Great start to the year, and more in the pipeline

Pointer Telocation 5 June 2017 Update
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Pointer Telocation

Great start to the year, and more in the pipeline

Q117 results

Tech hardware & equipment

5 June 2017

Price*

NIS39.99/ US$10.75

Market cap

US$86m

*Priced as at 23 May 2017; multiples based on Nasdaq price.

NIS3.5971/US$

Net debt ($m) at 31 March 2017

9.0

Shares in issue

8.1m

Free float

71.39%

Code

PNTR

Primary exchange

Nasdaq

Secondary exchange

TASE

Share price performance

%

1m

3m

12m

Abs

16.8

38.7

83.8

Rel (local)

14.4

36.7

56.9

52-week high/low

US$10.8

US$5.2

Business description

Pointer Telocation (PNTR) is a leading provider of MRM services and products to the automotive and insurance industries. Key services are asset tracking, fleet management and monitoring goods in transit/IoT. Its main markets are Israel, Brazil, Argentina, Mexico and Europe.

Next events

Q217 earnings

August 2017

Analysts

Anna Bossong

+44 (0)20 3077 5737

Richard Jeans

+44 (0)20 3077 5700

Pointer Telocation (PNTR) has reported solid Q1 figures backed by strong 25% subscriber growth and 7% growth in per subscriber revenues. Boosted by operating leverage this translated into wider service margins and a 43% increase in operating profit. In coming quarters, as individual fleet vehicles are equipped with PNTR’s telematics, subscriber revenues from the FEMSA and NYC taxicab contracts should start to boost group revenues. We see Q117 as a good start to the year and, with management discussing similar contracts with other companies and exploring new acquisitions, more good news is likely to follow in the coming quarters. We have increased our multiple based valuation by 26% to $13.6 (NIS48.9) per share, while maintaining our DCF valuation at $14.9 (NIS53.6) per share.

Year
end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

EV/EBITDA
(x)

P/E
(x)

Yield
(%)

12/15

60.6

6.4

66.8

0.0

10.3

16.1

N/A

12/16

64.4

6.6

61.8

0.0

9.3

17.4

N/A

12/17e

71.9

8.4

78.4

0.0

7.5

13.7

N/A

12/18e

78.1

10.6

97.6

0.0

6.2

11.0

N/A

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

Record margins, strong ARPU and net additions

First quarter numbers showed strong momentum in non-acquisition related subscriber additions, with 9,000 organic net additions versus 5,000 in Q116. Helped by an ARPU uptick during the quarter and very strong margin growth in the mobile resource management business, led by the group’s high operating leverage, this flowed down to a 43% y-o-y increase in operating profit and a similar 44% y-o-y increase in net profit from continuing operations.

FEMSA and NYC contracts to boost coming quarters

We see the potential for the positive trends of the first quarter to continue in coming quarters as the subscriptions for the vehicles in the FEMSA and NYC contracts start to be activated. A potential acquisition for this year as well as a planned new product launch later in the year should help keep momentum positive.

Valuation: Multiples show significant undervaluation

Pointer shares have gained c 17% on the positive Q1 results. Nevertheless, with the stock rated on a prospective FY17 EV/EBITDA multiple of only 7.5x, PNTR trades at a 46% discount to the telematics sector multiple of 14.0x. We believe that with the group’s potential to win further business along the lines of the recent FEMSA contract, as well as the operating leverage provided by its SaaS business model, PNTR represents very good value at present. We have increased our multiple-based valuation from $10.8 (NIS39.6) to $13.6 (NIS48.9) per share, applying an unchanged target average 10-20% discount to median sector P/E and EV/EBITDA multiples for the current and next forecast years. Our DCF valuation remains unchanged at $14.9 (NIS53.6) per share.

Results review

The first quarter saw good momentum in subscriber additions. Pointer’s organic subscriber additions (stripping out the addition of 16,000 subscribers from the Cielo acquisition in Q416) have shown a strong uptrend over the last nine quarters (see Exhibit 1), with organic additions in Q117 almost triple the average for the first three quarters of 2015.

