2% 100% 10% 10% 90% 80% 30% 70%
60% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 95% 90% 40%
30% 59%
20%
10%
0% ASTM Cofide Cir Exor Immsi Italmobiliare Mediobanca Camfin Pirelli & C. Premafin Mittel Average Italy Rest of Europe North America South America Asia Other
Source: EQUITA SIM estimates
6. A sound financial structure at holding system level (with holding system net cash we calculate at € 11 mn) in line with the majority of Italian holding companies. The only exception are Camfin and Premafin (currently having a debt to assets ratio at 0.71 and 0.49 respectively):
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 31
Mittel – February 6, 2009
HOLDING SYSTEM NET FINANCIAL POSITION (TO ASSETS)
2,000 0.9 Holding net cash/(debt) D/A average Net debt / assets 1,600 0.7
1,200 0.5
800
530 0.3 365 400 198 76 70 0.1 11 0 -34 -122 -108 -0.1 -400 -319 -535
-800 -0.3 ASTM Cofide Cir Exor Ifil Immsi Italmobiliare Camfin Pirelli & C. Premafin Mittel
Source: EQUITA SIM estimates
7. High dividend yield (5.3%, distributing already announced € 0.15 PS), not far from sector average (currently we estimate of 5.0% which anyway is subject to downward revision risk). Following Moncler deal, MIT has also relatively good visibility on next year dividend.
2006-07E-08E DIVIDEND YIELD
21.7% 22%
17%
12% 10.3% 9.9% 9.2% 7.7% 7% 6.3% 5.9% 5.3% 5% 4.4% 4.4% 3.8% 4.1% 3.5% 2.9% 3.1%2.7% 2.5% 2.9% 2.0% 2.0% 2.0% 1.9% 2.1% 2% 1.4% 1.4% 1.4% 1% 0% 0% 0.0% 0.0%
ASTM Cofide Cir Exor Immsi Italmobiliare Mediobanca Camfin Pirelli & C. Premafin Mittel
-3% 2006 2007 2008E
Source: EQUITA SIM estimates
8. Non systematic use of buyback while in the past 6 out of 10 holding companies bought back shares. MIT never implemented a buyback policy but in the next annual general meeting on February 12th it will ask for a specific authorisation (details not yet disclosed).
9. No use of stock options like the majority of the other holding companies (in any case are concentrated on just a few top managers).
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 32
Mittel – February 6, 2009
ITALIAN HOLDING COMPANIES BUY-BACK
Company Existing authorisation Expiry date Current treasury shares Buy-back execution in StockoOptions Yes / No Shares % capital up to € mn Duration Date Shares (mn) % of capital the past the future Existing ASTM Yes 8.8 10% n.a. 18 months Aug-09 2.5 2.8% Yes Yes NO COFIDE Yes 30.0 4% 50 18 months Oct-09 0.0 0.0% NO NO Yes CIR Yes 35.0 4% 100 18 months Oct-09 43.0 5.4% Yes Yes Yes EXOR Yes * n.a. n.a. 200 18 months Nov-09 5.4*** 7.0%*** Yes Possible Yes IMMSI Yes 34.3 10% n.a. 18 months Nov-09 0.0 0.0% NO Possible NO ITALMOBILIARE Yes ** 2.2 10% 75 18 months Oct-09 0.9 3.9% Yes NO Yes MEDIOBANCA Yes 16.4 2% n.a. 18 months Apr-09 16.4 2.0% Yes NO (1) Yes CAMFIN Yes 35.0 10% 55 18 months Oct-09 0.0 0.0% NO NO NO PIRELLI & C. Yes 525.0 10% 400 18 months Oct-09 2.6 0.0% Yes Possible Yes PREMAFIN NO - - - - - 0.0 0.0% NO NO NO MITTEL To be approved on February 12th BoD- - - 0.0 0.0% NO NO NO * both ord., pref. and sav. shares ** both ord. and sav. shares *** so far only pref. shares (1) existing plan already finalised Source: Equita SIM estimates
10. much more diversified portfolio than other holdings since no one of the assets worth more than 15% of NAV and the most important, Mittel Corporate Finance (ex E.Capital), only 15% of it (while usually Italian holding have the one or two assets representing the vast majority of NAV.
