PVA TePla — Material matters

PVA TePla (XETRA: TPE)

Last close As at 22/05/2024

EUR19.13

−0.70 (−3.53%)

Market capitalisation

EUR417m

More on this equity

Research: TMT

PVA TePla — Material matters

PVA TePla has transitioned from a small seller of industrial systems to a 13 May 2024materials technology and metrology solutions company, set to reach c €280m in revenues in FY24. Its increasing exposure to the fast-growing semiconductor industry (more than two-thirds of sales) and high-end materials markets is securing growth, driven by AI, digitisation and e-mobility. The combination of a higher capital intensity in the semiconductor industry and growing end markets bodes well for players like PVA TePla, which are exposed to the fast-growing part of equipment sales like metrology. Despite this, PVA TePla is still largely valued as an industrial company, trading at a significant discount to peers and our DCF.

Edwin de Jong

Written by

Edwin De Jong

Analyst

TMT

PVA TePla

Material matters

Initiation of coverage

Technology

10 May 2024

Price

€19.93

Market cap

€434m

Net cash (€m) at end FY23

5.7

Shares in issue

21.7m

Free float

86%

Code

TPE

Primary exchange

Deutsche Börse

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

6.9

(9.8)

3.5

Rel (local)

5.9

(17.3)

(10.7)

52-week high/low

€23.6

€14.2

Business description

PVA TePla is a German equipment supplier, mostly for the semiconductor industry but also for the industrial market. Within the sector it is a technology leader in the synthesis (including crystal growing), joining and refining of materials, especially steel. Metrology (acoustic/chemical/ optical), especially for the semiconductor sector, is gaining importance and this is a clear growth market.

Next events

Q124 results

15 May 2024

Capital markets day

16 May 2024

Analyst

Edwin De Jong

+44 (0)20 3077 5700

PVA TePla is a research client of Edison Investment Research Limited

PVA TePla has transitioned from a small seller of industrial systems to a materials technology and metrology solutions company, set to reach c €280m in revenues in FY24. Its increasing exposure to the fast-growing semiconductor industry (more than two-thirds of sales) and high-end materials markets is securing growth, driven by AI, digitisation and e-mobility. The combination of a higher capital intensity in the semiconductor industry and growing end markets bodes well for players like PVA TePla, which are exposed to the fast-growing part of equipment sales like metrology. Despite this, PVA TePla is still largely valued as an industrial company, trading at a significant discount to peers and our DCF.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/22

205.2

24.6

0.85

0.0

23.4

N/A

12/23

263.4

36.3

1.22

0.0

16.3

N/A

12/24e

284.2

42.9

1.44

0.0

13.8

N/A

12/25e

305.9

47.8

1.60

0.0

12.5

N/A

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

Developing into materials technology

PVA TePla has developed into a company with a deep knowledge of the properties and manipulation of materials. With this knowledge, it produces equipment that can, for example, create seamless bonds between materials or grow silicon ingots for use in the semiconductor industry. Very precise handling of heat and vacuum is required in these processes and this has become the company’s expertise. The semiconductor industry is, by far, the largest client group but the aerospace and energy industry are also important client groups. Global trends like digitisation, e-mobility and the Energy transition are the main drivers of the top line. Sales have grown consistently, at double-digit rates, in four of the last five years. We expect EPS of €1.35 in FY24, compared to €0.27 in 2018, representing a CAGR of 31%.

Metrology is becoming the largest segment

Within PVA TePla’s activities, metrology has become the largest revenue driver, with a CAGR of over 25% in the last eight years. Process control is getting more important, especially in the semiconductor industry where geometries are shrinking fast and non-invasive metrology tools, like acoustic, chemical or optical measurement tools, are needed. PVA TePla expects metrology to become its largest activity within several years accounting for more than 50% of its revenues.

Valuation: Transformation not valued versus peers

PVA TePla is trading at an FY25e EV/EBITDA of 6.8x on our estimates. This is much lower than European semiconductor equipment makers (average of c 20.6x), inspection/process control companies (22.5x) and also lower compared to advanced materials players (11.0x). As such, we believe that PVA TePla’s transformation is not reflected in its valuation. Our DCF valuation arrives at a fair value of €35.26 per share.

Investment summary

Company description: Not operating in a vacuum

PVA TePla originated from Pfeiffer Vakuumtechnik. The company has evolved from producing mostly very large vacuum systems for industrial applications, like diffusion bonding and brazing systems, to producing equipment to grow materials like silicon (Si), silicon carbide (SiC) and calcium fluoride (CaF2) and advanced metrology solutions. The latter activity was born from the need for very precise measurement systems for the company’s own processes and was further developed commercially. PVA TePla has a largely outsourced production model and a global client base. The semiconductor industry is, by far, the largest client group and clients range from wafer producers (the slices of silicon that electronic circuits are printed on) to the world’s largest chip makers. Revenues have grown from €97m in 2018 to €263.4m in FY23, largely driven by the company’s semiconductor activities. In FY23, semiconductor sales amounted to 71% of total sales, compared to 60% in 2018 and 50% in 2014 and, as such, it has become by far the largest segment. The materials produced, inspected or measured with PVA TePla’s tools can be linked to global megatrends like digitalisation, decarbonisation and mobility.

Valuation: Cheap compared to several peer groups

While the company has undergone a huge transformation, it is still valued as an industrial company. We compare PVA TePla to a group of semiconductor equipment players, materials technology companies and companies active in metrology inspection tools that are exposed to the same macro, technical and regulatory trends as PVA TePla. Compared to all these groups, PVA TePla trades at large discounts. Furthermore, we have carried out a DCF valuation. In our DCF valuation, we arrive at a value of €35.26 per share. Organic growth will decelerate in FY24 and FY25 to high single digits and accelerate in the years after, especially driven by a new cycle for Metrology. We pencil in a terminal growth rate of 2.0% and the EBITA margin to increase to 18%, from 12.6% in 2022, as PVA TePla benefits from operational leverage and increasing exposure to higher-margin businesses related to semiconductors.

