Eckert & Ziegler Strahlen und Medizintechnik : Hauck & Aufhäuser

Eckert & Ziegler AG

Germany - High-tech Engineering

	Buy (old: Buy)					27-May-22
	Price target: EUR 120.00 (old: EUR 152.00)			Alexander Galitsa
						Analyst
	Price:	EUR 41.90	Next result:	Q2 11.08.22
	Bloomberg:	EUZ GR	Market cap:	EUR 862.7 m		[e-mail]
		Tel.: [phone]
	Reuters:	EUZG.DE	Enterprise Value:	EUR 782.7 m

F-18 puts breaks on Ga-68,Lu-177 and Ac-225 prospects intact; chg

Recent developments in the prostate cancer imaging landscape cast greater uncertainty on the anticipated growth with Ga-68generators. PYLARIFY - an approved F-18-based diagnostic agent for prostate cancer - is having a successful launch since Q4 2021 and is likely to eat into the growth opportunity for Ga-68.

Lantheus reported $ 43m and $ 93m sales with PYLARIFY in Q4 2021 and Q1 2022 respectively and is guiding for FY 2022 sales of between $ 385m and $ 420m, indicating robust customer adoption (implying 80,000 to 90,000 patient scans).

Just like Telix's Illuccix and Novartis' Locametz (both are based on Ga-68),PYLARIFY is a superior imaging option delivering high quality images, which improves therapeutic decision-making and ultimately treatment outcomes.

Why is it bad news for Ga-68? Until recently, Novartis' radioligand prostate cancer therapy Pluvicto could only be "paired" with Ga-68-based imaging agents, underpinning the expected growth opportunity for Ga-68 generators. This has changed with the update to the National Comprehensive Cancer Network (NCCN) Guidelines for prostate cancer imaging, which authorized the use of PYLARIFY for patient selection for Pluvicto.

What happens to the Ga-68business? While Ga-68 growth prospects are seen be to curbed by the availability of PYLARIFY, Ga-68is not going extinct and should continue to at least support the base sales level at EUZ (c. € 30m in 2020/2021). First, Lutathera

• which is responsible for the vast majority of the installed base of generators - can only be "paired" with Ga-68imaging. Second, as opposed to Ga-68, which can be produced on site from a generator, F-18 is produced by cyclotrons in centralized locations, making it "untransportable" to too distant sites due to its short half-life of 110 min.

This is by no means a "make or break" event for the investment case, as a) Ga-68is here to stay, albeit with lower growth expectations, and b) the growth opportunity with therapeutic isotopes is intact as there are no alternatives to Lu-177and Ac-225.Judging by the patient population, which could lead to >500,000 treatments p.a., Lu-177 and Ac- 225 looks set to turn into a multi-billion € market (eHAIB: € 3.5bn+). In both isotopes, EUZ is positioning itself as the "go-to partner" by expanding capacities and capabilities.

At € 780m EV, the market significantly undervalues the growth opportunity with therapeutic isotopes and own clinical assets (Pentixapharm; next page). BUY with a

new PT of € 120 (old: € 152) based on SOTP.	- continued -
Y/E 31.12 (EUR m)	2018	2019	2020	2021	2022E	2023E	2024E
Sales	168.7	178.5	176.1	180.4	204.2	217.1	248.1
Sales growth	22 %	6 %	-1 %	2 %	13 %	6 %	14 %
EBITDA	32.0	43.1	44.8	57.0	55.1	61.9	73.7
EBIT	23.4	32.1	33.7	47.4	41.3	42.7	54.5
Net income	16.1	22.0	22.9	34.4	29.9	30.9	39.7
Net debt	-54.1	-78.9	-88.6	-86.6	-59.3	-19.8	-29.2
Net gearing	-44.1 %	-57.1 % -59.9 %	-46.2 % -27.4 %	-6.6 %	-8.9 %
Net Debt/EBITDA	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EPS pro forma	3.12	1.06	1.04	1.67	1.45	1.50	1.93
CPS	0.64	1.46	1.28	1.20	1.39	1.41	1.53
DPS	1.20	0.35	0.35	0.56	0.50	0.50	0.50
Dividend yield	3.0 %	0.9 %	0.9 %	1.4 %	1.2 %	1.2 %	1.2 %
Gross profit margin	44.1 %	48.8 %	49.1 %	50.5 %	48.5 %	47.4 %	48.4 %
EBITDA margin	18.9 %	24.2 %	25.4 %	31.6 %	27.0 %	28.5 %	29.7 %
EBIT margin	13.9 %	18.0 %	19.1 %	26.3 %	20.2 %	19.7 %	22.0 %
ROCE	17.6 %	22.5 %	22.9 %	26.0 %	15.3 %	11.6 %	12.8 %
EV/sales	4.7	4.3	4.3	4.2	3.9	3.8	3.3
EV/EBITDA	24.7	17.8	17.0	13.3	14.3	13.4	11.1
EV/EBIT	33.8	23.9	22.6	16.0	19.1	19.4	15.0
PER	48.4	35.2	35.6	21.7	26.0	27.0	21.0
Adjusted FCF yield	2.2 %	3.0 %	3.2 %	4.8 %	4.2 %	4.2 %	5.4 %