11. PERFORMANCE AND VALUATION
In the listed private equity/holding company sector, it is possible to identify 3 business models, i.e. • Investment company: an investment company based on a private-equity or in any case “dynamic” holding company approach • Pure holding company: where the company merely holds equity participations (majority or in any case significant) without much dynamism • Asset manager: where the core business is based on the management and performance fees stemming from funds’ performance
MIT’s can be defined as hybrid, as it is a mix of the 3 models highlighted above. It is in fact at one and the same time an: • Investment company – both directly and via Mittel Private Equity (MPE) of which it owns 51% • Pure holding company – via the longstanding shareholdings in ISP, UBI, and RCS • Asset manager – via Progressio SGR and the recently acquired Castello SGR.
As far as performance is concerned, in 2008 MIT fell back by -43%, underperforming Italian peers by -3% - but outperforming holding companies, both Italian (by +22%) and European (by +15%).
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 33
Mittel – February 6, 2009
MITTEL COMPARABLES – PERFORMANCE LAST 4 YEARS
Mkt cap Perf. ytd Performance last 4 years (€ mn) Abs Rel 2008 2007 2006 2005 P/BV
DEA IM Dea Capital spa 392 -4% 2% -37% -26% 19% 10% 0.5 x MIT IM Mittel spa 203 -2% 4% -43% -10% 36% 19% 0.5 x TIP IM Tamburi Investment Partners 154 -5% 1% -29% -6% 2% n.m. 0.9 x MEC IM Management & Capitali spa 209 -4% 2% -38% -19% n.m. n.m. 0.5 x CL IM Cape Listed Investment Vehic 25 10% 16% -51% n.m. n.m. n.m. 0.7 x CIR IM Cir spa 615 7% 13% -71% 1% 13% 2% 0.5 x Average 0% 6% -45% -12% 17% 10% 0.6 x
European Private Equity III LN 3i Group plc 986 -16% -10% -73% -1% 18% 27% CDI LN Candover Investments Public 106 -48% -41% -54% -4% 16% 35% ELTA LN Electra Private Equity plc 290 29% 35% -64% 10% 33% 31% SVI LN Svg Capital plc 152 10% 16% -88% -9% 16% 24% RF FP Eurazeo 1,418 -24% -17% -60% -15% 38% 57% GIMB BB Gimv nv 698 -3% 4% -34% 2% 8% 16% RATOB SS Ratos ab-b shs 1,649 -18% -12% -23% 11% 80% 34% MF FP Wendel 1,450 -19% -12% -64% -12% 33% 57% Average -11% -5% -57% -2% 30% 35%
Pure holding ITM IM Italmobiliare spa 900 -6% 0% -55% -22% 40% 13% 0.7 x COF IM Cofide spa 280 6% 12% -66% -1% 8% 10% 0.4 x PF IM Premafin Finanziaria 564 9% 15% -35% -21% 21% 48% n.m. CMF IM Cam Finanziaria spa 96 -5% 1% -79% -5% -21% -7% 0.2 x IFp IM Ifi-Istituto Finanziario ind 721 -9% -3% -79% 2% 64% 26% 0.4 x IFL IM Ifil-Investments spa 2,054 7% 13% -72% 4% 71% 8% 0.3 x Average 0% 6% -64% -7% 31% 16% 0.4 x
Alternative Asset Mgmt BX US Blackstone Group lp/the 4,089 -26% -20% -70% n.m. n.m. n.m. FIG US Fortress Investment grp-cl a 458 45% 51% -94% n.m. n.m. n.m. GLG US Glg Partners inc 409 -6% 0% -83% n.m. n.m. n.m. EMG LN Man Group plc 3,788 -16% -10% -58% 10% 64% 30% PGHN SW Partners Group Holding ag 1,339 0% 6% -51% 3% n.m. n.m. RAB LN Rab Capital plc 53 -13% -7% -87% -16% 100% -2% Average -3% 3% -74% -1% 82% 14% Source: Bloomberg prices, Equita sim elaboration
We believe the negative absolute performance was due to the: 1. Slump of the company’s listed assets: ISP -53%, UBI -45% and RCS -67%, which caused total NAV to decrease by € 97 mn (and the weight of listed assets to decrease from 49% at 2007 year-end to 27% at the end of 2008)
MITTEL AND LISTED ASSET 2008 PERFORMANCE
110.0 MITTEL INTESA UBI RCS 100.0
90.0
80.0
70.0
60.0
50.0
40.0 30.0