Mobile Resource Management (MRM) ARPUs also ticked up: We were also encouraged to see the uptick in Q1 ARPU to $18.2, in comparison to $17.5 in Q416 and $17.0 in Q116 (see Exhibit 2). We understand that currency movements had a mildly positive impact on the ARPU, helped by stabilisation of the Brazilian real. The results still impress, however, given the growth in subscriber numbers and the addition of truck fleet subscribers from the Cielo Telecom acquisition in Q416. We expect some pressure on ARPU levels in coming quarters as new fleet contracts, such as the for-hire driver contract in New York City, are being based on a low-ARPU clean SaaS model where the low ARPU is offset by Pointer Telematics not having to fund the telematics equipment installed in the vehicles. We currently forecast a 4% decline in ARPU in 2017 to $17.6.

Exhibit 1: Positive trend in quarterly organic net additions

Exhibit 2: Positive uptick in Q1 MRM ARPUs

Source: Pointer Telocation. Note: Q416 additions exclude 16,000 subscribers arising from the acquisition of Cielo Brazil.

Source: Pointer Telocation

Exhibit 1: Positive trend in quarterly organic net additions

Source: Pointer Telocation. Note: Q416 additions exclude 16,000 subscribers arising from the acquisition of Cielo Brazil.

Exhibit 2: Positive uptick in Q1 MRM ARPUs

Source: Pointer Telocation

Record MRM gross margin performance helped by operating leverage: PNTR achieved a 33% increase in gross profit and a record 56.6% gross margin on its MRM service revenues in Q117 after 55.8% in Q416. The margin reflects the benefit of high operating leverage on the basis of the group’s SaaS model, which results in virtually no incremental cost to new subscriber additions. Although the more volatile product side experienced a sharp dip in profitability with the gross margin falling from a high 41.3% in Q4 to 36.0% (see Exhibit 3), total gross profit grew 28% y-o-y to $9.4m.

Marketing costs and G&A costs grew broadly in line with gross profit. Marketing costs are particularly worth commenting on. They grew 25% y-o-y to $3.3m in keeping with PNTR’s more aggressive marketing strategy as it seeks to capitalise on recent successes in the NYC and FEMSA contracts. We see this as the right strategy as the company looks to be in a good position to exploit the growth in the relatively new driver monitoring segment and its strong position in the market, helped by the NYC contract and its JV with Mobileye. We see the group’s high level of operational gearing adding to the potential ROI from intensive marketing at this stage as high-margin contributions from new subscribers should be significantly higher than incremental marketing costs.

The benefits of high operating gearing were reflected in a 44% y-o-y increase in net profits from continuing operations to $1.57m (adjusting for the spin-off of a subsidiary in H116). Operating cash flows fell 1.1% y-o-y to of $1.50m due to an increase in working capital expansion. Nevertheless, helped by its ongoing cash generation, the group was able to reduce net debt by $0.9m to $8.1m during the quarter, which should put it in a good position to pursue its goal of undertaking another acquisition this year.

Earnings forecasts materially unchanged: Our forecasts have not been changed as a result of the Q117 earnings figures. We have updated our 2015 reported earnings as a result of a revision to G&A expenses and debtor balances. This has increased our reported net income for 2015 by 1.8% to $3.87m.

Outlook

We believe that PNTR has good prospects to continue the strong subscriber growth trend helped by recent contract wins.

The NYC passenger driver and FEMSA Coca-Cola bottler contracts announced in Q117 (see our notes Good figures and yet another impressive deal and Taking a ride with Uber) are expected to have their main impact on subscriber growth in Q2 and Q317. Pointer records new subscriptions from the date it installs its equipment in each vehicle and starts charging for its services. The bulk of the subscriptions for the five-year NYC contract (in which it is partnering with Mobileye), which in its initial phase will cover c 4,000 vehicles, are expected to be activated in Q2. The subscriber additions for the FEMSA contract are expected to take place mostly in the middle quarters of the year, with the greatest number of subscribers being added in the third quarter. Thus far no numbers have been released as to the size of the contract, but we estimated in our research that if the trial covers 20% of FEMSA’s Mexican delivery fleet that this would be c 1,500 vehicles.

Driver safety tools look set to become a major driver of business growth: PNTR has been able to demonstrate the success of its driver safety tools in significantly reducing the insurance premiums of two of its fleet customers. As well as targeting fleet managers with this information, it is also talking to insurance companies with the aim of them offering fleets discounted insurance premiums in return for installing PNTR’s equipment. The company is also promoting the idea with taxi services to install driver assessment equipment so that each driver is rated on their quality and riders can choose their driver based on quality. With a high number of taxi and ride hailing vehicles in operation across the US, as indicated by the 239,900 taxi drivers (US Bureau of Labor Statistics) and estimates of 327,000 Uber drivers in 2015 (businessinsider.com) in the US, this has the potential to become a significant new revenue stream for the company.