Source: Company data, Hauck Aufhäuser Investment Banking Close price as of: 25.05.2022

Please refer to important disclosures at the end of the report

Source: Company data, Hauck Aufhäuser Investment Banking

High/low 52 weeks:	137.40 / 40.46
Price/Book Ratio:	3.9
Relative performance (SDAX):
3 months			-29.6 %
6 months			-38.8 %
12 months		-35.1 %
Changes in estimates
		Sales	EBIT	EPS
2022	old:	204.9	42.5	1.49
∆	-0.3%	-2.7%	-2.8%
2023	old:	225.5	46.6	1.64
∆	-3.7%	-8.4%	-8.6%
2024	old:	264.5	60.4	2.14
∆	-6.2%	-9.7%	-9.9%
Key share data:
Number of shares: (in m pcs)	20.6
Authorised capital: (in € m)	0.6
Book value per share: (in €)	10.5
Ø trading volume: (12 months)	20,453
Major shareholders:
Free float					67.8 %
Founders					32.2 %
Eckert & Ziegler AG			0.1 %

Company description:

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

Eckert & Ziegler AG

Action: We reduces our estimates to account for lower than previously expected contribution from Ga-68, which has a disproportionate effect on earnings due to the margin accretive nature of this product category. However, a higher-than-expected contribution from the Oil and Gas business partially compensates for softer performance of the Medical division.

Mere € 93m is attributable to growth and clinical assets…

Source: HAIB

"Steady state" DCF:
WACC	8.0%
Terminal growth	2.5%
Terminal EBIT margin	23.0%
Mid-term growth	4.7%
Tax rate	30.0%
Incr. NWC	30.0%
Source: HAIB

…yet the growth opportunity in the Nuclear Medicine market is significant…

Nuclear Medicine Market (in € m)

35,000

30,000

25,000

20,000			2.6x	21,200
15,000
10,000	1,140	2x	6,200
5,000
4,465		5,300	8,500
0
2020		2025E	2030E
	thereof diagnostics	thereof therapeutics
	(e.g. Ga-68,Tc-99,F-18)	(e.g. Y-90,Lu-177,Ac-225)

Source: MEDraysintell; HAIB

…and Pentixapharm offers a highly valuable optionality

Clinical assets of Pentixapharma are currently being evaluated in numerous clinical studies in hematologic and solid tumors. There is a good chance for PentixaFor - a Ga- 68-based imaging - to be established as a superior diagnostic in various cancer types that overexpress CXCR4 receptor.