20.0
Jul-08 Apr-08 Oct-08 Jun-08 Jan-08 Feb-08 Mar-08 Aug-08 Sep-08 Nov-08 Dec-08 May-08
Source: EQUITA SIM elaboration on Bloomberg data
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 34
Mittel – February 6, 2009
2. Overhang fears relating to the 19% stake owned by Roman Zaleski who, via Carlo Tassara SpA (currently undergoing financial restructuring but still with a representative on the MIT BoD) 3. Flight to liquidity of institutional investors, who have shifted to companies with greater liquidity.
MITTEL – NAV
Asset Sector Stake % # shares € PS € mn % Valuation method Intesa Sanpaolo Banking 0.13% 15.0 2.3 35.1 11% Market Value UBI Banca ScpA Banking 0.68% 4.3 9.1 39.5 12% Market Value RCS Media Group SpA Media 1.3% 9.3 0.7 6.9 2% Market Value TOTAL LISTED SHAREHOLDINGS (1) 81.5 25% Merchant Banks partecipations Merchant bank stakes n.m. 60.5 18% Costs + spread E.Capital Partners Financial Services 100.0% 50.0 15% M&A deal (P/E 09-10 = 10 – 9.2 x) Property Assets Real Estate 100.0% 40.0 12% Cost + incremental exp as June 08 Mittel Generale Investimenti Financial Services 100.0% 46.2 14% Adj 2009E P/BV 0.7x Azimut-Benetti Luxury Motor Yachts 5.5% 29.2 9% BV as Sep-08 (EV/EBITDA 07-08E 8.2 – 5.8x) Astrim Real Estate Services 13.5% 12.6 4% BV as Sep-08 (EV/EBITDA 07 16.7 x) Tethys (Hopa) Holding 34.0% 10.0 3% BV as Sep-08 (30% discount to NAV as june-08) Moncler (Brands Partners 2) Retail 2.0% 6.0 2% Deal Price Oct-08 /EV/EBITDA 07-08E = 10.2 – 8.5x) Fondo Progressio Investimenti Private Equity Fund 13.5% 5.5 2% BV as Sep-08 Istituto Atesino di Sviluppo S.p.A. Holding 1.8% 2.7 1% BV as Sep-08 (P/BV 07 1.2 x) SIA-SSB IT Services 0.3% 1.4 0% BV as Sep-08 (EV/EBITDA 07 6.5 x) Vimercati Industrial 4.1% 0.6 0% BV as Sep-08 (P/E 07 = 24.5 x) Publimethod Holding 5.7% 0.6 0% BV as Sep-08 (P/E 07 = 5.7 x) TOTAL UNLISTED SHAREHOLDINGS (2) 265 81% ATTRIBUTABLE NFP (3) 11 3% Adj. NFP as today HOLDING COSTS (4) -30 -9% Normalised cash costs net of taxes capitalised @ 10% TAXES ON POTENTIAL CAPITAL GAINS (5) 0 0% TOTAL NET ASSET VALUE (1+2+3+4+5) 328 100% Nr. of Shares (mn) 71 NAV per Ord share € 4.7 Current discount (premium) 40% P/NAV 0.60x Source: Equita SIM estimates
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 35
Mittel – February 6, 2009
NET FINANCIAL POSITION: DETAILS In fixing out target price we apply a 15% discount to NAV (as defined in appendix
NET FINANCIAL POSITION Sep-08 2). As a consequence, starting from a NAV of € 4.7 PS our target price is € 4.0 PS. NFP consolidata 49.4 (-) NFP MGI spa - valued at equity -67.0 The table below shows the trend in Mittel’s NAV and MIT’s discount vs. NAV since (-) NFP 59.2% MPE spa -22.7 January 2007. In the last 2 years MIT has traded at an average discount vs. NAV (+) Cash out HOPA -10.0 of about 10%. (+) Cash in sale Monclear 58.4 (-) Cash out stake Monclear -6.0 MITTEL: DISCOUNT TO NAV SINCE JAN 07 (+) cash in Fondo Progressio partial pay back* 8.8 NFP 10.9 8.0 60% Source: Equita SIM estimates, Company data NAV PS Discount Average discount to NAV 50% 7.0 6.0 40% 30% 5.0 20% 4.0 10% 3.0 0%
2.0 -10% 1.0 -20%
0.0 -30%
ott-07 ott-08 dic-07 dic-08 giu-07 lug-07 giu-08 lug-08 set-07 feb-08 feb-07 apr-08 apr-07 nov-07 nov-08 ago-07 ago-08 gen-09 gen-07 mar-08 mar-07 mag-08
Source: EQUITA SIM elaboration on Bloomberg data
In 2008 the average discount was 20%, hitting a peak in November/December of over 50% fuelled by overhang fears concerning Tassara’s 19% stake possible placement.
