Eckert & Ziegler Strahlen und Medizintechnik : Hauck & Aufhäuser

Eckert & Ziegler AG

Germany - High-tech Engineering

Buy (old: Buy)

Price target: EUR 52.50 (old: EUR 52.50)

Price:Bloomberg: Reuters:

EUR 43.18

EUZ GR EUZG.DE

Next result:Market cap: Enterprise Value:

Q4 10.11.20

EUR 929.3 m EUR 853.3 m

Weathering COVID headwinds; closing in on the theranostics opportunity

EUZ is scheduled to report Q3 results on 11th Nov. that should once again confirm that the structurally growing demand for radiopharmaceuticals remains intact, despite the pandemic-related headwinds, and provide further confidence in the FY outlook.

What to expect: Q3 sales and EBIT (and EPS) should come in broadly in line with the value of last year. Specifically, Q3 sales of c. € 44m are seen to be carried by:

i) continuously strong demand for radiopharmaceuticals (mainly ga-68 and yt-90) on the back of increasing penetration of ga-68 based diagnostic as well as ongoing regional rollout of the Lutathera treatment (which requires ga-68 as an imaging counterpart) AND incremental demand for yt-90 from the US where EUZ replaced another local supplier.

ii) …and held back by soft "industrial" business (>55% of sales; H1: -15% yoy) largely explained by an almost complete seizure of the oil and gas business costing some € 4-5m EBIT in 2020E (eH&A). On the other hand, sales into other industrial sectors have proven to be rather resilient during the pandemic.

FY EPS outlook well in reach: Assuming Q3 EPS on par with last year (i.e. € 0.28), the underlying Q4 EPS (i.e. excl. pipeline costs) may even decline by -10% yoy to € 0.21 and

EUZ would still meet its FY EPS target of € 1.0. This looks more than reasonable considering uninterrupted growth dynamic with high-margin radiopharmaceuticals. Moreover, in case the expected pipeline costs in Q3 will turn out to be less than € 3m, this should yield upside to the € 1.0 FY EPS target (which includes €3-4m costs).

Importantly, the mid- to long-term growth prospects remain intact thanks to EUZ's firm positioning as one of the key suppliers to the rapidly developing field of theranostics that looks set to expand from c. $ 1bn today to $ 6bn by 2025E (with an expected inflection point in 2021/22).

With that, the only flat sales development in 2020 should not be of a concern. This is especially true given that the brisk growth with radiopharmaceuticals (+30% yoy in H1) was only masked by a temporary weakness of the less resilient business with industrial customers (e.g. oil and gas). We forecast about 10% sales growth in 2021/22.

BUY with an unchanged PT of € 52.5 based on DCF.

Source: Company data, Hauck & Aufhäuser

High/low 52 weeks: 50.38 / 24.60 Price/Book Ratio: 5.9

Relative performance (SDAX):

Sales	EBIT	EPS
2020	old:	178.4	32.1	1.07
∆	-	-	-
2021	old:	197.1	37.0	1.25
∆	-	-	-
2022	old:	215.3	42.9	1.45
∆	-	-	-

3 months	11.0 %
6 months	2.1 %
12 months	5.4 %
Changes in estimates
Key share data:

Number of shares: (in m pcs) 20.5

Authorised capital: (in € m) 0.6

Y/E 31.12 (EUR m)	2016	2017	2018	2019	2020E	2021E	2022E	Book value per share: (in €)	7.3
Sales	119.9	138.6	168.7	178.5	178.4	197.1	215.3	Ø trading volume: (12 months)	20,453
Sales growth	-14 %	16 %	22 %	6%	0%	10 %	9%
EBITDA	24.9	26.6	32.0	43.1	43.2	48.1	53.9
EBIT	16.1	18.0	23.4	32.1	32.1	37.0	42.9
Major shareholders:
Net income	9.5	14.7	16.1	22.0	22.1	25.6	29.8
Net debt	-24.9	-56.0	-54.1	-78.9	-89.4	-97.6	-119.2	Free float	67.8 %
Net gearing	-23.7 %	-49.8 %	-44.1 %	-57.1 %	-59.7 %	-58.4 %	-63.1 %	Founders	32.2 %
Net Debt/EBITDA	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Eckert & Ziegler AG	0.1 %
EPS pro forma	1.93	2.19	3.12	1.06	1.07	1.25	1.45
CPS	2.42	3.54	2.53	1.46	0.87	0.98	1.34
DPS	0.66	0.80	1.20	0.35	0.36	0.42	0.48	Company description:
Dividend yield	1.5 %	1.8 %	2.7 %	0.8 %	0.8 %	0.9 %	1.1 %
Gross profit margin	49.7 %	46.1 %	44.1 %	48.8 %	49.2 %	50.0 %	51.0 %
EBITDA margin	20.8 %	19.2 %	18.9 %	24.2 %	24.2 %	24.4 %	25.0 %
EBIT margin	13.5 %	13.0 %	13.9 %	18.0 %	18.0 %	18.8 %	19.9 %
ROCE	12.0 %	13.8 %	17.6 %	22.5 %	22.4 %	25.2 %	20.4 %
EV/sales	1.8	1.4	1.1	4.8	4.8	4.3	3.8
EV/EBITDA	8.8	7.1	6.0	20.0	19.8	17.6	15.3
EV/EBIT	13.6	10.5	8.2	26.9	26.6	22.8	19.2
PER	23.4	15.6	11.3	39.7	38.8	33.0	27.6
Adjusted FCF yield	5.5 %	6.5 %	9.1 %	2.7 %	2.8 %	3.2 %	3.9 %

Source: Company data, Hauck & Aufhäuser Close price as of: 23.10.2020

Please refer to important disclosures at the end of the report

Produces and markets a wide range of industrial and medical applications featuring radioactive isotopes, including prostate seed implants, calibration standards and radiation afterloaders.

