Accelerating progress

paragon 22 August 2018 Update
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paragon

Accelerating progress

H1 trading performance

Automobiles & parts

22 August 2018

Price

€45.60

Market cap

€206m

Net cash (€m) at 30 June 2018

34.1

Shares in issue

4.5m

Free float

50%

Code

PGN

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.3

(23.6)

(28.3)

Rel (local)

9.9

(19.3)

(30.2)

52-week high/low

€94.0

€40.6

Business description

paragon designs and manufactures automotive electronics and solutions, selling directly to OEMs. Products include sensors, acoustics, cockpits and body kinematics. Production facilities are in Germany, the US and China. Following the IPO in October 2017, paragon owns 60% of Voltabox.

Next event

Q318 trading update

November 2018

Analysts

Andy Chambers

+44 (0)20 3681 2525

Annabel Hewson

+44 (0)20 3077 5700

paragon is a research client of Edison Investment Research Limited

paragon continues to make strong progress, with Q218 showing a clear acceleration that should enable increased group FY18 revenue guidance to be met. Voltabox is making strategic investments to augment organic growth, through the adjustment to the Triathlon supply contract and the purchase of Navitas. Although the former does not impact operational profitability, it does incur a financial cost that has led to a €2m reduction in current year EBIT. We have adjusted our earnings estimates to reflect this, but we have yet to consolidate Navitas as the deal is not completed.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

102.8

6.9

1.02

0.25

44.7

0.5

12/17

124.8

8.2

0.67

0.25

68.1

0.5

12/18e

178.5

13.3

1.88

0.25

24.3

0.5

12/19e

251.2

23.8

3.05

0.25

15.0

0.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Q2 displays accelerating performance

The performance in Q2 indicates the anticipated rapid growth, especially from Voltabox, is starting to drive revenues and profits. paragon’s year-on-year sales growth in Q218 was 51% compared to 32% in Q118. In H118 group revenues rose €23.3m (+42%) to €78.6m (H117 €55.3m), despite a relatively flat Electronics performance, where revenues fell modestly to €45.0m (H117 €45.2m) as it transitions its products. Growth was driven by organic development at Voltabox (126%) and a mixture of organic and acquired growth at Mechanics (+637%) following the purchase of HS Genion late last year. Group EBIT increased 30% to €4.80m (H117 €3.71m), a margin of 6.1% (H117 6.7%). Net cash at the end of the period was €34.1m, with a 100% probability weighted order backlog of €1.37bn.

Guidance changes reflect growth initiatives

Voltabox renegotiated its supply contract with Triathlon Batterien at the end of H118. The revisions should provide Voltabox with direct access to the intralogistics end markets and exploit the anticipated growth in that segment. Voltabox is compensating Triathlon for the adjustments and while the fundamental operating performance is unaffected, there will be adjustments to reflect the change. In FY18 this reduces Voltabox’s EBIT contribution by €2m with an expected €1.5m per year impact through 2023. Management has also indicated that, following completion of the Navitas purchase later this quarter, it should add around €5–10m to Voltabox revenues, generating margins that we expect to be similar to the ongoing Voltabox activity. We have yet to adjust for Navitas as it has not completed.

Valuation: Rating not reflecting growth

Despite the rapid growth, paragon continues to trade on a FY19e EV/EBITDA discount of almost 20%. Rating paragon’s (ex Voltabox) FY18e EBITDA in line with peers and adding back Voltabox at market value indicates a group value of €64 per share. Our capped DCF returns a value of €95 per share (vs €98 before).

H118 results

Key highlights from paragon’s H118 results include:

The order book stands at c €2bn on a probability-weighted basis, deliverable over the next five years. A 100% weighting brings this backlog value to €1.37bn, of which Voltabox accounts for 54%.

Reported H118 revenues of €78.59m (H117 €55.29m), supported by sequential growth and a Q218 contribution of €44.35m (Q217 €29.4m; Q118 €34.24m).

Reported H118 EBITDA of €11.04m (H117 €8.00m), reflecting the sequential uplift of Q218 on Q118, with Q218 EBITDA of €6.24m (Q217 €4.64m; Q118 €4.80m).