MITTEL: DISCOUNT TO NAV SINCE JAN 08
8.0 60% NAV PS Discount Average discount to NAV 7.0 50% 6.0 40% 5.0 30% 4.0 20% 3.0 10% 2.0 1.0 0%
0.0 -10%
ott-08 dic-08 giu-08 lug-08 set-08 feb-08 apr-08 nov-08 gen-09 gen-08 ago-08 mar-08 mag-08
Source: EQUITA SIM elaboration on Bloomberg data
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 36
Mittel – February 6, 2009
12. SENSITIVITY TO NAV
MITTEL NAV: SENSITIVITY (€ PS)
UBI -22.5% -15.0% -7.5% TODAY 7.5% 15.0% 22.5% INTESA SAN PAOLO 7.1 7.7 8.4 9.1 9.8 10.5 11.1 -22.5% 1.8 4.4 4.5 4.5 4.5 4.6 4.6 4.7 -15.0% 2.0 4.5 4.5 4.5 4.6 4.6 4.7 4.7 -7.5% 2.2 4.5 4.5 4.6 4.6 4.7 4.7 4.7 TODAY 2.3 4.5 4.6 4.6 4.7 4.7 4.7 4.8 7.5% 2.5 4.6 4.6 4.6 4.7 4.7 4.8 4.8 15.0% 2.7 4.6 4.6 4.7 4.7 4.8 4.8 4.9 22.5% 2.9 4.6 4.7 4.7 4.8 4.8 4.8 4.9
13. STATEMENT OF RISK
The primary elements that could negatively impact MITTEL include: • Significant deterioration in the main assets reference macroeconomic scenario • Significant increase in short term interest rates • Valuation risk for property development projects • Downward revision risk for fee-based E.Capital business • Negative share price performance of Intesa Sanpaolo, UBI Banca and RCS • Potential write-downs on loans following a difficult market environment • Significant deterioration of luxury motor yachts market conditions affecting Azimut Benetti
14. SWOT ANALYSIS
Strengths • Sound financial structure at holding system level (with holding system net cash we calculate at € 11 mn) and more than € 500 mn of available credit lines • High portfolio diversification (no one of the assets worth more than 15% of NAV) • Highly experienced management team with proved track record • High dividend yield (5.3%, distributing already announced € 0.15 PS) • Prevalence of unlisted assets
Weaknesses • No dividend cash-in from banking assets for 2 years (based on our estimates IntesaSanPaolo and UBI) and may be also for some other assets • High weight of minorities stakes on total assets (despite for the majority of these assets they have a strict long-term relationship with mains shareholders) • Low stock liquidity (30-day avg. 28k stocks)
Opportunities • Upside for Hopa restructuring (recently acquired) with potential triple leverage effect • Further investments in private equity business potentially at low entry price leveraging on strong financial structure
Threats • Slowing growth trends in luxury motor yacht sector in 2009 (the most important private equity asset) • Further weakness of banking assets • Worsening trends in real estate sector • Slowdown in fee-based E.Capital business due to current market condition • Risk right issue of some listed assets to strengthen their financial structure. • Overhang risk from Carlo Tassara (Roman Zaleski) owning 19% stake
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 37
Mittel – February 6, 2009
15. APPENDIX
Appendix 1: General Rules For Calculating Nav
• Holding costs (of parent company and of any sub-holding companies) - Cash costs net of any revenues (for example: due to charge-back of costs to subsidiaries) - Net of tax saving for deductibility - Capitalised according to perpetual return model at rate of 10%, i.e.: (net cash costs * (1-% tax rate))/10%
• Attributable net debt: inclusive of parent company and sub-holdings’ net debt + related employee severance indemnity funds