2	Hauck Aufhäuser Investment Banking

Eckert & Ziegler AG

Financials

Profit and loss (EUR m)	2018	2019	2020	2021	2022E	2023E	2024E
Sales	168.7	178.5	176.1	180.4	204.2	217.1	248.1
Sales growth	21.7 %	5.8 %	-1.3 %	2.4 %	13.2 %	6.3 %	14.2 %
Cost of sales	94.4	91.5	89.6	89.4	105.1	114.3	128.1
Gross profit	74.3	87.0	86.5	91.1	99.1	102.8	120.0
Sales and marketing	23.3	22.9	21.7	22.6	23.6	24.4	26.7
General and administration	26.9	27.6	28.1	31.5	32.2	33.3	36.4
Research and development	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Other operating income	3.5	2.8	5.8	17.7	5.0	5.0	5.0
Other operating expenses	4.5	7.1	7.2	7.3	7.0	7.0	7.0
Unusual or infrequent items	0.2	-0.2	-1.6	0.0	0.0	0.0	0.0
EBITDA	32.0	43.1	44.8	57.0	55.1	61.9	73.7
Depreciation	8.6	11.1	11.1	9.6	13.8	18.8	18.8
EBITA	23.4	32.1	33.7	47.4	41.3	43.1	54.9
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)	23.4	32.1	33.7	47.4	41.3	42.7	54.5
Interest income	0.2	0.3	0.2	0.1	0.1	0.1	0.1
Interest expenses	0.7	1.1	1.2	1.2	1.2	1.2	1.2
Other financial result	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Financial result	-0.5	-0.8	-0.9	-1.1	-1.1	-1.1	-1.1
Recurring pretax income from continuing operations	22.9	31.2	32.7	46.4	40.3	41.7	53.4
Extraordinary income/loss	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Earnings before taxes	22.9	31.2	32.7	46.4	40.3	41.7	53.4
Taxes	6.0	8.8	9.6	11.7	10.2	10.5	13.5
Net income from continuing operations	16.9	22.5	23.1	34.7	30.1	31.1	39.9
Result from discontinued operations (net of tax)	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Net income	16.9	22.5	23.1	34.7	30.1	31.1	39.9
Minority interest	0.8	0.5	0.2	0.2	0.2	0.2	0.2
Net profit (reported)	16.1	22.0	22.9	34.4	29.9	30.9	39.7
Average number of shares	20.5	20.5	20.6	20.6	20.6	20.6	20.6
EPS reported	0.79	1.07	1.11	1.67	1.45	1.50	1.93
Profit and loss (common size)	2018	2019	2020	2021	2022E	2023E	2024E
Sales	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %
Cost of sales	55.9 %	51.2 %	50.9 %	49.5 %	51.5 %	52.6 %	51.6 %
Gross profit	44.1 %	48.8 %	49.1 %	50.5 %	48.5 %	47.4 %	48.4 %
Sales and marketing	13.8 %	12.8 %	12.3 %	12.5 %	11.6 %	11.2 %	10.8 %
General and administration	15.9 %	15.4 %	15.9 %	17.4 %	15.8 %	15.3 %	14.7 %
Research and development	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Other operating income	2.1 %	1.6 %	3.3 %	9.8 %	2.4 %	2.3 %	2.0 %
Other operating expenses	2.6 %	4.0 %	4.1 %	4.0 %	3.4 %	3.2 %	2.8 %
Unusual or infrequent items	0.1 %	neg.	neg.	0.0 %	0.0 %	0.0 %	0.0 %
EBITDA	18.9 %	24.2 %	25.4 %	31.6 %	27.0 %	28.5 %	29.7 %
Depreciation	5.1 %	6.2 %	6.3 %	5.3 %	6.8 %	8.7 %	7.6 %
EBITA	13.9 %	18.0 %	19.1 %	26.3 %	20.2 %	19.9 %	22.1 %
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 %
Impairment charges	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
EBIT (inc revaluation net)	13.9 %	18.0 %	19.1 %	26.3 %	20.2 %	19.7 %	22.0 %
Interest income	0.1 %	0.2 %	0.1 %	0.1 %	0.1 %	0.1 %	0.1 %
Interest expenses	0.4 %	0.6 %	0.7 %	0.7 %	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	13.6 %	17.5 %	18.6 %	25.7 %	19.7 %	19.2 %	21.5 %
Extraordinary income/loss	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Earnings before taxes	13.6 %	17.5 %	18.6 %	25.7 %	19.7 %	19.2 %	21.5 %
Tax rate	26.2 %	28.1 %	29.4 %	25.3 %	25.3 %	25.3 %	25.3 %
Net income from continuing operations	10.0 %	12.6 %	13.1 %	19.2 %	14.7 %	14.3 %	16.1 %
Result from discontinued operations (net of tax)	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Net income	10.0 %	12.6 %	13.1 %	19.2 %	14.7 %	14.3 %	16.1 %
Minority interest	0.4 %	0.3 %	0.1 %	0.1 %	0.1 %	0.1 %	0.1 %
Net profit (reported)	9.6 %	12.3 %	13.0 %	19.1 %	14.6 %	14.2 %	16.0 %

