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Valuation attractive despite recent share price rise

ADMIE Holding 4 November 2019 Update
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ADMIE Holding

Valuation attractive despite recent share price rise

H1 results

Utilities

4 November 2019

Price

€2.14

Market cap

€496m

Net cash (€m) at 30 June 2019

26.6

Shares in issue

232.0m

Free float

48.9%

Code

ADMIE

Primary exchange

ASE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.4

1.5

24.4

Rel (local)

4.2

6.6

28.2

52-week high/low

€2.27

€1.46

Business description

ADMIE Holding is a holding company that owns a 51% stake in IPTO, a Greek regulated utility. IPTO owns, manages and operates the Greek electricity transmission grid. The network includes 11,732km of high-voltage lines. The company plans a c €4bn investment plan over 2019–27.

Next events

Nine-month results

December 2019

Analyst

Dario Carradori

+44 (0)20 3077 5700

ADMIE Holding is a research client of Edison Investment Research Limited

ADMIE Holding offers an attractive opportunity to gain exposure to the strong growth of Greek electricity transmission grid company, IPTO, a regulated utility with significant growth opportunities from investments in new transmission lines. Despite the recent share price rise and supportive H1 results (adjusted net income up 9% y-o-y), ADMIE Holding is trading at a large discount to European regulated utilities peers and to its regulated asset base (RAB).

Year end

EBIT*
(€m)

Net income*
(€m)

EPS*
(c)

DPS**
(c)

P/E
(x)

Yield
(%)

12/17

25.1

25.1

10.84

0.00

19.7

N/A

12/18

36.0

36.1

15.57

5.96

13.7

2.8

12/19e

40.1

40.4

17.40

8.83

12.3

4.1

12/20e

40.7

41.0

17.65

8.29

12.1

3.9

Note: *EBIT, net income and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Related to fiscal year (not cash dividend).

H1 adjusted net income up 9% y-o-y

We see IPTO’s (and therefore ADMIE Holding’s) H1 results as continuing the trend of Q1. We calculate that H119 adjusted EBITDA was slightly lower y-o-y (-2%), while H119 adjusted net income was up 9% to €39m, thanks to a significant reduction in net financial expenses. H1 capex of €78m was more than four times the H118 level (€17m), but still represents a relatively small percentage (31%) of our FY19 forecast of €251m (revised down from €391m, mostly due to capex related to ARIADNE being transferred to FY20). In FY19, we expect a large pick-up in capex in H219. We have made small changes to our FY19–21 forecasts, with IPTO’s adjusted net income up 1% on average driven by a 2% increase in EBITDA.

Large investments, low leverage, visibility on returns

We continue to believe that IPTO’s underleveraged balance sheet (0.9x adjusted net debt/EBITDA at the end of 2018) sustains its c €4bn investment plan, which we estimate will result in a RAB CAGR of 11% in 2018–27e. In its recent investor presentation, ADMIE Holding confirmed the previously disclosed allowed regulatory returns (pre-tax real return on assets of 6.9% in FY19, reducing to 6.3% in FY21), which look increasingly supportive considering the recent reduction in Greek country risk premium (10-year Greek bond spreads vs German bonds) have more than halved ytd) and the announced (but not yet approved) reduction in corporate tax rates (to 24% in 2020 from 28% currently). We now estimate a 8% EPS CAGR for ADMIE Holding (FY19–23) and a 5% DPS CAGR (FY19–24).

Valuation: Large discount to peers and RAB value

We believe ADMIE Holding is trading at an excessive discount to both European regulated peers (17%/37% for FY1 P/E and EV/EBITDA) and its own RAB (c 30% discount to equity RAB value). Our RAB-based valuation of ADMIE Holding is €2.87/share (broadly unchanged), which is in line with the equity RAB implied by IPTO. Our valuation implies significant upside to the current share price, despite the c 40% share price rise ytd.

Investment case remains intact: Long-term infrastructure growth

ADMIE Holding is a holding company which owns a 51% stake in IPTO, a Greek regulated utility. IPTO owns, manages and operates the Greek electricity transmission grid. It is implementing a c €4bn investment plan, mainly focused on connecting the Greek islands to the electricity grid of the mainland, with the objectives of reducing costs for consumers, improving security of supply and environmental sustainability.

The investment plan is very large compared to IPTO’s current RAB (€1.4bn at the end of 2018) and we estimate it should result in an 11% 2018–27 RAB CAGR (in real terms). Based on our slightly updated estimates, we forecast FY19–23 adjusted EBITDA and net income CAGR of 14% and 8%, respectively, for IPTO, based on the assumption that the capex plan is implemented in a timely manner. This translates into an 8% EPS CAGR for ADMIE Holding. IPTO has a target of a minimum 50% payout ratio on earnings. Assuming a flat dividend payout ratio on earnings of 50% for IPTO, we forecast a 5% DPS CAGR for ADMIE Holding. We note that the payout ratio of 50% is well below the average level of European regulated utilities (70%+), which indicates that the future growth potential of the dividend is significantly higher than for other European peers.

