Nasdaq listing ushers in new era

Foresight Autonomous Holdings 29 June 2017 Update
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Foresight Autonomous Holdings

Nasdaq listing ushers in new era

Nasdaq listing update

Software & comp services

 

29 June 2017

Price share/ADR*

NIS6.13/ $8.80

Market cap share/ADR

NIS613m/ $176m

*Priced as at 27 June 2017

NIS3.5181/US$

Net cash ($m) at 31 December 2016 ($17m at 14 June 2017)

3.8

Shares in issue

100.0m

Free float

64.1%

Code

FRSX

Primary exchange

TASE

Secondary exchange

Nasdaq

Share price performance

%

1m

3m

12m

Abs

(1.0)

129.2

263.4

Rel (local)

(7.0)

167.3

264.1

52-week high/low

NIS8.5

NIS1.7

Business description

Foresight Autonomous (FRSX) is a development-stage technology company in Israel, developing ADAS systems based on technology developed by its parent company and the Israeli military. FRSX also has a 26% stake in Rail Vision, which is looking to sell its first rail ADAS system in 2018.

Next events

H117 results

August 2017

Analysts

Anna Bossong

+44 (0)20 3077 5737

Richard Jeans

+44 (0)20 3077 5700

Foresight (FRSX) shares have become significantly more investible in recent months with the company listing on Nasdaq on 15 June, publication of accounts in English and the company becoming self-financing with completion of a NIS43m ($11.7m) funding round. Indeed, with $17m in cash and an estimated c NIS158m ($45m) of its warrants deep in the money, we see the potential for FRSX to exercise its $11.3m options to increase its stake in RV to 45% and build a substantial cash cushion in the coming years if these are converted. In this note we launch our dollar-based US GAAP forecasts and review recent developments.

Year end

Revenue ($m)

EBITDA* ($m)

PBT* ($m)

EPS* ($)

DPS ($)

EV/revenue (x)

P/E (x)

12/16

0.0

(3.3)

(1.5)

(0.05)

0.00

N/A

N/A

12/17e

0.0

(3.5)

(4.2)

(0.04)

0.00

N/A

N/A

12/18e

0.2

(4.2)

(4.2)

(0.04)

0.00

1,027.9

N/A

12/19e

1.6

(3.8)

(2.5)

(0.03)

0.00

105.3

N/A

12/20e

11.8

3.4

8.6

0.06

0.00

14.2

29.6

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

Good progress towards milestones

Foresight continues to make strong progress in working towards its key targets. Having been invited to compete against ADAS leaders Mobileye and Bosch, in its first ADAS pilot with top-10 Chinese auto maker, JAC, FRSX appears to have produced a strong set of results leading to considerable optimism about its sales prospects. In recent months FRSX has also secured two more pilots from top-10 Chinese auto-makers and is optimistic of engaging in more trials in coming months. Associate Rail Vision’s rail ADAS product is also attracting strong interest from European rail companies, putting both companies on track for 2018 order inflows.

Rail Vision forecasts increased on price discovery

We have increased our expectations of the starting sales price for RV’s ADAS rail units, from $50k to $70k, and increased the expected data sales by 60% to $800 per annum per train. This reflects price discovery discussions by Rail Vision with potential customers that appear to support its original pricing targets.

Valuation: Market optimistic but not unrealistic

The net impact of the above-mentioned price revisions is a 4% increase in our group DCF value to NIS3.45 per share ($4.90 per ADR). We note that this is below current trading levels, but it should be noted that this valuation is on an ongoing basis, incorporating conservative growth and WACC assumptions and drawing no reference from sector M&A values. Compared with our 3% terminal growth (from 2025) and 15% WACC assumptions, the market appears to be pricing in post-2025 terminal growth and WACC of c 5% and 11%, respectively, or to put it in terms of market share targets, double-digit global ADAS market share in 2025. Taking into account the high recent M&A valuation of Mobileye and the growth potential of FRSX and Rail Vision’s technology, we see the market price as within the bounds of realistic expectation.

Excellent progress on milestones
Foresight Auto building engagement in both China and India

Foresight launched the Alpha version of its daylight ADAS software solution “Eyes-On” in January 2017 (for further details of the technology see our initiation note, Driving the autonomous revolution, 27 September 2016). Even though the company is still working towards its goal of publishing its proof of concept in Q317 (a proof of concept is a body of evidence concerning the product’s performance in a range of conditions), Foresight is already attracting pilot trials from major auto makers in its target markets.

Already being short-listed to compete against big-name players

Foresight’s first trial of its “Eyes-On” system, is with top-10 Chinese auto maker Anhui Jianghuai Auto Company Ltd (JAC). After having selected China as its first international target market and having commenced marketing efforts in Q316, Foresight was invited to take part in a pilot against well-established ADAS players Mobileye and Bosch. We understand that the trial was very successful in terms of the system accurately and quickly identifying potential dangers. If successful, the next step is likely to be JAC bringing FRSX together with its tier one suppliers with a view to integrating FRSX’s software into their ADAS products, with a view to supplying them to JAC.