Financials: Doubling sales to €500m by 2028

In 2021, management guided to mid-term revenues of €250m in FY24, which reflected a significant acceleration (23.3% CAGR in 2021–23e) compared to previous growth levels (11.5% CAGR in 2014–20). This target was already met in FY23 and management have guided for €270–290m revenues in FY24. PVA TePla’s new mid-term (FY28) target is a sales amount of €500m, or roughly a doubling compared to FY23 sales. To reach this target, PVA TePla will probably need some M&A, especially as it has guided for moderate revenue growth in FY24 and FY25, while the market digests the capacity that was added in the last few years. In 2021, PVA TePla also guided to an EBIT margin of 15% by FY24 (FY23e: 13%), which will be harder to reach. We estimate an EBIT margin of 14.7%, taking into account the FY24 guidance of an EBITDA of €47–51m. We expect PVA TePla to reach the 15% margin by 2025. There is no margin target related to the FY28 revenue target.

Sensitivities: Cyclicality of semiconductor equipment industry

PVA TePla’s order book typically spans multiple years due to capacity constraints and long investment timelines at clients, as new semiconductor fabs are very expensive. This is also an important reason for the semiconductor equipment sector’s infamous cyclicality and the reason that order intake (€221.8m in FY23) can be very lumpy for PVA TePla. Sector forecasters expect the semiconductor equipment sector to be stable in 2024 after a meagre 2023. Sector organisation

SEMI noted a decrease in chip equipment sales of 1.3% in 2023 to $106.3bn but it guided for a modest increase of 6.4% in chip-making capacity in FY24. Sector organisation Yole guides for a stable FY24 in terms of wafer fab equipment growth. This should support PVA TePla’s FY24 target of moderate growth and margin development. The reporting of semiconductor companies so far this year shows that growth expectations have shifted to the second half of the year. Although PVA TePla has a unique product offering, there is competition in several market segments. In the materials technology semiconductor segment, for instance, competition is mainly from in house developments of tools by (potential) clients. Metrology instruments for the semiconductor industry are also made by reputable companies like ASML, KLA and Applied Materials, although we believe that PVA TePla is more of a niche player in this segment.

Company description: Working under high pressure

PVA TePla emerged from a management buyout in 1991 of Pfeiffer Vakuumtechnik’s metallurgic activities. At that time PVA TePla was mostly making systems to produce materials under high pressure, vacuum and temperature. Over the years, several activities were added; the most important being the acquisition of the maker of crystal growing processes CGS that was spun off from Leybold Systems in 1999.

In a nutshell, PVA TePla’s key competence lies in making equipment that can precisely handle vacuum, extreme pressure and temperatures. This is crucial for applications in industrial and semiconductor manufacturing that have high end-requirements on the purity/conformality of material surfaces, for instance for growing SiC, Si material or making perfect bonds between pieces of metal or complex structures. Because of this, PVA TePla also gained extensive experience in materials technology. To reach the levels of precision needed in these process environments, measurement and analytical tools are also critical and PVA TePla started developing and selling such tools, which turned out to be a very attractive business as well.

Roughly speaking, PVA TePla now has two core activities: materials solutions and metrology. Metrology accounts for around one-third of revenues and materials solutions two-thirds.

Materials solutions

Materials solutions include all the activities and increasingly processes to create, treat, control and handle materials and applications. For example, PVA TePla produces furnaces to grow boules from SiC powder (SiC is a material used in semiconductors to make electrical vehicles more energy efficient) from which 6” and 8’’ wafers can be cut (see Exhibit 2). It is very difficult to grow this material in order to have a conformality of the boule that can be used for wafer processing. PVA TePla also wants to capitalise on the process knowledge it has obtained by, for instance, offering metrology tools.

Additionally, PVA TePla develops systems and solutions that produce ceramic turbine blades for aircraft engines and SiC coatings of graphite components, mostly for use in the semiconductor industry.


Exhibit 1: PVA TePla Si crystal puller

Exhibit 2: Silicon ingot (lower) and SiC boule (upper)

Source: PVA TePla

Source: David Monniaux (top) and ArticCynda (bottom)

Exhibit 1: PVA TePla Si crystal puller

Source: PVA TePla

Exhibit 2: Silicon ingot (lower) and SiC boule (upper)

Source: David Monniaux (top) and ArticCynda (bottom)

The largest activity within Materials solutions division is producing furnaces/crystal growing systems for creating silicon/SiC ingots/boules (see Exhibit 1) for the semiconductor industry.

PVA TePla can design processes and has the equipment to grow almost any material, from Si and SiC to materials like gallium arsenide (GaAs) and CaF2. In this time of increasing exotic material applications, it is very probable that there will be new applications for PVA TePla as well.

In the industrial segment (29% of sales), vacuum brazing, diffusion bonders and graphite cleaning and coating equipment systems are produced. These also require comprehensive materials knowledge. Clients are found in the energy, automotive, aerospace, medical and agricultural sectors, as well as in the semiconductor industry. Diffusion bonders are used to produce heat exchangers for the hydrogen industry, while vacuum furnaces clean graphite deposits on SiC surfaces and brazing tools are used for turbine parts.

PVA TePla’s customers are the larger European chip and wafer producers, turbine makers for the Aerospace industry, the hydrogen industry, leading edge US logic chip producers and foundries and Asian semiconductor makers.

Exhibit 3:Diffusion Bonding systems

MSource: PVA TePla’s website

etrology

Within Metrology, PVA TePla offers acoustic, optical and wet chemical non-destructive metrology systems (see Exhibit 4 or video here) for inspecting semiconductor wafers. Some of the largest semiconductor fabs are clients of PVA Tepla in this area.

Exhibit 4: Acoustic metrology and software

Source: PVA TePla’s website

Metrology activities are reported within the semiconductor segment and have been the fastest growing part of PVA TePla’s activities with a revenue CAGR of 31% in 2015–22. Software (SECS GEM) is also a unique selling point.

