Fervi S p A : 11/10/2022 - KT&Partners Equity Research

Fervi S.p.A.

Industrial Machinery

Ready to face 2H22 challenges

ADD| Fair Value: €23.2 (€24.2) | Current Price: €14.6 | Upside: +58.8%

€ Million	FY19A	FY20A	FY21A	FY22E	FY23E	FY24E	FY25E
Total Revenues	29.1	26.4	39.0	56.9	59.7	63.3	67.1
EBITDA	4.5	4.1	5.8	8.1	8.9	9.9	10.9
margin	15.4%	15.5%	14.8%	14.2%	14.9%	15.6%	16.3%
Net Profit	2.6	2.3	3.2	3.8	4.6	5.3	6.0
margin	8.9%	8.6%	8.2%	6.8%	7.6%	8.4%	9.0%
EPS (€)	1.03	0.91	1.27	1.52	1.79	2.08	2.38
NFP	(0.9)	(3.0)	10.4	8.6	3.5	(1.8)	(7.8)

Source: Company data (2019-21), KT&Partners' Elaboration (2022-25).

1H22 Financial Results. Despite the challenging macroeconomic scenario and the increase in the price of raw materials, in 1H22 Fervi Group confirms the preliminary results of July 2022, achieving a strong and sustained growth, mainly driven by the effects of Rivit's consolidation. Total revenues increased from €16.9mn in 1H21 to €29.7mn in 1H22, registering a growth of +75% YoY, above our expectation of €27.7mn. EBITDA stood at €4.6mn vs €2.7mn in 1H21 (+69% YoY), slightly above our estimates of €4.4mn. The EBITDA margin decreased only by 0.5%, moving from 16.0% in 1H21 to 15.5% in 1H22, thanks to the Group's actions aimed at offsetting freight costs' increases (especially from Far East) and the raw materials price acceleration. Indeed, over 1H22 Fervi Group adjusted its price lists due to inflation. Also 1H22's net income reported an improvement, increasing from €1.7mn in 1H21 to €2.3mn. Finally, despite the new investments of €1.2mn to support the strong business growth and a dividend payment of €0.9mn, the NFP remained unchanged compared to FY21's amount of €10.4mn.

A Strategic Action Plan to Guarantee the Further Growth Path in 2H22. Despite the strong increase reported in 1H22, Fervi Group constantly pay attention to the high level of uncertainty that still characterizes the macroeconomic environment. Indeed, the Group will continue to stay closely focused on monitoring inflation and raw materials' shortage, even though it had a modest impact on Fervi Group due to its solid suppliers' relationships that guaranteed a steady inventory products flow. The Group is also committed to enact a pricing policy and a careful cost control aimed at preserving marginality and the Group's financial soundness. By taking these actions to mitigate the raise of inflation, currency depreciations and further raw materials costs, the Group is confident about continuing its expansion path in the future, enriching its product's offering and penetrating regions not yet reached.

Change in Estimates. On the back of 1H22 financial results in line with our projections of July 14th, 2022, we have left our estimates unchanged. We anticipate FY22E total revenues at €56.9mn, growing at a CAGR21A-25E of +14.6% reaching €67.1mn at the end of FY25E. We estimate FY22E EBITDA at €8.1mn, with an EBITDA margin at 14.2% expecting a profitability improvement to 16.3% in FY25E, mainly thanks to more favourable transport and raw materials' costs in the following years. We also maintained unvaried bottom-line estimates, expecting FY22E net income at €3.8mn, growing at a CAGR21A-25E of 17.4%. Finally, we foresee NFP to improve from €8.6mn in FY22E to -€7.8mn (cash positive) in FY25E.

Valuation. We updated our valuation - based on both DCF and EV/EBITDA multiple models - following: i) the higher risk-free rate at 3.55% (vs 2.4% in our latest report of 2nd August, Italian 10y BTP), and ii) comparable multiples - EV/EBITDA and P/E - significantly lower due to the negative stock markets performances. Therefore, considering both these changes, we obtained an equity value of €58.9mn or €23.2ps, +58.8% on current market price.