Because of the high level of capex, we expect an average annual cash outflow of c €300m for IPTO (2019–23). As a result, leverage increases significantly, but only towards levels broadly in line with other European regulated utilities (c 5x net debt/EBITDA and c 50% debt/RAB in 2025). In our view, these levels do not suggest that a capital increase is needed over the course of the investment programme.

Exhibit 1: RAB evolution 2018/21

Exhibit 2: RAB evolution 2018/27

Source: Company data, Edison Investment Research

Source: Company data, Edison Investment Research

Exhibit 1: RAB evolution 2018/21

Source: Company data, Edison Investment Research

Exhibit 2: RAB evolution 2018/27

Source: Company data, Edison Investment Research

H1 net income show continued growth trend

We see IPTO’s H1 results as continuing the trend of Q1. EBITDA was 13% lower as H118 benefited from a significant provisions release. We calculate that EBITDA adjusted for provisions in H118 and H119 was only slightly lower y-o-y (-2%) to €87m. H119 adjusted net income was instead up 9% to €39m, thanks to a significant reduction in net financial expenses.

IPTO’s net debt was little changed (€94m at the end of H119 vs €84m at the end of FY18). H1 capex of €78m was more than four times the H118 level (€17m), but still represents a relatively small percentage (31%) of our revised FY19 forecast of €251m. In FY19, we expect a large pick-up in capex in H219, in particular because ADMIE Holding has stated that the substantial capex programme is being implemented in a ‘timely’ manner, but we have now reduced our 2019 capex forecast by around one-third (we have transferred these investments to FY20). The company is making progress on the tenders for the Crete-Attica link. The first €600m tender for this project has been completed and technical bids are being considered, while the second (€315m) is still running.

Small forecast changes for FY19–21, 2019 capex reduced

On the back of the H1 results, we have made small changes to our FY19–21 forecasts for both IPTO and ADMIE Holding, with IPTO’s adjusted net income up 3% on average driven by a 3% increase in EBITDA, partly offset by higher D&A. Our FY20–21 net income estimates for ADMIE Holding increase by 2%. We have reduced our capex forecast to €251m (down from €391m previously) as we now expect some capex (the majority of the reduction is related to the ARIADNE project, due to the extension in the tendering process demanded by the participants) to be transferred into FY20. We expect little impact on earnings as capex related to ARIADNE is not remunerated until the project is completed (which we except in FY23). Our net income forecasts do not include any non-recurring impact from the periodical assessment of non-current assets, which is scheduled for Q419. While we assume a gradual reduction in corporate tax rates, our forecasts do not fully incorporate the announced (but not yet approved) reduction in corporate tax rates (to 24% in 2020 from 28% currently) – this represents an upside risk to our forecasts. The government has also announced a decrease in dividend tax from 10% to 5%.

Exhibit 3: FY19–21 forecast changes

ADMIE Holding

IPTO group

€000s

2019e

2020e

2021e

€m

2019e

2020e

2021e

Adj. EBIT

New

40,120

40,707

42,032

Revenues

New

259

272

279

Old

38,044

39,732

41,435

Old

256

273

279

% change

5%

2%

1%

% change

1%

0%

0%

Adj. net income

New

40,370

40,957

42,282

Adj. EBITDA

New

181

185

191

Old

38,200

39,888

41,591

Old

168

185

190

% change

6%

3%

2%

% change

8%

0%

1%

DPS* (€/share)

New

0.088

0.083

0.083

Adj. net income

New

79

81

83

Old

0.088

0.082

0.081

Old

75

79

82

% change

0%

1%

2%

% change

5%

2%

1%

Adj. net debt

New

222

703

1005

Old

368

728

1025

% change

-40%

-3%

-2%

Source: Edison Investment Research. Note: *Declared for the year.

