H&A Top Picks 2020 34% Alpha Performance YTD Simon Bentlage Analyst +49 40 4506 342 3096 [email protected] Frederik Bitter Analyst +49 40 450 6342 3091 [email protected] Aliaksandr Halitsa Analyst +49 40 414 3885 83 [email protected] Alina Köhler Analyst +49 40 4506 342 3095 [email protected] Christian Salis Analyst +49 40 414 3885 96 [email protected] Christian Sandherr Analyst +49 (40) 4143885 79 [email protected] Julius Stinauer Analyst +49 40 414 3885 84 [email protected] Tim Wunderlich, CFA Analyst +49 40 4143885 81 [email protected] 06. August 2020 Please refer to important disclosures at the end of the report 34% Alpha Performance YTD Hauck & Aufhäuser 34% Alpha Performance YTD 06. August 2020 H&A Alpha portfolio review CORESTATE Capital Holding S.A. Buy; PT EUR 38.00 The H&A Alpha portfolio continued to outperform its benchmarks. It returned 23% year Upside / Downside: 111.3% to date, translating into c. 34% alpha vs. the MDAX and 32% vs. the SDAX. Since inception, the portfolio retuned 61%, beating its benchmarks by approximately 43% and 42%. DEUTZ AG Notably, the top five picks this year (WEW, FTK, LPK, DLG and SANT) outperformed Buy; PT EUR 7.50 their benchmarks by an average of 87%. Upside / Downside: 68.2% 170 160 Dialog Semiconductor PLC 150 Buy; PT EUR 48.50 Upside / Downside: 9.2% 140 130 120 Eckert & Ziegler AG 110 Buy; PT EUR 52.50 100 Upside / Downside: 22.9% 90 80 freenet AG 70 Buy; PT EUR 24.50 01/19 02/19 03/19 04/19 05/19 06/19 07/19 08/19 09/19 10/19 11/19 12/19 01/20 02/20 03/20 04/20 05/20 06/20 07/20 Upside / Downside: 61.9% MDAX SDAX H&A ALPHA PORTFOLIO Source: Hauck & Aufhäuser, Bloomberg The following table incudes our current holdings and their respective alpha generation LPKF Laser & Electronics AG vs. the MDAX since their inclusion in the H&A alpha list: Buy; PT EUR 40.00 Upside / Downside: 96.1% Company Ticker L/S Inclusion Absolut perf. Relative perf. WESTWING GROUP A WEW GY L 16.04.20 246.5% 223.2% LPKF LASER & ELE LPK GY L 13.01.20 28.3% 33.7% Media and Games Invest plc DIALOG SEMICOND DLG GY L 05.05.20 49.4% 33.1% Buy; PT EUR 2.70 S&T AG SANT GY L 12.03.20 56.8% 23.5% Upside / Downside: 103.0% WACKER NEUSON SE WAC GY L 12.05.20 32.1% 19.2% DEUTZ AG DEZ GY L 26.05.20 22.9% 17.3% ECKERT & ZIEGLER EUZ GY L 12.05.20 26.1% 13.3% S&T AG FREENET AG FNTN GY L 21.07.20 2.5% 3.8% Buy; PT EUR 28.00 MEDIA AND GAMES M8G GY L 05.08.20 2.3% 1.1% Upside / Downside: 17.9% CORESTATE CAPITA CCAP GY L 05.06.20 -16.0% -14.8% Source: Hauck & Aufhäuser, Bloomberg; relative performance vs. MDAX as of 05.08.2020 Wacker Neuson SE Buy; PT EUR 21.00 Upside / Downside: 39.3% With today’s portfolio review, we are also introducing a stocks that we added to our alpha list yesterday: Media and Games (in on August 5th) is holding company pursuing a buy and build Westwing Group AG strategy in Gaming (60% of sales as of Q2) and Media (40%), MGI’s key asset is Buy; PT EUR 18.00 a scalable online gaming platform with a loyal base of 5m monthly active users Upside / Downside: 28.6% plus a 50m customer list. MGI is a COVID winner as stay at home policies have driven an acceleration in new user registrations and user activity. This largely explains the company’s strong operating performance expected for 2020 (sales +41% yoy / EBITDA +46% yoy). While MGI has recently issued an initial FY’20 guidance which is some 15% ahead of consensus, the outlook should still be conservative, and we see up to 10% upside to eCons. Considering this, the dynamic growth case, and more than 100% upside to fair value, MGI is a high- conviction idea. 2 Hauck & Aufhäuser Privatbankiers AG 34% Alpha Performance YTD Below, we are reviewing the portfolio highlights: Westwing (in on April 16th, 223% alpha) released stellar Q2 prelims (90% sales growth yoy, 13.0% adj. EBITDA margin, € 23m FCF) and raised its FY’20 guidance reflecting the company’s ability to capitalise on the accelerating shift towards e- commerce. The high conviction call remains fully intact as Westwing should still grow by >50% in July/August despite the reopening of brick-and-mortar stores suggesting upside potential to the already upgraded FY’20 guidance (25-35% sales growth yoy, 3-5% adj. EBITDA margin) and our estimates (34% yoy and 5%). Moreover, improving liquidity and market cap should attract a wider investor base all of which looks set to close the stock’s unjustified valuation discount to e-commerce peers (0.5x vs >1x EV/sales 2021E). LPKF (in on January 13th, 34% alpha) released solid Q2’20 