Source: Company data, Hauck Aufhäuser Investment Banking

3	Hauck Aufhäuser Investment Banking

Eckert & Ziegler AG

Balance sheet (EUR m)	2018	2019	2020	2021	2022E	2023E	2024E
Intangible assets	52.5	51.9	41.4	61.4	71.1	136.1	136.1
Property, plant and equipment	36.9	40.0	38.0	61.9	104.9	161.1	171.2
Financial assets	3.5	5.2	8.0	16.4	16.4	16.4	16.4
FIXED ASSETS	93.0	97.1	87.4	139.7	192.4	313.6	323.7
Inventories	28.8	31.2	33.6	37.4	39.3	41.8	47.7
Accounts receivable	28.3	29.5	28.2	31.9	33.6	35.7	40.8
Other current assets	14.9	26.6	42.3	34.0	34.0	34.0	34.0
Liquid assets	54.2	78.9	88.6	93.7	66.4	26.9	36.3
Deferred taxes	9.9	10.9	11.9	11.2	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	136.1	177.1	204.6	208.1	173.2	138.4	158.8
TOTAL ASSETS	229.1	274.2	292.0	347.7	365.6	452.0	482.4
SHAREHOLDERS EQUITY	122.6	138.2	147.8	187.4	216.3	300.3	328.2
MINORITY INTEREST	1.2	1.2	1.1	5.1	0.0	0.0	0.0
Long-term debt	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Provisions for pensions and similar obligations	11.4	13.5	14.4	13.0	13.0	13.0	13.0
Other provisions	55.1	66.4	70.5	92.5	88.1	89.8	91.6
Non-current liabilities	66.5	79.9	84.9	105.5	101.1	102.9	104.7
short-term liabilities to banks	0.0	0.0	0.0	7.1	7.1	7.1	7.1
Accounts payable	6.5	4.5	5.0	5.6	6.3	6.9	7.7
Advance payments received on orders	4.1	12.0	8.6	11.6	11.6	11.6	11.6
Other liabilities (incl. from lease and rental contracts)	17.4	35.6	42.3	23.1	23.1	23.1	23.1
Deferred taxes	7.1	2.8	2.2	2.2	0.0	0.0	0.0
Deferred income	3.6	0.0	0.0	0.0	0.0	0.0	0.0
Current liabilities	38.8	54.9	58.2	49.7	48.2	48.7	49.6
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY	229.1	274.2	292.0	347.7	365.6	452.0	482.4
Balance sheet (common size)	2018	2019	2020	2021	2022E	2023E	2024E
Intangible assets	22.9 %	18.9 %	14.2 %	17.7 %	19.5 %	30.1 %	28.2 %
Property, plant and equipment	16.1 %	14.6 %	13.0 %	17.8 %	28.7 %	35.6 %	35.5 %
Financial assets	1.5 %	1.9 %	2.7 %	4.7 %	4.5 %	3.6 %	3.4 %
FIXED ASSETS	40.6 %	35.4 %	29.9 %	40.2 %	52.6 %	69.4 %	67.1 %
Inventories	12.6 %	11.4 %	11.5 %	10.7 %	10.7 %	9.2 %	9.9 %
Accounts receivable	12.4 %	10.8 %	9.7 %	9.2 %	9.2 %	7.9 %	8.5 %
Other current assets	6.5 %	9.7 %	14.5 %	9.8 %	9.3 %	7.5 %	7.0 %
Liquid assets	23.7 %	28.8 %	30.3 %	26.9 %	18.2 %	6.0 %	7.5 %
Deferred taxes	4.3 %	4.0 %	4.1 %	3.2 %	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	59.4 %	64.6 %	70.1 %	59.8 %	47.4 %	30.6 %	32.9 %
TOTAL ASSETS	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %
SHAREHOLDERS EQUITY	53.5 %	50.4 %	50.6 %	53.9 %	59.2 %	66.4 %	68.0 %
MINORITY INTEREST	0.5 %	0.5 %	0.4 %	1.5 %	0.0 %	0.0 %	0.0 %
Long-term debt	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Provisions for pensions and similar obligations	5.0 %	4.9 %	4.9 %	3.8 %	3.6 %	2.9 %	2.7 %
Other provisions	24.0 %	24.2 %	24.1 %	26.6 %	24.1 %	19.9 %	19.0 %
Non-current liabilities	29.0 %	29.1 %	29.1 %	30.4 %	27.7 %	22.8 %	21.7 %
short-term liabilities to banks	0.0 %	0.0 %	0.0 %	2.0 %	1.9 %	1.6 %	1.5 %
Accounts payable	2.8 %	1.6 %	1.7 %	1.6 %	1.7 %	1.5 %	1.6 %
Advance payments received on orders	1.8 %	4.4 %	3.0 %	3.3 %	3.2 %	2.6 %	2.4 %
Other liabilities (incl. from lease and rental contracts)	7.6 %	13.0 %	14.5 %	6.7 %	6.3 %	5.1 %	4.8 %
Deferred taxes	3.1 %	1.0 %	0.8 %	0.6 %	0.0 %	0.0 %	0.0 %
Deferred income	1.6 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %	0.0 %
Current liabilities	16.9 %	20.0 %	19.9 %	14.3 %	13.2 %	10.8 %	10.3 %
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %	100.0 %