Exhibit 3: Pointer Telocation quarterly results summary

$m

Q117

Q116

Change
y-o-y (%)

2017e

Q117 as % of FY17e

Q216

Q316

Q416

Product Revenues

6.68

5.51

21.3

23.92

27.9

6.05

5.39

5.84

Change (%)

21.3

(4.8)

N/A

5.0

N/A

5.1

6.0

3.4

Services Revenues

12.35

9.32

32.5

47.99

25.7

10.17

10.52

11.56

Change (%)

32.5

(3.2)

N/A

15.4

N/A

4.4

11.1

22.2

Service revenues, change local currency (%)

0.0

7.0

(100.0)

21.2

0.0

20.0

18.0

27.0

Revenue

19.03

14.83

28.4

71.91

26.5

16.21

15.92

17.40

Change (%)

28.4

(3.8)

N/A

11.7

N/A

4.7

9.3

15.2

Cost of Products

(4.28)

(3.40)

25.9

(14.89)

28.7

(3.78)

(3.30)

(3.43)

Gross profit Products

2.4

2.1

14.0

9.0

26.6

2.3

2.1

2.4

Gross margin products (%)

36.0

38.3

N/A

37.8

N/A

37.5

38.8

41.3

Cost of Services

(5.36)

(4.07)

31.7

(21.15)

25.4

(4.70)

(4.79)

(5.11)

Gross profit Services

7.0

5.2

33.1

26.8

26.0

5.5

5.7

6.5

Gross margin services (%)

56.6

56.3

N/A

55.9

N/A

53.7

54.5

55.8

Cost of Sales

(9.64)

(7.47)

29.1

(36.04)

26.7

(8.48)

(8.09)

(8.53)

Gross profit

9.39

7.36

27.6

35.88

26.2

7.73

7.83

8.86

Gross margin (%)

49.4

49.6

N/A

49.9

N/A

47.7

49.2

50.9

Research and development

(0.97)

(0.91)

7.2

(4.07)

23.8

(0.92)

(0.87)

(0.98)

% of sales

0.0

6.1

N/A

5.7

N/A

5.7

5.5

5.6

Selling and marketing

(3.31)

(2.65)

24.9

(12.80)

25.8

(2.97)

(3.10)

(3.06)

% of sales

0.0

17.9

N/A

17.8

N/A

18.3

19.5

17.6

General and administrative

(2.75)

(2.13)

28.8

(10.10)

27.2

(2.09)

(2.15)

(2.63)

% of sales

0.0

14.4

N/A

14.0

N/A

12.9

13.5

15.1

EBITDA (continuing operations)

3.22

2.16

48.7

12.06

26.7

2.27

2.23

3.09

EBITDA margin

16.9%

14.6%

N/A

16.8%

N/A

14.0%

14.0%

17.8%

Operating profit normalised

2.48

1.73

43.4

9.22

26.9

1.79

1.82

2.31

Operating margin normalised

13.0%

11.7%

N/A

12.8%

N/A

11.0%

11.4%

13.3%

One-off items

0.00

0.00

N/A

0.00

N/A

0.00

(0.20)

(0.41)

Operating profit

2.26

1.58

42.6

8.72

25.9

1.65

1.40

1.62

Operating margin (%)

11.85

10.67

N/A

12.13

N/A

10.15

8.80

9.32

Net finance costs

(0.16)

0.08

(300.0)

(0.83)

19.4

(0.32)

(0.38)

(0.42)

Other expenses

0.00

0.01

(100.0)

0.00

N/A

(0.00)

(0.01)

(0.01)

PBT normalised

2.32

1.82

27.8

8.39

27.6

1.46

1.43

1.88

PBT

2.10

1.67

25.7

7.89

26.5

1.32

1.01

1.19

Reported tax

(0.53)

(0.58)

(8.5)

(1.97)

26.8

(0.28)

(0.30)

(0.69)