• Taxes on capital gains - Controlling/historical shareholdings likely not to be sold, independently from holding location-based: tax-rate 0% (e.g. L’Espresso for Cir, Fiat for Exor and ISP, UBI and RCS for MIT) - Shareholding owned via Italian holding/sub-holding possibly to be divested, if owned for more than 12 months: 1.375% - Shareholding owned via Italian holding/sub-holding possibly to be divested, if owned for less than 12 months: 31.4% - Shareholdings owned via foreign holding/sub-holding companies possibly to be divested: tax-rate in force in the country concerned is applied
• Carried forward losses / tax credits: measured individually, including in the valuation only the part of credits deemed reasonable in few of income/capital gains expectations
• Adjusted number of shares: for companies featuring several share classes total no. of ordinary shares + total no. of savings/preference shares reduced by a % discount (= arithmetical average between the average discount of the last 3 years and the current discount). Exceptions: when good reasons exist justifying application of different discounts (e.g. possible conversion, buy-back, cancellation, extraordinary dividend, lack of historical figures etc.)
• The stub is the residual value of a holding per share. It is calculated by subtracting the listed stakes from the holding company’s market cap and indicates market-implied valuation of its unlisted assets + its net financial position and holding costs.
• Listed assets valuation: market price if application of a different methodology is not justified
• Stock options dilution: estimated negative impact from existing plans
Appendix 2: General Rules For Calculating Discount To Nav In Fixing Target Prices
In order to achieve uniform definition of discounts, below we describe our methodology for defining target price. The discount applied to NAV (calculated according to the rules indicated in Appendix 1) is the result of the summing of the discounts attributed to each of the following variables, which we consider relevant. The rationale is a lower discount ....
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 38
Mittel – February 6, 2009
VARIABLES TO FIX DISCOUNTS
1 The higher ... the weight of the controlling stake is (on total assets, including any net cash, but excluding net debt)
2 The lower ... the weight of listed assets is (on total assets, including any net cash, but excluding net debt) ... the financial structure is (based on net debt/total assets ratio, credit lines available, and compliance with any 3 The stronger covenants, etc.) ... our fundamental view of the main listed asset is. If the main asset is not listed (and thus has already been included with a valuation that we consider consistent), the 4 The more positive second asset is considered (if its weight is significant). For holding companies of listed holding companies, it is not considered because we use see-through NAV
… the management is (meaning, for example, the ability to create value, portfolio turnover rate, outcome of the most 5 The more active recent deals, openness vis-à-vis the financial community, etc.) … speculative appeal is (including M&A deals, extraordinary dividend, rationalisation of chain of control, changes in tax 6 The greater system, significant buy-back etc.) Source: Equita SIM
For each of these variables, we have defined a ranking of discounts, the summing of which defines the discount to be applied to NAV when establishing the target price.