Performance Chart - YTD

20	Volume	Fervi SpA	FT SE Itali a Growth
15
10
5
0					0
-5
-10
-15					20.000
-20
				-22. 29
-25
-30					0
	Jan -22	Mar-22	May-22	Jul -22	Sep -22

Via della Posta, 10 - Piazza Affari, 20123 Milan- Italy Tel: [phone] Fax: [phone] [e-mail]

Research Update

October 11, 2022 - 7.00 h

Equity Research Team

[e-mail]

Maria Teresa DI GRADO [e-mail][phone]

Gabriele TRAPANI [e-mail][phone]

	Market Data
Main Shareholders
1979 Investimenti Srl	74.78%
Roberto Megna	7.54%
Guido Greco	2.04%
Mkt Cap (€ mn)	37.1
EV (€ mn)	47.5
Shares out.	2.5
Free Float	15.6%

Market multiples	2021	2022	2023
EV/EBITDA
Fervi SpA	8.2x	5.9x	5.3x
Comps Average	10.1x	9.6x	9.9x
Fervi SpA vs Average	-18%	-39%	-46%
P/E
Fervi SpA	11.7x	9.6x	8.1x
Comps Average	14.3x	14.1x	12.9x
Fervi SpA vs Average	-19%	-32%	-37%

	Stock Data
52 Wk High (€)	18.20
52 Wk Low (€)	12.60
Avg. Daily Trading 90d	491
Price Change 1w (%)	0.69
Price Change 1m (%)	1.39
Price Change YTD (%)	0.00

KT&PARTNERS PREPARED THIS DOCUMENT PURSUANT TO AN ENGAGEMENT LETTER ENTERED INTO WITH MIT SIM S.P.A. ACTING AS SPECIALIST IN ACCORDANCE WITH ART. 35 OF EURONEXT GROWTH MILAN MARKET RULES FOR COMPANIES

Fervi S.p.A.