Exhibit 4: Key forecasts for IPTO group

€m

2017

2018

2019e

2020e

2021e

2022e

2023e

Revenues

256.5

249.2

258.8

271.8

279.0

277.6

401.2

% y-o-y change

-3%

4%

5%

3%

-1%

45%

Reported EBITDA

172.0

182.7

182.7

184.8

191.0

191.9

306.6

% y-o-y change

6%

0%

1%

3%

0%

60%

Adj. EBITDA

177.5

168.0

180.8

184.8

191.0

191.9

306.6

% y-o-y change

-5%

8%

5%

3%

0%

60%

Reported EBIT

107.7

115.4

119.7

108.8

114.0

117.6

195.8

% y-o-y change

7%

4%

-9%

5%

3%

67%

Adjusted EBIT

113.2

100.7

117.8

108.8

114.0

117.6

195.8

% y-o-y change

-11%

17%

-4%

5%

3%

67%

Reported net income

61.7

85.9

80.7

80.5

83.1

90.5

108.4

% y-o-y change

39%

-6%

0%

3%

9%

20%

Adjusted net income

65.9

73.8

79.3

80.5

83.1

90.5

108.4

% y-o-y change

12%

7%

6%

3%

9%

20%

Adjusted net debt

286

171

222

703

1,005

1,399

1,463

Capex (gross of subsidies) incl. ARIADNE

70

183

251

731

436

551

263

Source: Company data, Edison Investment Research

Valuation attractive despite recent share price rise

Our RAB-based valuation of ADMIE Holding is €2.87/share (a small change vs €2.85/share previously) and is broadly in line with the equity RAB implied by IPTO. Our valuation implies significant upside to the current share price, despite the c 40% share price rise ytd. Although we acknowledge the limited liquidity of the stock, relatively high country risk premium vs other European countries, control by the Greek government and the fact that the regulation of IPTO has a shorter track record than in other European countries, we believe the stock continues to trade at an excessive discount to peers (see Exhibit 5 below) and to the implied RAB value.

Exhibit 5: Peers table

Company

Country

Market cap (€m)

P/E (x)

EV/EBITDA (x)

Dividend yield (%)

FY0–FY2 EBITDA CAGR

FY0–FY2 EPS CAGR

FY0

FY1

FY2

FY0

FY1

FY2

FY0

FY1

FY2

Terna Rete Elettrica Nazionale

Italy

14,918

16.7

15.9

15.4

12.1

11.5

11.2

4.0

4.2

4.6

4.2

3.9

Snam

Italy

19,462

15.0

14.1

13.9

12.7

12.5

12.2

5.0

5.3

5.6

2.0

3.8

Italgas

Italy

5,880

14.7

14.0

13.2

10.0

10.0

9.3

4.1

4.3

4.6

4.0

5.4

Enagas

Spain

6,280

11.1

11.6

10.8

9.1

9.0

8.9

7.2

7.7

8.0

0.9

1.4

Red Electrica Corporacion

Spain

12,512

13.9

13.7

14.5

9.2

8.8

8.9

5.4

5.8

5.7

1.9

(2.2)

National Grid

UK

46,824

15.1

15.6

14.9

N/A

N/A

N/A

5.2

5.4

5.5

4.1

0.6

Elia System Operator

Belgium

6,701

17.2

20.0

18.9

15.1

11.4

10.8

1.5

2.2

2.2

18.1

(4.6)

Ren Redes Energeticas Nacionais

Portugal

2,209

15.3

14.4

14.6

8.9

9.1

9.3

4.7

6.4

6.5

(2.1)

2.6

Severn Trent

UK

8,143

15.9

17.3

20.8

12.6

12.3

12.9

4.0

4.3

4.4

(1.2)

(12.5)

Pennon Group

UK

5,741

16.0

15.9

17.0

N/A

12.4

12.7

4.4

4.8

4.9

N/A

(2.9)

United Utilities Group

UK

8,979

16.0

15.8

20.5

12.6

12.0

13.3

4.6

4.7

4.6

(2.9)

(11.6)

Average

15.3

15.6

14.9

12.1

11.4

11.0

4.6

4.8

4.9

2.0

0.6

ADMIE Holding

Greece

496

13.7

12.3

12.1

7.3

7.0

9.5

2.8

4.1

3.9

4.9

6.5

Source: Refinitiv, Edison Investment Research. Note: Prices as at 1 November 2019.

Key risks include delays in the implementation of the capex plan, rising Greek country risk premium, and unfavourable changes in the regulation of electricity transmission.