Reported H118 EBIT of €4.8m (H117 €3.71m) represented a 29.4% increase and reflects the improvement at Electromobility and Mechanics, and a positive contribution in Eliminations (??); however, the contribution from Electronics fell by 44.7%.

Reported H118 EPS of €0.16 (H117 €0.35).

Net cash at the period end was €34.1m (H117 €80.5m).

FY18 outlook increased from around €175m revenue to between €180–185m with EBIT margin around 8%, down from around 9% previously.

Exhibit 1: paragon Q118, Q218 and H118 results summary

Year to December (€m)

Q117

Q217

H117

Q118

Q218

H118

% H1 change

Divisional revenue

 

 

 

 

 

 

 

Electronics (of which)

22.51

22.66

45.17

21.65

23.37

45.02

(0.3)

- Sensors

8.52

7.95

16.48

8.67

8.97

17.63

7.0

- Cockpit

8.36

8.89

17.25

7.65

10.53

18.18

5.4

- Acoustics

5.63

5.82

11.44

5.34

3.87

9.21

(19.5)

Electromobility (of which)

2.56

5.47

8.03

5.06

13.07

18.13

125.8

- Voltabox AG

0.93

5.14

6.08

4.64

10.15

14.79

143.3

- Voltabox of Texas Inc

1.63

0.32

1.95

0.42

2.92

3.34

71.1

Mechanics (Body Kinematics)

0.80

1.30

2.10

7.53

7.91

15.44

637.0

Group revenue

25.87

29.42

55.29

34.24

44.35

78.59

42.1

Reported EBITDA

3.36

4.64

8.00

4.80

6.24

11.04

38.0

EBITDA margin

13.0%

15.8%

14.5%

14.0%

14.1%

14.0%

(2.9)

Divisional EBIT

 

 

 

 

 

 

 

Electronics

2.60 

4.74 

7.34

2.10 

1.96 

4.06

(44.7)

Electromobility

(0.10) 

(1.59) 

(1.69)

(0.80) 

0.92 

0.12

(106.8) 

Mechanics

(0.20) 

(0.89) 

(1.09)

1.00 

(1.04) 

(0.04)

(96.8) 

Eliminations

(0.95) 

0.10 

(0.85)

(0.69) 

1.35 

0.66

(176.9) 

Group EBIT

1.35

2.36

3.71

1.61

3.19

4.80

29.4

Group EBIT margin

5.2%

8.0%

6.7%

4.7%

7.2%

6.1%

(9.0)

Profit before tax (reported)

0.59

1.61

2.20

0.16

1.78

1.94

(11.8)

Net profit (loss)

0.07

1.53

1.60

(0.25)

0.97

0.72

(54.7)

Reported EPS (€)

0.01

0.34

0.35

(0.06)

0.22

0.16

(54.3)

Net debt/(cash)

 

38.14

(80.49)

 

(34.10)

(34.10)

(57.6)

Source: Company reports

Electronics continued to be the largest segment, accounting for 57% of group external sales in H118. While H118 division revenue fell fractionally by 0.3%, Q2/Q2 growth was 3.1% and sequential growth on Q118 was 7.9%. Growth in Sensors of 7% resulted from the continued increase in the take-rates of current vehicle models with the latest product generation. The 19.5% H1/H1 decline in Acoustics revenues was due to life-cycle effects. Growth of 5.4% in the Cockpit sub-segment reflected seasonal effects. In essence, this division is undergoing a year of transition on products, and the lower revenue leverage generated a lower H118 EBIT contribution of €4.06m, down from €7.34m in H117.

Mechanics accounted for 20% of external sales in H118 and reported H118 revenues of €15.44m (H117 €2.1m) as series production begins on the new generation of freely adjustable rear spoilers that optimise vehicle aerodynamics. The division has continued to incur start-up costs with materials and prototype construction. Although the operation moved into profit in FY17, the ongoing costs have affected profitability. While the division continues to benefit from the inclusion of paragon movasys (formerly HS Genion), which was acquired in November 2017, there has been a negative impact from the cost of the redundant sites (Delbrück and Landsberg am Lechit). Overall, the division reported an EBIT loss of €0.04m and down from the H117 loss of €1.09m.

