Circle S p A : Equity research 07 04 2021– Circle Update – FY 2020 elaborata da IRTOP

CIRCLE

FY 20 UPDATE NOTE

AIM Italia - April 6th, 2021 2:00 p.m.

Sector: Technology

Strong 2H20 and FY21 off to a good start

Strong revenue growth driven by proprietary suites (+30%). Circle Group, an international player specialised in providing innovative technological solutions for automation and digitalisation of the entire supply chain, with distinctive vertical skills in the port and intermodal logistics sectors, recently released FY20 results posting yoy revenue growth of +23% mainly driven by the proprietary suites which increased revenues by +30% yoy. Overall, revenues came in at Euro 7.5 m (Euro 6.1 m in FY19) and slightly above our estimates of Euro 7.2 m, after a strong 2H with organic revenue growth of c. +23% (revenue growth in 1H of +23% was partially driven by the acquisition of Progetto Adele in August 2019). EBITDA adjusted to exclude Euro 0.6 m of Covid-19related non-recurringinvestments for market development and internationalization, stood at Euro 1.3 m with an EBITDA margin of 17.3% vs. 24.6% in FY19 (Euro 1.5 m), following the integration of M&A transactions and an important boost in FY20 in the sale of property software in SaaS mode (as opposed to licences+ maintenance) which increased its total weight on proprietary software sales to 90% (c. 50% in FY19), which on the one hand leads to a steady "recurring" income over the next years, while on the other produces a lower profitability in the first year. Non adjusted EBITDA came in at Euro 0.7 m with an EBITDA margin of c. 9% (Euro 1.2 m, and 19.7% in FY19) somewhat below our estimates of Euro 1.0 m (14.5% EBITDA margin) following higher than expected non-recurringexpenses. EBIT was of Euro 0.04 m (Euro 0.6 m in FY 19) and Net Profit stood at Euro 0.03 m vs. Euro 0.5 m in FY19 and Euro 0.3 m as of our estimates. Solid balance sheet and good operating cash flow allowing for investment in growth. At the end of FY20, the Group presented Net Cash position of Euro 0.6 m, up from Euro 0.3 m in FY19 and Euro 0.5 m in 1H20 thanks to good management of Working Capital, and after investments of Euro 1.3 m related to M&A transactions (Log@Sea) and investments in product development as well as the above-mentioned non-recurringinvestments.

Roadmap 2024 confirmed In FY20, despite COVID-19 related difficulties, the Group managed to grow revenues while continuing to develop the business with the launch of a new set of federative services, the JV with Magellan, increased participation in Log@Sea network (JV with Aitek for the development of software for gate automation and digitisation of port and intermodal nodes (road-and railway)), and two new business lines: EU Branding (services to help clients to improve visibility and obtain financing in a European context) and Optimization 4.0 (development of process optimization tools for the port logistics sector). Based on the above, Management highlighted that the business model focusing on the digitalization of ports, terminals and intermodal logistics has proven COVID-19 resilience, and hence confirmed the strategic road map announced last December with FY24 targets: (i) revenues of Euro 14 - 16 m, (ii) EBITDA: Euro 2.1 - 3.0 m, (iii) increase in international activities to 25 - 30%, and (iv) increase in SaaS and PPU services. Positive outlook confirmed as FY21 is off to a good start. Management did not provide any guidance for FY21 but stated that the results in the first two months of the year confirm the growth trend of FY20 with strong demand of federative services in SaaS mode (+55%). Management also underlined that the Governmental incentives "Transizione 4.0" and the consolidation of the Next Generation EU plan should accelerate demand of digitization of business processes and Connecting EU services (EU Branding and Project Anticipation) respectively. In particular, the new JV with Magellan represent an important asset to benefit from the opportunities deriving from the Next Generation EU fund. Management also highlighted that at the end of FY20, backlog stood at Euro 9.0 m, higher than total sales in FY20. Given the above, we confirm our positive outlook for Circle as we believe the group can benefit from the ongoing digitalization trend in the logistics sector thanks to its strong product portfolio and recent investments and strategic alliances and M&A.

