COMPANY ANALYSIS 2 March 2015

Summary

Cybercom Group (CYBE.ST)

List: Small cap Continuing double-digit growth Market Cap: 505 MSEK  The double-digit growth seen in Q3 continued, and revenues Industry: Information Technology CEO: Niklas Flyborg of SEK 354m bettered our estimate by 8 percent. There was Chairman: Hampus Ericsson growth across the board, with positive surprises from both , with 9 percent growth, and , which did not appear to have been affected at all by the temporary layoffs in OMXS 30 Cybercom Group Q3. EBIT of SEK 24m beat our forecast by SEK 3m for the 3.5 same reason. The EBIT margin, however, fell year on year from 3 7.1 percent to 6.7 percent, suggesting there is some work to be 2.5 done in the sub-consulting business and in the transformation 2 of the southern region after Ericsson's cutbacks. 1.5 1 0.5  Our new, higher, short term estimates provide a new fair value 0 03-Mar 01-Jun 30-Aug 28-Nov 26-Feb of SEK 3.4 per share (3.2). We believe that profit-taking after good performance since last autumn depressed the stock following the report. With double-digit growth rates in Q3-Q4, and healthy margins, it does not feel entirely fair that the discount to sector peers has widened even further.

Redeye Rating (0 – 10 points)

Management Ownership Growth prospect Profitability Financial strength

6.5 points 7.5 points 5.0 points 4.0 points 5.5 points

Key Financials

2013 2014 2015E 2016E 2017E Share information Revenue, MSEK 1,195 1,263 1,357 1,405 1,475 Share price (SEK) 2.8 Growth -11% 6% 7% 4% 5% Number of shares (m) 180.4 EBITDA 86 92 111 121 126 Market Cap (MSEK) 505 EBITDA margin 7% 7% 8% 9% 9% Net debt (MSEK) 15

EBIT 60 66 87 98 103 Free float (%) 45 % EBIT margin 5% 5% 6% 7% 7% Daily turnover (’000) 450 Pre-tax earnings 53 63 86 101 106 Net earnings 41 49 67 79 83 Net margin 3% 4% 5% 6% 6%

Analysts:

2013 2014 2015E 2016E 2017E Viktor Westman Dividend/Share 0.00 0.05 0.11 0.13 0.18 EPS adj. 0.23 0.27 0.37 0.44 0.46 [email protected]

2013 2014 2015E 2016E 2017E

P/E adj. 11.0 10.3 7.5 6.4 6.1 EV/S 0.5 0.4 0.4 0.3 0.3 EV/EBITDA 6.3 6.0 4.7 3.9 3.3

Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report.

Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 . Tel +46 8-545 013 30. E-post: [email protected] Cybercom Group Redeye Rating: Background and definitions

The aim of a Redeye Rating is to help investors identify high-quality companies with attractive valuation.

Company Qualities

The aim of Company Qualities is to provide a well-structured and clear profile of a company’s qualities (or operating risk) – its chances of surviving and its potential for achieving long-term stable profit growth.

We categorize a company’s qualities on a ten-point scale based on five valuation keys; 1 – Management, 2 – Ownership, 3 – Growth Outlook, 4 – Profitability and 5 – Financial Strength.

Each valuation key is assessed based a number of quantitative and qualitative key factors that are weighted differently according to how important they are deemed to be. Each key factor is allocated a number of points based on its rating. The assessment of each valuation key is based on the total number of points for these individual factors. The rating scale ranges from 0 to +10 points.

The overall rating for each valuation key is indicated by the size of the bar shown in the chart. The relative size of the bars therefore reflects the rating distribution between the different valuation keys.

Management Our Management rating represents an assessment of the ability of the board of directors and management to manage the company in the best interests of the shareholders. A good board and management can make a mediocre business concept profitable, while a poor board and management can even lead a strong company into crisis. The factors used to assess a company’s management are: 1 – Execution, 2 – Capital allocation, 3 – Communication, 4 – Experience, 5 – Leadership and 6 – Integrity.

Ownership Our Ownership rating represents an assessment of the ownership exercised for longer-term value creation. Owner commitment and expertise are key to a company’s stability and the board’s ability to take action. Companies with a dispersed ownership structure without a clear controlling shareholder have historically performed worse than the market index over time. The factors used to assess Ownership are: 1 – Ownership structure, 2 – Owner commitment, 3 – Institutional ownership, 4 – Abuse of power, 5 – Reputation, and 6 – Financial sustainability.