Exhibit 2: paragon H118 revenue by division

Source: Company reports

Electromobility (23% of H118 group sales) comprises Voltabox’s operations in the US and Germany. Voltabox was the subject of a successful IPO in October 2017 and paragon now holds a 60% stake in the operation. Reported H118 revenues of €18.13m (H117 €8.03m) with uplift in revenues provided by growth from both the German and US businesses. This is in contrast to FY17, where the growth was driven by Germany. Sequential revenue growth Q218 over Q118 was 158%, showing the momentum in the business. The positive EBIT trend has also continued, with the business generating H118 EBIT of €0.1m (H117 €1.7m).

The main driver was strong growth of battery modules for intralogistics operations (eg forklift trucks), plus series production for large batteries used in trolleybuses and underground mining vehicles (Komatsu). The strong start to FY18 has boosted management confidence at Voltabox and the positive order situation adds visibility and supports an increase in FY18 guidance. The total order backlog amounts to c €1bn for delivery in the next five years, of which a 100% weighting gives a planning backlog of €740m. H218 profitability is expected to increase very significantly through increased scale production volumes, with Voltapower the main driver.

Voltabox management is also taking portfolio action through its business alliances and M&A. The company has reaffirmed its strategic partnership with Triathlon Batterien (in place since 2014) and announced a premature rearrangement of the agreement to ensure long-term access to the intralogistics market, which continues to grow strongly. This cooperation agreement is reducing FY18 EBIT by c €2m as the financial compensation to Triathlon is amortised over the contract period, with divisional EBIT margin guidance for FY18 now around 7% (10% previously). As for M&A, the acquisitions of Concurrent Design and Navitas were both announced during the first half. Voltabox announced on 4 April 2018 that it had added engineering capability in the US through the acquisition of Concurrent Design based in Austin, Texas. With more than 20 design and software engineering specialists, the purchase has bolstered Voltapower’s R&D capability, extending the ability to develop platform solutions to more than one at a time and potentially further accelerating growth from 2019. The Navitas deal was announced at the end of Q218 and remains subject to US approval. Based in Woodridge, Illinois, the company focuses on solutions based on solid state and lithium-sulphur batteries. Overall, assuming the completion of the Navitas deal in Q3 FY18 Voltabox FY18 revenue guidance increases from €60m to between €65m and €70m, with expected EBIT margin reduced from 10% to 7% on the Triathlon rearrangement.

Outlook and guidance

paragon has adjusted its FY18 guidance for two factors, the:

renegotiation of Voltabox’s supply agreement with Triathlon Batterien in Germany; and

consolidation of Navitas where the acquisition is expected to complete later in Q318.

The contract change does not alter the operating expectation for FY18 for Voltabox. However, as it is compensating Triathlon for the change in contract terms there is an additional finance charge of €2m taken into expenses in FY18, reducing EBIT. As it is amortised across the lifetime of the contract, there will be an ongoing burden of €1.5m each year out to FY23. We have adjusted our forecasts accordingly.

However, the changes allow Voltabox to pursue direct sales of products and systems to its end markets, which should increase accessible markets and accelerate growth.

As for Navitas, management is indicating an initial sales contribution of between €5m and €10m in FY18 when the deal completes. We expect it to contribute similar levels of EBITDA margins as the ongoing Voltabox business activities. We have yet to adjust for this in our estimates as the deal is not complete.

Navitas should further augment growth with a full contribution in 2019, as strong organic growth continues in Electromobility. In addition, management expects the Electronics segment to return to growth in 2019 as the transition to new generation products starts to deliver increasing sales. The enlarged Mechanics segment should also continue to experience strong organic growth, benefiting over the next three years from the €3–5m of anticipated integration synergies from creating paragon movasys, with its combined capabilities and ability to supply system solutions to OEM customers.