Financials

Profit and loss (EUR m)	2016	2017	2018	2019	2020E	2021E	2022E
Sales	119.9	138.6	168.7	178.5	178.4	197.1	215.3
Sales growth	-14.2 %	15.7 %	21.7 %	5.8 %	-0.1 %	10.5 %	9.2 %
Cost of sales	60.3	74.8	94.4	91.5	90.6	98.6	105.5
Gross profit	59.6	63.9	74.3	87.0	87.8	98.6	109.8
Sales and marketing	18.1	20.0	23.3	22.9	22.9	25.3	27.7
General and administration	24.7	23.9	26.9	27.6	27.6	30.4	33.3
Research and development	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Other operating income	3.5	3.8	3.5	2.8	2.8	3.1	3.4
Other operating expenses	5.0	4.5	4.5	7.1	8.0	8.9	9.5
Unusual or infrequent items	0.9	-1.2	0.2	-0.2	0.0	0.0	0.0
EBITDA	24.9	26.6	32.0	43.1	43.2	48.1	53.9
Depreciation	8.7	8.6	8.6	11.1	11.1	11.1	11.1
EBITA	16.1	18.0	23.4	32.1	32.1	37.0	42.9
Amortisation of goodwill	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Amortisation of intangible assets	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Impairment charges	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EBIT (inc revaluation net)	16.1	18.0	23.4	32.1	32.1	37.0	42.9
Interest income	0.4	0.3	0.2	0.3	0.3	0.3	0.3
Interest expenses	1.2	0.9	0.7	1.1	1.1	1.1	1.1
Other financial result	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Financial result	-0.7	-0.6	-0.5	-0.8	-0.8	-0.8	-0.8
Recurring pretax income from continuing operations	15.4	17.3	22.9	31.2	31.3	36.2	42.0
Extraordinary income/loss	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Earnings before taxes	15.4	17.3	22.9	31.2	31.3	36.2	42.0
Taxes	5.0	5.3	6.0	8.8	8.8	10.2	11.8
Net income from continuing operations	10.4	12.0	16.9	22.5	22.5	26.0	30.2
Result from discontinued operations (net of tax)	-0.7	3.1	0.0	0.0	0.0	0.0	0.0
Net income	9.8	15.1	16.9	22.5	22.5	26.0	30.2
Minority interest	0.2	0.4	0.8	0.5	0.5	0.5	0.5
Net profit (reported)	9.5	14.7	16.1	22.0	22.1	25.6	29.8
Average number of shares	5.3	5.3	5.2	20.5	20.5	20.5	20.5
EPS reported	1.81	2.78	3.12	1.07	1.07	1.25	1.45
Profit and loss (common size)	2016	2017	2018	2019	2020E	2021E	2022E
Sales	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %
Cost of sales	50.3 %	53.9 %	55.9 %	51.2 %	50.8 %	50.0 %	49.0 %
Gross profit	49.7 %	46.1 %	44.1 %	48.8 %	49.2 %	50.0 %	51.0 %
Sales and marketing	15.1 %	14.4 %	13.8 %	12.8 %	12.8 %	12.8 %	12.8 %
General and administration	20.6 %	17.3 %	15.9 %	15.4 %	15.4 %	15.4 %	15.4 %
Research and development	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Other operating income	2.9 %	2.7 %	2.1 %	1.6 %	1.6 %	1.6 %	1.6 %
Other operating expenses	4.2 %	3.2 %	2.6 %	4.0 %	4.5 %	4.5 %	4.4 %
Unusual or infrequent items	0.7 %	neg.	0.1 %	neg.	0.0 %	0.0 %	0.0 %
EBITDA	20.8 %	19.2 %	18.9 %	24.2 %	24.2 %	24.4 %	25.0 %
Depreciation	7.3 %	6.2 %	5.1 %	6.2 %	6.2 %	5.6 %	5.1 %
EBITA	13.5 %	13.0 %	13.9 %	18.0 %	18.0 %	18.8 %	19.9 %
Amortisation of goodwill	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Amortisation of intangible assets	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Impairment charges	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
EBIT (inc revaluation net)	13.5 %	13.0 %	13.9 %	18.0 %	18.0 %	18.8 %	19.9 %
Interest income	0.4 %	0.2 %	0.1 %	0.2 %	0.2 %	0.1 %	0.1 %
Interest expenses	1.0 %	0.6 %	0.4 %	0.6 %	0.6 %	0.6 %	0.5 %
Other financial result	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Financial result	neg.	neg.	neg.	neg.	neg.	neg.	neg.
Recurring pretax income from continuing operations	12.9 %	12.5 %	13.6 %	17.5 %	17.5 %	18.4 %	19.5 %
Extraordinary income/loss	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Earnings before taxes	12.9 %	12.5 %	13.6 %	17.5 %	17.5 %	18.4 %	19.5 %
Tax rate	32.2 %	30.7 %	26.2 %	28.1 %	28.1 %	28.1 %	28.1 %
Net income from continuing operations	8.7 %	8.7 %	10.0 %	12.6 %	12.6 %	13.2 %	14.0 %
Result from discontinued operations (net of tax)	-0.6 %	2.2 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Net income	8.2 %	10.9 %	10.0 %	12.6 %	12.6 %	13.2 %	14.0 %
Minority interest	0.2 %	0.3 %	0.4 %	0.3 %	0.3 %	0.2 %	0.2 %
Net profit (reported)	8.0 %	10.6 %	9.6 %	12.3 %	12.4 %	13.0 %	13.8 %
Source: Company data, Hauck & Aufhäuser
2