Growth Outlook Our Growth Outlook rating represents an assessment of a company’s potential to achieve long-term stable profit growth. Over the long-term, the share price roughly mirrors the company’s earnings trend. A company that does not grow may be a good short-term investment, but is usually unwise in the long term. The factors used to assess Growth Outlook are: 1 – Strategies and business model, 2 – Sale potential, 3 – Market growth, 4 – Market position, and 5 – Competitiveness.

Profitability Our Profitability rating represents an assessment of how effective a company has historically utilised its capital to generate profit. Companies cannot survive if they are not profitable. The assessment of how profitable a company has been is based on a number of key ratios and criteria over a period of up to the past five years: 1 – Return on total assets (ROA), 2 – Return on equity (ROE), 3 – Net profit margin, 4 – Free cash flow, and 5 – Operating profit margin or EBIT.

Financial Strength Our Financial Strength rating represents an assessment of a company’s ability to pay in the short and long term. The core of a company’s financial strength is its balance sheet and cash flow. Even the greatest potential is of no benefit unless the balance sheet can cope with funding growth. The assessment of a company’s financial strength is based on a number of key ratios and criteria: 1 – Times-interest-coverage ratio, 2 – Debt-to-equity ratio, 3 – Quick ratio, 4 – Current ratio, 5 – Sales turnover, 6 – Capital needs, 7 – Cyclicality, and 8 – Forthcoming binary events.

Company analysis 2 Cybercom Group Continuing the growth seen in Q3

Cybercom managed to once again surpass our expectations in the final

Strong growth in Finland quarter of the year. Revenues of SEK 354m, 8 percent above our estimates, meant that sales and EBIT even trumped Direkt's forecast compilation. There was growth of 13 percent exceeded our estimates across the board. And Finland, which we were sceptical about after the temporary layoffs in Q3, grew by 22 percent. For the same reason, EBIT came in at SEK 23.7m, or 16 percent better than our forecast. The EBIT margin of 6.7 percent did not quite live up to last year's 7.1 percent, suggesting there is still potential for improvement in the use of sub- consultants.

Cybercom - Expected vs. Outcome SEKm Q4'13 Consensus Q4'14E Redeye Q4'14E Outcome Diff

Sales 313.4 335.0 327.2 354.1 8%

EBITDA 28.6 n/a 27.1 30.7 13% EBIT 22.2 26.0 20.4 23.7 16% PTP 21.1 25.4 21.3 23.3 9% EPS 0.09 0.11 0.09 0.10 12%

Sales growth -11.4% 6.9% 4.4% 13.0% EBITDA margin 9.1% n/a 6.5% 8.7% EBIT margin 7.1% 7.8% 3.9% 6.7% EPS growth n/a 22% 2% 14%

Source: Redeye Research, Cybercom

The strong 6 percent Q3 growth in Sweden was followed by even better

All segments contributed growth of 9 percent, corresponding to revenues of SEK 251m. With growth to the growth of 22 percent, Cybercom Finland performed way better than we predicted. Sales in the International segment were SEK 44m, following growth of 27 percent year on year.

Employee costs of SEK 219m was as expected, but other operating expenses Growing costs in sub- increased by 33 percent from 2013, and 19 percent on a quarterly basis. All consultant business… of this increase is due to sub-consultants, where Cybercom's margins are weaker. However, the company claims that sub-consultants contribute sufficiently good margins to be able to help Cybercom achieve its 10 percent EBIT margin. We are upbeat about the use of sub-consultants, and we … but this does not hinder assume that Cybercom does not let its own consultants “sit on the bench” the 10 % EBIT margin unnecessarily, but makes well-balanced use of sub-consultants. The target accompanying flexibility is also beneficial when it comes to rapidly ramping up or slowing down, especially for large contracts such as framework agreements.

Company analysis 3 Cybercom Group Strong growth trend in Sweden In absolute terms, about half the growth stems from Sweden, where sales during the period rose by 9 percent from 2013, to SEK 251m. This means The growth trend that the Q3 sales growth of 6 percent, which broke the 10-quarter backward continued from Q3 … trend, therefore continued. As we mentioned, this growth trend is underpinned by all units. We regard the public sector as particularly promising, and Cybercom says it has advanced its position within the major framework agreements and can deliver breadth thanks to a large sub- consultant network. In addition, there are several procurements to be allocated in the spring.