Exhibit 1: Foresight and Rail Vision milestones

Source: Foresight Autonomous Holdings

FRSX believes that if all goes smoothly this could lead to its first order as soon as early 2018. JAC has annual auto production at over 1m units (1.2m capacity), engine production of over 0.5m units (0.8m capacity) and also produces vehicles for European and South Korean manufacturers for the Chinese market. JAC has a leading position in China in the export of commercial vehicles. It exported a total 59,000 vehicles of different types in 2015, principally to Latin American, Middle Eastern and Asian markets. With a leading position in Chinese exports of commercial vehicles we would expect JAC to have an interest in bringing a number of its export vehicles up to Western standards in terms of ADAS related safety features such accident and emergency braking (AEB) and lane departure warnings (LDW). Nevertheless, we believe that a major focus will be on ensuring that its top range products in both China and export markets is equipped with good quality ADAS services, as we believe that better-off Chinese consumers will increasingly expect domestic auto makers to provide similar ADAS features to those already incorporated in mid-range and more expensive vehicles in the US and Europe.

Based on our estimate of 5.5% forward camera penetration for the Chinese auto market in 2018 – still well below our forecast of 18-19% forward camera penetration of US and EU vehicle markets in 2016 – and JAC’s export orientation we see the potential for 2018 orders from JAC to exceed 55,000 units. (See our note Driving the autonomous revolution, 27 September 2016, for more details on our assumptions concerning the adoption of ADAS in China.)

Foresight has also signed similar pilot projects with a second top 10 Chinese vehicle manufacturer, with a similar timeline to the JAC contract, and believes it is close to securing a third, which should further increase the potential order inflow in 2018.

We can see considerable potential for this rapid pace of pilot agreements to lead to an increase in our unit forecasts, based on the assumption of similar order sizes for all three companies. We currently forecast unit sales in China of 9k in 2018 rising to 45k and 162k over the following two years. Nevertheless, at this stage we see it as premature to assume that the company will win the majority of the pilots given the well-established competition from companies such as Mobileye. At the same time it is possible that coordination with tier one suppliers, and delays caused by the need to introduce the ADAS features into new models, etc, may add 12-18 months to the timeline. On this basis, ahead of further concrete indications, we are keeping our existing forecasts unchanged.

Now engaging in the Indian market

With pilot programmes underway in China, FRSX has turned to marketing in the Indian sub-continent. We understand that it is undertaking increasing engagement with auto manufacturers and hopes to gain pilot agreements similar to those in the Chinese market.

FRSX’s strategy: Protection from possible slowdown in the FAV revolution

The growth of ransomware attacks and high profile infiltration of supposedly secure systems by hackers appear to have reduced public confidence in the concept of fully autonomous vehicles (FAV). A recent survey by the MIT AgeLab and New England Motor Press Association found that the younger demographic, which was more open than older people to fully autonomous vehicles a year ago, is now less trusting of the concept. We see this as important as the technology is still largely optional in vehicles, requiring auto makers to sell the product to a willing public.

At the same time the US Transportation Secretary Elaine Chao has indicated that the US government intends to revise voluntary guidelines set by the Obama administration covering self-driving cars. “Ideas that deliver safer vehicles” have been revealed to be one of the focus points of the changes.

Exhibit 2: Automatic emergency braking (AEB) penetration of new vehicle production (2016e)

Exhibit 3: Global vehicle production breakdown 2015

Source: Edison Investment Research

Source: OICA

Exhibit 2: Automatic emergency braking (AEB) penetration of new vehicle production (2016e)

Source: Edison Investment Research

Exhibit 3: Global vehicle production breakdown 2015

Source: OICA

While it is too early to determine how far, if at all, the public mood and government caution may affect the onset of FAVs, we believe that Foresight’s focus on developing markets such as India and China should serve as a significant shield for Foresight over the next two to three years, while the industry hopefully achieves the know-how to secure ADAS networks from attack.

This reflects our view that regardless of the security threat to FAV deployment, auto manufacturers in developing markets are likely to continue to sharply increase “catch-up” spending on features such as automatic emergency braking (AEB), forward collision warning (FCW) and lane departure warnings (LDW) in coming years. Already fitted as standard in most mid- and upper-range vehicles in the US and Europe (see Exhibit 2) and required by EU and US safety authorities in order to score top rankings for vehicles, these features have already established strong track records in preventing accidents and saving lives. Moreover the fact that the driver does not relinquish control of the vehicle with the use of these features makes them less exposed to the concerns surrounding cyber-crime. For these reasons, we expect regulators as well as consumers in emerging markets to continue to put increasing pressure on auto makers to introduce these features, giving a strong incentive to local auto makers to continue with their catch-up investments.

Exhibit 4: Foresight – key data and financial outlook

($m)

2017e

2018e

2019e

2020e

2021e

2022e

2023e

2024e

2025e

Chinese forward camera market (m)

0.8

1.5

3.0

6.0

7.6

9.6

12.2

15.4

19.5

Foresight Chinese market share (%)

0.0

0.6

1.5

2.7

3.4

4.0

4.7

5.3

6.0

Foresight Chinese stereo software, unit sales ('000)

0

9

45

162

255

387

570

824

1,173

ROW forward camera market (m)

11.7

16.3

22.3

30.1

34.4

39.4

44.9

51.2

58.1

Foresight ROW market share (%)

0.0

0.0

0.3

0.6

0.9

1.2

1.4

1.7

2.0

Foresight ROW stereo software, unit sales ('000)

-

5

67

175

299

453

644

878

1,162

Foresight basic stereo software package, unit CSAs ('000)

-

4

67

202

332

504

729

1,021

1,400

Foresight premium stereo software package, unit CSAs ('000)