As a result of the supply agreement changes, we have reduced our FY18 and FY19 EPS expectations by 10% and 6% respectively. Our revised earnings estimates are shown in the table below:

Exhibit 3: paragon earnings estimates revisions

Year to Dec (€m)

2018e

2019e

 

Prior

New

% change

Prior

New

% change

Electronics

93.7

93.7

0.0

101.1

101.1

0.0

Voltabox

60.1

60.1

0.0

117.2

117.2

0.0

Mechanics

24.7

24.7

0.0

32.9

32.9

0.0

Total group revenues

178.5

178.5

0.0

251.2

251.2

0.0

 

 

 

 

 

 

Electronics

15.9

15.9

0.0

17.7

17.7

0.0

Voltabox

9.4

7.4

-21.7

19.9

18.2

-8.8

Mechanics

6.2

6.2

0.0

6.6

6.6

0.0

HQ Other and intersegment

-3.8

-3.8

0.0

-3.8

-3.8

0.0

EBITDA (pre PPA amortisation)

27.7

25.7

-7.4

40.4

38.6

-4.4

 

 

 

 

 

 

Underlying PBT

15.4

13.3

-13.6

25.7

23.8

-7.3

 

 

 

 

 

EPS - underlying continuing (€)

2.1

1.9

-9.8

3.2

3.1

-5.8

DPS (€)

0.3

0.3

0.0

0.3

0.3

0.0

Net cash / (debt)

19.3

17.8

-7.9

2.7

-5.6

n/a

Source: Edison Investment Research

Valuation: Accelerating growth underappreciated

Adjusting for the latest data and share prices and stripping out the current market valuation of Voltabox from the rest of the group still attributes a low valuation to the remaining businesses of paragon of just 1.8x EV/EBITDA and 3.9x EV/EBIT for FY18e, and implying virtually no equity value.

Exhibit 4: Market value attributable to paragon without Voltabox (m)

paragon's stake in Voltabox

60%

Voltabox market value (share price €20.6 at 20 August 2018)

326

Voltabox's market value to paragon (1)

196

paragon's total market value (2) (share price €44.1 at 21 August 2018)

199

Market value attributable to paragon’s electronics and mechanics business (2-1)

4

Net debt to paragon (excluding Voltabox)

36

paragon's EV (excluding Voltabox)

40

paragon's FY18e EV/sales for the electronics and mechanics segment

0.3

paragon's FY18e EV/EBITDA for the electronics and mechanics segment

1.8

paragon's FY18e EV/EBIT for the electronics and mechanics segment

3.9

Source: Bloomberg, Edison Investment Research. Note: *includes Voltabox’s market value to paragon and paragon’s total market value.

If the rest of paragon excluding Voltabox traded on the peer group FY18e EV/EBITDA of 5.8x then the overall paragon equity value, adding back Voltabox at market value, would be €288m, or €64 per share.

Exhibit 5: Peer group comparison

Year end

FX

Price

Market cap

Sales CAGR

P/E (x)

EV/Sales (x)

EV/EBITDA (x)

EV/EBIT (x)

Dividend yield
(%)

(local)

(local bn)

(2018-20e)

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

Electronics/Interiors/Cockpit peers

Continental (GER)

Dec-17

EUR

185.0

37.0

1.8%

11.3

10.5

0.9

0.8

5.4

5.0

8.5

7.7

2.7

2.9

Denso (JP)

Mar-18

JPY

5,263.0

4,179.1

1.7%

13.1

12.1

0.7

0.7

5.1

4.7

9.6

8.9

2.6

2.7

Delphi (US)

Dec-17

USD

39.5

3.5

1.3%

8.2

7.6

1.0

0.9

5.6

5.2

7.8

7.4

1.7

1.8

Magna (US)

Dec-17

USD

55.1

19.1

0.6%

8.1

7.4

0.6

0.5

5.0

4.8

7.3

6.8

2.3

2.5

Lear (US)

Dec-17

USD

174.8

11.4

1.4%

9.1

8.3

0.6

0.5

5.1

4.9

6.7

6.5

1.5

1.5

Hella (GER)

May-18

EUR

51.8

5.8

2.2%

12.2

12.2

0.8

0.8

5.2

4.8

9.0

9.0

2.5

2.4

Visteon (US)

Dec-17

USD

118.3

3.5

4.5%

18.3

16.1

1.1

1.1

9.0

7.3

13.2

11.9

0.0

0.0

Peers average

1.9%

11.5

10.6

0.8

0.8

5.8

5.2

8.9

8.3

1.9

2.0

paragon (Bloomberg)

EUR

46.1

0.2

7.4%

29.4

19.5

1.3

1.0

5.9

4.4

12.8

8.4

0.5

0.8

Source: Edison Investment Research, Bloomberg data. Note: Priced at 20 August 2018.

