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Paragon — On track to meet FY17 guidance

paragon (FRA: PGN)

Last close As at 06/08/2026

—

— 0.00 (0.00%)

Market capitalisation

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More on this equity

Research: Industrials

Paragon — On track to meet FY17 guidance

Following recent corporate events, we believe the market is familiar with the paragon growth story. Based on 9M17 results, both paragon and its 60%-owned subsidiary Voltabox are on track to achieve management’s FY17 guidance. Adjusting for Voltabox, paragon’s implied FY17e EV/sales multiple of 0.93x for the electronics and mechanics segments is comparable to peers. Our revenue and earnings estimates are largely unchanged and broadly in line with consensus as we wait for more details on the potential entrance to the autonomous driving market. We have adjusted our DCF valuation from €82.1/share to €86.4/share mainly to reflect the recently completed IPO of Voltabox.

Analyst avatar placeholder

Written by

Industrials

paragon

On track to meet FY17 guidance

Outlook and strategy

Automobiles & parts

24 November 2017

Price

€68.55

Market cap

€310m

Net debt (€m) at 30 September 2017

50.0

Shares in issue

4.53m

Free float

50%

Code

PGN

Primary exchange

Frankfurt (Xetra)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.8)

7.9

54.4

Rel (local)

(9.8)

1.0

26.5

52-week high/low

€94.0

€40.4

Business description

paragon designs and manufactures automotive electronics and solutions, selling directly to OEMs. Products include sensors, acoustics, cockpits and body kinematics. Production facilities are in Germany, the US and China. Following the IPO in October 2017, paragon owns 60% of Voltabox.

Next events

Eigenkapitalforum

27-29 November 2017

FY17 results

28 March 2018

Analysts

Emily Liu, CFA

+44 (0)20 3077 5700

Graeme Moyse

+44 (0)20 3077 5700

paragon is a research client of Edison Investment Research Limited

Following recent corporate events, we believe the market is familiar with the paragon growth story. Based on 9M17 results, both paragon and its 60%-owned subsidiary Voltabox are on track to achieve management’s FY17 guidance. Adjusting for Voltabox, paragon’s implied FY17e EV/sales multiple of 0.93x for the electronics and mechanics segments is comparable to peers. Our revenue and earnings estimates are largely unchanged and broadly in line with consensus as we wait for more details on the potential entrance to the autonomous driving market. We have adjusted our DCF valuation from €82.1/share to €86.4/share mainly to reflect the recently completed IPO of Voltabox.

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

102.8

5.8

0.84

0.25

81.6

0.4

12/17e

123.8

7.8

1.16

0.25

59.1

0.4

12/18e

155.7

13.1

1.95

0.25

35.1

0.4

12/19e

205.0

20.1

2.51

0.25

27.3

0.4

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

9M17 results: On track to meet FY17 guidance

paragon reported 9M17 revenues of €84.5m (up 15% y-o-y), EBIT of €6.1m (up 20% y-o-y) and EPS of €0.49 (up 139% y-o-y). Management reiterated its FY17 revenue guidance of €120-125m and EBIT margin of 9.0-9.5% (including an uplift from Voltabox’s maiden EBIT profit). We assume that at the end of October 2017 Voltabox had net cash of €130m and paragon, on a standalone basis, had net debt of €37m, implying a consolidated net cash position of c €93m.

New growth engine: Autonomous driving

paragon is seeking to create a new growth engine in autonomous driving: biometric sensors to monitor drivers. In the medium term, paragon’s aim is to play a pivotal role in the sensor fusion (ie combination of sensor data to empower better decisions) in order to generate revenue streams from sensor data. As the product roadmap is still under development, we await for more details from the company to update our estimates. We understand that management may update the market on its new development plans in early 2018.

Valuation: DCF revised to reflect increase in cash

Stripping out Voltabox’s revenue, net cash position post IPO and 60% of its current market value, paragon’s standalone FY17e EV/sales ratio of 0.93x based on the electronics and mechanics segments is in line with peers. EBIT metrics may not be comparable given that paragon capitalises approximately 85% of R&D. Using a WACC of 7% and a terminal growth rate of 2% in our model, we have adjusted our DCF valuation from €82.1 to €86.4/share mainly to reflect the net effect of an increase in net cash following the recently completed IPO of Voltabox.