Business model: Standard modules and assembly

PVA TePla’s expertise lies in material process knowledge and the very precise handling of materials in difficult high temperature/pressure environments. The materials that are produced, inspected or measured with PVA TePla’s tools can be linked to global megatrends like digitalisation, decarbonisation and mobility.


In both semiconductor equipment and in most cases for the industrial systems, PVA TePla will be the seller of equipment or systems as mentioned in the previous paragraphs. However, in an increasing number of cases, PVA TePla is also acting as a solutions provider, adding process knowledge to the system sales. In some cases, like diffusion bonding for which the equipment investments are demanding and the volumes a client needs are not that high, PVA TePla also has a service model in which it can offer clients paid access to equipment.

An important part of PVA TePla’s business model is that it outsources the production of parts for its systems as much as possible. Furthermore, it has a modular set up, which means that certain parts like wafer handlers and software can be used in different tools. This modular set up of systems is highly recommended in order to have standardisation and less complexity, which leads to higher margins. Assembly, system control and test are the main activities in PVA TePla’s facilities and this is a usual production set up for semiconductor equipment companies.

Lead times from sale to delivery are usually 12–18 weeks, which is not unusual in the sector. For volume orders, like the orders for silicon pullers, lead times can be much longer, up to several years. A large part of the order intake of PVA TePla is prepaid by clients (contract liabilities were €95.2m at FY23), which reduces the financial risk for the company.

PVA TePla has a flexible supply chain. We expect that there is some risk on individual suppliers for critical components (like certain process chamber parts), but for the largest part this is limited by having multiple suppliers for key components. Key components are for instance components for furnaces and PVA TePla has Czech, Polish and Italian suppliers for this.

Towards a materials technology and metrology business

Knowledge of how to handle and treat (exotic) materials like SiC, gallium nitride (GaN) and CaF2, combined with the control PVA TePla has over process chambers under high pressures and temperatures, driven by its metrology and analysis tools and through software, are its key unique selling points.

In recent years, PVA TePla has made more of a distinction between its materials technology activities, in which all materials process knowledge, mostly its vacuum technology, is combined, and its metrology activities. We do not have the exactly matching revenue numbers (see Exhibit 5) but would expect more detail on the company’s capital markets day on 16 May 2024.

Exhibit 5: Revenue split

Source: PVA TePla

The semiconductor market, by far PVA TePla’s most important end market, is continuously looking for specific properties that can be provided by exotic materials like SiC for high switching power with limited energy loss in high power devices like EVs, or GaN and GaAs in smaller applications like smartphones.

Also, with other new developments in the semiconductor industry like hybrid bonding for advanced packaging of chips (a way to squeeze several chips in one package; chiplets) or new transistor architectures (like Gate All Around), the properties needed from materials have become increasingly critical. This is the reason that materials technology has become more important in the sector. Large companies like Shin Etsu, Entegris and Coherent provide these materials, while companies like Applied Materials, LAM Research and ASM International make equipment that can handle them in chip fabrication designs. PVA Tepla serves a niche between these large players, providing equipment, usually crystal growing, or metrology/inspection equipment.

With semiconductor markets more driven by e-mobility, digitisation and energy transition, compared to industrial end markets, PVA TePla’s exposure to this sector is swiftly increasing. However, advanced materials are also becoming more and more important in other industries like aerospace, energy infrastructure (hydrogen/LNG) and medtech, which also show significant growth.

In FY23, semiconductor sales amounted to 71% of total sales, compared to 60% in 2018 and 50% in 2014. In fact, this exposure will be higher, as a substantial part of the industrial activities is semiconductor related.

Material changes

Originally, PVA TePla’s semiconductor exposure was largely towards Si crystal growing systems: selling furnaces using the so-called Czochralski process to grow ingots from a seed crystal, especially for wafer-producers. Later, PVA TePla also produced furnaces for growing SiC boules. Now the company additionally offers graphite cleaning equipment.

Within the Industrial segment, PVA TePla always had deep knowledge on the treatment of mostly metal surfaces. With diffusion bonders, steel particles can create a perfect seamless bond under high temperature and pressure, with sintering, graphite layers can be deposited on components that are used to produce energy efficient inverters and vacuum brazing equipment can be used for high-voltage interrupters.

SiC is an example of how PVA TePla wants to move away from being a systems-only seller to a solutions provider. SiC is an essential material to reduce energy consumption in electric cars as it enables more efficient power switching in the aforementioned inverters for instance. As such, it increases the range of an electric vehicle by several percentage points. In addition to the systems to grow the SiC boules, PVA TePla also offers metrology tools.

The smaller the size, the more metrology

As geometries are shrinking fast in the semiconductor sector, measurement and analysis tools are becoming more and more important within the semiconductor value chain. US equipment suppliers Onto Innovation, Camtek and Applied Materials and, to an increasing extent, ASML are good examples of suppliers of equipment in this segment. Swiss companies Comet and Inficon are also in the market for metrology/inspection tools.

In the last few years, metrology has become the largest segment in PVA TePla’s semiconductor activities, driven by 25%+ CAGR revenue growth in the last eight years. This reflects the increased importance of metrology and analysis in the value chain. The cost of developing processed wafers has increased dramatically as 1) the geometries are getting smaller and smaller (nearing 1nm now), 2) the number of developed layers on wafers has increased and 3) more different kinds of materials are used.

In the front-end chip making process, the fabrication of processed wafers, detecting defects or irregularities on and/or below the wafer surface, preferably early in the process, saves lots of time and hence money, as production time in the increasingly sophisticated fabs is getting more and more expensive.

In advanced packaging, the process of assembly and packaging (multiple) dies into one complex package, metrology has become much more important as well and we see this as a large area of growth for PVA TePla. Complex chip packages are quickly gaining traction after AMD’s first application with hybrid bonding. Intel and TSMC are the most important players in this advanced segment.