figures and a rather muted Q3’20 outlook solely on the back of Covid-19 related project postponements. While temporary headwinds should trigger FY’20 consensus downside revisions, LPKF continues to be a ‘must have’ based on the transformative potential of strong growth and high-margin technology LIDE. In fact, the current share price weakness provides an opportunity for investors able to look through the crisis, considering an undemanding valuation of 13x earnings 2022E. Dialog Semiconductor (in on May 5th, 33% alpha) is able to continuously benefit from strong demand for “work and learn at home” products such as tablets, laptops and wearables. Following a better than expected Q2, Dialog issued a strong Q3 guidance, which beat expectations and implies c. 10% yoy growth of the company’s underlying business (excl. main PMIC). Dialog offers secular growth prospects with upside to estimates stemming from its recently introduced battery management solutions and a strong balance sheet at an attractive valuation, underpinned by the premium multiples for the recent Maxim takeover; 27x EV/EBITDA and 36x PE 2021E compared to 9x EV/EBITDA and 17x PE 2021E for Dialog. S&T (in on March 13th, 24% alpha) Q2’20 figures outperformed expectations driven by exposure to Medical but also IT Services benefitting from investments into home office equipment. In fact, quarter-on-quarter, revenues remained stable and the EBITDA margin improved by almost 1pp, underpinning the resilience of the business model and the favourable impact of the software strategy. The FY’20E guidance now looks conservative, and we expect an upgrade in the course of Q4. Upside to eCons on EBITDA should amount to at least 5%. Remains a high-conviction idea. Wacker Neuson (in on May 13th, 19% alpha) is a cyclical recovery play and an attractive value opportunity trading at roughly goodwill adjusted book value. Over the recent years the company has significantly optimized its production footprint and internal processes allowing for structurally higher margins and FCF generation. At the same time, the COVID-19 lockdown comes as a blessing in disguise allowing the company to push through further optimization and cost cutting initiatives and most importantly to reduce inventories to an optimal level in a cost efficient way thanks to government support (short-time work). With Q2 results coming in much better than expected, there’s at least 15% upside to consensus’ FY EBIT estimates in our view. DEUTZ (in on May 27th, 17% alpha): The latest ifo business climate index data from July (third month in a row with rising business expectations) confirmed our view of an unfolding cyclical recovery. Accordingly, DEUTZ, as an early-cyclical company should experience a recovery in order intake short-term which should drive sales and earnings going forward (order-to-sales-conversion time about 4-6 weeks). Industry reporting (Palfinger, LafargeHolcim) suggest that demand in the construction industry (#1 end-market for DEUTZ, representing about 30% of sales) is recovering strongly since the trough in April. Building materials company LafargeHolcim, for instance, expects a “fast demand recovery with an encouraging outlook for the second half of 2020”, helped by stimulus measures. Eckert & Ziegler (in on May 13th, 13% alpha): While the COVID headwinds temporary weigh on the non-radiopharma exposure (eg. oil and gas, service business, medical devices), the high-margin Radiopharma (>40% of EBIT) 3 Hauck & Aufhäuser Privatbankiers AG 34% Alpha Performance YTD continues to show dynamic growth (Q1: +35% yoy) on the back persistently high demand for radiopharmaceutical isotopes. Most importantly, sales and earnings are seen to re-accelerate in 2021E as the COVID headwinds should fade and Radiopharma stands to benefit from an increasing number of new therapies entering the market (eg. prostate cancer therapy from Novartis). Freenet (in on July 22nd, 4% alpha) benefits from a defensive business model based on two-year mobile contracts with its 7m strong customer base. Amid corona uncertainties freenet cautiously suspended its 2019 dividend causing shares to remain at trough levels, i.e. 8.6x times EV/ EBITDA’21E vs. 3y historic multiples of >10x. The recent closing of a refinancing round as well as solid Q2 figures due on August 12 are seen to trigger a rerating as they should prove the resilience of the business model and clear the way to reinstall the dividend policy in 2021E, implying a 10% yield at current levels.