Company description: Focus on the interior of vehicles

Founded in 1988 by CEO/chairman Mr Klaus Dieter Frers, paragon is a tier 1 auto parts and electronics supplier, with c 80% of revenues derived from its electronics products for the interior of vehicles. It currently consists of three divisions: Electronics (sensors, cockpits and acoustic), Voltabox (battery modules and management systems) and Mechanics (body kinematics). Audi, Volkswagen, Porsche, Daimler and BMW were the five largest customers in 2016, accounting for c 70% of paragon’s firm-wide revenues. In terms of geographic breakdown, 70% revenues are from Germany, 25% from the rest of Europe and 5% from other geographies. In Q416, the Chinese manufacturers Changan, GAC-Group and Geely became new customers, primarily for air-quality sensors. paragon is currently developing driver monitoring biosensors and solutions, to provide the functionality required for the driver’s safety and wellbeing in autonomous driving.

9M17 results: On track to meet FY17 guidance

Based on 9M17 results, both paragon and Voltabox are on track to achieve FY17 guidance. Revenues from sensors, cockpits and acoustics totalled €64.8m during the first three quarters of 2017, up 2% year-on-year. Top-line growth during the period was driven by Voltabox, with third-party revenue of €13.8m, up 100% year-on-year. Management reiterated its FY17e guidance of €120-125m in total revenue, including €25m from Voltabox. This implies a flattish trend year-on-year for paragon’s electronics segment (sensors, cockpits and acoustics). The guided FY17e EBIT margin of 9.0-9.5% incorporates the expected positive EBIT contribution from Voltabox.

Exhibit 1: 9M17 vs 9M16 results

€000 (except margin, EPS)

9M17

9M16

% y-o-y

Comment

Revenue

84,745

73,699

15%

Increase driven by Voltabox’s 100% growth year-on-year

Operating performance (including WIP)

97,082

82,012

16%

Gross profits

51,513

43,220

19%

Decrease in material cost ratio

Gross margin

53.1%

52.7%

N/A

Personnel expenses

(25,765)

(21,573)

19%

Depreciation & amortisation

(6,458)

(5,028)

28%

Due to increase in capex and capitalised development costs

Impairment

(5)

(37)

(86%)

Other operating expenses

(13,155)

(11,484)

15%

EBITDA

12,595

10,163

24%

EBITDA margin

14.9%

13.8%

N/A

Operating profits

6,132

5,098

20%

Voltabox’s operating losses down 36% year-on-year

Operating margin

7.2%

6.9%

N/A

Net financing expenses

(2,886)

(2,359)

22%

€50m bond issue in early July 2017

Profit before taxes

3,246

2,739

19%

Income taxes

(1,105)

(1,923)

(43%)

Voltabox enjoyed €0.7m in tax benefits in 9M17

Net profits (loss)

2,143

815

163%

EPS diluted (€)

0.47

0.2

139%

Operating cash flows

(3,180)

8,443

N/A

Mainly due to an €8m increase in trade receivables

Investing cash flows

(12,856)

(16,450)

(22%)

Slight lower investment in property, plant and equipment

Financing cash flows

35,578

3,785

840%

€49m in net cash flow from bond issue

Source: Company data; Edison Investment Research

Voltabox: 60% owned by paragon

Management has reiterated its FY17 guidance for Voltabox’s revenue to increase by 72% y-o-y to €25m and positive EBIT. During the first nine months of 2017, Voltaxbox posted third-party revenue of €13.8m, up 100% y-o-y. EBIT adjusted for foreign currency effects was -€0.2m (vs the previous year: -€3m). Voltabox manufactures battery modules (with cells sourced from leading suppliers such as Toshiba, Samsung and CATL) and designs battery solutions and management systems for auto OEMs and industrial clients. Production facilities are located in Delbrück, Germany and near Austin, Texas (US).

Voltabox consists of three business units:

■

Voltapower: battery solutions for large specialised vehicles in sectors such as public transport, mining and intralogistics. Customers include Triathlon Batterien, KUKA Roboter, Kiepe Electric, FORI AUTOMATION, and Komatsu Mining (formerly Joy Global). Currently, the vast majority of revenues are from this segment.

■

Voltaforce: standardised low-voltage lithium-ion batteries for the mass market such as starter batteries for motorcycles. 48-volt batteries for mild hybrid passenger vehicles are under development. The shipment of starter batteries for BMW motorcycles began in Q317.

■

Voltamotion: R&D centre in Aachen, Germany. The goal is to become a full-service provider for the electrification of vehicles. Power electronics products under development include inverters, chargers and DC/DC-converters. Revenue contribution is expected in H118.