The size of the industrial metrology market was $9.7bn in 2022 and, according to Verified Market Research, it will grow with a CAGR of 9.5% to 2030 (see here).

Financials

Upward potential for revenues in the coming years

PVA TePla’s revenue profile has always been difficult to forecast. Because of the lumpiness of order intake and the long lead times, especially from Si crystal pullers, order intake is not a great proxy for PVA TePla’s revenues. For instance, in 2021 PVA TePla received an order from a large German silicon wafer producer for €95m for silicon crystal pullers, which are being delivered in FY23–25.

At FY23 the order book amounted to €278.3m, somewhat lower than FY22, and order intake was €221.8m, which signals another strong year. In general terms, Exhibit 6 indicates that backlog and order intake justify expectations of an increasing revenue base in the coming years.

Exhibit 6: Sales, incoming orders and backlog

Source: PVA TePla, Edison Investment Research 

Like the highly cyclical semiconductor industry, orders and revenues from the industrial sector have been notoriously difficult to forecast. This segment of PVA TePla had negative growth in 2017 and 2021. Nevertheless, overall growth amounted to 78.8% between 2017 and 2023 or a CAGR of 15.1%. This is also much faster growth than the market for industrial systems.

We expect that this is because of PVA TePla’s positioning higher in the materials technology value chain and exposure to fast-growing market segments like semiconductors.

As PVA TePla’s business is split into semiconductor and industrial segments, we use the same approach in our model and estimates.

Semiconductor systems

Global semiconductor equipment spending, which is typically what PVA TePla’s semiconductor activities are, is not the best predictor of PVA TePla’s future revenues (see Exhibit 7). If we consider several subsegments, like wafer fab spending and test equipment spending, there seems to be limited or no correlation. This is because the dynamics of the two most important segments, crystal pullers and metrology, are completely different. Demand for crystal pullers is high when shortages in wafer supply start to build up, and demand for metrology is high when production of chips is at a high. These two dynamics do not coincide.

Investments in bare wafer capacity are an important driver for PVA TePla’s crystal pulling activities, and these usually precede investments in equipment going into the fabs that process the wafers.

For Si (mostly used in PC/smartphone) and SiC (mostly used in EVs) demand dynamics are also different. Investments in metrology are mostly done when fabs are nearing fab readiness and correlate more with chip production and are, by nature, much later in the process.

Exhibit 7: No direct correlation between semiconductor equipment spending and PVA TePla segment revenues

Source: Edison Investment Research, SEMI, World Semiconductor Trade Statistics, PVA TePla

It is clear is that PVA TePla has underperformed the general equipment market in only two of the last five years and its revenues increased 164% over this period, compared to the market’s 90%.

After a weak 2023, the semiconductor industry is in for a better 2024, with growth of 13.1% expected by sector organisation World Semiconductor Trade Statistics, driven by a better anticipated market environment for mobile, PC and data centre, especially driven by AI. Research organisation International Data Corporation (IDC) expects a 4% increase for smartphone and a 2% growth of PC market sales, and Statista expects a 2.6% increase for the automotive market. All in all, this leads to growth forecasts between 13% (Deloitte) and 20% (IDC) for the semiconductor market in 2024. Nevertheless, it should be noted that Q1 reporting so far from semiconductor companies like TSMC and ASML points to more muted development.

Within the semiconductor sector, this should result in a cyclical recovery for memory chips after two very slow years. For logic chips (like processors for PCs and smartphones), and especially for memory and logic chips for data centres, growth is expected this year.

Supply is also looking better. In 2024–27 many new fabs are planned. Sector organization SEMI expects 94 200mm and 300mm new fabs to come online between 2022 and 2026, 78 of which have begun operation, or are in the process of adding equipment or under construction. Of those, 63 are in Asia with 30 in China; 18 are in the US; and 13 are in Europe and the Middle East, according to SEMI’s World Fab Forecast 3Q23. All these fabs will need equipment, which will benefit equipment makers.

As such, we expect 2024 to be another good year for PVA TePla’s most important segment and we expect that this will continue in 2025, with some slowdown in growth in 2026 due to cyclicality.

By 2030, the global semiconductor industry is expected to reach a size of $1tn (several sources: a.o. DigiTimes, McKinsey, SEMI) from c $534bn expected in 2023 (Gartner). This growth will be driven by AI, digitisation and e-mobility. The capital intensity of the industry is also expected to increase, as geometries are getting smaller and material requirements more demanding. This combination of higher capital intensity and a higher revenue base bodes well for players like PVA TePla, which are exposed to the faster-growing part of equipment sales like metrology.

For FY24 we expect revenue growth of 8.2% for PVA TePla’s semiconductor activities, followed by 7.5% in 2025 as previously installed capacity is absorbed. We estimate a return to higher growth levels of 15.4% in 2026, driven by a new cycle in metrology equipment.

Crystal growing

If we take out silicon growing systems, there is quite a lot of information about wafer capacity and demand in the market. Looking at the Q3 presentation from Sumco, a Japanese wafer manufacturer that consistently tracks the market, global wafer capacity should increase gradually in 2024, followed by a steeper increase in 2025. However, demand trends are not that positive in 2024 due to destocking but are expected to increase in 2025 according to the presentation. This is not a precise forecaster for PVA TePla’s crystal growth activities, as PVA TePla’s client group might behave differently and because geographical differences are large (for instance Chinese capacity build-up is more politically driven, compared to the US and Europe). However, this gives some indication of what growth could roughly look like.

Industrial systems sector

On the other hand, Industrial systems is also gaining traction and order intake in this segment has also been on a much higher level in the past five years, from €40m in 2017 to €82m in 2022. Although we expect growth in this segment to be much lower than in the semiconductor segment, it will still amount to c 30% in 2023 and we expect this to level off to c 8% in the years thereafter, as important end markets, especially EV automotive, seem to be slowing down. It is possible for PVA TePla to achieve this relatively high growth as its sophisticated systems have more applications in advanced products.