-

10

45

135

222

336

486

681

934

Foresight Sensor fusion unit CSAs ('000)

-

4

67

202

332

504

729

1,021

1,400

Foresight total unit CSAs* ('000)

-

18

179

540

886

1,344

1,943

2,724

3,735

Basic stereo price ($/unit)

45.0

45.0

40.5

34.4

29.3

24.9

21.1

18.0

15.3

Premium stereo price ($/unit)

90.0

90.0

81.0

68.9

68.9

58.5

49.7

42.3

35.9

Sensor fusion price ($/unit)

 

 

 

150.0

127.5

108.4

92.1

78.3

66.6

Revenue

0.0

0.2

1.6

11.8

34.9

34.0

49.3

64.7

84.9

Employee numbers

29.0

34.8

45.2

58.8

66.9

75.3

84.1

93.2

96.8

EBITDA**

(3.5)

(4.2)

(3.8)

3.4

9.9

9.7

13.9

18.2

23.9

EBITDA margin (%)

N/A

N/A

N/A

29.1

28.2

28.4

28.2

28.2

28.1

Source: Foresight Autonomous Holdings, Edison Investment Research. Note: *CSA = commercial software agreements. **Normalised.

Rail Vision: European railways are coming to the table…

In our report of 24 April 2017, Out of the station and on the self-financing track, we discussed how Rail Vision’s technology has become an increasing driver of value for Foresight. Since then we have increased our revenue expectations for Rail Vision based on firmer pricing expectations for the ADAS units as well as the data that should be derived from the units in operation (rail infrastructure, mapping, weather, agricultural and other intelligence/monitoring). We have also increased our expectations of the company’s potential maintenance income as a percentage of initial sales cost.

Positive feedback on pricing targets

We understand that Rail Vision’s discussions with potential purchasers of its ADAS technology support a more confident view of RV’s pricing power than hitherto. In particular, a key potential customer of RV’s systems has indicated that the targeted $70-80k unit price for its ADAS system is in keeping with its pricing tolerances.

We have accordingly revised our forecasts of early unit sales prices from $50k to the lower end of RV’s target price range, at $70k. We continue to forecast a 15% pa decline in these prices between 2018 and 2020 as sales volumes increase to bring the unit price back to $51k in 2019 and $43k in 2020. Thereafter we assume a steady 5% per annum decline as the product matures and competition enters the market.

Exhibit 5: Rail Vision key assumptions and DCF valuation

$000

2017e

2018e

2019e

2020e

2021e

2022e

2023e

2024e

2025e

Global powered rail unit fleet (units)*

807,594

810,017

812,447

814,884

817,329

819,781

822,240

824,707

827,181

Change (%)

0.0

0.3

0.3

0.3

0.3

0.3

0.3

0.3

0.3

Market for ADAS systems (% of fleet)

0.0

0.0

0.2

1.1

1.5

2.0

2.8

3.7

5.0

Total ADAS market (units)

5

286

1,523

9,340

12,444

16,740

22,686

30,474

41,046

Rail Vision market share (%)

100

58

40

41

33

25

19

16

15

Rail Vision sales (units)

5

167

611

3,861

4,108

4,143

4,209

5,018

6,317

Market for ADAS systems (% of fleet excl DB)

0.0

0.0

0.2

1.0

1.4

1.9

2.6

3.6

5.0

Total ADAS market (units)

5.0

286.1

1,522.8

9,340.1

12,444.4

16,740.4

22,685.7

30,474.4

41,045.5

Addressable market (%)

N/A

50.0

70.0

100.0

100.0

100.0

100.0

100.0

100.0

RV share of DB contracts (%)

0.0

85.0

60.0

50.0

42.0

34.0

28.0

26.2

25.4

RV share of addressable market ex-DB (%)

100.0

75.0

50.0

40.0

32.0

24.0

18.0

16.2

15.4

Deutsche Bahn sales (units)

0

107

188

627

527

426

351

214

0

Other sales (units)

5

60

423

3,234

3,581

3,717

3,858

4,805

6,317

Market share (%)

100

58

40

41

33

25

19

16

15

Rail Vision sales (units)

5

167

611

3,861

4,108

4,143

4,209

5,018

6,317

Sales price ($k)

70

60

51

43

41

39

37

35

33

Maintenance charge ($pa/unit fitted)

4,900

4,165

3,540

3,009

2,859

2,716

2,580

2,451

2,328

Big data ($pa/unit fitted)

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

Revenues ($000)

350

10,386

33,087

176,880

193,600

200,961

208,826

243,402

294,272

EBITDA

(2,731)

(184)

4,963

26,532

29,040

30,144

31,324

36,510

44,141

EBITDA margin (%)

(780)

(2)

15

15

15

15

15

15

15

Tax

0

(1,229)

(6,614)

0

(7,473)

(7,746)

(9,021)

(10,904)

(14,150)

Change in working capital

(312)

(993)

(5,306)

(5,808)

(6,029)

(6,265)

(7,302)

(8,828)

(11,449)

Total capex

(218)

(719)

(662)

(1,769)

(1,936)

(2,010)

(2,088)

(2,434)

(2,943)

Free cash flow

(1,215)

2,080

12,843

21,296

14,632

15,224

17,753

21,466

27,831

Sum of FCF ($m)

105.5

FRSX stake (%)