VARIABLES TO FIX DISCOUNTS
1. Controlling stake as a % of NAV 4. Fundamental view main asset (representing at least 50% of NAV) * vis-à-vis lever Discount Positive 10.0% More than 90% 0.0% Neutral -5.0% Between 70% and 90% -5.0% Negative -10.0% Less than 70% -10.0% Not listed 0.0%
2. Listed stake as a % of NAV 5. Management style Discount More than 80% -20.0% Active +5%/+10% Between 60% and 80% -15.0% Neutral 0% Between 40% and 60% -10.0% Passive -5%/-10% Between 20% and 40% -5.0% Less than 20% 0.0%
3. Financial structure based on debt to assets 6. Speculative appeal Discount Sound / efficient 0.0% Positive +5%/+10% Sound but inefficient -2.5% None 0.0% Limited flexibility -5.0% Negative -5%/-10% Stressed -10.0% Source: Equita SIM
Consequently, this is the list of the discounts applied to MIT’s NAV when fixing target prices:
MITTEL HOLDING DISCOUNT IN FIXING TARGET PRICE
Controlling % Listed % Fin. structure Fund. View Active mgmt Speculative TOTAL (1) (2) (3) (4) (5) (6) Discount MITTEL -10.0% -5.0% 0.0% 0.0% 0.0% 0.0% -15%
These values may of course vary over time, in theory causing changes to target prices/recommendations even in the absence of changes to NAV.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 39
Mittel – February 6, 2009
Appendix 3: Mittel Management
Giovanni Gorno Tempini - Managing Director
In November 2007 he joined as Managing Director of MIT. Recently appointed as Vice-President of Sorin and member of A2A Management Board. From 1987 up to 2001, he worked in JP Morgan where he held the position of European Director for Government Bond Unit, Director for Emerging Market Trading Unit and Director for Fixed Income Trading Unit. In 2001 was appointed CEO of Caboto (Intesa Group).
Mario Spongano - Chief Financial Officer
In January 2008 he joined as Chief Financial Officer of MIT. From 1991 up to 2001, he worked in JP Morgan as Director of Government Bond Option Trading, Director for Interest Rate Trading Unit and Director for Euro Government Bond, Strips and Bond Option Trading Unit.
IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 40
Mittel – February 6, 2009
INFORMATION PURSUANT TO ARTICLE 69 ET SEQ. OF ONSOB (Italian securities & exchange commission) REGULATION no. 11971/1999
This publication has been prepared by Luigi de Bellis and Martino De Ambroggi on behalf of EQUITA SIM SpA (licensed to practice by CONSOB resolution no. 11761 of December 22nd 1998 and registered as no. 67 in the Italian central register of investment service companies and financial intermediaries)
In the past EQUITA SIM has not published studies on Mittel
EQUITA SIM is distributing this publication via e-mail to more than 700 qualified operators today: Friday, 06 February 2009
The prices of the financial instruments shown in the report are the reference prices posted on the day before publication of the same.
EQUITA SIM intends to provide continuous coverage of the financial instrument forming the subject of the present publication, with a semi-annual frequency and, in any case, with a frequency consistent with the timing of the issuer’s periodical financial reporting and of any exceptional event occurring in the issuer’s sphere of activity. The information contained in this publication is based on sources believed to be reliable. Although EQUITA SIM makes every reasonable endeavour to obtain information from sources that it deems to be reliable, it accepts no responsibility or liability as to the completeness, accuracy or exactitude of such information. If there are doubts in this respect, EQUITA SIM clearly highlights this circumstance. The most important sources of information used are the issuer’s public corporate documentation (such as, for example, annual and interim reports, press releases, and presentations) besides information made available by financial service companies (such as, for example, Bloomberg and Reuters) and domestic and international business publications. It is EQUITA SIM’s practice to submit a pre-publication draft of its reports for review to the Investor Relations Department of the issuer forming the subject of the report, solely for the purpose of correcting any inadvertent material inaccuracies. EQUITA SIM has adopted internal procedures able to assure the independence of its financial analysts and that establish appropriate rules of conduct for them.
