Italian Research 3Q20 Results Milan, November 10, 2020 TXT E-SOLUTIONS OUTPERFORM SECTOR: Industrials Price (Eu): 7.60 Andrea Randone +39-02-77115.364 e-mail: [email protected] Target Price (Eu): 11.30 Positive Management Outlook Supports Our View on the Stock th 3Q20 results: margins beat forecasts. On 5 November TXT reported 3Q20 results. TXT E-SOLUTIONS - 12m Performance Revenues came to Eu15.7mn, up +1.2% YoY and in line with our estimates, with a +3.2% contribution from acquisitions. Aerospace & Aviation revenues came to Eu9.8mn, up 12 +1.6% YoY (entirely organic), while FinTech revenues came to Eu5.9mn, up +0.5% YoY 11 and down 8% on a like-for-like basis. EBITDA came to Eu2.1mn (of which Eu1.5mn from 10 A&A and Eu0.6mn from FinTech), up +3.3% YoY with a 13.2% margin vs 11.6% in our 9 8 estimates and 12.6% in 1H20. Net profit was Eu0.9mn, down 9.8% YoY but Eu0.3mn above 7 our expectations, burdened by a higher tax rate (43.4% in 3Q20 vs. 26.7% in 3Q19). The 6 5 net financial position was positive at Eu31.9mn, slightly better than our estimate (Eu30mn) 4 and down Eu9.5mn on the FY19 figure due to: 1) the acquisition of Mac Solutions SA in n-19 g-20 m-20 m-20 l-20 s-20 June 2020 (Eu5.1mn); 2) recognition of the debt put/call linked to the TXT Working TXT E-SO LUTI ONS TXT E-SOLUTIONS Rel. to FTSE All Shares (Reb.) Capital Solutions stake (Eu2.7mn); 3) liquidation of the severance package for the outgoing Chairman, for which provisions were made in previous years (Eu1.2mn); 4) temporary working capital absorption. RATING: Unchanged Encouraging outlook despite the Covid-19 crisis. Turnover and margin growth trends TARGET PRICE (Eu): Unchanged confirmed the resilience of the business even during the Covid-19 crisis. 4Q20 prospects Ch. in Adj.EPS est: 2020E 2021E are positive and management is confident of generating growth and profitability, while 0.0% 0.0% the search for M&A continues even after the recent acquisition of HSPI, reflecting the company’s efforts to pursue external growth. The Airlines market (civil aviation, 6% of STOCK DATA FY19 revenues) has been heavily impacted by Covid-19, but TXT reported mid-single Reuters code: TXTS.MI digit growth (9M20 +4% YoY): its revenues are generally not related to traffic and were Bloomberg code: TXT IM boosted by the strong backlog acquired in FY19 (plus new contracts with a major Performance 1m 3m 12m European airline and new trial with leading US cargo airlines in FY20). Defence segment Absolute -3.2% -4.3% -19.6% revenues should continue to be solid thanks to: i) multi-year contracts signed at the Relative -8.2% -9.8% -7.7% beginning of the 2Q20; and ii) consolidated and strong relationship with domestic and 12 months H/L: 10.66/4.63 European players. At the FinTech division, the group will continue to pursue its strategy based on strategic M&A and organic growth, and in this domain we note that the TXT SHAREHOLDER DATA Risk Solutions start-up has announced the signing of its first subscription-based contract No. of Ord. shares (mn): 13 Total No. of shares (mn): 12 with a leading Italian bank for the supply of the FARADAY platform, an innovative Mkt Cap Ord (Eu mn): 99 solution for the management of money laundering problems and fraud risk. Total Mkt Cap (Eu mn): 99 Leaving our estimates unchanged. We confirm our estimates that we recently raised to Mkt Float - ord (Eu mn): 46 include the positive contribution from the HSPI acquisition. As for 2020, we assume strong Mkt Float (in %): 46.3% double-digit growth for the top line (+15.1% YoY) and an 11.9% EBITDA margin. Main shareholder: Enrico Magni (Laserline) 26.5% Outperform reiterated, target Eu11.3 unchanged. While we consider our FY20 estimate to have good visibility, we expect the group to be well positioned to continue the growth BALANCE SHEET DATA 2020 trajectory in 2021 and to seize new M&A opportunities thanks to a cash position that Book value (Eu mn): 85 remains solid even after recent deals. BVPS (Eu): 7.30 P/BV: 1.0 Key Figures 2018A 2019A 2020E 2021E 2022E Net Financial Position (Eu mn): 25 Sales (Eu mn) 40 59 68 85 91 Enterprise value (Eu mn): 74 Ebitda (Eu mn) 4 7 8 11 12 Net profit (Eu mn) 1 0 3 5 6 EPS - New Adj.