Profit after tax reported

1.57

1.41

11.0

5.92

26.5

0.88

0.71

0.50

Profit after tax from continuing operations

1.57

1.09

43.8

5.92

26.5

1.04

0.71

0.50

Profit after tax normalised

1.74

1.36

28.1

6.39

27.2

1.09

1.07

1.41

EPS - basic ($)

0.20

0.18

9.6

0.74

26.7

0.11

0.09

0.06

EPS - diluted ($)

0.20

0.18

9.7

0.72

27.0

0.11

0.09

0.06

EPS - basic normalised ($)

0.22

0.18

23.7

0.81

27.3

0.14

0.14

0.18

EPS - diluted normalised ($)

0.22

0.17

23.8

0.78

27.6

0.14

0.13

0.18

Ratios

MRM subscribers

231,000

185,000

24.9

250,800

92.1

192,000

198,000

222,000

Net additions

9,000

5,000

80.0

28,800

31.3

7,000

6,000

24,000

Avg. service rev. per MRM subscriber ($/mth)

18.2

17.0

6.8

16.9

107.4

18.0

18.0

17.5

Cash flow/balance sheet summary

Operating cash flows

1.51

1.52

(1.1)

10.57

14.2

3.44

1.43

2.55

Cash conversion (operating CF to operating profit, %)

66.7

96.1

N/A

121.2

N/A

208.9

102.1

157.2

Cash flows from investment

(0.75)

(1.10)

(31.9)

(3.98)

18.9

(1.28)

(0.69)

(8.88)

Purchases of property, plant and equipment

(0.77)

(1.58)

(51.3)

(4.32)

17.8

(1.28)

(0.72)

(0.57)

Cash & cash equivalents

5.75

N/A

N/A

4.88

N/A

7.75

14.07

6.07

Net debt ($m)

8.06

N/A

N/A

3.22

N/A

3.17

2.23

8.95

Net debt (cash)/Equity (%)

17.20

N/A

N/A

6.45

N/A

7.64

5.17

20.97

Current ratio

1.32

N/A

N/A

1.27

N/A

1.51

1.90

1.27

Quick ratio

1.05

N/A

N/A

0.99

N/A

1.25

1.62

1.01

Source: Pointer Telocation, Edison Investment Research

Valuation

For our multiple based share valuation of Pointer Telocation we continue to target a 10-20% discount to the sector based on sector median P/E ratio and EV/EBITDA multiples for the current and next forecast years. With market multiples having moved higher in recent months we have increased our multiple-based valuation from $10.8 (NIS39.6) to $13.6 (NIS48.9) per share (representing the mid-point of a range of $12.2-14.9 (NIS44.0-53.6) per share). We have not revised our DCF-based share valuation, which remains unchanged at $14.9 (NIS53.6) per share.

Exhibit 4: Pointer peer group valuation table

Main

Share

Market

Sales

EBITDA

EV/sales (x)

EV/EBITDA

P/E

Last

Net debt

$m

focus

Price (LC)

Cap ($m)

FY1 (m)

margin FY1 (%)

FY1

FY2

FY1

FY2

FY1

FY2

Div yield

(cash)/

equity

Pointer Telocation

Isr, Latam, SA

10.8

74

72

16.8%

1.3

1.2

7.5

6.2

13.7

11.0

0.0%

21.0

CalAmp Corp

NAM

18.8

665

361

15.2

2.0

1.8

13.0

11.3

15.7

13.7

0.0

28.4

ID Systems Inc

NAM

6.2

88

40

0.1

2.0

1.5

2,286.2

13.9

(271.3)

16.6

0.0

(34.6)

Ituran Location and Control Ltd

Isr, Brzl, Arg

31.3

734

216

N/A

3.3

3.1

N/A

N/A

18.0

15.9

2.7

(24.9)

MiX Telematics Ltd

SA

76.0

138

1,497

18.9

1.0

1.0

5.3

4.8

300.5

255.1

N/A

(16.8)

Numerex Corp

NAM

4.1

79

72

10.0

1.2

1.1

12.2

7.8

(35.3)

21.9

0.0

16.0

ORBCOMM Inc

US/Europe

9.7

692

216

25.3

3.8

3.6

15.0

12.9

(60.3)

(153.2)

0.0

45.7

Sierra Wireless Inc

NAM

27.0

867

678

7.9

1.2

1.1

15.1

13.2

26.4

23.1

0.0

(16.3)