Price: €14.6| Fair Value: €23.2

Key Figures - Fervi Group SpA

Current price (€)		Fair Value (€)		Sector			Free Float (%)
14.60		23.2		Industrial Machinery		15.64
Per Share Data	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Total shares outstanding (mn)	2.50	2.50	2.50	2.54	2.54	2.54	2.54
EPS	1.03	0.91	1.27	1.52	1.79	2.08	2.38
Dividend per share (ord)	0.20	0.21	0.26	0.35	0.40	0.50	0.60
Dividend pay out ratio (%)	28%	21%	29%	28%	26%	28%	29%
Profit and Loss (EUR million)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Total Revenues	29.1	26.4	39.0	56.9	59.7	63.3	67.1
EBITDA	4.5	4.1	5.8	8.1	8.9	9.9	10.9
EBIT	3.4	3.0	4.4	5.4	6.3	7.2	8.2
EBT	3.4	2.9	4.2	5.1	6.1	7.0	8.1
Taxes	(0.8)	(0.6)	(1.0)	(1.3)	(1.5)	(1.8)	(2.0)
Tax rate	23%	22%	24%	25%	25%	25%	25%
Net Income	2.6	2.3	3.2	3.8	4.6	5.3	6.0
Net Income attributable to the Group	2.6	2.3	3.2	3.8	4.6	5.3	6.0
Balance Sheet (EUR million)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Total fixed assets	6.6	5.8	15.4	14.8	13.3	11.9	10.4
Net Working Capital (NWC)	16.1	16.8	25.0	27.4	28.0	28.8	29.7
Provisions	(1.9)	(2.3)	(4.0)	(4.7)	(5.4)	(6.1)	(6.8)
Total Net capital employed	20.8	20.3	36.4	37.5	35.9	34.6	33.2
Net financial position/(Cash)	(0.9)	(3.0)	10.4	8.6	3.5	(1.8)	(7.8)
Group Shareholder's Equity	21.7	23.2	26.0	28.9	32.5	36.5	41.0
Minorities	-	-	-	-	-	-	-
Total Shareholder's Equity	21.7	23.2	26.0	28.9	32.5	36.5	41.0
Cash Flow (EUR million)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Net operating cash flow	3.7	3.5	4.7	6.7	7.3	8.1	8.9
Change in NWC	(1.5)	(0.7)	(8.2)	(2.5)	(0.6)	(0.8)	(0.8)
Capital expenditure	(3.2)	(0.2)	(9.9)	(2.0)	(1.1)	(1.2)	(1.2)
Other cash items/Uses of funds	0.1	0.3	0.6	0.6	0.6	0.7	0.7
Free cash flow	(0.9)	2.9	(12.7)	2.9	6.3	6.7	7.5
Enterprise Value (EUR million)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Market Cap	28.0	28.8	36.5	37.1	37.1	37.1	37.1
Minorities	-	-	-	-	-	-	-
Net financial position/(Cash)	(0.9)	(3.0)	10.4	8.6	3.5	(1.8)	(7.8)
Enterprise value	27.1	25.8	46.9	45.7	40.5	35.2	29.3
Ratios (%)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
EBITDA margin	15.4%	15.5%	14.8%	14.2%	14.9%	15.6%	16.3%
EBIT margin	11.7%	11.5%	11.3%	9.5%	10.5%	11.4%	12.2%
Gearing - Debt/equity	-4.1%	-12.7%	40.0%	29.7%	10.7%	-5.1%	-19.0%
Interest cover on EBIT	1.6%	4.0%	3.8%	4.4%	3.1%	2.1%	1.3%
NFP/EBITDA	-19.9%	-72.0%	180.2%	106.4%	39.0%	-18.7%	-71.1%
ROCE	16.4%	15.0%	12.1%	14.3%	17.5%	20.8%	24.6%
ROE	11.9%	9.8%	12.2%	13.3%	14.0%	14.5%	14.7%
EV/Sales	1.63x	1.80x	1.22x	0.83x	0.80x	0.75x	0.71x
EV/EBITDA	10.57x	11.55x	8.22x	5.88x	5.34x	4.81x	4.34x
P/E	14.35x	16.23x	11.65x	9.64x	8.14x	7.01x	6.13x
Free cash flow yield	-1.8%	6.1%	-26.8%	6.1%	13.3%	14.1%	15.9%
Growth Rates (%)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Sales	18.9%	-9.1%	47.3%	46.0%	5.0%	6.0%	6.0%
EBITDA	-0.5%	-8.4%	40.4%	39.9%	10.2%	11.0%	10.7%
EBIT	32.8%	-10.8%	44.1%	22.7%	16.6%	14.9%	13.4%
Net Income	34.6%	-11.6%	39.3%	21.0%	18.3%	16.1%	14.3%

Source: Company Data (2019-2021), KT&Partners' Forecasts (2022-2025)

October 11, 2022 ● 2

Fervi S.p.A.

Price: €14.6| Fair Value: €23.2

Key charts

Total Revenues (€mn)

Gross Profit, EBITDA and Net Income (€mn, %)1

39.0

29.1

26.4

2019A

2020A

2021A

Total Revenues

																			20.5
0
5	14.8
											13.4
0				51%									50.6%							52.7%
																	5.8
5	4.5									4.1							3.2
														2.3
								2.6
					15.4%					15.5%							14.8%
									8.9%							8.6%
0																				8.2%
				2019A								2020A			2021A
			Gross Profit				EBITDA		Net Income		Gross Margin		EBITDA margin		Net margin

Sales Revenues Breakdown (€mn)				Trade Working Capital (€mn, %)
		37.9						68
			0.1				67%
28.7							66
		0.7				16.6
	26.2					64
0.4						63.4%
0.1		0.7
						62
					9.0	9.4
0.2	0.3		10.0
0.4			26.5				19.4	60
0.3		58.8%	11.4	10.7
7.1	6.1							58
			-3.5	-3.5
						-10.6	56
20.6	19.3
								54
2019A	2020A	2021A			2019A	2020A	2021A
Italy Europe	Americas Africa	Asia		Inventory	Trade Receivables	Trade Payables	TWC/Sales

Net Income, Dividend Pay-Out Ratio(€mn, %)	NFP, Change in Shareholders' Equity and NFP/EBITDA (€mn)
								.0											10.4			2.0
																							1.8x
											.0														1.5
		28.5%							28.9%	.0
																								1.0
								.0
						20.6%	.0														0.5
								3.2
2.6					.0												0.2		0.0
		2.3										(0.2x)			(0.7x)
						-
										(0.0)	(0.2)			(0.5
								0)
										(0.9)
									0)							(3.0)						(1.0
		2019A	2020A			2021A			2019A		2020A	2021A
					Net Income				Dividend pay-out ratio			NFP/(Cash) Adjusted					Change in Total Shareholders'Equity
																NFP/EBITDA

1 Margins are calculated on Total Revenues

October 11, 2022 ● 3

Fervi S.p.A.