(Eu) 0.049 0.038 0.296 0.427 0.514 EPS - Old Adj.(Eu) 0.038 0.296 0.427 0.514 DPS (Eu) 0.500 0.000 0.096 0.150 0.180 Please see important disclaimer on the last page of this report Ratios & Multiples 2018A 2019A 2020E 2021E 2022E P/E Adj. nm nm 25.6 17.8 14.8 Div. Yield 6.6% 0.0% 1.3% 2.0% 2.4% EV/Ebitda Adj. 10.1 8.2 9.2 6.6 5.5 ROCE 9.6% 10.7% 9.8% 15.6% 18.7% The reproduction of the information, recommendations and research produced by Intermonte SIM contained herein, and of any of its parts, is strictly prohibited. None of the contents of this document may be shared with third parties without Company authorization. Intermonte SIM S.p.A. Milan 20122 (Italy) – Galleria de Cristoforis, 7/8 - phone: +39-02-77115.1 fax: +39-02-77115.300 New York (US) - Brasil Plural Securities LLC - 545 Madison Avenue, 8th Floor, NY 10022 –phone: +1 212 388 5600 TXT E-SOLUTIONS - KEY FIGURES 2018A 2019A 2020E 2021E 2022E Fiscal year end 31/12/2018 31/12/2019 31/12/2020 31/12/2021 31/12/2022 PROFIT & LOSS (Eu mn) Sales 40 59 68 85 91 EBITDA 4 7 8 11 12 EBIT 2 4 4 7 8 Financial income (charges) (1) (1) 0 0 0 Associates & Others 0 0 0 0 0 Pre-tax profit (Loss) 1 2 4 7 8 Taxes 0 (2) (1) (2) (2) Tax rate (%) -0.7% 80.6% 25.0% 28.0% 28.0% Minorities & discontinue activities 0 (0) (0) (0) (0) Net profit 1 0 3 5 6 Total extraordinary items 0 0 0 0 0 Ebitda excl. extraordinary items 4 7 8 11 12 Ebit excl. extraordinary items 2 5 6 8 10 Net profit restated 1 0 3 5 6 PER SHARE DATA (Eu) Total shares out (mn) - average fd 12 12 12 12 12 EPS stated fd 0.049 0.038 0.296 0.427 0.514 EPS restated fd 0.049 0.038 0.296 0.427 0.514 BVPS fd 7.414 7.028 7.303 7.634 7.998 Dividend per share (ord) 0.500 0.000 0.096 0.150 0.180 Dividend per share (sav) 0.000 0.000 0.000 0.000 0.000 Dividend pay out ratio (%) 1023.2% 0.0% 35.0% 35.0% 29.1% CASH FLOW (Eu mn) Gross cash flow 2 4 7 9 10 Change in NWC (0) (7) (6) (3) (2) Capital expenditure (1) (1) (1) (1) (1) Other cash items (4) (1) 0 0 0 Free cash flow (FCF) 1 (5) (0) 5 6 Acquisitions, divestments & others (7) (2) (17) 0 0 Dividend (12) (6) 0 (1) (2) Equity financing/Buy-back 0 0 0 0 0 Change in Net Financial Position (27) (19) (17) 3 4 BALANCE SHEET (Eu mn) Total fixed assets 23 35 32 29 27 Net working capital 7 10 17 20 22 Long term liabilities (4) (5) (5) (5) (5) Net capital employed 26 41 44 45 44 Net financial position 60 41 25 28 32 Group equity 86 82 85 89 93 Minorities 0 0 0 0 0 Net equity 86 82 85 89 93 ENTERPRISE VALUE (Eu mn) Average mkt cap - current 99 99 99 99 99 Adjustments (associate & minorities) 0 0 0 0 0 Net financial position 60 41 25 28 32 Enterprise value 38 57 74 71 66 RATIOS(%) EBITDA margin* 9.5% 11.9% 11.9% 12.6% 13.3% EBIT margin* 4.6% 8.4% 8.3% 9.7% 10.5% Gearing - Debt/equity -69.9% -50.6% -28.9% -31.5% -34.8% Interest cover on EBIT 1.4 2.9 nm nm nm Debt/Ebitda nm nm nm nm nm ROCE* 9.6% 10.7% 9.8% 15.6% 18.7% ROE* 0.6% 0.5% 3.8% 5.7% 6.6% EV/CE 2.0 1.7 1.8 1.6 1.5 EV/Sales 1.0 1.0 1.1 0.8 0.7 EV/Ebit 20.9 11.5 13.1 8.6 6.9 Free Cash Flow Yield 0.9% -4.6% -0.3% 4.6% 6.2% GROWTH RATES (%) Sales 11.4% 47.9% 15.1% 24.9% 7.5% EBITDA* 7.4% 84.4% 15.2% 32.8% 13.0% EBIT* -31.0% 170.3% 13.6% 44.9% 17.0% Net profit -99.2% -20.7% 614.3% 55.6% 20.2% EPS restated -67.5% -20.7% 670.5% 44.2% 20.2% * Excluding extraordinary items Source: Intermonte SIM estimates 2 3 3Q20 Results 3Q20 results: margins beat forecasts. On 5th November TXT reported 3Q20 results. Revenues came to Eu15.7mn, up +1.2% YoY and in line with our estimates, with a +3.2% contribution from acquisitions. Aerospace & Aviation revenues came to Eu9.8mn, up +1.6% YoY (entirely organic), while FinTech revenues came to Eu5.9mn, up +0.5% YoY and down 8% on a like-for-like basis.