There is a minor downside in the form of the southern Sweden region, which is being very adversely impacted by the cutbacks at Ericsson Modems. However, this has been known for a long time and remedial adaptation was initiated some time ago. We are upbeat that southern Sweden has new management, said to be better suited to the new type of clients.

EBIT for Cybercom Sweden of SEK 19.9m provides an EBIT margin of 7.9 … but the EBIT margin remained at about the percent, which failed to surpass last year's 8.1 percent. In addition to same level southern Sweden, Cybercom has also taken local measures in some Stockholm teams that are currently less profitable. The chart below shows the EBITDA margin and sales on a rolling 12-month basis.

Cybercom Sweden, sales and EBITDA margin R12M 2009-2014

SEK million 1400 12%

1200 10%

1000 8% 800 6% 600 4% 400

200 2%

0 0% Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014

Omsättning EBITDA-marginal

Source: Cybercom, Redeye Research

Company analysis 4 Cybercom Group Full speed ahead for Cybercom Finland, despite temporary layoffs in Q3 Revenues for Cybercom Finland of SEK 71.1m during the quarter mean that Cybercom Finland is the growth trend continues. We believe this is being driven by the public growing sales by 22 sector, which more than compensates for the cautious industrial clients in percent … this difficult macroeconomic environment.

The EBIT margin increased from 5 percent to 11 percent thanks to the … and EBIT by 279 percent layoffs, which means that EBIT grew by 279 percent to SEK 7.8 million. This is also visible in the rolling 12-month EBITDA margin numbers (see chart below).

Cybercom Finland, sales and EBITDA margin R12M 2009-2014 Q1

SEK million 450 16%

400 14%

350 12% 300 10% 250 8% 200 6% 150 4% 100

50 2%

0 0% Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014

Omsättning EBITDA-marginal

Source: Cybercom, Redeye Research

International continues to grow The International segment provided sales of SEK 44.4m, which meant annual growth of 27 percent. Growth continues to be driven by Poland, but has also started to expand thanks to a shift towards a greater

Good growth in proportion of sub-consultants. However, this transformation, coupled with International, but weaker certain delays in International Connectivity, cost a little profitability, but we margins expect this to be resolved in the first quarter. The EBIT margin therefore fell from 7.6 percent to 4.8 percent.

Slightly lower consolidated margins If we examine the margins at group level, the fourth quarter's 0.4 percentage points lower EBIT margin of 6.7 percent represents a blip in the curve (see chart on next page). Margins should be able to track sales, but we understand that Cybercom is working hard on this.

Company analysis 5 Cybercom Group

Sales and underlying EBITDA margin R12M 2006-2014E

SEK million 2000 12%

1800 10% 1600

Cybercom's rolling 1400 operating margin is 8% stabilising 1200

1000 6%

800 4% 600

400 2% 200

0 0% Q209 Q409 Q210 Q410 Q211 Q411 Q212 Q412 Q213 Q413 Q214E Q414

Omsättning Underliggande EBITDA marginal

Source: Cybercom, Redeye Research

Net recruitment dried up Cybercom says that recruitment followed the company's plan. Looking at No net recruitment in Q4 employee numbers at the end of the period, there has been no net recruitment in Sweden, Finland or International. The number of employees fell by 8 in total, while we had anticipated continued net recruitment in Sweden. However, Cybercom says it expects net recruitment in 2015.

Solid financial position leads to dividend Net debt after amortisation for the quarter ticked down to SEK 55.5m, compared to SEK 88.0 million in the previous year. Cash reserves of SEK 13.8m were therefore also a little weaker than last year's SEK 23.7m. Cash flow increased in Q4 by 65 percent year on year to a strong SEK 22.1m, despite increased tied-up working capital of SEK 5.3m (SEK 10.7m last year).

The balance sheet and cash flow therefore continue to gradually strengthen, which was also indicated by Cybercom feeling able to pay a dividend of SEK 0.05 per share, totalling SEK 9m. This dividend is equivalent to just over half of the company's target of 30 percent of net profit. In addition to its positive value as a signal, it provides a dividend yield of approximately 1.8 percent.