Furthermore, it is pointed out that EQUITA SIM SpA is an intermediary licensed to provide all investment services as per Italian Legislative Decree no. 58/1998. Given this, EQUITA SIM might hold positions in and execute transactions concerning the financial instruments covered by the present publication, or could provide, or wish to provide, investment and/or related services to the issuers of the financial instruments covered by this publication. Consequently, it might have a potential conflict of interest concerning the issuers, financial issuers and transactions forming the subject of the present publication.
EQUITA SIM S.p.A. provides, or has provided in the last 12 months, investment banking services to MITTEL S.p.A. EQUITA SIM S.p.A. performs, or has performed in the last 12 months, the role of specialist for financial instruments issued by MITTEL S.p.A.
In addition, it is also pointed out that, within the constraints of current internal procedures, EQUITA SIM’s directors, employees and/or outside professionals might hold long or short positions in the financial instruments covered by this publication and buy or sell them at any time, both on their own account and that of third parties.
The remuneration of the financial analysts who have produced the publication is not directly linked to corporate finance transactions undertaken by EQUITA SIM.
The recommendations to BUY, HOLD and REDUCE are based on Expected Total Return (ETR – expected absolute performance in the next 12 months inclusive of the dividend paid out by the stock’s issuer) and on the degree of risk associated with the stock, as per the matrix shown in the table. The level of risk is based on the stock’s liquidity and volatility and on the analyst’s opinion of the business model of the company being analysed. Due to fluctuations of the stock, the ETR might temporarily fall outside the ranges shown in the table.
EXPECTED TOTAL RETURN FOR THE VARIOUS CATEGORIES OF RECOMMENDATION AND RISK PROFILE
RECOMMENDATION/RATING Low Risk Medium Risk High Risk BUY ETR >= 7.5% ETR >= 10% ETR >= 15% HOLD -5% The methods preferred by EQUITA SIM to evaluate and set a value on the stocks forming the subject of the publication, and therefore the Expected Total Return in 12 months, are those most commonly used in market practice, i.e. multiples comparison (comparison with market ratios, e.g. P/E, EV/EBITDA, and others, expressed by stocks belonging to the same or similar sectors), or classical financial methods such as discounted cash flow (DCF) models, or others based on similar concepts. For financial stocks, EQUITA SIM also uses valuation methods based on comparison of ROE (ROEV – return on embedded value – in the case of insurance companies), cost of capital and P/BV (P/EV – ratio of price to embedded value – in the case of insurance companies). MOST RECENT CHANGES IN RECOMMENDATION AND/OR IN TARGET PRICE (OLD ONES IN BRACKETS): Date Rec. Target Price (€) Risk Comment nil DISCLAIMER The purpose of this publication is merely to provide information that is up to date and as accurate as possible. the publication does not represent to be, nor can it be construed as being, an offer or solicitation to buy, subscribe or sell financial products or instruments, or to execute any operation whatsoever concerning such products or instruments. EQUITA SIM does not guarantee any specific result as regards the information contained in the present publication, and accepts no responsibility or liability for the outcome of the transactions recommended therein or for the results produced by such transactions. Each and every investment/divestiture decision is the sole responsibility of the party receiving the advice and recommendations, who is free to decide whether or not to implement them. Therefore, EQUITA SIM and/or the author of the present publication cannot in any way be held liable for any losses, damage or lower earnings that the party using the publication might suffer following execution of transactions on the basis of the information and/or recommendations contained therein. The estimates and opinions expressed in the publication may be subject to change without notice. EQUITY RATING DISPERSION AS DECEMBER 31, 2008 (art. 69-quinquies c. 2 lett. B e c. 3 reg. Consob 11971/99) COMPANIES COVERED COMPANIES COVERED WITH BANKING RELATIONSHIP BUY 51.2% 70.6% HOLD 34.6% 29.4% REDUCE 13.6% 0.0% NOT RATED 0.6% 0.0% IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT 41