Balance sheet (EUR m)	2016	2017	2018	2019	2020E	2021E	2022E
Intangible assets	53.0	51.4	52.5	51.9	51.9	51.9	51.9
Property, plant and equipment	37.8	33.8	36.9	40.0	36.2	40.1	36.3
Financial assets	2.9	3.2	3.5	5.2	8.4	8.4	8.4
FIXED ASSETS	93.7	88.5	93.0	97.1	96.5	100.4	96.6
Inventories	25.1	26.8	28.8	31.2	36.4	40.2	41.4
Accounts receivable	23.2	24.3	28.3	29.5	31.3	34.6	37.7
Other current assets	11.9	10.9	14.9	26.6	26.6	26.6	26.6
Liquid assets	36.6	57.7	54.2	78.9	89.5	97.7	119.3
Deferred taxes	9.0	8.8	9.9	10.9	0.0	0.0	0.0
Deferred charges and prepaid expenses	0.0	0.0	0.0	0.0	0.0	0.0	0.0
CURRENT ASSETS	105.8	128.5	136.1	177.1	183.7	199.1	225.0
TOTAL ASSETS	199.5	217.0	229.1	274.2	280.2	299.5	321.6
SHAREHOLDERS EQUITY	105.2	112.3	122.6	138.2	149.7	167.2	188.9
MINORITY INTEREST	4.9	5.2	1.2	1.2	1.2	1.2	0.0
Long-term debt	4.1	0.0	0.0	0.0	0.0	0.0	0.0
Provisions for pensions and similar obligations	11.8	11.7	11.4	13.5	13.5	13.5	13.5
Other provisions	35.3	48.7	55.1	66.4	61.9	63.2	64.4
Non-current liabilities	51.2	60.4	66.5	79.9	75.4	76.7	77.9
short-term liabilities to banks	7.5	1.7	0.0	0.0	0.0	0.0	0.0
Accounts payable	6.4	4.5	6.5	4.5	6.2	6.8	7.2
Advance payments received on orders	1.4	5.9	4.1	12.0	12.0	12.0	12.0
Other liabilities (incl. from lease and rental contracts)	15.6	17.3	17.4	35.6	35.6	35.6	35.6
Deferred taxes	5.6	6.4	7.1	2.8	0.0	0.0	0.0
Deferred income	1.7	3.3	3.6	0.0	0.0	0.0	0.0
Current liabilities	38.2	39.1	38.8	54.9	53.8	54.3	54.8
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY	199.5	217.0	229.1	274.2	280.2	299.5	321.6
Balance sheet (common size)	2016	2017	2018	2019	2020E	2021E	2022E
Intangible assets	26.6 %	23.7 %	22.9 %	18.9 %	18.5 %	17.3 %	16.1 %
Property, plant and equipment	19.0 %	15.6 %	16.1 %	14.6 %	12.9 %	13.4 %	11.3 %
Financial assets	1.4 %	1.5 %	1.5 %	1.9 %	3.0 %	2.8 %	2.6 %
FIXED ASSETS	47.0 %	40.8 %	40.6 %	35.4 %	34.4 %	33.5 %	30.0 %
Inventories	12.6 %	12.3 %	12.6 %	11.4 %	13.0 %	13.4 %	12.9 %
Accounts receivable	11.6 %	11.2 %	12.4 %	10.8 %	11.2 %	11.5 %	11.7 %
Other current assets	6.0 %	5.0 %	6.5 %	9.7 %	9.5 %	8.9 %	8.3 %
Liquid assets	18.3 %	26.6 %	23.7 %	28.8 %	31.9 %	32.6 %	37.1 %
Deferred taxes	4.5 %	4.1 %	4.3 %	4.0 %	0.0 %	0.0 %	0.0 %
Deferred charges and prepaid expenses	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
CURRENT ASSETS	53.0 %	59.2 %	59.4 %	64.6 %	65.6 %	66.5 %	70.0 %
TOTAL ASSETS	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %
SHAREHOLDERS EQUITY	52.7 %	51.8 %	53.5 %	50.4 %	53.4 %	55.8 %	58.7 %
MINORITY INTEREST	2.5 %	2.4 %	0.5 %	0.5 %	0.4 %	0.4 %	0.0 %
Long-term debt	2.1 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Provisions for pensions and similar obligations	5.9 %	5.4 %	5.0 %	4.9 %	4.8 %	4.5 %	4.2 %
Other provisions	17.7 %	22.4 %	24.0 %	24.2 %	22.1 %	21.1 %	20.0 %
Non-current liabilities	25.7 %	27.8 %	29.0 %	29.1 %	26.9 %	25.6 %	24.2 %
short-term liabilities to banks	3.8 %	0.8 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Accounts payable	3.2 %	2.1 %	2.8 %	1.6 %	2.2 %	2.3 %	2.2 %
Advance payments received on orders	0.7 %	2.7 %	1.8 %	4.4 %	4.3 %	4.0 %	3.7 %
Other liabilities (incl. from lease and rental contracts)	7.8 %	8.0 %	7.6 %	13.0 %	12.7 %	11.9 %	11.1 %
Deferred taxes	2.8 %	3.0 %	3.1 %	1.0 %	0.0 %	0.0 %	0.0 %
Deferred income	0.8 %	1.5 %	1.6 %	0.0 %	0.0 %	0.0 %	0.0 %
Current liabilities	19.1 %	18.0 %	16.9 %	20.0 %	19.2 %	18.1 %	17.0 %
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %
Source: Company data, Hauck & Aufhäuser
3