The order backlog was approximately €805m as of 30 June 2017 for the period 1 July 2017 to 31 December 2022 (approximately 77% is attributable to two large customers). The order backlog is determined by signed orders and framework agreements (100% probability) and an additional order backlog weighted by a range of probabilities between 30% and 90%. On the basis of this backlog, Voltabox management aims to achieve revenues of c €100m in 2019. Voltabox’s dividend policy is currently based on a pay-out ratio of 25%.

Exhibit 2: Order backlog by applications, H117

Exhibit 3: Order backlog by geography, H117

Source: Company data

Source: Company data

Exhibit 2: Order backlog by applications, H117

Source: Company data

Exhibit 3: Order backlog by geography, H117

Source: Company data

Valuation

We have revised our DCF-based valuation for paragon from €82.1/share to €86.4/share to reflect a net impact from an increase in consolidated net cash and minority following the Voltabox IPO. Our valuation is subject to revision once management provides more information regarding its product roadmap for autonomous driving and the investment plan required to achieve expansion into this new market. We understand that the company may update the market on new developments in early 2018.

We now include capitalised R&D in our DCF model as part of investments and slightly revise our capex assumptions for FY17 and FY18 to bring them in line with company’s guidance (FY17 investments of c €21m with the portion of the originally planned spend postponed to FY18). We keep all our other assumptions (including those underpinning our terminal value) and estimates largely unchanged for now. Based on management guidance, we assume that Voltabox had net cash of €130m and paragon, on a standalone basis, had net debt of €37m as at the 30 October 2017. This implies paragon’s consolidated net cash position of €93m.

Exhibit 4: paragon DCF

€m

FY17e

FY18e

FY19e

FY20e

FY21e

FY22e

FY23e

FY24e

FY25e

FY26e

FY27e

Sales

124

156

205

246

283

297

312

321

331

337

344

change

N/A

25.8%

31.6%

20.0%

15.0%

5.0%

5.0%

3.0%

3.0%

2.0%

2.0%

EBIT

11

17

23

28

34

36

37

39

40

40

41

margin

9.1%

10.7%

11.3%

11.5%

12.0%

12.0%

12.0%

12.0%

12.0%

12.0%

12.0%

change

N/A

47.8%

38.9%

22.6%

20.0%

5.0%

5.0%

3.0%

3.0%

2.0%

2.0%

Tax

(4)

(5)

(8)

(9)

(11)

(12)

(12)

(13)

(13)

(13)

(14)

tax rate

33.0%

33.0%

33.0%

33.0%

33.0%

33.0%

33.0%

33.0%

33.0%

33.0%

33.0%

NOPAT

8

11

15

19

23

24

25

26

27

27

28

D&A

8

9

10

10

10

10

11

11

11

12

12

Change in working capital

(10)

(5)

(5)

(5)

(5)

(5)

(4)

(4)

(4)

(4)

(4)

Capex + capitalized R&D

(21)

(25)

(18)

(12)

(8)

(8)

(8)

(8)

(8)

(8)

(8)

Free Cash Flow to Firm

(15)

(10)

3

12

20

21

24

25

26

27

28

WACC

7.0%

7.0%

7.0%

7.0%

7.0%

7.0%

7.0%

7.0%

7.0%

7.0%

7.0%

Discount factor

1.00

1.07

1.14

1.23

1.31

1.40

1.50

1.61

1.72

1.84

1.97

PV of FCF

(15)

(9)

3

10

15

15

16

15

15

15

14

NPV - forecast FCF

93

 

NPV - terminal value

267

 

 

 

 

 

 

 

Enterprise value

360

 

 

WACC

5.0%

6.0%

7.0%

8.0%

9.0%

Net cash

93

 

Terminal Growth

0.0%

102.0

83.1

69.6

59.5

51.8

Minorities

62

 

1.0%

119.8

93.8

76.6

64.3

55.2

Equity value

391

 

2.0%

149.5

110.0

86.4

70.7

59.6

Shares outstanding (m)

4.5

 

3.0%

208.8

137.0

101.1

79.7

65.4

Value per share (€)

86.4

 

4.0%

386.7

190.9

125.7

93.1

73.6

Source: Edison Investment Research, paragon

We think it is a good exercise to value paragon based on its 60% stake in Voltabox, assuming that Voltabox is fairly valued by the market. Stripping out Voltabox’s revenue, c €130m in net cash post its IPO and 60% of its market value attributable to paragon, paragon’s electronics and mechanics segments look comparable with the tier 1 auto peers in terms of FY17 EV/sales, but undervalued on EV/EBIT and EV/EBITDA metrics (see Exhibit 5 and Exhibit 6). (We note paragon’s relatively small size compared to the peer group.) However, EBIT/EBITDA metrics may not be comparable as paragon has been capitalising approximately 85% of its R&D spending (vs, for example, Valeo’s 33% capitalised spending). paragon spent €12.8m and €15.2m on R&D in 2015 and 2016 respectively, equivalent to 12.8% and 15.2% of its revenues.