Trakm8 Holdings PLC

UK

1.0

48

27

9.1

1.5

1.3

16.8

8.8

36.8

15.4

1.9

25.8

QUALCOMM Inc

NAM

59.3

87,582

22,711

36.3

3.1

3.1

8.6

9.1

13.6

14.3

3.4

(53.3)

Quartix Holdings PLC

UK

3.9

238

23

29.6

7.7

7.2

26.0

22.7

32.9

28.9

1.7

(34.1)

Median

238

216

1,260.2%

2.0

1.5

14.0

10.2

15.7

15.9

0.0%

(16.3)

Average/Median* - MCAP<$300m

111

283

955.1%

1.4

1.2

14.5

8.3

23.3

19.2

0.0%

(0.4)

Source: Bloomberg, Edison Investment Research

Exhibit 5: Financial summary

$m

2015

2016

2017e

2018e

2019e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

 

 

60.57

64.35

71.91

78.06

82.89

Cost of Sales

(31.31)

(32.58)

(36.04)

(38.54)

(40.44)

Gross Profit

29.25

31.78

35.88

39.53

42.46

Selling and marketing

(10.47)

(11.77)

(12.80)

(13.89)

(14.76)

General and administrative

(8.58)

(9.00)

(10.10)

(10.60)

(11.07)

Research and development

(3.41)

(3.67)

(4.07)

(4.15)

(4.41)

EBITDA

 

 

8.80

9.75

12.06

14.51

16.28

Normalised operating profit

 

 

7.10

7.64

9.22

11.21

12.56

Amortisation of acquired intangibles

(0.54)

(0.47)

(0.18)

(0.16)

(0.14)

Exceptionals

(0.91)

(0.60)

0.00

0.00

0.00

Share-based payments (inc. In COGS)

(0.31)

(0.32)

(0.32)

(0.33)

(0.33)

Reported operating profit

5.34

6.25

8.72

10.72

12.08

Net Interest

(0.73)

(1.05)

(0.83)

(0.58)

(0.37)

Profit before tax (norm)

 

 

6.36

6.58

8.39

10.63

12.19

Profit before tax (reported)

 

 

4.60

5.19

7.89

10.14

11.71

Reported tax

(1.13)

(1.85)

(1.97)

(2.53)

(2.93)

Profit after tax (norm)

5.23

4.93

6.42

8.09

9.26

Profit after tax (reported)

3.47

3.35

5.92

7.60

8.78

Minority interests

0.08

(0.02)

(0.03)

(0.04)

(0.05)

Discontinued operations

0.33

0.15

0.00

0.00

0.00

Net income (normalised)

5.30

4.91

6.39

8.05

9.22

Net income (reported)

3.87

3.48

5.89

7.57

8.74

Basic average number of shares outstanding (m)

7.73

7.82

7.92

8.02

8.12

EPS – basic normalised ($)

 

 

0.69

0.63

0.81

1.00

1.13

EPS – diluted normalised ($)

 

 

0.67

0.62

0.78

0.98

1.10

EPS – basic reported ($)

 

 

0.50

0.44

0.74

0.94

1.08

Dividend ($)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

N/A

6.3

11.7

8.5

6.2

Gross margin (%)

48.3

49.4

49.9

50.6

51.2

EBITDA margin (%)

14.5

15.2

16.8

18.6

19.6

Normalised operating margin (%)

11.7

11.9

12.8

14.4

15.2

BALANCE SHEET

Fixed assets

 

 

68.78

51.61

52.56

53.51

54.40

Intangible assets

31.83

40.29

40.11

39.95

39.80

Tangible assets

3.28

5.61

6.75

7.86

8.89

Investments & other

33.67

5.71

5.71

5.71

5.71

Current assets

 

 

34.66

25.28

26.13

31.92

41.23

Stocks

4.70

5.24

5.80

6.20

6.51

Debtors

9.49

11.46

12.81

13.91

14.77

Cash & cash equivalents

7.25

6.07

4.95

9.16

17.22

Other

13.21

2.50

2.58

2.66

2.74

Current liabilities

 

 

(30.45)

(19.83)

(20.53)

(21.03)

(22.06)

Creditors

(9.82)

(13.96)

(15.51)

(16.68)

(17.63)

Short-term borrowings

(4.82)

(4.84)

(3.87)

(3.10)

(3.10)

Other

(15.81)

(1.04)