Estimates revision and Valuation: We reviewed our FY21 estimates to incorporate a slight delay in the formal closing of the Magellan JV (now within May, although already fully operational) and uncertainties related to a longer than expected duration of pandemic. We now assume a FY21 revenue growth of c. +14% (+20% previously). Overall, we made an average change in our revenue, EBITDA and EPS estimates of 0%, -9% and -4% respectively. Based on our new estimates and updated valuation model, we confirm our target price of Euro 4.52 per share, (Euro 4.53 p.s. previously), providing for a +54% upside on current stock price and obtained by weighting equally the DCF and the multiple comparison analysis.

Target Price (Euro)	4.52 (4.53 pr)
Market Price (Euro)	2.94
Market Cap (Euro m)	10
EV (Euro m)	11
As of April 6, 2021

Share Data

Market	AIM Italia
Reuters/Bloomberg	CURC:IM/CIRC.MI
ISIN	IT0005344996
N. of Shares	3,470,115
Free Float	23.17%
CEO	Luca Abatello

Financials

			2020A		2021E		2022E		2023E
	Revenues		7.5		8.5		10.8		13.0
	YoY	%	23%		14%		27%		20%
	EBITDA		0.7		1.3		1.9		2.6
	EBITDA	%	9%		16%		18%		20%
	EBIT		0.0		0.7		1.3		1.9
	EBIT	%	0.5%		9%		12%		14%
	Net Income		0.0		0.5		1.0		1.4
	Net Debt /		(0.6)		(0.8)		(1.2)		(2.0)
	(Cash)
	Net Equity		4.4		5.0		6.0		7.4

Performance

	1M	3M	6M
Absolute	+3%	+7%	+4%
Relative (FTSE AIM Italia)	-5%	-8%	-21%
52-week High/Low (Eu)	3.03		2.58

IR TOP RESEARCH

Luisa Primi - [e-mail]

T [phone]

1

KEY FIGURES

Profit&Loss Stetement	2019A	2020A	2021E	2022E	2023E
Sales	4,3	5,4	6,2	8,0	9,6
Revenues (VoP)	6,1	7,5	8,5	10,8	13,0
EBITDA	1,2	0,7	1,3	1,9	2,6
EBIT	0,6	0,0	0,7	1,3	1,9
Financial Income (charges)	0,0	(0,0)	(0,0)	(0,0)	(0,0)
Pre-tax profit (loss)	0,6	0,0	0,7	1,3	1,9
Taxes	(0,1)	(0,0)	(0,2)	(0,3)	(0,5)
Group net profit (loss)	0,5	0,0	0,5	1,0	1,4

FY 20 UPDATE NOTE

AIM Italia - April 6th, 2021 2:00 p.m.

Revenues evolution

27%	23%	23%
		14%

Balance Sheet
Net working capital (NWC)	2,1	1,7	2,0	2,6	3,1
Net fixed assets	2,7	2,9	2,9	3,0	3,0
M/L Funds	(0,7)	(0,8)	(0,8)	(0,8)	(0,9)
Net Capital Employed	4,1	3,8	4,2	4,7	5,3
Net Debt (Cash)	(0,3)	(0,6)	(0,8)	(1,2)	(2,0)
Net Equity	4,4	4,4	5,0	6,0	7,4