Exhibit 5: Market value attributable to Paragon without Voltabox (€m)

paragon's stake in Voltabox

60%

Voltabox market value

423

Voltabox's market value to paragon (1)

254

paragon's total market value (2)

310

Market value attributable to paragon’s electronics and mechanics business (2)-(1)

56

Net debt to paragon (excluding Voltabox)

37

paragon's EV (excluding Voltabox)

93

paragon's FY17e EV/sales for the electronics and mechanics segment

0.9

paragon's FY17e EV/EBITDA for the electronics and mechanics segment

4.7

paragon's FY17e EV/EBIT for the electronics and mechanics segment

8.4

Market value attributable to paragon’s electronics and mechanics business (2)-(1)

Net debt to paragon (excluding Voltabox)

paragon's EV (excluding Voltabox)

paragon's FY17e EV/sales for the electronics and mechanics segment

paragon's FY17e EV/EBITDA for the electronics and mechanics segment

paragon's FY17e EV/EBIT for the electronics and mechanics segment

56

37

93

0.9

4.7

8.4

Source: Bloomberg; Edison Investment Research

Exhibit 6: Peer group comparisons


Market

5-year CAGR
(2013-18e)

P/E
(x)

EV/sales
(x)

EV/EBITDA
(x)

EV/EBIT
(x)

EBIT margin

EBITDA margin

Company

cap

Sales

EPS

2017e

2018e

2017e

2018e

2017e

2018e

2017e

2018e

2017e

2017e

Continental

€42.771m

6.7%

7.9%

13.5

12.2

1.1

1.1

7.0

6.4

10.0

9.1

10.8%

15.6%

Denso

JPY5,120bn

3.6%

2.9%

16.5

15.6

0.9

0.9

7.6

7.2

12.0

11.5

7.8%

13.2%

Valeo

€14,257m

12.4%

18.8%

13.8

12.1

0.8

0.7

6.4

5.6

10.4

9.1

7.9%

12.8%

Hella

€5,550m

7.8%

13.8%

13.7

12.7

0.8

0.8

5.8

5.3

10.1

9.5

8.1%

14.1%

Visteon

$4,044m

N/A

N/A

20.9

18.6

1.2

1.2

10.4

9.6

13.6

12.6

8.9%

11.6%

Average

15.9

14.2

1.0

1.0

7.4

6.8

11.2

10.4

8.7%

13.5%

paragon

€310m

16.1%

15.2%

59.1

35.1

2.9

2.3

18.7

14.0

32.1

21.7

9.1%

15.7%

Source: Edison Investment Research, Bloomberg data. Note: Priced at 23 November 2017. *Denso based on FY18/FY19e; Visteon carved out its Climate business in 2015.

Sensitivities

Given paragon’s operating history, clientele, product portfolios and R&D activities, investors should take heed of the following risk factors:

■

Key person issues: The company is 50% (plus one share) owned by its founder and CEO/chairman Mr Klaus Dieter Frers. There is no succession plan in place yet.

■

Valuation of Voltabox: The market capitalisation of paragon is highly correlated to the valuation of Voltabox, which is 60%-owned by paragon.

■

Threat from electric vehicles: The five largest customers in 2016 (Audi, Volkswagen, Porsche, Daimler and BMW) accounted for c 80% of paragon’s consolidated sales excluding Voltabox. If German OEMs lag behind in the race to electrification and lose their collective global market shares and paragon has not significantly diversified its clientele, it will have adverse effects on paragon.

Voltabox currently does not have exposure to the BEV (battery electric vehicle) market. Power electronics products under development include inverters, chargers and DC/DC-converters and revenue contribution to Voltabox is expected in H118. The 48 volt batteries for mild hybrid passenger vehicles are still under development.