(1.16)

(1.26)

(1.34)

Long-term liabilities

 

 

(17.95)

(14.36)

(8.09)

(4.80)

(4.55)

Long-term borrowings

(8.39)

(10.18)

(4.23)

(1.23)

(1.23)

Other long-term liabilities

(9.57)

(4.18)

(3.86)

(3.57)

(3.31)

Net assets

 

 

55.04

42.69

50.07

59.60

69.02

Minority interests

1.07

(0.16)

(0.19)

(0.23)

(0.28)

Shareholders' equity

 

 

56.10

42.53

49.88

59.37

68.75

CASH FLOW

Operating cash flow before WC and tax

8.80

9.75

12.06

14.51

16.28

Working capital

0.77

1.08

(0.31)

(0.30)

(0.22)

Exceptional & other

1.99

(1.62)

0.00

0.00

0.00

Tax

(0.05)

(0.12)

(1.18)

(1.27)

(2.93)

Net operating cash flow

 

 

11.51

9.09

10.57

12.94

13.14

Capex

(3.62)

(4.13)

(4.32)

(4.79)

(5.17)

Acquisitions/disposals

0.00

(8.65)

0.00

0.00

0.00

Net interest

(0.89)

0.00

(0.83)

(0.58)

(0.37)

Equity financing

0.02

0.10

0.00

0.00

0.00

Dividends

0.00

0.00

0.00

0.00

0.00

Other, incl.PPE sales

1.26

1.05

0.38

0.42

0.46

Net cash flow

8.28

(2.54)

5.80

7.99

8.06

Opening net debt/(cash)

 

 

11.90

5.95

8.95

3.15

(4.83)

FX

(0.71)

(0.46)

0.00

0.00

0.00

Other non-cash movements

(1.61)

0.00

0.00

0.00

0.00

Closing net debt/(cash)

 

 

5.95

8.95

3.15

(4.83)

(12.89)

Source: Pointer Telocation, 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. 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 and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

EDISON ISRAEL DISCLAIMER

Disclosure regarding the scheme to enhance the awareness of investors to public companies in the technology and biomed sectors that are listed on the Tel Aviv Stock Exchange and participate in the scheme (hereinafter respectively “the Scheme”, “TASE”, “Participant” and/or “Participants”). Edison Investment Research (Israel) Ltd, the Israeli subsidiary of Edison Investment Research Ltd (hereinafter respectively “Edison Israel” and “Edison”), has entered into an agreement with the TASE for the purpose of providing research analysis (hereinafter “the Agreement”), regarding the Participants and according to the Scheme (hereinafter “the Analysis” or “Analyses”). The Analysis will be distributed and published on the TASE website (Maya), Israel Security Authority (hereinafter “the ISA”) website (Magna), and through various other distribution channels. The Analysis for each participant will be published at least four times a year, after publication of quarterly or annual financial reports, and shall be updated as necessary after publication of an immediate report with respect to the occurrence of a material event regarding a Participant. As set forth in the Agreement, Edison Israel is entitled to fees for providing its investment research services. The fees shall be paid by the Participants directly to the TASE, and TASE shall pay the fees directly to Edison. Subject to the terms and principals of the Agreement, the Annual fees that Edison Israel shall be entitled to for each Participant shall be in the range of $35,000-50,000. As set forth in the Agreement and subject to its terms, the Analyses shall include a description of the Participant and its business activities, which shall inter alia relate to matters such as: shareholders; management; products; relevant intellectual property; the business environment in which the Participant operates; the Participant's standing in such an environment including current and forecasted trends; a description of past and current financial positions of the Participant; and a forecast regarding future developments in and of such a position and any other matter which in the professional view of the Edison (as defined below) should be addressed in a research report (of the nature published) and which may affect the decision of a reasonable investor contemplating an investment in the Participant's securities. To the extent it is relevant, the Analysis shall include a schedule of scientific analysis of an expert in the field of life sciences. An "equity research abstract" shall accompany each Equity Research Report, describing the main points addressed. The full scope reports and reports where the investment case has materially changed will include a thorough analysis and discussion. Short update notes, where the investment case has not materially changed, will include a summary valuation discussion. The Agreement with TASE regarding the participation of Edison in the scheme for the research analysis of public companies does not and shall not constitute an approval or consent on the part of TASE or the ISA or any other exchange on which securities of the Company are listed, or any other securities’ regulatory authority which regulates the issuance of securities by the Company to the content of the Report or to the recommendation contained therein. A summary of this report is also published in the Hebrew language. In the event of any contradiction, inconsistency, discrepancy, ambiguity or variance between the English Report and the Hebrew summary of said Report, the English version shall prevail; and a note to this effect shall appear in any Hebrew summary of a Report. Edison is regulated by the Financial Conduct Authority. According to Article 12.3.2, Chapter 12 of the Conduct of Business Sourcebook, Edison, which produces or disseminates non-independent research, must ensure that it: 1) is clearly identified as a marketing communication; and 2) contains a clear and prominent statement that (or, in the case of an oral recommendation, to the effect that) it: a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and b) is not subject to any prohibition on dealing ahead of the dissemination of investment research. The financial promotion rules apply to non-independent research as though it were a marketing communication.