Company analysis 6 Cybercom Group Unchanged targets suggest a high level of ambition Cybercom is retaining its financial targets. This includes profitability of 10 percent, and at 7 percent (even though growth only just began in 2014) the company is now some way towards this. Most surprising and gratifying, however, was the retention of its 10 percent growth target over a business cycle, something that management previously indicated it may revise down. We still believe this target will be tough. Cybercom, however, says that the double-digit growth of the past two quarters shows the company has managed to find pockets of growth in an expanding IT market.

Company analysis 7 Cybercom Group Forecast adjustments

Cybercom has once again impressed by delivering above our expectations. We had not anticipated that Sweden would continue to show such strong sales growth, and the temporary layoffs do not seem to have affected Finland at all. This means that we consider it necessary to increase our revenue forecasts for 2015 and 2016. The higher sales projections mean that we have also upped our earnings forecasts, although we expect continued high dependence on sub-consultants to keep margins down.

Changes in estimates SEK million 2015E 2016E Sales Old 1,288.9 1,353.3 New 1,356.5 1,405.0 % change 5% 4% EBITDA Old 107.2 123.2 New 110.9 120.5 % change 3% -2% EBIT Old 81.2 94.7 New 86.9 98.4 % change 7% 4% PBT Old 80.4 97.7 New 86.1 101.4 % change 7% 4% EPS Old 0.35 0.42 New 0.37 0.44 % change 7% 4% Source: Redeye Research

Company analysis 8 Cybercom Group Detailed estimates

Cybercom Group

SEK million Q4'13 2013 Q1'14 Q2'14 Q3'14 Q4'14 2014 Q1'15 Q2'15 Q3'15 Q4'15 2015E Sales 1195.2 309.1 312.3 287.4 354.1 1262.9 325.7 333.3 303.9 393.7 1356.5

Personnel costs -793.9 -212.4 -212.6 -180.6 -218.7 -824.3 -213.7 -216.7 -186.9 -235.3 -852.6 Other operating expenses -314.8 -74.6 -79.3 -87.8 -104.7 -346.4 -90.0 -93.0 -94.0 -116.0 -393.0

EBITDA 86.5 22.1 20.4 19.0 30.7 92.2 22.0 23.6 22.9 42.4 110.9 whereof depreciation and amortization -26.2 -6.3 -6.4 -6.7 -7.0 -26.4 -6.0 -6.0 -6.0 -6.0 -24.0 EBIT 60.3 15.8 14.0 12.3 23.7 65.8 16.0 17.6 16.9 36.4 86.9

Net interest -7.0 -1.3 -1.6 0.9 -0.4 -2.4 -0.2 -0.2 -0.2 -0.2 -0.8 PBT 53.3 14.5 12.4 13.2 23.3 63.4 15.8 17.4 16.7 36.2 86.1

Taxes -13.2 -1.2 -2.7 -3.6 -5.9 -13.4 -3.5 -3.8 -3.7 -8.0 -18.9 Deferred taxes 1.4 -1.9 -0.1 -0.5 1.2 -1.3 0.0 0.0 0.0 0.0 0.0 Net profit 41.5 11.4 9.6 9.1 18.6 48.7 12.3 13.6 13.0 28.2 67.1

EPS (SEK) 0.23 0.06 0.05 0.05 0.10 0.27 0.07 0.08 0.07 0.16 0.37

Sales growth -11% -3% 0% 15% 13% 6% 5% 7% 6% 11% 7% EPS growth -134% 3% 3% 90% 14% 17% 8% 41% 43% 52% 38%

EBITDA margin 7.2% 7.1% 6.5% 6.6% 8.7% 7.3% 6.7% 7.1% 7.5% 10.8% 8.2% EBIT margin 5.0% 5.1% 4.5% 4.3% 6.7% 5.2% 4.9% 5.3% 5.6% 9.2% 6.4%

Number of employees 1,243 1,257 1,272 1,315 1,307 1,307 1,319 1,334 1,404 1,414 1,414

Source: Redeye Research, Cybercom

Company analysis 9 Cybercom Group Valuation

Our valuation of Cybercom uses a discounted cash flow (DCF) model that includes what would happen to the company's valuation in reasonably optimistic and pessimistic scenarios. Our relative valuation analyses how other listed Swedish IT consulting companies are valued relative to Cybercom.