26.0

WACC

15%

Net debt/(cash) pro forma 2016YE** ($m)

(6.5)

Value of FRSX stake ($m)

29.1

Terminal growth rate

3%

Rail Vision valuation ($m)

112.0

Value of FRSX stake (NISm)

106.6

TV/total EV

56%

Source: Foresight Autonomous Holdings, International Union of Railways (UIC), Edison Investment Research. Note: *We believe that UIC data implying the number of PRUs in the EU, Europe and worldwide at 91k, 124k and 201k are significantly understated, reflecting large-scale privatisation in the industry and poor reporting standards. To overcome this we have applied German multiples of PRU per train km, rail passenger km and rail freight tonne km to the corresponding data for the regions less 30% and 50% discounts, respectively, to the European and worldwide figures to reflect longer trains and heavier cargos, resulting in revised PRU estimates of 121k, 340k and 808k in the EU, Europe and worldwide, respectively. **$1.1m net cash as at end-2016 plus $5.4m cash raised from equity issues in 2017.

We also understand that Rail Vision is more optimistic about the potential monetisation of data from telematics equipment once mounted on rolling stock. We set out our concerns in the our initiation note (Driving the autonomous revolution, 27 September 2016) that while there is likely to be significant demand for this data, it is not clear that owners of the rolling stock will not stake a claim for a share in such revenues, reducing the net payment to RV. We have nevertheless increased our forecast of data revenues by from $500 to $800 per train per annum, reflecting what appears to be the potential for higher data revenues than hitherto thought, but also maintaining our assumption of a potential splitting of these revenues with infrastructure owners.

Finally we have re-investigated the issue of maintenance charges, as it relates to our assumption that RV would be able to derive annual maintenance fees representing 2.5% of the cost of equipment sold. Looking into maintenance cost charges for railways on similar equipment and for safety equipment in other fields we now believe that this assumption looks overly conservative. A study by JP Baumgartner into European railway maintenance costs undertaken in 2001 estimated maintenance costs as a percentage of capital cost at 5% for signalling equipment, rising to 10% for telecoms and informatics equipment. Looking at the medical sector, the journal Radiology Business in 2012 observed that third-party maintenance costs for radiology equipment typically averaged 8.3%. Given the common ground in the need to ensure absolute best functioning of the equipment for safety reasons, we have assumed that the group is able to charge 7.0% of its unit sales price in ongoing maintenance charges, putting it at the lower end of the telecoms and informatics as well as radiology fields.

Likelihood growing of first rail orders in early 2018

Rail Vision’s marketing efforts have thrown up a wide variety of potential sales prospects in recent months. Deutsche Bahn (DB) remains the most prospective potential client by dint of the level of close work between DB and Rail Vision under the DB incubator programme, in which Rail Vision took part. Israel Railways also has a long cooperation with RV and are thought likely to be one of the earlier companies to place orders. Nevertheless, we understand from management that the company has also been demonstrating products with a major European manufacturer of rolling stock as well as a major European railway with considerable success. The latter already uses remote controls of its locomotives in its switchyards but is looking to RV’s technology to relay risk information to its central control areas to reduce accident levels.

Equity issue reduces FRSX’s stake in Rail Vision from 32% to 26%

In April 2017, Rail Vision entered into definitive agreements with several private investors pursuant to which these individuals will at some unspecified date purchase an aggregate of approximately $5m of Rail Vision’s ordinary shares at a pre-money company valuation of $20m. The investors will also receive 100% warrant coverage with an exercise price per ordinary share reflecting a pre money company valuation of $25m. The warrants are exercisable until the 18-month anniversary of the date of issuance. As a result, Foresight’s interest in Rail Vision will be approximately 26% and up to 45% on a fully diluted basis as compared with a current 32% and 48%, respectively.

The valuation of the issue at $20m shows the increase in expectations regarding Rail Vision since FRSX’s acquisition of its initial 32% stake in the company in 2016 based on a company valuation of $2.4m.

For the purposes of our DCF valuation, we treat the arrangement as if executed. On this basis we have increased the assumed cash holdings of Rail Vision by $5m to give rise to adjusted net cash pro forma 2016 of $4.2m.

This share issue is slightly dilutive for our valuation of Rail Vision as it was based on a company valuation of $20m as compared with our valuation for Rail Vision of $67.1m (NIS246m) in our last report of 24 April 2017, Out of the station and on the self-financing track. Nevertheless the increase in our underlying valuation since that date due to changes to our forecasts has led to an overall increase in our DCF valuation for FRSX’s stake in RV from $21.5m (NIS78.8m) to $29.1m (NIS106.6m).

Nasdaq listing: Broadening the investor base

Foresight shares commenced trading on Nasdaq on 15 June 2017, using the ticker FRSX. Each ADS represents five ordinary shares. As a consequence of the listing, for the first time investors will be able to read Foresight accounts in English under US GAAP accounting.

Apart from the increase in investor interest that these changes will bring, we believe it is a positive step for the company to commence reporting in dollars. This reflects our expectation that the bulk of product pricing in FRSX’s core business, at least in the next three to five years, will be largely in dollars. We also expect the group to increase its international staffing levels such that the dollar-denominated cost base will also grow.

Quarterly results

Foresight is exempt from the SEC requirement to report accounts on a quarterly basis. We understand that management is likely to use this exemption and will release results only on a half-yearly basis for the foreseeable future. The next results release is therefore expected to be its H117 accounts in August.