6.1

10.8

7.5 8.5

Cash Flow
EBIT	0,6	0,0	0,7	1,3	1,9
D&A	0,6	0,6	0,6	0,6	0,7
Tax	(0,1)	(0,0)	(0,2)	(0,3)	(0,5)
Cahnge in M/L Funds	0,4	0,1	0,0	0,0	0,0
Gross Cash Flow	1,4	0,8	1,1	1,7	2,2
Change in NWC	(1,4)	0,4	(0,3)	(0,6)	(0,5)
Operating Cash Flow	0,0	1,1	0,9	1,1	1,6
Capex	(1,7)	(0,8)	(0,7)	(0,7)	(0,8)
Change in other non-current	(0,0)	0,0	0,0	0,0	0,0
asset
Financial Income (charges)	0,0	(0,0)	(0,0)	(0,0)	(0,0)
Free Cash Flow	(1,7)	0,3	0,2	0,4	0,8
Dividend	0,0	0,0	0,0	0,0	0,0
Change in Equity	(0,0)	(0,0)	0,0	0,0	0,0
Change in Net debt (Cash)	(1,8)	0,3	0,2	0,4	0,8
Check	0,0	(0,0)	0,0	0,0	0,0
Per Share Data
Current Price	€2,94
Total shares out (mn)	3,47
EPS	0,12	0,01	0,12	0,22	0,31
DPS	0,0	0,0	0,0	0,0	0,0
FCF	(1,7)	0,3	0,2	0,4	0,8
Pay out ratio	0%	-	0%	0%	0%
Ratios
EBITDA margin	19,9%	8,9%	15,5%	18,0%	20,0%
EBIT margin	9,9%	0,5%	8,6%	12,3%	14,4%
Net Debt/Equity (Gearing)	-7,6%	-13,9%	-16,3%	-20,4%	-27,5%
Net Debt/EBITDA	-0,28	-0,93	-0,61	-0,63	-0,78
Interest cover EBIT	-625,49	3,08	56,30	102,17	143,96
ROE	11,1%	0,6%	10,8%	16,6%	19,0%
ROCE	17,4%	1,1%	21,9%	35,0%	43,9%
Free Cash Flow Yield	-59,2%	11,0%	6,5%	13,8%	27,5%
Growth Rates
Sales	21%	25%	14%	30%	20%
Revenues (VoP)	26,9%	22,7%	14,0%	27,0%	20,0%
EBITDA	-6,9%	-45,2%	99,2%	47,5%	33,3%
EBIT	-22,3%	-93,3%	1729,7%	81,5%	40,9%
Net Profit	-21,0%	-94,7%	1973,7%	82,9%	41,3%

2019 2020 2021 2022

Sales YoY

EBITDA evolution

20%18%

9% 16%

1.9

1.2 1.3

0.7

2019 2020 2021 2022

EBITDA EBITDA %

Net Debt evolution

-0.3

-0.6

-0.3-0.8

-1.2 -0.6 -0.6

-0.9

2019 2020 2021 2022

Net Debt ND/EBITDA

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FY 20 UPDATE NOTE

AIM Italia - April 6th, 2021 2:00 p.m.

Consolidated FY20 results

P&L Euro /000	2020A	2019A
Sales	5.422	4.349
Revenues	7.464	6.083
COGS	(433)	(525)
Services and use of
third-party assets	(2.845)	(1.791)
Personnel	(3.410)	(2.429)
Change in inventory	44	(26)
Provisions	0	(5)
Other costs	(158)	(99)
EBITDA	662	1.208
EBITDA margin	8,9%	19,9%
D&A	(622)	(606)
EBIT	40	602
EBITDA margin	0,5%	9,9%
Financial income
/(charges)	(13)	1
EBT	27	603
Tax	(1)	(111)
Net Income	26	492

Source: Group Data

Balance Sheet Euro
/000	2020A	2019A
Fixed Assets	2.870	2.667
Trade receivables	2.239	2.843
Inventory	69	25
Advances from
customers	(210)	(137)
Trade Payables	(1.137)	(905)
Operating Working
Capital	961	1.826
Other current assets	2.064	1.476
Other current liabilities	(1.173)	(1.058)
Net accruals and
deferrals	(129)	(138)
Net Working Capital	1.723	2.106
Funds	(780)	(678)
Net Invested Capital	3.813	4.095
Net Debt	(617)	(337)
Net Equity	4.431	4.433
Total Sources	3.814	4.096