Revenue projections

PVA TePla’s FY23 revenues came in ahead of FY23 guidance at ‘the upper end of the €240–260m range’. This implied a very strong Q4 of €72.3m (Q3: €64.5m). The order book amounted to €278.3m and this indicates that 2024 and 2025 are likely to be strong years as well. PVA TePla has received prepayments for the larger orders of €71.6m (FY22: €63.8m) on total contract liabilities of €95.3m, so customer commitment to these orders is strong.

All in all, this leads us to the following revenue estimates:

Exhibit 8: Profit & loss statement (€m)

2017

2018

2019

2020

2021

2022

2023

2024e

2025e

Industrial systems

33.3

37.3

45.2

45.6

37.9

59.5

77.4

82.8

89.4

Semiconductor systems

52.1

59.5

85.8

91.4

117.9

145.7

186.1

201.4

216.4

Total revenues

85.4

96.8

131.0

137.0

155.7

205.2

263.4

284.2

305.9

Total revenue growth

-1.4%

13.4%

35.3%

4.6%

13.6%

31.8%

28.4%

7.9%

7.6%

Gross profit

19.1

31.1

37.7

43.2

46.8

59.1

77.5

85.8

94.2

Gross profit margin

22.4%

32.1%

28.8%

31.5%

30.0%

28.8%

29.4%

30.2%

30.8%

EBITDA

5.5

12.3

16.2

22.7

23.0

30.0

41.5

47.9

53.2

Reported operating profit

3.0

9.5

12.3

18.5

18.3

25.1

34.4

41.4

46.2

EBIT margin

3.5%

9.8%

9.4%

13.5%

11.8%

12.2%

13.0%

14.6%

15.1%

Net interest

(0.7)

(0.5)

(0.5)

(0.7)

(0.6)

(1.3)

-0.3

-0.6

-0.6

Profit before tax (reported)

2.3

9.0

11.8

17.8

17.8

23.8

34.1

40.8

45.6

Profit after tax (reported)

5.6

6.0

7.6

12.7

12.2

17.7

24.4

29.2

32.7

Average number of shares outstanding (m) diluted

19.9

19.9

21.7

21.7

21.7

21.7

21.7

21.7

21.7

EPS - normalised (c)

0.28

0.30

0.38

0.61

0.56

0.85

1.22

1.44

1.60

Source: PVA TePla accounts, Edison Investment Research

Gross margins have varied over the years largely between 23% and 32% depending on what system sales were dominant in the revenue mix. In general, gross margins in Industrial systems are lower compared to Semiconductor systems. This explains the overall gradually increasing trend we expect to continue in the following few years towards 31% (ie the higher end of the historical range). Gross margins for semiconductor systems can run up to much higher percentages, typically between 40% and 60% (lower end ASMPT, higher end Besi for instance).

With revenue growth expected in the coming years, we expect operating leverage to increase EBITDA margins towards 18% from the c 15.8% realised in FY23. This implies that opex will decrease towards 13.4% of sales compared to 13.7% in FY23, as fixed costs will be a relatively lower percentage of sales when sales go up.

Depreciation and amortisation is at a higher level compared to the years before 2023 as a result of the acquisition of MPA Industries at the end of FY22. As there is a net cash position, financial costs are low. For the coming years we have pencilled in €0.6m per year. PVA TePla’s tax rate is expected to be stable at c 28.4%. All in all, our estimates suggest that reported net profit should accelerate towards €33m by FY25 (EPS: €1.51), compared to €24.4m (EPS: €1.12) in FY23.

Large working capital swings

Large working capital swings are usual for PVA TePla, mostly because of the large prepayments received from its clients. The prepayments mostly reflect orders for silicon crystal pullers but also other larger tools. For instance, a large German wafer manufacturer gave an order in 2021 for €95m of silicon crystal pullers for delivery in FY23–25 and made a large prepayment.

This was one of the most important reasons that working capital as a percentage of sales fluctuated between -10% and +21% of sales in FY21 and FY22. In FY23, it has become even higher, at 27.6% of sales, as a result of prepayments that are lower compared to FY22 and higher receivables due to an elevated turnover. In the conference call after the FY23 results, management indicated that working capital will also increase in 2024 but we expect it to decrease afterwards. These swings in working capital also led to big swings in operational cash flows.

Capex and cash flow from investments are also very volatile but averaged €8.4m in the last eight years. For FY23, the cash flow from investing activities was €10.8m. For FY24 we anticipate a relatively high level of €10m as a result of ongoing fab investments at MPA.

PVA TePla does not distribute dividends, nor does it have a buyback programme. Cash proceeds are reinvested in the business.

Prepayments on the balance sheet

Due to the nature of PVA TePla’s business, with long-term contracts that are largely prepaid as explained above, PVA TePla has a relatively inflated balance sheet. Against its contract liabilities, there is a relatively large position of cash, term deposits, work in progress (contract assets) and inventories.

PVA TePla had cash (€20.1m) and financial assets (€10.0m), comprising mostly term deposits and term cash investments. Of this (near) cash, a large portion is committed to liabilities (contract liabilities at FY23 of €95.3m), especially for orders for silicon crystal pullers. Furthermore, there are €50.6m contract assets and €94.6m in inventories, which are also partly dedicated to these large orders.

Depending on these large orders, working capital has been either positive (more contract assets/inventory) or negative (large cash prepayments), a situation that we do not see a lot at other semiconductor equipment companies. ASML, which also has large orders and expensive tools is the best comparator in this respect. In FY23, we have seen contract liabilities decrease while inventories were building up with a somewhat higher amount.

With the fast-growing revenue base and a decrease of contract liabilities in the year, working capital increased to 27.6% of revenues in FY23, from 21% in FY22. After FY24, in which we expect a further build-up of working capital, we have pencilled in a return to c 4% working capital as a percentage of sales, which was the average over the last eight years.