Conclusion from valuation and share performance After its strong Q3 report, with growth of 15 percent, the Cybercom share enjoyed an uptick that was, in our opinion, well-deserved. This held until right up until the Q4 report, when the share peaked at SEK 2.94, corresponding to a 13 percent rise. On the day of the Q4 report the share fell by 4.4 percent, despite organic sales growth of 13 percent, something that shareholders of IT consultants are not overly accustomed to. We therefore conclude that this was profit taking after the recent months of price gains. Following its slide on the report, the share appears even more attractive than before against sector peers, according to our relative valuation (see below).

Our estimates, revised after only a short time, provide us with a new fair value of SEK 3.4 (3.2), and beyond that our view of the company remains upbeat. See below for our valuation assumptions.

DCF valuation In all our scenarios we have used a 12.8 percent required rate of return. Our rate of return is based on our Redeye Rating, which ranks the company's We have used a 12.8 percent required rate of investment quality. The higher the rating, the lower the return we require return from an investment. The tax rate is assumed to be 22 percent.

Baseline scenario Our baseline scenario assumes operating margins of 6-7 percent in the medium and long terms, which we believe Cybercom could achieve from 2015-2016. We expect an average annual growth rate of about 4 percent for sales during the years 2015-2021. We expect that Cybercom will continue to keep down costs and will retain its strategy to recruit for growth. Our base case does not place Cybercom as one of the most profitable IT consultants, but gives it a middle ranking. In other words, we do not expect Cybercom to achieve its stated financial targets, which is a reflection of our prudent approach. Our assumptions together provide a fair value of SEK 3.4, and we believe there is a 60 percent probability of this scenario. DCF valuation indicates a fair value of SEK 3.4 per share Our DCF valuation indicates a fair value of SEK 3.4 per share.

Company analysis 10 Cybercom Group DCF valuation Per share Total

Net cash -0.3 -56 FCFF 2014 - 2017 0.9 171 FCFF 2018 - 2022 1.0 185 FCFF 2023- 1.8 321 Noplat at 2024: 82

DCF value 3.4 621 Source: Redeye Research

Bear case In a reasonably pessimistic scenario, we believe there is a non-negligible possibility of Cybercom failing to maintain its growth rate, which is needed to strengthen its margins. If sales were to return to their negative trend, the EBIT margin would sink to 2-3 percent. The result would be a share price of around SEK 1.4. We estimate that the probability of this is 20 percent.

Bull case In a more optimistic scenario, we instead expect Cybercom to achieve its financial targets of growth around 10 percent over a business cycle and a long-term operating margin of 10 percent. This would give the company a DCF value of SEK 6 per share. We believe the probability of this bull case transpiring is 20 percent.

Relative valuation All Cybercom's earnings and sales multiples are now lower than the median and mean values of consensus forecasts for Swedish IT consult companies. This is now also true even if we remove HiQ from the comparison, except for consensus P/E 2016. Cybercom's share has long been valued lower than its sector peers for historical (and admittedly quite good) reasons. With an operating margin of 6.7 percent for Q4 and 5.2 percent for the full year, we may well question how long this relationship will/can persist. Consensus valuation PE/E EV/EBITDA EV/S Company 2015E 2016E 2015E 2016E 2015E 2016E

Sverige HIQ INTERNATIONAL AB 17.1 15.5 11.7 10.7 1.5 1.5 KNOW IT AB 11.3 9.2 6.4 5.4 0.5 0.4 SEMCON AB 7.1 8.5 5.9 5.0 0.4 0.3 AVEGA GROUP AB 11.5 7.5 6.1 4.6 0.6 0.6 ACANDO AB 11.2 10.0 7.2 5.9 0.5 0.5 PREVAS AB 14.5 11.9 7.6 7.2 0.3 0.3

Mean 12.1 10.4 7.5 6.5 0.6 0.6 Median 11.4 9.6 6.8 5.7 0.5 0.5

CYBERCOM (Consensus) 8.6 9.4 5.7 5.2 0.3 0.3 CYBERCOM (Redeye) 7.6 6.4 4.7 3.9 0.4 0.3 Source: Bloomberg, Redeye Research