Financials and forecasts
US GAAP restatement: Key change treatment of listing cost

The restatement of 2016 earnings from IFRS to US GAAP resulted in a 72% and 86% reduction in reported operating losses and net losses, respectively.

Exclusion of listing expenses slashed reported operating losses: The US GAAP accounts excluded $9.4m in expenses relating to FRSX’s listing on the TASE from operating expenses. The largest single component of this was NIS32.7m ($8.4m) registration for trade and consultants fees.

Inclusion in US GAAP financial earnings of $1.8m increase in fair value of warrants: This had a further positive impact on the reported numbers, leading to an 86% reduction in reported losses to $1.9m. This resulted in a 72% reduction in reported operating losses from $13.2m to $3.8m.

After normalisation of the results losses were 41% higher at the operating and 31% higher at the net level. The most significant factors were:

Reduction in expenses classified as ESOP and share-based payments: This resulted in the treatment of a greater proportion of G&A costs as unexceptional. ESOP and share-based payment to consultants fell from $2.0m in the IFRS accounts to $0.4m under US GAAP. With $0.6m of these costs related to listing expenses (which we also treated as exceptional) this led to a $1.0m increase in normalised EBITDA losses to $3.3m.

Treatment of the $1.85m change in fair value of warrants in financial income as exceptional resulted in normalised net loss increasing $0.8m to $3.3m.

Exhibit 6: Foresight Autonomous Holdings – change in forecasts

$m

2016

2016

Change

2017e

2017e

Change

2018e

2018e

Change

2019e

2019e

Change

IFRS*

US GAAP

%

Old

New

%

Old

New

%

Old

New

%

Revenues

0.00

0.00

N/A

0.00

0.00

N/A

0.16

0.16

0.0

1.59

1.59

0.0

R&D costs

(0.90)

(0.90)

(0.1)

(1.70)

(1.70)

(0.0)

(2.05)

(2.06)

0.0

(2.31)

(2.31)

0.0

Marketing and Sales

(0.22)

(0.22)

(0.0)

(0.45)

(0.45)

(0.3)

(0.71)

(0.71)

0.0

(0.94)

(0.94)

(0.0)

General and Admin/other

(12.07)

(2.63)

(78.2)

(1.63)

(1.62)

(0.5)

(1.70)

(1.70)

0.0

(2.31)

(2.31)

(0.0)

Total opex (incl. D&A)

(13.19)

(3.75)

(71.5)

(3.78)

(3.78)

(0.2)

(4.47)

(4.47)

0.0

(5.56)

(5.56)

0.0

of which exceptionals (incl. share based payments)

(10.83)**

(0.41)

(96.3)

(0.25)

(0.24)

(0.7)

(0.10)

(0.10)

0.0

(0.10)

(0.10)

(0.0)

EBITDA normalised

(2.37)

(3.34)

41.2

(3.52)

(3.52)

(0.1)

(4.22)

(4.20)

(0.5)

(3.87)

(3.83)

(1.0)

EBITDA margin

(0.22)

N/A

N/A

N/A

N/A

N/A

(26.59)

(26.46)

(0.5)

(2.42)

(2.40)

(1.0)

Operating profit normalised

(2.38)

(3.35)

41.0

(3.54)

(3.53)

(0.1)

(4.24)

(4.22)

(0.5)

(3.91)

(3.87)

(1.0)

Operating profit reported

(13.20)

(3.75)

(71.6)

(3.78)

(3.78)

(0.1)

(4.34)

(4.31)

(0.5)

(4.01)

(3.97)

(1.0)

Equity accounted profit

(0.10)

(0.11)

3.7

(0.89)

(0.76)

(14.0)

(0.35)

(0.04)

(89.5)

0.72

1.30

79.9

Financials

(0.06)

1.95

N/A

0.06

0.06

N/A

0.04

0.04

N/A

0.05

0.05

N/A

PBT normalised

(2.54)

(1.51)

(40.7)

(4.36)

(4.23)

(2.9)

(4.55)

(4.21)

(7.4)

(3.14)

(2.52)

(19.6)

PBT reported

(13.37)

(1.91)

(85.7)

(4.60)

(4.47)

(2.8)

(4.64)

(4.31)

(7.2)

(3.24)

(2.62)

(19.1)

Net income normalised

(2.54)

(3.35)

32.0

(4.36)

(4.23)

(2.9)

(4.55)

(4.21)

(7.4)

(3.14)

(2.52)

(19.6)

Net income reported

(13.37)

(1.91)

(85.7)

(4.60)

(4.47)

(2.8)

(4.64)

(4.31)

(7.2)

(3.24)

(2.62)

(19.1)

EPS normalised basic

(0.04)

(0.05)

21.6

(0.05)

(0.04)

(3.9)

(0.05)

(0.04)

(12.8)

(0.03)

(0.03)

(24.3)

EPS normalised diluted

(0.04)

(0.05)

21.6

(0.05)

(0.04)

(3.9)

(0.05)

(0.04)

(12.8)

(0.03)

(0.03)

(24.3)

EPS reported basic

(0.20)

(0.03)

(86.8)

(0.05)

(0.05)

(3.8)

(0.05)

(0.04)

(12.6)

(0.03)

(0.03)

(23.8)

Dividend per share

0.00

0.00

N/A

0.00

0.00

N/A

0.00

0.00

N/A

0.00

0.00

N/A

Net debt/(cash)

(3.75)

(3.75)

0.1

(11.15)

(15.80)

41.7

(6.57)

(11.26)

71.3

(2.23)

(6.34)

184.5

Source: Edison Investment Research. Note: *Applying average 2016 US$/NIS exchange rate of 3.8394 to reported IFRS earnings in NIS. Depreciation and amortisation included in IFRS total opex but excluded in US GAAP total opex. **Listing costs of $9.4m and ESOP and share based payments of $1.4m, being $2.0m in total net of $0.6m included in listing costs.