Management and shareholders

PVA TePla originated from an MBO by Peter Abel in 1991 of the metallurgic activities of Pfeiffer Vakuumtechnik, which made mostly vacuum systems for the industry. Mr Abel remained the main shareholder (30%) of PVA TePla up to last year. After the sale of his participation, there is no longer an overhang of shares in the market. A number of larger financial shareholders have stepped in, with Lucerne the largest shareholder currently, with a 6.6% stake, Morgan Stanley with 6.4% and Lazard and Henderson both with over 5% stakes. The free float amounts to 77%.

The leadership changed in June 2017 when Alfred Schopf took over the helm. He resigned for personal reasons at the end of his term in 2021 and Manfred Bender, former CEO of German tech company Pfeiffer Vacuum, took over. In 2023, Mr Bender also stood down personal reasons and current CFO and now CEO Jalin Ketter took over, first as speaker of the board, and she was appointed CEO as of 1 January 2024.

COO Oliver Höfer is the longest serving member of the board and has been with PVA TePla since 2007. He has been COO since 2013.

The supervisory board members are chairman Alexander von Witzleben, former CEO of Jenoptik and member of the supervisory board since 2004, Markus Thoma (plasma expert), Myriam Jahn (who is also on the supervisory board of Süss Microtec) and Gernot Hebestreit (who has an academic background and worked at Grant Thornton as partner and member of the executive board).

Sensitivities

PVA TePla’s order book typically spans multiple years due to capacity constraints and long investment timelines at clients, as new semiconductor fabs are very expensive. This is also an important reason for the semiconductor equipment sector’s infamous cyclicality and the reason that order intake (€104.9m in H123) can be very lumpy. This makes financial predictability more difficult on one hand, while on the other hand long-term orders provide visibility.

Sector analysts expect the semiconductor equipment sector to recover in 2024 after a poor 2023. SEMI recorded a 1.3% decrease in chip equipment sales in 2023 and expects an increase of 4.4% in 2024 in its December outlook. This should help PVA TePla reach its FY24 target, as well as margin development. FY23 reporting by semiconductor companies points to a difficult H124 followed by a stronger H224 and generally more cautious statements on the market environment, albeit still growth.

Although PVA TePla has a unique product offering, it faces competition in several market segments. In the materials technology semiconductor segment, for instance, competition is mainly from in-house development of tools by (potential) clients. Metrology instruments for the semiconductor industry are also made by reputable companies like ASML, KLA, Onto Innovation and Applied Materials, although we believe PVA TePla is more of a niche player in this segment.

Valuation

In the process of valuing PVA TePla, we have established where the company is positioned in the competitive field and value chain. Given its very specific profile, with activities in the different fields of metrology and materials technologies, there is not really a comparable peer that carries out both activities. However, looking at PVA TePla’s activity profile, we have separated its activities into three fields and compare its valuation with those groups. We have also included a DCF valuation.

DCF

Our discounted cash flow model is based on the following assumptions:

We only consider organic revenue growth, although we expect the company to remain active in M&A. We expect organic growth to decrease in 2024 and 2025 to around 8%, accelerate in the next few years to 13% and then moderate around 10% in 2030. We have used a terminal growth rate of 2.0%, reflecting the structural growth of the company.

We assume the EBITA margin will increase to 18%, from 14.9% in FY23, as PVA TePla benefits from operational leverage and increasing exposure to higher-margin businesses related to semiconductors.

We assume the effective tax rate gradually moves up to 30%, based on the corporate tax rate in Germany.

We use a beta of 1.5 to reflect the cyclical characteristics of PVA TePla’s end-markets, partly offset by the consistent growth characteristics of the sector.

We set a risk-free rate of 3.5% and an equity risk premium of 4.6%, delivering a WACC of 9.0%. The target capital structure we have used is 80% equity/20% debt.

Our DCF model suggests a fair value for PVA TePla of €35.26 per share.

In Exhibit 9, we show how the DCF value changes with different inputs of perpetual growth and EBIT margin (left-hand side) and WACC (right-hand side).

Exhibit 9: DCF sensitivity analysis

 

 

Perpetual growth

EBIT margin 

1.0%

1.5%

2.0%

2.0%

2.0%

16.0%

30.3

31.5

32.8

32.8

32.8

16.5%

30.8

32.0

33.4

33.4

33.4

17.0%

31.3

32.6

34.0

34.0

34.0

17.5%

31.9

33.2

34.6

34.6

34.6

18.0%

32.4

33.7

35.3

35.3

35.3

18.5%

32.9

34.3

35.9

35.9

35.9

19.0%

33.5

34.9

36.5

36.5

36.5

19.5%

34.0

35.4

37.1

37.1

37.1

20.0%

34.5

36.0

37.7

37.7

37.7

 

Perpetual growth

WACC

1.0%

1.5%

2.0%

2.5%

3.0%

7.0%

44.9

47.8

51.3

55.5

60.8

7.5%

41.1

43.4

46.1

49.4

53.5

8.0%

37.7

39.7

41.9

44.5

47.7

8.5%

34.9

36.5

38.3

40.4

43.0

9.0%

32.4

33.7

35.3

37.0

39.1

9.5%

30.2

31.3

32.6

34.1

35.8

10.0%

28.3

29.3

30.3

31.6

33.0

10.5%

26.6

27.4

28.3

29.4

30.5

11.0%

25.0

25.8

26.5

27.4

28.4

Source: Edison Investment Research

Exhibit 9: DCF sensitivity analysis

 

 

Perpetual growth

EBIT margin 

1.0%

1.5%

2.0%

2.0%

2.0%

16.0%

30.3

31.5

32.8

32.8

32.8

16.5%

30.8

32.0

33.4

33.4

33.4

17.0%

31.3

32.6

34.0

34.0

34.0

17.5%

31.9

33.2

34.6

34.6

34.6

18.0%

32.4

33.7

35.3

35.3

35.3

18.5%

32.9

34.3

35.9

35.9

35.9

19.0%

33.5

34.9

36.5

36.5

36.5

19.5%

34.0

35.4

37.1

37.1

37.1

20.0%

34.5

36.0

37.7

37.7

37.7

 