Company analysis 11 Cybercom Group Investment case

Over the past two years, Cybercom, one of the IT consultants with poorest historical performance, has cleaned up and built a stable financial platform. Meanwhile, good cost control and a viable new strategy have enabled the company to reverse its negative profitability trend and achieve an EBIT margin of 5 percent for 2013-2014. This compares with the company's own target of an EBIT margin averaging 10 percent. According to CEO Niklas Flyborg, achieving this requires Cybercom to return to growth. This occurred in H2 2014 on the Swedish domestic market and had earlier occurred in the Finnish arm despite the tough economic environment, in which none of the Swedish IT consultants have done particularly well, albeit from a low level. The EBITDA margin for the Finland segment shows that Cybercom gets good leverage on earnings when costs are kept low and sales increase. Controlling costs is therefore a critical factor, which is generally easier said than done.

In addition to cost management, Cybercom will also have to return to growth in the important Swedish domestic market. To do this, the company is focusing on net recruitment. Cybercom intends to mainly recruit new graduates, which we believe is more cost effective and results in higher profitability. However, it is not enough to just seem like a good choice for the smartest students. The company must also manage to retain its more experienced and qualified key personnel. We feel that much of the company's focus is here. The company is aware how important it is to promote the exciting projects being won, something that seems to lie behind the success of IT consulting industry star HiQ. Strengthening its reputation as an employer after years of job cuts is obviously challenging, but judging from Finland it is clear that raising margins does not require a lot of growth.

After unsuccessful acquisitions in previous years and a weak market, especially in telecommunications, Cybercom is one of the lowest valued IT consultants. This may certainly seem well deserved historically, but on the other hand its current valuation requires nothing more than Cybercom becoming one of the crowd for an investment to show good profitability.

Company analysis 12 Cybercom Group Summary Redeye Rating

The rating consists of five valuation keys, each constituting an overall assessment of several factors that are rated on a scale of 0 to 2 points. The maximum score for a valuation key is 10 points.

Rating changes in the report: No changes Management 6.5p Regardless of less successful jobs in the past, CEO Niklas Flyborg has very extensive experience in the sector and in management, as CEO of several listed companies. Following Cybercom's rights issue and cost- cutting, Flyborg has established the new strategy and managed to keep control of costs. This has led to stable profitability, which has been used to strengthen the balance sheet. It is still too early to say whether the company has reversed its negative growth, but things are going in the right direction. Led by successful entrepreneurs like Nicolas Hassbjer and Dag Sundman, the board provides good complementary support to the management. Ownership 7.5p JCE Group, with the Ericsson family, is a renowned principal owner that sits on some 40 percent of the company, which means that the ownership is basically very strong. Institutions are represented in the form of Robur and SEB, as well as Didner & Gerge, although the latter has reduced its holding. The CEO still owns too few shares, but we appreciate that he is regularly buying more, albeit from low levels. We would also like to see board member Katarina Kämpe buying the company's shares.

Growth prospect 5.0p Overall, the competitive scene for IT consultants like Cybercom is fairly unpleasant, with CV consultants and large international competitors, especially in India. The industry has been hard hit by price pressure for over a decade. On the other hand, there is a clear need for IT consultants, which are expected to grow with the IT market in general. Cybercom's focus area of connectivity, with M2M and the Internet of Things, is one of the fastest growing fields. We believe that Cybercom's background means the company is well positioned for connectivity, and this is demonstrated by Cybercom now having started to expand its contractual relationships, which is why we expect the company will also be able to take more attractive turnkey projects. Profitability 4.0p This rating is burdened by historical profitability, which has not been a particularly amusing story. However, its operating profit has been stable since full-year 2013 despite lower sales, which reflects strength. Cybercom is now running at 5 percent EBIT. The company seems to generate good cash flow, but does not report trade receivables on a quarterly basis, which hampers the assessment and lowers the rating.

Financial strength 5.5p Cybercom has low interest costs, which the company can therefore easily pay several times over with its stable cash flows, reducing the risk in its still large goodwill. Liquidity could be better, but on the other hand the company is continuously paying off its loan, which strengthens its equity ratio and means that the debt/equity ratio is being gradually lowered and is now starting to approach healthily low levels. A small minus is that the IT consulting industry is very cyclical, but the company is gradually balancing this out by strengthening other segments to reduce its telecom dependency.

