TXT e-solutions — Focused on accelerated growth

TXT e-solutions (Euronext STAR Milan: TXT)

Last close As at 22/02/2024

9.88

−0.06 (−0.60%)

Market capitalisation

129m

More on this equity

Research: TMT

TXT e-solutions — Focused on accelerated growth

TXT e-solutions reported 15% year-on-year organic revenue growth for Q321, further boosted by contributions from recent acquisitions HSPI (+21%) and TeraTron (+11%). EBITDA increased 49% over the same period with a small increase in margin to 13.4%. While the pandemic has reduced demand for certain products and services, TXT has managed to expand into other areas organically and via acquisition to win new business (eg sustainable transport, defence, fintech). Diversification, combined with early signs of recovery from TXT’s civil aviation and financial services customers, positions the company well to grow this year and next.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

TXT e-solutions

Focused on accelerated growth

Q321 results & acquisitions

Software & comp services

13 December 2021

Price

€9.4

Market cap

€112m

Net cash (€m) at end Q321

3.5

Shares in issue

11.8m

Free float

50%

Code

TXT

Primary exchange

Borsa Italiana (STAR)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.5)

3.9

27.0

Rel (local)

(4.5)

0.4

3.5

52-week high/low

€10.66

€6.76

Business description

TXT e-solutions provides IT, consulting and R&D services to aerospace, aviation, automotive, banking and finance customers.

Next events

FY21 results

March 2022

Analyst

Katherine Thompson

+44 (0)20 3077 5730

TXT e-solutions is a research client of Edison Investment Research Limited

TXT e-solutions reported 15% year-on-year organic revenue growth for Q321, further boosted by contributions from recent acquisitions HSPI (+21%) and TeraTron (+11%). EBITDA increased 49% over the same period with a small increase in margin to 13.4%. While the pandemic has reduced demand for certain products and services, TXT has managed to expand into other areas organically and via acquisition to win new business (eg sustainable transport, defence, fintech). Diversification, combined with early signs of recovery from TXT’s civil aviation and financial services customers, positions the company well to grow this year and next.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

59.1

7.6

0.46

0.00

20.6

N/A

12/20

68.8

7.1

0.47

0.04

20.0

0.4

12/21e

91.6

10.2

0.62

0.06

15.1

0.6

12/22e

107.5

13.2

0.80

0.08

11.7

0.9

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

Organic revenue growth 15% in Q321

TXT reported revenue growth of 46.5% for Q321 and 39.5% for 9M21. Excluding contributions from TeraTron (acquired in August) and HSPI (acquired October 2020), the group grew 15% on an organic basis in Q321. EBITDA grew 49.0% y-o-y in Q321 and 43.1% in 9M21, with the margin expanding 0.2pp in Q321 to 13.4% and 0.3pp in 9M21 to 13.1%. The company closed Q321 with net cash of €3.5m, after paying €10m to acquire TeraTron.

Two more acquisitions; upgrading estimates

On 29 November the company acquired two Italian consulting businesses: Novigo Consulting and LBA Consulting for a total of €5.2m in cash and €1.1m in equity. Operating in the fintech space, both businesses generate EBITDA margins above 20%. We have revised our forecasts to reflect Q321 results and these acquisitions, factoring in higher gross margins which are only partially offset by higher operating expenses. This results in upgrades to our normalised diluted EPS forecasts of 6.7% in FY21 and 16.0% in FY22. After paying for the two recent acquisitions, we forecast a net debt position of €2.3m at the end of FY21, returning to a net cash position of €4.6m by the end of FY22.

Valuation: Discount to peers

TXT continues to trade at a discount to its peer group on all measures. This is despite the deployment of a large proportion of TXT’s cash balance into acquisitions, and revenue growth and profitability above the group average. Evidence of improving demand from civil aviation in the Aerospace & Aviation (A&A) division and the banking sector within the Fintech division, growing revenues from the earlier stage fintech businesses and the successful integration of TeraTron should help to reduce this discount.