Price: €14.6| Fair Value: €23.2

Overview

Company Description

Fervi Group is the leader in the Maintenance, Repairs, and Operations (MRO) industry. Fervi Group's mission is to plan, produce, select, and distribute machinery, mechanical tools, fasteners, industrial applications and equipment at the best quality-price ratio, guaranteeing safety and service standards well above its direct competitors. In order to achieve this objective, Fervi Group offers the most suitable, functional, and safest products to workers and artisans to solidly improve the productivity and quality of their daily work, thanks to its 60,000 products' references.

The Group's offer ranges from nine product groups to fifty product families; it includes machine tools, hand tools, abrasives, and more than 60,000 references available to maintenance and repair professionals in the industrial, artisan and automotive sectors. Given Fervi Group's strategy to constantly expand its range, the Group catalogue reference increased from 3,800 references in 2012 to over 60,000 in 2022. This wide product range, together with a careful attention to innovation and a cutting-edge customer support, has enabled Fervi Group to become the first Italian group in the MRO sector.

Fervi Group is active in the MRO and in the advanced DIY (do-it yourself) industry. According to Precedence Research, the global MRO distribution market was worth $635.5bn in 2021 and is expected to grow to over $798.6bn by 2030, mainly driven by the manufacturing enterprises' goal to optimize production processes and minimize inefficiencies. The DIY market, according to Global Market Insights, was worth $762.9bn in 2020 and is estimated to reach $1,010bn at the end of 2027.

Fervi Group's future strategy includes several actions aimed at consolidating its international presence, further expanding its ample product portfolio, and building new relationships with digital and GDS Partners. In order to achieve these results, the Group is going to realize both external and organic growth plans, targeting acquisitions to penetrate new territories, broaden the product portfolio, and introduce new products through scouting activity and product marketing.

Investment Case

• A wide product portfolio for every need. The Group's offer includes 9 different product categories, including machine tools, hand tools, abrasives and fixing items, with more than 60,000 references available to maintenance and repair professionals in the industrial, handcraft and automotive sectors.
• Revenues growth, profitability, and cash-flow generation drive a sustainable dividend policy growth. In recent years, Fervi Group grew in terms of revenues, profitability, and cash-flowgeneration. During the 2015-2021period, Fervi's total revenues grew at a CAGR of 10.4%, with an average double-digitEBITDA margin of 17%, and with an Operating Cash Flow/EBITDA ratio of 47% (also including the
  M&A's consolidation).
• Strong M&A track record. Since 2015 the Group has built a consolidated M&A track recorded realizing four acquisitions both in Italy and abroad. After having completed its offering with the acquisitions of i) Riflex, which specializes in high- quality abrasives, ii) the Spanish distributor Sitges Maquinas y Acesorios, iii) and the high-end measuring instruments manufacturer Vogel Germany; in 2021, Fervi Group acquired Rivit, a company specializing in the supply of fastening systems.
• A successful management team. Fervi Group can rely on a top management team with proven experience in M&A transactions, including cross-borders, management, and control. Fervi Group's key figures have years of experience on

October 11, 2022 ● 4

Fervi S.p.A.

Price: €14.6| Fair Value: €23.2

different markets that have consolidated the medium-long-term vision guaranteeing effective and valuable strategic approaches.

• Growing commitment to sustainability. Fervi Group implements a sustainable environmental strategy and takes part in many social inclusion projects. Indeed, in 2022, Fervi Group was awarded the prestigious ESG Certification issued by Certification S.r.l., an organization that evaluates corporate sustainability regarding the environment, workers, and governance.

October 11, 2022 ● 5