EDISON INVESTMENT RESEARCH DISCLAIMER

Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

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. 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 and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

EDISON ISRAEL DISCLAIMER

Disclosure regarding the scheme to enhance the awareness of investors to public companies in the technology and biomed sectors that are listed on the Tel Aviv Stock Exchange and participate in the scheme (hereinafter respectively “the Scheme”, “TASE”, “Participant” and/or “Participants”). Edison Investment Research (Israel) Ltd, the Israeli subsidiary of Edison Investment Research Ltd (hereinafter respectively “Edison Israel” and “Edison”), has entered into an agreement with the TASE for the purpose of providing research analysis (hereinafter “the Agreement”), regarding the Participants and according to the Scheme (hereinafter “the Analysis” or “Analyses”). The Analysis will be distributed and published on the TASE website (Maya), Israel Security Authority (hereinafter “the ISA”) website (Magna), and through various other distribution channels. The Analysis for each participant will be published at least four times a year, after publication of quarterly or annual financial reports, and shall be updated as necessary after publication of an immediate report with respect to the occurrence of a material event regarding a Participant. As set forth in the Agreement, Edison Israel is entitled to fees for providing its investment research services. The fees shall be paid by the Participants directly to the TASE, and TASE shall pay the fees directly to Edison. Subject to the terms and principals of the Agreement, the Annual fees that Edison Israel shall be entitled to for each Participant shall be in the range of $35,000-50,000. As set forth in the Agreement and subject to its terms, the Analyses shall include a description of the Participant and its business activities, which shall inter alia relate to matters such as: shareholders; management; products; relevant intellectual property; the business environment in which the Participant operates; the Participant's standing in such an environment including current and forecasted trends; a description of past and current financial positions of the Participant; and a forecast regarding future developments in and of such a position and any other matter which in the professional view of the Edison (as defined below) should be addressed in a research report (of the nature published) and which may affect the decision of a reasonable investor contemplating an investment in the Participant's securities. To the extent it is relevant, the Analysis shall include a schedule of scientific analysis of an expert in the field of life sciences. An "equity research abstract" shall accompany each Equity Research Report, describing the main points addressed. The full scope reports and reports where the investment case has materially changed will include a thorough analysis and discussion. Short update notes, where the investment case has not materially changed, will include a summary valuation discussion. The Agreement with TASE regarding the participation of Edison in the scheme for the research analysis of public companies does not and shall not constitute an approval or consent on the part of TASE or the ISA or any other exchange on which securities of the Company are listed, or any other securities’ regulatory authority which regulates the issuance of securities by the Company to the content of the Report or to the recommendation contained therein. A summary of this report is also published in the Hebrew language. In the event of any contradiction, inconsistency, discrepancy, ambiguity or variance between the English Report and the Hebrew summary of said Report, the English version shall prevail; and a note to this effect shall appear in any Hebrew summary of a Report. Edison is regulated by the Financial Conduct Authority. According to Article 12.3.2, Chapter 12 of the Conduct of Business Sourcebook, Edison, which produces or disseminates non-independent research, must ensure that it: 1) is clearly identified as a marketing communication; and 2) contains a clear and prominent statement that (or, in the case of an oral recommendation, to the effect that) it: a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and b) is not subject to any prohibition on dealing ahead of the dissemination of investment research. The financial promotion rules apply to non-independent research as though it were a marketing communication.

EDISON INVESTMENT RESEARCH DISCLAIMER

Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

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