Perpetual growth

WACC

1.0%

1.5%

2.0%

2.5%

3.0%

7.0%

44.9

47.8

51.3

55.5

60.8

7.5%

41.1

43.4

46.1

49.4

53.5

8.0%

37.7

39.7

41.9

44.5

47.7

8.5%

34.9

36.5

38.3

40.4

43.0

9.0%

32.4

33.7

35.3

37.0

39.1

9.5%

30.2

31.3

32.6

34.1

35.8

10.0%

28.3

29.3

30.3

31.6

33.0

10.5%

26.6

27.4

28.3

29.4

30.5

11.0%

25.0

25.8

26.5

27.4

28.4

Source: Edison Investment Research

Peer valuation

Because of its diversified profile, it is difficult to put PVA TePla in a particular group of comparable companies. We have differentiated between three groups of companies that we believe share an important part of their activities with PVA TePla:

Advanced materials companies with an angle towards the semiconductor industry. In this segment we would put US company Coherent (formerly II-VI), which has a great knowledge of special materials, which it also uses in its own products, such as laser products, an activity not comparable to PVA TePla. Entegris, also from the US, is more of an advanced materials seller, while French Mersen has a large distribution business next to its advanced graphite, power semiconductor materials business. These companies all share advanced materials knowledge with another activity, which we could see as PVA TePla’s metrology activities.

Inspection and metrology peers. This group is more straightforward: US-based KLA is by far the largest player in the metrology field and more developed in terms of process control instead of metrology/inspection alone. KLA specialises in the front end, or wafer processing phase, of the semiconductor value chain. Onto Innovation is also a large player in this field, but is active in the back end, or attachment/packaging phase of the semiconductor value chain. Camtek specialises in inspection/metrology for advanced packaging. European Comet and Inficon are active in the semiconductor industry as well; European Comet with X-ray inspection and plasma systems and Inficon with instruments, components for gas measurement and control.

Next to that we have taken a diverse group of European semiconductor equipment suppliers, which includes industrial and/or packaging-oriented companies. This group includes Besi (advanced packaging equipment), Suss MicroTec (advanced packaging and front-end equipment) and VAT (a supplier to the semiconductor equipment industry)

It is clear that there are large valuation differences within these groups depending on their orientation: multiples for Mersen (more power semis/distribution), a smaller French and more trading-oriented firm, are much lower than for the rest of the companies, while Besi has a premium valuation based on its leading position in hybrid bonding equipment. In addition, there are large differences between the groups: the multiples of semiconductor equipment companies are higher on average compared to inspection tools/metrology, which are higher than advanced materials.

In the context of the multiples of all of these groups it is clear that PVA TePla’s multiples are not demanding. At our DCF fair value of €35.26, PVA TePla would trade at an FY24e EV/EBITDA multiple of 15.5x, which is still undemanding compared to two of the three reference groups.

Exhibit 10: Peer valuation

Market cap (local ccy)

EV/EBITDA 2023

EV/EBITDA 2024e

EV/EBITDA 2025e

Advanced materials companies

Coherent ($)

8,340

8.5

11.5

8.3

Entegris ($)

19,604

23.5

23.3

18.8

MKS Instruments ($)

8,273

12.5

14.5

11.3

Mersen (€)

906

5.3

6.0

5.5

Average

12.5

13.8

11.0

Semiconductor inspection/process control companies

Camtek ($)

3,808

34.9

33.4

26.7

Comet (CHF)

2,332

46.0

30.4

16.9

Inficon (CHF)

3,536

23.6

21.5

18.6

Onto Innovation ($)

10,143

36.1

40.7

30.8

KLA ($)

96,557

14.7

23.6

19.7

Average

31.1

29.9

22.5

European semiconductor equipment companies

Besi (€)

9,735

43.6

32.3

20.1

Suss MicroTec (€)

941

15.3

15.1

11.0

VAT (CHF)

13,800

46.6

41.8

30.7

Average

 

35.2

29.7

20.6

PVA TePla (€)

433.5

10.6

8.5

6.8

Premium/discount vs materials peers

-15.2%

-38.5%

-38.1%

Premium/discount vs inspection/process control peers

-66.0%

-71.6%

-69.9%

Premium/discount vs European equipment peers

-70.0%

-71.4%

-67.0%

Source: Edison Investment Research, LSEG. Note: Priced at 9 May 2024.

Exhibit 11: Financial summary

2019

2020

2021

2022

2023

2024e

2025e

2026e

Year end 31 December, €m

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

131.0

137.0

155.7

205.2

263.4

284.2

305.9

346.3

Cost of Sales

(93.3)

(93.9)

(109.0)

(146.2)

(185.9)

(198.4)

(211.7)

(237.2)

Gross Profit

37.7

43.2

46.8

59.1

77.5

85.8

94.2

109.1

EBITDA

16.2

22.7

23.0

30.0

41.5

47.9

53.2

62.5

Operating profit (before amort. and excepts.)

13.0

19.2

18.3

25.9

36.5

43.5

48.4

56.7

Amortisation of acquired intangibles

(0.7)

(0.7)

(0.8)

(0.8)

(2.2)

(2.2)

(2.2)

(2.2)

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Reported operating profit

12.3

18.5

17.6

25.1

34.4

41.4

46.2

54.6

Net Interest

(0.5)

(0.7)

(0.6)

(1.3)

(0.3)

(0.6)

(0.6)

(0.6)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

12.5

18.5

17.8

24.6

36.3

42.9

47.8

56.1

Profit Before Tax (reported)

11.8

17.8

17.0

23.8

34.1

40.8

45.6

54.0

Reported tax

(4.1)

(5.1)

(5.6)

(6.1)

(9.7)

(11.6)

(13.0)

(15.3)

Profit After Tax (norm)

8.4

13.4

12.2

18.5

26.6

31.4

34.8

40.8

Profit After Tax (reported)