Exhibit 6: Financial summary

Accounts: IFRS, year-end: December, €000s

 

 

2017

2018

2019e

2020e

2021e

2022e

2023e

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

Total revenues

 

 

0

0

0

0

0

0

0

Cost of sales

 

 

0

0

0

0

0

0

0

Gross profit

 

 

0

0

0

0

0

0

0

SG&A (expenses)

 

 

(973)

(239)

(335)

(341)

(348)

(355)

(362)

Profit (loss) from JVs / associates (post tax)

 

 

24,024

42,353

41,152

41,057

42,390

46,158

55,304

Depreciation and amortisation

 

 

(2)

(4)

(6)

(8)

(10)

(12)

(14)

Reported EBIT

 

 

23,049

42,110

40,811

40,707

42,032

45,790

54,927

Finance income/(expense)

 

 

(8)

156

250

250

250

250

250

Reported PBT

 

 

23,041

42,265

41,061

40,957

42,282

46,040

55,177

Income tax expense (includes exceptionals)

 

 

3,778

4,256

0

0

0

0

0

Reported net income

 

 

26,819

46,521

41,061

40,957

42,282

46,040

55,177

Basic average number of shares, m

 

 

232

232

232

232

232

232

232

Basic EPS (c)

 

 

9.93

18.22

17.70

17.65

18.22

19.84

23.78

Adjusted EBITDA

 

 

25,149

35,969

40,126

40,715

42,042

45,802

54,941

Adjusted EBIT

 

 

25,147

35,964

40,120

40,707

42,032

45,790

54,927

Adjusted PBT

 

 

25,139

36,120

40,370

40,957

42,282

46,040

55,177

Adjusted EPS (c)

 

 

10.84

15.57

17.40

17.65

18.22

19.84

23.78

Adjusted diluted EPS (c)

 

 

10.84

15.57

17.40

17.65

18.22

19.84

23.78

DPS (c) (declared for fiscal year)

 

 

0.00

5.96

8.83

8.29

8.26

8.53

9.30

DPS (c) (cash payment for the year)

 

 

0.00

3.16

8.80

8.83

8.29

8.26

8.53

BALANCE SHEET

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

5

5

9

11

10

8

4

Intangible assets

 

 

9

7

7

7

7

7

7

Other non-current assets

 

 

520,134

550,439

569,699

590,180

612,042

637,004

669,229

Total non-current assets

 

 

520,148

550,451

569,715

590,198

612,059

637,020

669,240

Cash and equivalents

 

 

2,181

4,843

6,224

6,220

7,417

9,326

12,484

Inventories

 

 

0

0

0

0

0

0

0

Trade and other receivables

 

 

79

9,907

9,907

9,907

9,907

9,907

9,907

Other current assets

 

 

0

0

0

0

0

0

0

Total current assets

 

 

2,260

14,750

16,131

16,127

17,324

19,233

22,391

Non-current loans and borrowings

 

 

0

0

0

0

0

0

0

Other non-current liabilities

 

 

0

0

0

0

0

0

0

Total non-current liabilities

 

 

0

0

0

0

0

0

0

Trade and other payables

 

 

18

20

20

20

20

20

20

Current loans and borrowings

 

 

0

0

0

0

0

0

0

Other current liabilities

 

 

3,731

0

0

0

0

0

0

Total current liabilities

 

 

3,749

20

20

20

20

20

20

Equity attributable to company

 

 

518,659

565,181

585,826

606,304

629,363

656,232

691,611

Non-controlling interest

 

 

0

0

0

0

0

0

0

CASH FLOW STATEMENT

 

 

 

 

 

 

 

 

 

Profit before tax

 

 

23,041

42,265

41,061

40,957

42,282

46,040

55,177

Net finance expenses

 

 

19

(156)

(250)

(250)

(250)

(250)

(250)

Depreciation and amortisation

 

 

2

4

6

8

10

12

14

Other adjustments

 

 

(24,024)

(42,353)

(41,152)

(41,057)

(42,390)

(46,158)

(55,304)

Movements in working capital

 

 

(622)

(1,053)

0

0

0

0

0

Cash from operations (CFO)

 

 

(1,584)

(1,293)

(335)

(341)

(348)

(355)

(362)

Capex

 

 

(16)

(2)

(10)

(10)

(10)

(10)

(10)

Cash used in investing activities (CFIA)

 

 

(16)

(2)

(10)

(10)

(10)

(10)

(10)

Net proceeds from issue of shares

 

 

70

0

0

0

0

0

0

Dividends paid

 

 

0

(6,300)

(20,416)

(20,479)

(19,223)

(19,171)

(19,798)

Other financing activities

 

 

3,711

10,256

22,142

20,826

20,778

21,445

23,329

Cash from financing activities (CFF)

 

 

3,781

3,956

1,726

347

1,555

2,274

3,531

Increase/(decrease) in cash and equivalents

 

 

2,181

2,662

1,381

(4)

1,197

1,909

3,159

Cash and equivalents at end of period

 

 

2,181

4,843

6,224

6,220

7,417

9,326

12,484

Net (debt) cash

 

 

2,181

4,843

6,224

6,220

7,417

9,326

12,484

Movement in net (debt) cash over period

 

 

2,181

2,662

1,381

(4)

1,197

1,909

3,159

Source: Company data, Edison Investment Research

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This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

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United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Australia

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New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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