Estimates revision - Euro m

	Euro m	20A		21E Old		21E New		22E Old		22E New		23E Old		23E New
	Value of Production (VoP)	7,5		8,8		8,5		10,5		10,8		12,6		13,0
	VoP YoY % growth	23,0%		21,0%		14,0%		20,0%		27,0%		20,0%		20,0%
	Change in estimates	n.a.		n.a.		-3%		n.a.		3%		n.a.		3%
	EBITDA	0,7		1,6		1,3		2,1		1,9		2,6		2,6
	EBITDA margin	9%		18%		16%		20%		18%		21%		20%
	Change in estimates	n.a.		n.a.		-18%		n.a.		-7%		n.a.		0%
	EBIT	0,0		0,8		0,7		1,2		1,3		1,5		1,9
	EBIT margin	1%		9%		9%		11%		12%		12%		14%
	Pre-tax profit	0,0		0,8		0,7		1,2		1,3		1,5		1,9
	EBT margin	0%		9%		8%		11%		12%		12%		14%
	Group's Net Profit	0,0		0,7		0,5		1,0		1,0		1,2		1,4
	Net margin	0%		8%		6%		10%		9%		10%		11%
	EPS (Eu)	0,01		0,20		0,12		0,29		0,22		0,35		0,31
	Change in estimates	n.a.		n.a.		-20%		n.a.		-4%		n.a.		13%
	Euro m	20A		21E Old		21E New		22E Old		22E New		23E Old		23E New
	Net working capital	1,7		2,6		2,0		2,9		2,6		3,1		3,1
	(NWC)
	Net fixed assets	2,9		2,5		2,9		2,3		3,0		2,0		3,0
	Funds	-0,8		-0,8		-0,8		-1,9		-0,8		-1,1		-0,9
	Net Capital Employed	3,8		4,3		4,2		4,3		4,7		4,0		5,3
	Net financial Debt (Cash)	-0,6		-1,2		-0,8		-2,2		-1,2		-3,7		-2,0
	Total Equity	4,4		5,5		5,0		6,5		6,0		7,8		7,4
	Sources	3,8		4,3		4,2		4,3		4,7		4,0		5,3

Source: Group data (OIC) for FY20, IR Top Research estimates for FY 2021-2023

3

FY 20 UPDATE NOTE

AIM Italia - April 6th, 2021 2:00 p.m.

VALUATION SUMMARY

Method	Weight	Price (Eu)
Multiple analysis	50%	4.51
DCF	50%	4.54
Target Price	100%	4.52

PEER GROUP

		Market	2019	Revenue %	2020E	2019	2020E
Companies	Country	Cap	revenue	change	revenue	EBITDA	EBITDA
		(Euro m)	(Euro m)	2019/2018	(Euro m)	margin	margin
CY4gate	Italy	9	13	93%	n.a.	17%	n.a.
Cyberoo	Italy	6	7	36%	14	43%	50%
DBA Group	Italy	1	6	n.a.	8	43%	25%
DHH	Italy	15	7	13%	18	7%	38%
Digital Value	Italy	47	363	23%	442	9%	n.a.
Doxee	Italy	6	15	13%	23	30%	25%
FOS	Italy	3	10	22%	13	23%	22%
MailUp	Italy	4	61	51%	64	8%	8%
Relatech	Italy	3	18	36%	25	22%	24%
AIM peers' average		10	56	36%	76	22%	27%
Datalogic	Italy	18	586	-7%	480	14%	10%
Exprivia	Italy	1	541	-8%	n.a.	5%	n.a.
Generix Group France	France	8	81	6%	80	12%	12%
Piteco	Italy	11	23	18%	24	43%	41%
PSI Software	Germany	28	225	13%	218	11%	12%
Reply	Italy	114	1,183	14%	1,250	14%	17%
Sesa	Italy	108	1,763	14%	2,091	4%	6%
TXT e-solutions	Italy	8	59	48%	69	11%	13%
Small & Mid Cap peers' average	37	558	12%	602	14%	16%
CIRCLE	Italy	10	6.1	21%	7.5	20%	9%