Company analysis 13 Cybercom Group

Income statement 2013 2014 2015E 2016E 2017E DCF valuation Cash flow, MSEK Net sales 1,195 1,263 1,357 1,405 1,475 WACC (%) 12.8 % NPV FCF (2014-2016) 170 Total operating costs -1,109 -1,171 -1,246 -1,285 -1,350 NPV FCF (2017-2023) 236 EBITDA 86 92 111 121 126 NPV FCF (2024-) 268 Non-operating assets 14 Depreciation -17 -8 -8 -11 -14 Interest-bearing debt -69 Amortization -10 -19 -16 -11 -8 Fair value estimate MSEK 618 Impairment charges 0 0 0 0 0 Assumptions 2015-2021 (%) EBIT 60 66 87 98 103 Average sales growth 3.8 % Fair value e. per share, SEK 3.4 EBIT margin 6.5 % Share price, SEK 2.8 Share in profits 0 0 0 0 0 Net financial items -7 -2 -1 3 3 Exchange rate dif. 0 0 0 0 0 Profitability 2013 2014 2015E 2016E 2017E Pre -tax profit 53 63 86 101 106 ROE 5% 5% 7% 8% 8% ROCE 6% 7% 9% 10% 10% Tax -12 -15 -19 -22 -23 ROIC 5% 5% 7% 8% 8% Net earnings 41 49 67 79 83 EBITDA margin 7% 7% 8% 9% 9% EBIT margin 5% 5% 6% 7% 7% Balance 2013 2014 2015E 2016E 2017E Net margin 3% 4% 5% 6% 6% Assets Current assets Data per share 2013 2014 2015E 2016E 2017E Cash in banks 24 14 25 79 133 EPS 0.23 0.27 0.37 0.44 0.46 Receivables 289 328 339 351 361 EPS adj 0.23 0.27 0.37 0.44 0.46 Inventories 0 0 0 0 0 Dividend 0.00 0.05 0.11 0.13 0.18 Other current assets 35 40 40 42 44 Net debt 0.49 0.31 0.08 -0.21 -0.52 Current assets 348 382 404 472 539 Total shares 180.44 180.44 180.44 180.44 180.44 Fixed assets

Tangible assets 27 36 43 46 44 Valuation 2013 2014 2015E 2016E 2017E Associated comp. 0 0 0 0 0 EV 542.7 557.1 520.3 466.6 411.9 Investments 0 0 0 0 0 P/E 11.0 10.3 7.5 6.4 6.1 Goodwill 789 795 795 795 795 P/E diluted 11.0 10.3 7.5 6.4 6.1 Cap. exp. for dev. 0 0 0 0 0 P/Sales 0.4 0.4 0.4 0.4 0.3 O intangible rights 45 36 25 19 22 EV/Sales 0.5 0.4 0.4 0.3 0.3 O non-current assets 0 0 0 0 0 EV/EBITDA 6.3 6.0 4.7 3.9 3.3 Total fixed assets 861 867 864 860 861 EV/EBIT 9.0 8.5 6.0 4.7 4.0 Deferred tax assets 20 17 14 11 7 P/BV 0.5 0.5 0.5 0.5 0.5