Our capped DCF returns a value of €95 (previously €98) per share. The reduction largely reflects the cost of the financial adjustment relating to the changes of the Triathlon agreement.

Exhibit 6: Financial summary

€m

2016

2017

2018e

2019e

Year-end December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

102.8

124.8

178.5

251.2

Cost of Sales

(57.7)

(71.2)

(98.2)

(130.6)

Gross Profit

45.0

53.6

80.3

120.6

EBITDA

 

 

16.1

20.6

25.7

38.6

Operating Profit (before amort. and except).

11.6

15.6

20.3

32.4

Intangible Amortisation

(1.5)

(3.0)

(4.2)

(5.4)

Exceptionals

(1.2)

(4.9)

(1.7)

(1.7)

Other

0.0

0.0

0.0

0.0

Operating Profit

8.9

7.6

14.5

25.3

Net Interest

(3.2)

(4.4)

(2.9)

(3.1)

Profit Before Tax (norm)

 

 

6.9

8.2

13.3

23.8

Profit Before Tax (FRS 3)

 

 

5.8

3.3

11.6

22.2

Tax

(2.2)

(3.9)

(3.1)

(6.0)

Profit After Tax (norm)

4.3

2.9

9.7

17.4

Profit After Tax (FRS 3)

3.6

(0.7)

8.5

16.2

Average Number of Shares Outstanding (m)

4.2

4.5

4.5

4.5

EPS - fully diluted (€)

 

 

1.02

0.67

1.88

3.05

EPS - normalised (€)

 

 

1.02

0.67

1.88

3.05

EPS - (IFRS) (€)

 

 

0.8

(1.0)

1.6

2.8

Dividend per share (€)

0.3

0.3

0.3

0.3

Gross Margin (%)

43.8

42.9

45.0

48.0

EBITDA Margin (%)

15.7

16.5

14.4

15.4

Operating Margin (before GW and except.) (%)

11.2

12.5

11.4

12.9

BALANCE SHEET

Fixed Assets

 

 

75.7

104.1

134.6

156.4

Intangible Assets

38.0

67.4

84.4

97.5

Tangible Assets

37.4

36.4

49.8

58.6

Investments

0.3

0.3

0.3

0.3

Current Assets

 

 

39.8

207.7

187.6

197.5

Stocks

13.7

17.3

21.4

30.1

Debtors

8.4

32.7

60.7

80.4

Cash

14.3

145.8

91.8

70.8

Other

3.4

11.9

13.7

16.2

Current Liabilities

 

 

(36.0)

(46.4)

(38.2)

(52.5)

Creditors

(22.6)

(27.4)

(38.2)

(52.5)

Short term borrowings

(13.4)

(19.0)

0.0

0.0

Long Term Liabilities

 

 

(38.2)

(70.4)

(76.6)

(78.5)

Long term borrowings

(35.8)

(67.3)

(74.0)

(76.4)

Other long term liabilities

(2.5)

(3.1)

(2.6)

(2.2)

Net Assets

 

 

41.3

195.0

207.4

222.9

CASH FLOW

Operating Cash Flow

 

 

22.6

1.3

3.1

22.5

Net Interest

(3.2)

(4.4)

(2.9)

(3.1)

Tax

(2.6)

(5.2)

(3.6)

(6.4)

Capex

(22.1)

(21.8)

(34.6)

(35.2)

Acquisitions/disposals

(2.4)

(17.2)

0.0

0.0

Financing

13.2

142.9

(2.5)

0.0

Dividends

(1.0)

(1.1)

(1.1)

(1.1)

Net Cash Flow

4.5

94.4

(41.7)

(23.4)

Opening net debt/(cash)

 

 

39.4

34.9

(59.5)

(17.8)

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

(0.0)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

34.9

(59.5)

(17.8)

5.6

Source: paragon, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by paragon and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by paragon and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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