Companies		EV/EBITDA		P/E
	21E			22E		21E	22E
DBA Group	5.4		4.1		14.6	8.5
Cy4Gate	18.7	12.2		37.7	24.8
Cyberoo	15.4	6.6		40.8	11.4
DHH	8.4	6.9		22.9	17.5
Digital Value	7.4		5.7		16.3	13.6
Doxee	6.6	4.5		15.5	9.3
FOS	6.6	5.3		18.3	11.3
MailUp	11.1		7.1		56.2	23.9
Relatech	11.0	8.9		20.7	16.6
AIM peers' average	10.1			6.8		27.0	15.2
Datalogic	13.6	11.1		29.8	22.5
Generix Group France	13	10.5		33.4	25.6
Piteco	15.3	13.3		20	17.6
PSI Software	12.8		11.2		28.8	24.4
Reply	17.3	15		31.8	27.9
Sesa	10.1	8.7		22.5	19.6
TXT e-solutions	7.7	6.5		16.4	14.1
Small & Mid Cap peers' average	12.8			10.9		26.1	21.7
CIRCLE	8.3	5.7		18.5	10.1
Discount/Premium to AIM peers	-18%	-16%		-31%	-34%
Discount/Premium to Small & Mid Cap peers	-35%	-48%		-29%	-53%
Discount/Premium to peers	-26%	-32%		-30%	-44%

Source: PMI Capital for Circle and AIM peers data as of April 6th, 2021. FactSet data as of April 6th, 2021 for Small & Mid Cap peers.

4

CIRCLE IN BRIEF

COMPANY DESCRIPTION_______________________

CIRCLE Group, listed on AIM Italia since October 2018 and registered Innovative SME is an international player specialised in providing innovative technological solutions for automation and digitalisation of the entire supply chain, with distinctive vertical skills in the port and intermodal logistics sectors. Through a vertically integrated business model, the Group completes its offering with services supporting its clients in gathering European funding and achieving a strategic positioning at European level.

The Group, which in the 2012-2020 period has recorded a +25% CAGR thanks to a strategy based on a mix of organic growth and M&A, counts 70 employees and recorded revenues of Euro 7.5 m in FY 2020, of which over 30% realised outside Italy (Southern Europe, Mediterranean area, Black Sea and Middle East). Since 2017, the Group has concluded 4 M&A transactions and signed 4 strategic alliances.

REFERENCE MARKET____________________________

CIRCLE operates in the niche market of digital transformation and supply chain optimization for the port and intermodal logistics sector in countries bordering the Mediterranean Sea.

Digitalisation and the arrival of innovative IoT technologies have created a disruption (digital disruption) in the local market of the logistics and the multimodal Supply Chain.

OPPORTUNITIES____________________________________

• Strong M&A track record with 3 acquisitions since 2017 (InfoEra, Progetto Adele and Log@Sea)
• Growing international trade and need of modernisation and automation of obsolete infrastructure in ports and intermodal hubs.
• Well positioned to exploit opportunities in growing markets thanks to its already extended international footprint.
• Historical track-record and long-lasting relations with clients.
• Technological innovation and different proprietary software.
• Solid expertise in business process reengineering and project management, as well as of EU policies, allowing the Company to offer a product portfolio anticipating EU regulations.

FY 20 UPDATE NOTE

AIM Italia - April 6th, 2021 2:00 p.m.

GROUP STRUCTURE_____________________________

Circle SpA

Progetto Adele			NewCo Circle
InfoEra (51%)	Log@Sea (51%)	Connecting EU
(100%)
		(100%)

BUSINESS UNITS	_____________________________
	Business	Innovative and			Global Supply Chain		Connecting EU
	Unit	Smart Supply Chain			Visibility
		v Inland and Port
		terminal
		Operators
		v Multimodal		v	Shippers		v Private and Public
		Transport
						entities
	Actors /	Operators & Rail
		v	Freight Forwarders		specialized in
	Customers	Companies
					port, transport and
		v Port Authorities
			v	Customs Operators		logistics
		and Port
		Communities
		v Shipping
		Agencies
	Products /
	Services
STRATEGY______________________________________

• Continuous development of proprietary
  products, in particular Milos®, MasterSped®, and MasterTrade
• EU services evolution
• Geographical expansion in target areas
• External growth through acquisitions of companies and/or strategic assets and joint ventures.
• New "federative" services launched in September 2020 to meet the needs for a full digitalization of the Supply Chain

MAIN RISKS____________________________________

• Highly competitive market.
• Difficulty in recruiting new skilled human resources.
• Limited brand awareness and bargaining power.
• Implementation of the strategies and future development plans.
• Obsolete IT systems of clients and hacking risks.

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