Review of Q321 results

Exhibit 1: Q321 and 9M21 results highlights

€m

Q321

Q320

y-o-y

9M21

9M20

y-o-y

Revenues

23.0

15.7

46.5%

66.7

47.8

39.5%

Gross profit

10.0

7.5

34.0%

26.6

21.5

23.9%

Gross margin (%)

43.4%

47.5%

-4.1%

39.9%

44.9%

-5.0%

EBITDA

3.1

2.1

49.0%

8.8

6.1

43.1%

EBITDA margin (%)

13.4%

13.2%

0.2%

13.1%

12.8%

0.3%

Normalised EBIT

2.5

1.6

54.9%

7.1

4.7

50.5%

Normalised EBIT margin (%)

10.6%

10.1%

0.6%

10.6%

9.8%

0.8%

Reported EBIT

1.9

1.3

52.0%

5.4

3.4

58.7%

Reported EBIT margin (%)

8.4%

8.1%

0.3%

8.0%

7.1%

1.0%

Reported net income

2.1

0.9

134.7%

4.1

3.6

14.5%

Net cash

3.5

31.9

-89.0%

3.5

31.9

-89.0%

Source: TXT e-solutions

TXT reported 46.5% y-o-y revenue growth in Q321; excluding a €5.0m contribution from acquisitions (HSPI €3.3m, TeraTron €1.7m), organic growth was 15% y-o-y. Gross profit was 34% higher y-o-y and gross margin of 43.4% was 4.1pp lower than in Q320 due to a lower proportion of high-margin software sales in the quarter. EBITDA increased 49% y-o-y resulting in EBITDA margin expansion of 0.2pp to 13.4%. Normalised EBIT margin increased by 0.6pp over the same period to 10.6%. With net finance income of €0.3m and an adjustment to tax to reflect a 28% rate for the nine-month period to the end of September (9M21), reported net income increased 135% y-o-y. Net cash declined from €11.1m at the end of H121 to €3.5m at the end of Q321, reflecting the acquisition of TeraTron for €10.1m offset by operating cash inflow of €2.4m.

Exhibit 2: Divisional performance

€m

Q321

Q320

y-o-y

9M21

9M20

y-o-y

Aerospace & Aviation total revenue

13.8

9.8

40.1%

37.1

30.7

20.9%

Software licenses & maintenance

1.6

1.9

-15.1%

5.2

5.7

-8.3%

Services

12.2

7.9

53.4%

31.9

25.0

27.5%

EBITDA

2.3

1.5

55.8%

5.5

4.3

26.9%

EBITDA margin

16.7%

15.0%

1.7%

14.8%

14.1%

0.7%

Fintech total revenue

9.2

5.9

57.3%

29.6

17.1

73.0%

Software licenses & maintenance

0.5

0.2

128.2%

1.2

0.9

36.1%

Services

8.7

5.6

54.4%

28.5

16.3

75.0%

EBITDA

1.1

0.6

83.0%

3.6

1.8

99.4%

EBITDA margin

12.1%

10.4%

1.7%

12.1%

10.5%

1.6%

Group software licenses & maintenance revenue

2.2

2.1

0.6%

6.4

6.5

-2.5%

Group services revenue

20.9

13.6

53.8%

60.4

41.3

46.2%

Source: TXT e-solutions

A&A division: ‘TXT flies again’

A&A saw year-on-year revenue growth of 40% for Q321 and 21% for 9M21. Excluding TeraTron revenue of €1.7m, organic revenue growth was 23% for Q321 and 15% for 9M21. Software revenue is lower this year than last, as demand from the civil aviation sector has been weaker due to the pandemic. Services revenue has grown strongly over the year, and excluding TeraTron, was 33% higher in Q321 and 21% higher for 9M21.

As we have previously written, TXT has seen strong demand from the defence sector which has helped offset weakness in the civil aviation market. The company has completed the integration of TeraTron and is now ready to drive the growth of that business. Management is seeing signs of activity in the civil aviation market and also sees opportunities arising from zero emissions programmes and urban mobility, prompting its statement ‘TXT flies again’.

So far in Q4:

TXT has been selected by the European Space Agency’s Space Solutions initiative to undertake a study aimed at the development of a new immersive virtual reality solution for first responder training, using the Pacelab WEAVR platform. The Immersive Search and Rescue project aims to develop remote virtual training for search and rescue professionals, taking advantage of satellite data to create realistic scenarios for dealing with natural disasters.

In November, TXT won an upfront license for its advanced modelling software from a Chinese institution active in the aviation market.

A North American airline with more than 200 aircraft and 100 destinations is trialling Pacelab FPO software. The company noted that c 90% of trials typically convert into commercial contracts.

The company is negotiating with a North American cargo line which has successfully completed a trial.

The company had previously disclosed that PACE will supply licences for its preliminary aircraft and systems design suite and its route and aircraft economic analysis tool to the Aerospace Technology Institute’s (ATI) FlyZero Project. The project, led by ATI and backed by the UK government, is investigating the design challenges, manufacturing requirements and market opportunities of zero-carbon emission aircraft. Also in the sustainability area, the company is working with major European e-VTOL (electrical vertical take-off and landing) OEMs and recently joined the #1000 solutions challenge, an initiative by the Solar Impulse Foundation1.