Forecast changes: Increased equity profits

We have not materially changed our earnings forecasts down to the operating level for the restatement to US GAAP accounts. The key area of change lies in:

Increased earnings expectations from Rail Vision, which is accounted for in equity profit contributions, as discussed above. This results in a reduction in equity accounted losses during 2017 and 2018 and a greater contribution to profits in 2019 (see Exhibit 6).

Increased estimates of cash inflows this year arising from recent increases in shares in issue, which we understand reflect recent warrant conversions that we estimate will have increased equity cash inflows by c $3.4m this year (see discussion in Balance sheet update below).

Balance sheet update

As mentioned in our update of 24 April 2017, Out of the station and on the self-financing track, FRSX raised $11.7m (NIS43m) in equity funds in Q117 from the issue of 21.0m shares, and the conversion of 0.1m warrants. Since this point, a further 5.4m warrants have been converted to shares based on the reported increase in capital on the TASE to 100.0m shares as of 27 June 2017. We calculate the funds inflow from the conversions at $5.0m (NIS17.5m), resulting in an estimated $16.5m (NIS60.6m) raised year to date, translating to an estimated $15.7m cash raise net of issue costs.

Management reported on 14 June 2017 that the group has c $17m in cash, which is consistent with our estimate of $14.5m equity raising ytd to that point and a $1.3m cash burn year to date, taking into account the $3.8m cash position at the start of the year.

We forecast FRSX to end the year with $15.8m net cash, based on the above-mentioned $15.7m year to date equity funding, $3.5m operating cash outflows during the year, $0.4m capex outlays and $0.2m inflows from interest income and forex (see Financial summary, Exhibit 11). We expect further warrant conversions to take place over the remainder of the year, if share prices remain above NIS4 per share ($5.68 per ADR), but have not incorporated this in our forecasts.

Warrants update: All FRSX’s warrants are now in the money…

In our note of 24 April we calculated that the conversion of all the in-the-money warrants would result in a NIS114m cash inflow. Since then the increase in the share price has resulted in all the company’s warrants becoming in the money, including 12.5m warrants with a NIS4 exercise price.

Since that date the conversion of 5.4m warrants has also raised NIS17.5m ($5.1m) for Foresight. We calculate that including a May issue of 4.8m more warrants, current of in-the-money warrants total 53.1m and have the potential to bring in NIS158.2m ($45.0m) on conversion.

…which supports its self-financing potential

Assuming that the share price remains above the NIS3-4 range of the bulk of the options, we believe that warrant conversions should continue to add to the group’s financial strength over the coming two to three years. With our model indicating that Foresight should be self-financing with its current resources, we see warrant conversions as potentially enabling it to exercise its options to increase its stake in RV to 45% (for an outlay of $11.3m) as well as to build a cash cushion for further expansion.

Exhibit 7: Warrants summary

Total issued

Currently in the money*

Exercise price (NIS)**

Theoretical funds from conversion (NISm)***

Series A: issued 1 March 2016 exercisable for 18 months at NIS3 per warrant

8,131,025

8,131,025

3.00

24.4

Series B: issued 1 March 2016 exercisable for 36 months at NIS4 per warrant

12,470,837

12,470,837

4.00

49.9

Series C: Issued 1 March 2016 exercisable for 36 months at NIS3 per warrant

1,000,000

1,000,000

3.00

3.0

Series D (NIS0.3 exercise): ESOP– vesting from 01/01/2016 in 10 equal portions quarterly over 36 months

1,794,205

1,794,205

0.30

0.5

Series E (NIS3.0 exercise): Issued September 2016 exercisable for 36 months

2,838,557

2,838,557

3.00

8.5

Issues since 1 January 2017

-

Series D (NIS1.95 exercise): ESOP: Issued 26/01/17, vesting in 12 months from 01/10/16

900,000

900,000

1.95

2.1

Series C (NIS1.95 exercise) Private placement to consultants: Issued 1/02/17, vesting in 12 months from 1/10/16.

567,000

567,000

1.95

1.1

Series F ($0.8 exercise): issued March 2017 exercisable for 24 months

19,520,514

19,520,514

2.94

54.9

Series G ($0.95 exercise): issued March 2017 exercisable for 18 months

1,051,665

1,051,665

3.49

3.5

Series D: ESOP:Issued May 4 2017, vesting in 36 months from 01/1/17 at NIS 1.95 per share

2,675,000

2,675,000

1.95

5.2

Series D: ESOP: to CEO and his daughter Issued May 4 2017, vesting in 36 months from 01/1/17 at NIS 2.31 per share

2,150,000

2,150,000

2.31

5.0

Total/average (for exercise price)***

53,098,803

53,098,803

2.98

158.2

Source: Edison Investment Research, Foresight Autonomous Holdings. Note: *Based on share price of NIS6.17. **Applying exchange rate of NIS3.5181/US$ to dollar-based exercise prices. ***Assuming vesting and conversion of all warrants. Excludes out-of-the money warrants.