Total (assets) 1,229 1,266 1,282 1,343 1,407 Share performance Growth/year 12/14e 1 month -0.4 % Net sales 6.5 % Liabilities 3 month 7.7 % Operating profit adj 20.1 % Current liabilities 12 month 5.3 % EPS, just 27.3 % Short -term debt 41 43 40 40 40 Since start of the year 0.7 % Equity 6.2 % Accounts payable 90 90 95 98 103 O current liabilities 162 178 175 175 175 Current liabilities 293 310 310 313 318 Shareholder structure % Capital Votes Long-term debt 70 27 0 0 0 JCE GROUP AB 38.7 % 38.7 % O long-term liabilities 9 7 7 6 6 Swedbank Robur funds 8.2 % 8.2 % Convertibles 0 0 0 0 0 AVANZA PENSION 4.6 % 4.6 % Total Liabilities 373 344 317 319 324 SEB LIFE INTERNATIONAL ASSURANCE 3.3 % 3.3 % Deferred tax liab 0 0 0 0 0 TEQUITY AB 2.7 % 2.7 % Provisions 0 0 0 0 0 JCE SECURITIES AB 2.6 % 2.6 % Shareholders' equity 856 922 965 1,024 1,083 NORDNET PENSIONSFÖRSÄKRING AB 2.4 % 2.4 % Minority interest (BS) 0 0 0 0 0 Didner & Gerge Fonder Aktiebolag 1.2 % 1.2 % Minority & equity 856 922 965 1,024 1,083 SUNDMAN, DAG OLOFSSON 1.2 % 1.2 % GRANIT SMÅBOLAG 1.1 % 1.1 % Total liab & SE 1,229 1,266 1,282 1,343 1,407 Share information Free cash flow 2013 2014 2015E 2016E 2017E Reuters code CYBE.ST Net sales 1,195 1,263 1,357 1,405 1,475 List Small cap Total operating -1,109 -1,171 -1,246 -1,285 -1,350 Share price 2.8 costs Total shares, million 180.4 Depreciations total -26 -26 -24 -22 -22 Market Cap, MSEK 505.2 EBIT 60 66 87 98 103 Taxes on EBIT -13 -15 -19 -22 -23 Management & board NOPLAT 47 51 68 77 81 CEO Niklas Flyborg Depreciation 26 26 24 22 22 CFO Camilla Öberg Gross cash flow 73 77 92 99 103 IR Kristina Cato Change in WC 17 -28 -8 -11 -7 Chairman Hampus Ericsson Gross CAPEX -19 -33 -21 -19 -24 Financial information Free cash flow 71 16 63 69 72 Q1 report April 29, 2015

Capital structure 2013 2014 2015E 2016E 2017E Equity ratio 70% 73% 75% 76% 77% Debt/equity ratio 13% 8% 4% 4% 4% Net debt 88 56 15 -39 -93 Analysts Redeye AB Capital employed 944 978 980 985 990 Viktor Westman Mäster Samuelsgatan 42, 10tr Capital turnover 1.0 1.0 1.1 1.0 1.0 [email protected] 111 57 Stockholm rate

Growth 2013 2014 2015E 2016E 2017E Sales growth -11% 6% 7% 4% 5% EPS growth (adj) -178% 17% 38% 18% 5%

Company analysis 14 Cybercom Group

Revenue & Growth (%) EBIT (adjusted) & Margin (%)

1600 10.0% 120 8.0% 7.0% 1400 100 5.0% 1200 6.0% 80 5.0% 1000 0.0% 4.0% 800 60 3.0% -5.0% 600 40 2.0% 400 1.0% -10.0% 20 200 0.0% 0 -1.0% 0 -15.0% 2012 2013 2014 2015E 2016E 2017E 2012 2013 2014 2015E 2016E 2017E -20 -2.0%

Net sales Net sales growth EBIT adj EBIT margin

Earnings per share Equity & debt-equity ratio (%)

0.5 0.5 0.9 25.0% 0.8 0.4 0.4 0.7 20.0% 0.3 0.3 0.6 0.2 15.0% 0.2 0.5 0.1 0.1 0.4 0 10.0% 0 0.3 -0.1 2012 2013 2014 2015E 2016E 2017E 0.2 5.0% -0.2 -0.1 0.1 -0.2 -0.3 0 0.0% -0.4 -0.3 2012 2013 2014 2015E 2016E 2017E

EPS, unadjusted EPS, adjusted Equity ratio Debt-equity ratio

Conflict of interests Company description Cybercom is an IT consult company that develops servies, Viktor Westman owns shares in Cybercom: No applications, systems, products and software. Cybercom’s assignments are turnkey projects within product or service Redeye performs/have performed services for the Company and management or advisory, testing and development. The company has receives/have received compensation from the Company in connection 1 300 employees and has operations in three geographic segments: with this. Sweden, Finland and International. Cybercom’s revenue consists of 30% telecom. Large customers are e.g. Ericsson, H&M, Sony, TeliaSonera and Volvo.

Company analysis 15 Cybercom Group

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Rating Management Ownership Growth Profitability Financial Prospect Strength 7,5p - 10,0p 24 32 12 7 17 3,5p - 7,0p 53 40 65 28 29 0,0p - 3,0p 3 8 3 45 34 Company N 80 80 80 80 80

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Company analysis 16