Fintech division

The Fintech division saw year-on-year revenue growth of 57% for Q321 and 73% for 9M21. HSPI contributed revenue of €3.3m in Q321 and €10.5m in 9M21; excluding this, revenue was flat in Q321 and grew 12% in 9M21 (which benefited from a full nine-months contribution from MAC Solutions, acquired in July 2020). The software testing business, Assioma, has seen weaker demand through the pandemic but management believes it is starting to recover. The inclusion of higher margin HSPI for 9M21 helped drive the EBITDA margin up from 10.5% in 9M20 to 12.1% in 9M20.

So far this quarter, one of TXT’s start-up software businesses, Faraday, has signed multi-year contracts with the Italian branch of an international banking institution and a regional public IT company.

Fintech acquisitions

On 29 November, TXT announced that it acquired two Italian consulting businesses within the Fintech division.

Novigo Consulting: founded in 2013 as a spin-off from ING Lease, this Brescia-based business has 240 active customers and 25 specialised consultants, operating across six Italian regions and four European countries. The company develops software and applications for the digitalisation of credit brokerage and sales network management for agents in financial activities. It also implements and manages cloud IT infrastructure for financial markets. TXT is paying €3.5m for the company, split 70/30 cash/TXT treasury shares. There are retention and earnout clauses for the three selling shareholders and managers based on FY24 results, with a maximum earnout of €0.8m in equity. Management expects pro forma FY21 revenue to be c €3m with an EBITDA margin of 23%.

LBA Consulting: the company was founded in 2007 and has 20 consultants with advanced ERP and CRM skills and more than 30 active international customers. The company also develops and markets proprietary solutions for digital payments and e-commerce. TXT is paying €2.73m in cash for the company. There is a retention and clawback clause based on FY24 and FY26 results. Management expects pro forma FY21 revenue to be c €2.5m with an EBITDA margin of 30%.

Outlook and changes to forecasts

At Q3 results, management highlighted that for M&A it has access to €38m of short-term net financial resources (ie cash plus trading securities less short-term debt) plus 1.24m treasury shares worth c €13m.

We have revised our forecasts to reflect Q321 results, in particular factoring in slightly higher gross margins which are only partially offset by higher operating expenses. We have also added in the Novigo and LBA acquisitions from 1 December. This results in normalised diluted EPS upgrades of 6.7% in FY21 and 16.0% in FY22. We forecast that the company will move to a net debt position by the end of FY21 and cash generation in FY22 should return the company to a net cash position by the end of the year.

Exhibit 3: Changes to estimates

FY21e old

FY21e new

change

y-o-y

FY22e old

FY22e new

change

y-o-y

Revenues (€m)

90.9

91.6

0.7%

33.2%

101.7

107.5

5.7%

17.4%

Gross margin

39.4%

40.9%

1.5%

(1.7%)

42.0%

43.2%

1.2%

2.2%

Gross profit

35.8

37.5

4.6%

28.0%

42.7

46.4

8.7%

23.8%

EBITDA (€m)

11.8

12.4

4.9%

44.9%

13.7

15.8

15.0%

27.3%

EBITDA margin

13.0%

13.5%

0.5%

1.1%

13.5%

14.7%

1.2%

1.1%

Normalised EBIT (€m)

9.6

10.1

4.9%

53.9%

11.3

13.2

16.7%

31.3%

Normalised EBIT margin

10.6%

11.0%

0.4%

1.5%

11.1%

12.3%

1.2%

1.3%

Reported operating profit (€m)

7.4

7.8

5.9%

141.4%

9.4

11.3

20.0%

44.7%

Normalised net income (€m)

6.8

7.3

7.0%

33.6%

8.1

9.5

17.7%

30.0%

Reported net income (€m)

5.2

5.7

8.7%

25.2%

6.7

8.1

21.3%

42.8%

Normalised diluted EPS (€)

0.58

0.62

6.7%

32.8%

0.69

0.80

16.0%

28.4%

Reported basic EPS (€)

0.45

0.49

8.4%

24.4%

0.57

0.69

19.6%

41.1%

Net cash/(debt) (€m)

2.4

(2.3)

(197%)

(111%)

9.0

4.6

(48.6%)

(298%)

Dividend (€)

0.06

0.06

0.0%

50.0%

0.08

0.08

0.0%

33.3%

Source: Edison Investment Research

Valuation

The table below shows TXT’s valuation versus its peer group of European software and services providers. TXT continues to trade at a discount to its peer group on all measures, despite the deployment of a large proportion of the company’s cash balance into acquisitions, and revenue growth and profitability above the group average. We expect this discount to reduce as TXT provides evidence of:

A&A: the resumption/acceleration of orders from customers in COVID-19-hit sectors, particularly civil aviation; successful integration of the TeraTron acquisition.