Source: Company data, Hauck Aufhäuser Investment Banking

4	Hauck Aufhäuser Investment Banking

Eckert & Ziegler AG

Cash flow statement (EUR m)	2018	2019	2020	2021	2022E	2023E	2024E
Net profit/loss	16.9	22.5	23.1	34.7	30.1	31.1	39.9
Depreciation of fixed assets (incl. leases)	8.6	11.1	11.1	9.6	13.8	18.8	18.8
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	2.8	10.6	4.3	-1.1	0.0	0.0	0.0
Cash flow from operations before changes in w/c	28.2	44.1	38.5	43.1	43.9	49.9	58.7
Increase/decrease in inventory	0.7	-2.2	-2.4	-6.0	-1.9	-2.5	-5.9
Increase/decrease in accounts receivable	-4.0	-1.2	0.1	-3.9	-1.7	-2.1	-5.1
Increase/decrease in accounts payable	2.0	-0.4	0.5	0.6	0.8	0.6	0.8
Increase/decrease in other working capital positions	-5.7	0.0	0.0	0.0	0.0	0.0	0.0
Increase/decrease in working capital	-7.0	-3.7	-1.7	-9.3	-2.9	-4.0	-10.2
Cash flow from operating activities	21.2	40.4	36.8	33.9	41.0	45.9	48.5
CAPEX	6.1	7.3	8.9	28.9	56.8	75.0	28.9
Payments for acquisitions	2.1	0.9	0.0	8.3	0.0	0.0	0.0
Financial investments	0.0	0.0	5.4	0.0	0.0	0.0	0.0
Income from asset disposals	-2.5	2.5	0.9	13.5	0.0	0.0	0.0
Cash flow from investing activities	-10.7	-5.7	-13.3	-23.6	-56.8	-75.0	-28.9
Cash flow before financing	10.5	34.7	23.4	10.3	-15.8	-29.1	19.7
Increase/decrease in debt position	-1.7	-2.7	-3.0	7.1	0.0	0.0	0.0
Purchase of own shares	8.6	0.0	0.0	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	4.1	6.2	8.8	9.3	11.5	10.3	10.3
Others	-0.2	-1.7	-1.2	-3.8	0.0	0.0	0.0
Effects of exchange rate changes on cash	0.6	0.5	-1.9	2.0	0.0	0.0	0.0
Cash flow from financing activities	-14.6	-10.5	-13.0	-6.1	-11.5	-10.3	-10.3
Increase/decrease in liquid assets	-3.5	24.7	8.6	6.2	-27.3	-39.4	9.4
Liquid assets at end of period	54.2	78.9	87.4	93.6	66.4	26.9	36.3

Source: Company data, Hauck Aufhäuser Investment Banking

Regional split (EUR m)	2018	2019	2020	2021	2022E	2023E	2024E
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	96.8	110.4	125.9	143.5	163.6	186.5	212.6
yoy change	14.0 %	14.0 %	14.0 %	14.0 %	14.0 %	14.0 %	14.0 %
NAFTA	60.9	70.1	80.6	92.7	106.6	122.5	140.9
yoy change	15.0 %	15.0 %	15.0 %	15.0 %	15.0 %	15.0 %	15.0 %
Asia Pacific	17.9	20.2	22.9	25.8	29.2	33.0	37.3
yoy change	13.0 %	13.0 %	13.0 %	13.0 %	13.0 %	13.0 %	13.0 %
Rest of world	-7.0	-22.2	-53.1	-81.5	-95.1	-124.8	-142.7
yoy change	neg.	neg.	neg.	neg.	neg.	neg.	neg.
TTL	168.7	178.5	176.1	180.4	204.2	217.1	248.1
yoy change	21.7 %	5.8 %	-1.3 %	2.4 %	13.2 %	6.3 %	14.2 %

Source: Company data, Hauck Aufhäuser Investment Banking

5	Hauck Aufhäuser Investment Banking