Cash flow statement (EUR m)	2016	2017	2018	2019	2020E	2021E	2022E
Net profit/loss	9.8	15.1	16.9	22.5	22.5	26.0	30.2
Depreciation of fixed assets (incl. leases)	8.7	8.6	8.6	11.1	11.1	11.1	11.1
Amortisation of goodwill	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Amortisation of intangible assets	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Others	-0.8	5.5	2.8	10.6	0.0	0.0	0.0
Cash flow from operations before changes in w/c	17.7	29.3	28.2	44.1	33.6	37.1	41.3
Increase/decrease in inventory	0.3	-1.7	0.7	-2.2	-5.2	-3.8	-1.2
Increase/decrease in accounts receivable	2.0	-1.1	-4.0	-1.2	-1.8	-3.3	-3.2
Increase/decrease in accounts payable	0.1	-1.9	2.0	-0.4	1.7	0.5	0.5
Increase/decrease in other working capital positions	0.2	2.2	-5.7	0.0	0.0	0.0	0.0
Increase/decrease in working capital	2.6	-2.5	-7.0	-3.7	-5.3	-6.6	-3.9
Cash flow from operating activities	20.3	26.8	21.2	40.4	28.3	30.6	37.4
CAPEX	5.3	4.2	6.1	7.3	7.3	15.0	7.3
Payments for acquisitions	0.2	5.5	2.1	0.9	0.0	0.0	0.0
Financial investments	0.0	0.5	0.0	0.0	3.2	0.0	0.0
Income from asset disposals	0.0	15.2	-2.5	2.5	0.0	0.0	0.0
Cash flow from investing activities	-5.5	5.1	-10.7	-5.7	-10.5	-15.0	-7.3
Cash flow before financing	14.8	31.9	10.5	34.7	17.9	15.6	30.1
Increase/decrease in debt position	-3.9	-5.3	-1.7	-2.7	0.0	0.0	0.0
Purchase of own shares	0.0	0.0	8.6	0.0	0.0	0.0	0.0
Capital measures	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Dividends paid	3.2	3.5	4.1	6.2	7.3	7.4	8.5
Others	-2.5	-1.2	-0.2	-1.7	0.0	0.0	0.0
Effects of exchange rate changes on cash	0.3	-0.8	0.6	0.5	0.0	0.0	0.0
Cash flow from financing activities	-9.5	-10.0	-14.6	-10.5	-7.3	-7.4	-8.5
Increase/decrease in liquid assets	5.6	21.1	-3.5	24.7	10.6	8.2	21.6
Liquid assets at end of period	37.0	57.7	54.2	78.9	89.5	97.7	119.3
Source: Company data, Hauck & Aufhäuser
Regional split (EUR m)	2016	2017	2018	2019	2020E	2021E	2022E
Domestic	0.0	0.0	0.0	0.0	0.0	0.0	0.0
yoy change	n/a	n/a	n/a	n/a	n/a	n/a	n/a
Rest of Europe	74.5	84.9	96.8	110.4	125.9	143.5	163.6
yoy change	3.5 %	14.0 %	14.0 %	14.0 %	14.0 %	14.0 %	14.0 %
NAFTA	46.1	53.0	60.9	70.1	80.6	92.7	106.6
yoy change	3.5 %	15.0 %	15.0 %	15.0 %	15.0 %	15.0 %	15.0 %
Asia Pacific	14.0	15.8	17.9	20.2	22.9	25.8	29.2
yoy change	8.0 %	13.0 %	13.0 %	13.0 %	13.0 %	13.0 %	13.0 %
Rest of world	-14.7	-15.1	-7.0	-22.2	-50.9	-64.9	-84.0
yoy change	neg.	neg.	neg.	neg.	neg.	neg.	neg.
TTL	119.9	138.6	168.7	178.5	178.4	197.1	215.3
yoy change	-14.2 %	15.7 %	21.7 %	5.8 %	-0.1 %	10.5 %	9.2 %
Source: Company data, Hauck & Aufhäuser
4