Valuation

Exhibit 8: Foresight Autonomous Holdings DCF valuation

$m

2017e

2018e

2019e

2020e

2021e

2022e

2023e

2024e

2025e

2026e

2026e norm.

EBITDA

(3.8)

(4.3)

(3.9)

3.3

9.8

9.6

13.8

18.1

23.8

30.0

30.0

EBITDA margin

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

28.0%

28.0%

Change in working capital

0.0

0.0

(0.7)

(1.7)

(1.1)

(0.4)

(1.2)

(1.3)

(1.6)

(1.8)

(2.1)

Capex

(0.4)

(0.4)

(0.4)

(0.5)

(0.9)

(0.7)

(0.9)

(1.0)

(1.2)

(1.5)

(2.1)

EBITDA – Capex

(4.2)

(4.7)

(4.3)

2.8

8.8

8.8

12.9

17.1

22.5

28.5

27.8

Tax

0.0

0.0

0.0

0.0

0.0

0.0

(3.4)

(4.5)

(5.9)

(7.7)

(7.4)

Change in working capital

0.0

0.0

(0.7)

(1.7)

(1.1)

(0.4)

(1.2)

(1.3)

(1.6)

(1.8)

(2.1)

Other non-cash items

0.2

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

Free cash flow

(3.9)

(4.6)

(5.0)

1.3

7.9

8.5

8.5

11.4

15.1

19.1

18.4

Terminal value

 

 

 

 

 

 

 

 

 

157.6

 

Total cash flow

(3.9)

(4.6)

(5.0)

1.3

7.9

8.5

8.5

11.4

15.1

176.7

 

Discounted cash flows

(3.4)

(3.5)

(3.3)

0.7

3.9

3.7

3.2

3.7

4.3

43.7

 

Enterprise value

53.1

 

 

 

 

 

 

 

 

 

 

Equity valuation

114.3

Net debt/(cash) end 2016 

(3.8)

NIS/US$ FX rate applied

3.5181

Value of Rail Vision Stake

29.1

Adjustment for:

 

 

 

WACC

 

 

15.0%

Total group value

143.4

Equity issues/merger funding 2017 YTD 

(15.7)

Terminal growth rate

3.0%

Number of shares, diluted

146.2

Theoretical cash in-the-money ESOP/warrant exercise 

(41.8)

Terminal value/EV

73%

Value per ADR ($)

4.90

Adjusted net debt/(cash) 

(61.2)

 

 

 

 

Value per share (NIS)

3.45

 

 

 

 

 

 

 

 

 

 

Source: Edison Investment Research

Increased valuation contribution from Rail Vision

We have increased our DCF valuation for FRSX (see Exhibit 8) from NIS3.30 to NIS3.45 per share ($4.90 per ADR), principally due to the increase in the DCF value of FRSX’s Rail Vision stake, as discussed above, and the inclusion in diluted capital of warrants with a high NIS exercise price (thereby boosting the nominal diluted cash balance). The key fundamental changes are:

Our DCF valuation for FRSX’s stake in Rail Vision has increased from $21.5m (NIS78.8m) to $29.1m (NIS102.5m) (see Exhibit 8), reflecting the increases in our valuation of RV’s business, partly offset by the expected reduction in FRSX’s stake from 32% to 26%.

Our enterprise valuation of FRSX’s own cash flows has increased only 1% from $52.5m (NIS192.6m) to $53.1m due to the minor changes to our forecasts arising from the switch to US GAAP numbers, as discussed above.

Sensitivity analysis

Our sensitivity analysis shows that FRSX’s current share price is supported with combinations of terminal growth of 2% and WACC of 9% or terminal growth of a higher 5% with an 11% WACC.

Exhibit 9: FRSX DCF valuation sensitivity – terminal growth value and WACC (NIS/share)

Terminal growth rate from 2025

2.00%

3.00%

4.00%

5.00%

6.00%

WACC

18.0%

2.75

2.81

2.87

2.95

3.04

17.0%

2.91

2.98

3.07

3.16

3.28

16.0%

3.11

3.20

3.30

3.43

3.57

15.0%

3.34

3.45

3.58

3.74

3.94

14.0%

3.61

3.76

3.93

4.14

4.41

13.0%

3.94

4.13

4.36

4.65

5.02

12.0%

4.35

4.60

4.91

5.31

5.85

11.0%

4.86

5.20

5.63

6.21

7.02

10.0%

5.51

5.98

6.61

7.49

8.81

9.0%

6.37

7.05

8.00

9.44

11.82

Source: Edison Investment Research

Addressing sensitivity to market shares, our analysis shows the market potentially factoring in scenarios of market shares equivalent to 4% in China and 10% in the rest of the world (ROW) or 25% in China and 5% in ROW. We see the latter scenario as within the bounds of reasonable expectation but it significantly exceeds our current assumptions of 6% in China and 2% ROW.