7.7

12.7

11.4

17.7

24.4

29.2

32.7

38.6

Minority interests

(0.1)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

8.3

13.4

12.2

18.5

26.6

31.4

34.8

40.8

Net income (reported)

7.7

12.8

11.5

17.8

24.5

29.3

32.8

38.7

Basic average number of shares outstanding (m)

21.7

21.7

21.7

21.7

21.7

21.7

21.7

21.7

Average number of shares outstanding (m) diluted

21.7

21.7

21.7

21.7

21.7

21.7

21.7

21.7

EPS (€)

0.36

0.59

0.53

0.82

1.12

1.35

1.51

1.78

EPS - normalised (€)

0.38

0.61

0.56

0.85

1.22

1.44

1.60

1.88

DPS (€)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

28.8

31.5

30.0

28.8

29.4

30.2

30.8

31.5

EBITDA Margin (%)

12.4

16.6

14.8

14.6

15.8

16.9

17.4

18.1

Normalised Operating Margin (%)

9.9

14.0

11.8

12.6

13.9

15.3

15.8

16.4

BALANCE SHEET

Fixed Assets

52.0

47.3

71.7

72.8

82.2

85.6

87.6

87.6

Intangible Assets

11.5

11.1

10.4

20.5

18.6

18.6

18.6

18.6

Tangible Assets

30.2

28.6

28.8

34.0

41.6

45.1

47.1

47.1

Investments & other

10.3

7.6

32.5

18.3

21.9

21.9

21.9

21.9

Current Assets

128.9

129.8

168.4

217.5

223.2

255.5

308.9

385.9

Stocks

65.2

67.6

59.2

75.0

94.6

102.0

109.8

124.3

Debtors

27.4

24.8

32.6

73.6

57.0

61.5

61.2

64.1

Cash & cash equivalents

25.5

29.6

57.6

27.1

20.1

40.5

86.4

146.0

Other

10.8

7.8

19.1

41.8

51.4

51.4

51.4

51.4

Current Liabilities

96.1

79.3

126.3

147.6

130.2

136.8

159.5

197.9

Creditors

10.8

8.0

11.1

18.3

18.8

20.3

21.9

24.7

Tax and social security

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

85.3

71.3

115.2

129.3

111.4

116.5

137.6

173.1

Long Term Liabilities

27.6

28.6

31.1

38.7

47.7

47.7

47.7

47.7

Long term borrowings

3.3

1.7

1.2

5.1

14.5

14.5

14.5

14.5

Other long-term liabilities

24.2

26.9

29.9

33.6

33.3

33.3

33.3

33.3

Net Assets

57.2

69.2

82.7

104.1

127.4

156.6

189.3

227.9

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

57.2

69.2

82.7

104.1

127.4

156.6

189.3

227.9

CASH FLOW

Operating Cash Flow

22.4

21.6

22.4

44.2

32.1

35.7

39.7

46.6

Working capital

(23.0)

(13.6)

36.4

(58.3)

(30.1)

(5.3)

15.2

21.0

Net operating cash flow

(0.6)

8.1

58.9

(14.1)

2.0

30.4

54.9

67.6

Capex

(12.5)

0.6

(34.0)

(21.3)

(10.8)

(10.0)

(9.0)

(8.0)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net interest

(1.0)

1.6

0.5

(3.9)

(9.4)

0.0

0.0

0.0

Equity financing

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(1.4)

(4.3)

3.5

5.3

1.8

0.0

0.0

0.0

Net Cash Flow

(15.5)

6.0

28.8

(33.9)

(16.4)

20.4

45.9

59.6

Opening net debt/(cash)

(37.6)

(22.1)

(27.9)

(56.4)

(22.1)

(5.7)

(26.1)

(72.0)

FX

0.1

0.2

0.4

0.5

(0.1)

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

(22.1)

(27.9)

(56.4)

(22.1)

(5.7)

(26.1)

(72.0)

(131.6)

Source: company accounts, Edison Investment Research

Contact details

Revenue by geography

Im Westpark 10-12
354356 Wettenberg
Germany
+49-641686900
www.pvatepla.com

Contact details

Im Westpark 10-12
354356 Wettenberg
Germany
+49-641686900
www.pvatepla.com

Revenue by geography

Management team

CEO: Jalin Ketter

COO: Oliver Höfer

After the previous CEO, Mr Bender, resigned for personal reasons, CFO Jalin Ketter took over, first as speaker of the board, and has been appointed CEO as of 1 January 2024.

Oliver Höfer is the longest serving member of the board and has been with PVA TePla since 2007 and acting COO since 2013.

Management team

CEO: Jalin Ketter

After the previous CEO, Mr Bender, resigned for personal reasons, CFO Jalin Ketter took over, first as speaker of the board, and has been appointed CEO as of 1 January 2024.

COO: Oliver Höfer

Oliver Höfer is the longest serving member of the board and has been with PVA TePla since 2007 and acting COO since 2013.

Principal shareholders

(%)

Lucerne

6.6%

Morgan Stanley

6.4%

Lazard

5.5%

Janus Henderson

5.0%


General disclaimer and copyright

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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 2024 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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This report has been commissioned by PVA TePla and prepared and issued by Edison, in consideration of a fee payable by PVA TePla. 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 2024 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Zalaris — Continuing contract momentum in FY24

Zalaris reported its ninth consecutive quarter of year-on-year revenue growth in Q124, up to a record NOK318m. New contract momentum has continued, while the net retention rate of existing clients within Managed Services was 109%, driven by an increase in upselling of additional services. Profitability is improving as the benefits from its EBIT improvement programme are bearing fruit alongside operational leverage. Zalaris’s strong contract momentum has led us to upgrade our revenue estimates by 1.9% to NOK1,275m for the year at an improved adjusted EBIT margin of 10.9%, more closely reflecting the Q124 exit-margin. These results underpin management’s confidence in achieving its FY26 revenue target of NOK1.5bn at an adjusted EBIT margin of 12–15%. The company continues to undertake the strategic review that was announced in early-April, with management expecting to announce a conclusion in Q224.

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