Fintech: the early-stage businesses (TXT Risk Solutions, TXT Working Capital Solutions) starting to generate material revenues and reaching break-even; banks resuming normal activity for software testing; international revenues growing; successful integration of Novigo and LBA.

Overall, software revenues growing as a percentage of the total, as these generate much higher gross margins.

Exhibit 4: Peer financial and valuation metrics

Company

Share price

Market cap

Rev growth

EBIT margin

EBITDA margin

EV/Sales

EV/EBIT

P/E

Div yield

€m

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

TXT

9.40

112

33.2%

17.4%

11.0%

12.3%

13.5%

14.7%

1.2

1.0

10.7

8.2

15.1

11.7

0.6%

0.9%

European IT services companies

AKKA Technologies

47.96

1,494

3.3%

5.6%

1.1%

5.8%

8.7%

9.6%

1.3

1.2

118.6

20.5

N/A

27.8

0.0%

0.6%

Alten

152.90

5,248

23.0%

11.3%

9.6%

10.1%

12.2%

12.4%

1.8

1.7

19.2

16.4

26.0

22.8

0.7%

0.7%

AtoS

36.07

3,987

-0.9%

1.3%

4.7%

5.5%

10.8%

11.9%

0.6

0.6

12.4

10.4

8.7

7.2

2.7%

2.6%

Cap Gemini

206.00

34,712

13.9%

8.2%

11.6%

12.1%

15.7%

15.9%

2.2

2.1

19.3

17.1

24.2

21.6

1.0%

1.2%

Devoteam

168.50

1,402

10.1%

7.0%

11.0%

11.1%

12.8%

12.8%

1.6

1.5

14.9

13.7

27.5

25.0

0.7%

0.8%

ESI Group

73.80

439

4.0%

6.2%

6.4%

9.6%

10.6%

13.6%

3.4

3.2

52.2

32.8

87.6

55.0

0.0%

0.0%

Reply

179.20

6,693

18.2%

13.4%

14.1%

14.1%

17.4%

17.1%

4.4

3.9

31.5

27.7

44.6

39.6

0.4%

0.4%

Sopra Steria

158.60

3,252

9.4%

5.3%

7.3%

7.9%

11.3%

11.8%

0.9

0.8

11.9

10.4

14.7

12.4

1.5%

1.7%

Average

10.1%

7.3%

8.2%

9.5%

12.4%

13.1%

2.0

1.9

35.0

18.6

33.3

26.4

0.9%

1.0%

(Discount)/premium to peers

(42%)

(46%)

(69%)

(56%)

(55%)

(56%)

(28%)

(15%)

Source: Edison Investment Research, Refinitiv (13 December)

Exhibit 5: Financial summary

€'000s

2016

2017

2018

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

33,060

35,852

39,957

59,091

68,753

91,558

107,514

Cost of sales

(18,954)

(20,224)

(22,289)

(31,825)

(39,469)

(54,087)

(61,116)

Gross profit

14,106

15,628

17,668

27,266

29,284

37,471

46,398

EBITDA

 

 

4,260

3,536

4,098

7,004

8,560

12,402

15,788

Operating Profit (before amort and except)

 

 

3,954

3,180

2,755

5,408

6,542

10,066

13,212

Amortisation of acquired intangibles

(264)

(439)

(610)

(1,142)

(1,340)

(1,900)

(1,900)

Exceptionals and other income

(557)

0

(300)

(713)

(1,963)

(347)

0

Other income

0

(69)

0

0

0

0

0

Operating Profit

3,133

2,672

1,845

3,553

3,239

7,819

11,312

Net Interest

48

(208)

(1,284)

2,194

562

100

0

Profit Before Tax (norm)

 

 

4,002

2,972

1,471

7,602

7,104

10,166

13,212

Profit Before Tax (FRS 3)

 

 

3,181

2,464

561

2,315

5,958

7,919

11,312

Tax

(661)

(710)

4

(1,867)

(1,162)

(2,217)

(3,167)

Profit After Tax (norm)

3,170

2,170

1,204

5,473

5,718

7,320

9,513

Profit After Tax (FRS 3)

2,520

1,754

565

448

4,796

5,702

8,145

Ave. Number of Shares Outstanding (m)

11.7

11.7

11.7

11.7

11.7

11.7

11.9

EPS - normalised (€)

 

 