Exhibit 10: Sensitivity analysis – market share China and rest of world (RoW) (NIS/share)

2025 China market share (%)

2.0

4.0

6.0

8.0

10.0

15.0

25.0

2025 ROW market share (%)

0.0

2.31

2.50

2.71

2.90

3.10

3.61

4.63

1.0

2.66

2.87

3.07

3.28

3.48

4.00

4.98

2.0

3.04

3.24

3.45

3.66

3.86

4.34

5.36

3.0

3.41

3.62

3.80

4.00

4.21

4.72

5.74

4.0

3.76

3.96

4.17

4.37

4.58

5.09

6.11

5.0

4.12

4.33

4.54

4.74

4.95

5.46

6.49

6.0

4.50

4.70

4.91

5.11

5.32

5.83

6.86

7.0

4.87

5.07

5.28

5.48

5.69

6.20

7.23

8.0

5.24

5.44

5.65

5.86

6.06

6.58

7.61

10.0

5.98

6.19

6.39

6.60

6.80

7.32

8.26

Source: Edison Investment Research

Exhibit 11: Financial summary

$m

2016

2017e

2018e

2019e

2020e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

 

 

0.0

0.0

0.2

1.6

11.8

Cost of Sales

N/A

N/A

N/A

N/A

N/A

Gross Profit

N/A

N/A

N/A

N/A

N/A

EBITDA

 

 

(3.3)

(3.5)

(4.2)

(3.8)

3.4

Normalised operating profit

 

 

(3.3)

(3.5)

(4.2)

(3.9)

3.4

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Share-based payments

(0.4)

(0.2)

(0.1)

(0.1)

(0.1)

Reported operating profit

(3.8)

(3.8)

(4.3)

(4.0)

3.3

Net Interest

2.0

0.1

0.0

0.0

0.0

Joint ventures & associates (post tax)

(0.1)

(0.8)

(0.0)

1.3

5.2

Exceptionals

0.0

0.0

0.0

0.0

0.0

Profit before tax (norm)

 

 

(1.5)

(4.2)

(4.2)

(2.5)

8.6

Profit before tax (reported)

 

 

(1.9)

(4.5)

(4.3)

(2.6)

8.5

Reported tax

0.0

0.0

0.0

0.0

0.0

Profit after tax (norm)

(1.5)

(4.2)

(4.2)

(2.5)

8.6

Profit after tax (reported)

(1.9)

(4.5)

(4.3)

(2.6)

8.5

Minority interests

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(3.4)

(4.2)

(4.2)

(2.5)

8.6

Net income (reported)

(1.9)

(4.5)

(4.3)

(2.6)

8.5

Basic average number of shares outstanding (m)

67.3

95.2

100.0

100.0

100.0

EPS – basic normalised ($)

 

 

(0.050)

(0.044)

(0.042)

(0.025)

0.086

EPS – diluted normalised ($)

 

 

(0.050)

(0.044)

(0.042)

(0.025)

0.059

EPS – basic reported ($)

 

 

(0.028)

(0.047)

(0.043)

(0.026)

0.085

Dividend ($)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

N/A

N/A

N/A

905.6

637.6

Gross margin (%)

N/A

N/A

N/A

N/A

N/A

EBITDA margin (%)

N/A

N/A

N/A

N/A

29.1

Normalised operating margin (%)

N/A

N/A

N/A

N/A

28.6

BALANCE SHEET

Fixed assets

 

 

1.4

1.0

1.4

3.0

8.7

Intangible assets

0.0

0.0

0.0

0.0

0.0

Tangible assets

0.1

0.5

0.9

1.3

1.7

Investments & other

1.3

0.5

0.5

1.8

7.0

Current assets

 

 

3.9

15.9

11.4

6.7

9.7

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

0.0

0.0

0.0

0.3

1.9

Cash & cash equivalents

3.8

15.8

11.3

6.3

7.7

Other

0.1

0.1

0.1

0.1

0.1

Current liabilities

 

 

(0.5)

(0.5)

(0.5)

(0.0)

(0.0)

Creditors

(0.5)

(0.5)

(0.5)

(0.0)

(0.0)

Tax and social security

0.0

0.0

0.0

0.0

0.0

Short-term borrowings

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Long-term liabilities

 

 

(0.1)

0.0

0.0

0.0

0.0

Long-term borrowings

0.0

0.0

0.0

0.0

0.0

Other long-term liabilities

(0.1)

0.0

0.0

0.0

0.0

Net assets

 

 

4.7

16.5

12.2

9.7

18.4

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

4.7

16.5

12.2

9.7

18.4

CASH FLOW

Operating cash flow before WC and tax

(3.3)

(3.5)

(4.2)

(3.8)

3.4

Working capital

0.8

0.0

0.0

(0.7)

(1.7)

Exceptional & other

0.2

0.0

0.0

0.0

0.0

Tax

0.0

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(2.4)

(3.5)

(4.2)

(4.5)

1.8

Capex

(0.1)

(0.4)

(0.4)

(0.4)

(0.5)

Acquisitions/disposals

(1.3)

0.0

0.0

0.0

0.0

Net interest

0.0

0.1

0.0

0.0

0.0

Equity financing

6.3

15.7

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

1.2

0.0

0.0

0.0

0.0

Net cash flow

3.8

11.9

(4.5)

(4.9)

1.3

Opening net debt/(cash)

 

 

0.0

(3.8)

(15.8)

(11.3)

(6.3)

FX

0.0

0.2

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(3.8)

(15.8)

(11.3)

(6.3)

(7.6)

Source: Foresight Autonomous Holdings accounts, 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 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

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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

New York, NY10017

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

New York, NY10017

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. 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 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

New York, NY10017

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

New York, NY10017

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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