0.271

0.186

0.102

0.456

0.470

0.624

0.801

EPS - normalised fully diluted (€)

 

 

0.271

0.186

0.102

0.456

0.470

0.624

0.801

EPS - (IFRS) (€)

 

 

0.475

5.874

0.048

0.027

0.391

0.486

0.686

Dividend per share (€)

0.30

1.00

0.50

0.00

0.04

0.06

0.08

Gross margin (%)

42.7

43.6

44.2

46.1

42.6

40.9

43.2

EBITDA Margin (%)

12.9

9.9

10.3

11.9

12.5

13.5

14.7

Operating Margin (before GW and except) (%)

12.0

8.9

6.9

9.2

9.5

11.0

12.3

BALANCE SHEET

Fixed Assets

 

 

25,428

8,860

22,942

34,635

47,411

76,815

73,239

Intangible Assets

21,296

7,332

17,751

24,380

37,652

54,126

52,110

Tangible Assets

1,598

793

3,680

7,929

7,460

6,090

4,530

Other

2,534

735

1,511

2,326

2,299

16,599

16,599

Current Assets

 

 

37,085

109,426

134,674

127,052

126,036

102,411

109,915

Stocks

3,146

2,528

3,141

4,156

4,749

5,049

5,349

Debtors

26,369

17,215

16,992

24,150

41,193

50,169

58,912

Cash

7,570

89,683

114,541

98,746

80,094

47,193

45,654

Other

0

0

0

0

0

0

0

Current Liabilities

 

 

(21,051)

(13,612)

(29,366)

(43,129)

(55,446)

(62,587)

(67,583)

Creditors

(20,243)

(12,937)

(12,062)

(17,823)

(24,811)

(31,952)

(36,948)

Short term borrowings

(808)

(675)

(17,304)

(25,306)

(30,635)

(30,635)

(30,635)

Long Term Liabilities

 

 

(7,180)

(4,781)

(41,903)

(36,538)

(32,138)

(23,638)

(15,138)

Long term borrowings

(1,391)

(1,688)

(36,882)

(32,029)

(27,398)

(18,898)

(10,398)

Other long term liabilities

(5,789)

(3,093)

(5,021)

(4,509)

(4,740)

(4,740)

(4,740)

Net Assets

 

 

34,282

99,893

86,347

82,020

85,863

93,001

100,433

CASH FLOW

Operating Cash Flow

 

 

10,676

119

2,039

(354)

1,244

9,920

11,741

Net Interest

105

(208)

(69)

3,102

(988)

100

0

Tax

(2,022)

379

(624)

(229)

(1,332)

(2,217)

(3,167)

Capex

(738)

(661)

(548)

(916)

(1,156)

(850)

(900)

Acquisitions/disposals

(5,403)

82,250

1,314

(2,178)

(11,701)

(30,755)

0

Financing

(828)

(6)

(7,208)

(4,287)

(2,648)

(130)

0

Dividends

(2,931)

(3,496)

(11,710)

(5,781)

0

(468)

(713)

Net Cash Flow

(1,141)

78,377

(16,806)

(10,643)

(16,581)

(24,401)

6,961

Opening net debt/(cash)

 

 

(8,259)

(5,371)

(87,320)

(60,355)

(41,412)

(22,061)

2,340

HP finance leases initiated

0

0

(2,788)

(2,500)

0

0

0

Other

(1,747)

3,572

(7,371)

(5,800)

(2,770)

0

0

Closing net debt/(cash)

 

 

(5,371)

(87,320)

(60,355)

(41,412)

(22,061)

2,340

(4,621)

Source: TXT e-solutions, Edison Investment Research


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Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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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.

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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

1185 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

1185 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

General disclaimer and copyright

This report has been commissioned by TXT e-solutions and prepared and issued by Edison, in consideration of a fee payable by TXT e-solutions. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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

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

1185 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

1185 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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Ultimovacs has made the decision to expand its R&D pipeline with a new indication, non-small cell lung cancer (NSCLC), for its lead asset the therapeutic cancer vaccine, UV1. The sponsorship arrangement will be similar to most of the other Phase II trials: Ultimovacs will work closely with the lead investigator and will provide financial support. The company will be able to continue the development if the Phase II data are positive. Despite significant progress being made with the advent of immunotherapies, NSCLC is still a challenging cancer to manage. Ultimovacs aims to position UV1 as a combination therapy with Keytruda in a first-line setting, which means it is targeting the biggest share of the large NSCLC market. We adjust our model to include the new opportunity and increase our valuation to NOK6.13bn or NOK179/sh (from NOK128/sh).

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