■

Technology issues: While paragon has sufficient firepower to invest in the development of new products (eg biosensors for driver monitoring), there is no guarantee that the new portfolio of products/services will gain significant traction with OEM customers.

Exhibit 7: Financial summary

€m

2015

2016

2017e

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

95.0

102.8

123.8

155.7

205.0

Group operating performance

 

 

112.4

118.3

134.1

166.0

213.3

Gross Profit

56.9

60.5

66.7

81.2

101.6

EBITDA

 

 

14.1

16.1

19.3

25.7

33.5

Operating Profit (before amort. and except.)

 

 

7.8

8.9

11.2

16.6

23.1

Exceptionals

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Operating Profit (reported)

7.8

8.9

11.2

16.6

23.1

Net Interest

(2.8)

(3.2)

(3.4)

(3.5)

(3.0)

Profit Before Tax (norm)

 

 

5.0

5.8

7.8

13.1

20.1

Profit Before Tax (FRS 3)

 

 

5.0

5.8

7.8

13.1

20.1

Tax

(1.6)

(2.2)

(2.6)

(4.3)

(6.6)

Profit After Tax (norm)

3.4

3.6

5.2

8.8

13.5

Profit After Tax (FRS 3)

3.4

3.6

5.2

8.8

13.5

Net income to minority

0.0

0.0

0.0

0.0

(1.1)

Average Number of Shares Outstanding (m)

4.1

4.2

4.5

4.5

4.5

EPS - normalised (c)

 

 

82.7

84.4

116.0

194.5

250.6

EPS - normalised fully diluted (c)

 

 

82.7

84.4

116.0

194.5

250.6

EPS - (IFRS) (€)

 

 

0.83

0.84

1.16

1.95

2.51

Dividend per share (c)

25.0

25.0

25.0

25.0

25.0

Gross Margin (%)

59.8

58.9

53.8

52.1

49.6

EBITDA Margin (%)

14.8

15.6

15.6

16.5

16.3

Operating Margin (before GW and except.) (%)

8.2

8.7

9.1

10.7

11.3

BALANCE SHEET

Non-current assets

 

 

59.7

75.8

88.8

104.7

112.3

Intangible Assets (including capitalized R&D and goodwill)

24.7

38.0

47.5

56.7

65.4

Plant, property and equipment

34.6

37.4

40.8

47.5

46.4

Investments and other assets

0.4

0.4

0.4

0.4

0.4

Current Assets

 

 

32.9

39.7

213.8

212.7

226.6

Inventory

11.2

13.7

18.7

24.7

31.7

Trade and other receivables

13.2

8.4

18.4

24.4

27.4

Other

0.0

3.4

5.0

7.0

10.0

Cash

8.5

14.3

173.4

160.2

164.1

Non-current liabilities

 

 

46.0

44.9

80.7

80.7

80.7

Financial leases

 

 

1.7

2.2

2.2

2.2

2.2

Non-current loans

 

 

23.8

20.4

20.4

20.4

20.4

Non-current bonds

 

 

13.0

13.2

49.0

49.0

49.0

Other non-current liabilities

7.5

9.1

9.1

9.1

9.1

Current liabilities

 

 

27.0

35.9

40.9

47.9

56.9

Financial leases

 

 

0.6

1.0

1.0

1.0

1.0

Bank loans

8.7

12.4

12.4

12.4

12.4

Trade payables

10.7

16.4

21.4

28.4

37.4

Other current liabilities

7.0

6.2

6.2

6.2

6.2

Net assets

 

 

19.4

34.7

180.9

188.7

201.2

Minority

 

 

0.0

0.0

61.8

61.8

62.9

CASH FLOW

Earnings before tax (EBT)

 

 

5.0

5.8

7.8

13.1

20.1

Depreciation & amortization

 

 

(6.3)

(7.1)

(8.1)

(9.1)

(10.4)

Financial results

2.8

3.2

3.4

3.5

3.0

Change in receivables

(1.0)

4.8

(10.0)

(6.0)

(3.0)

Change in payables

6.2

6.2

5.0

7.0

9.0

Change in inventory

(3.7)

(2.5)

(5.0)

(6.0)

(7.0)

Other

9.9

6.5

10.1

10.4

11.3

Net cash flows from operating activities

 

 

12.9

16.8

3.3

12.9

23.0

Investment in plant, property and equipment

 

 

(19.6)

(7.7)

(7.0)

(11.0)

(4.0)

Investment in tangible assets (including capitalized R&D)

 

(12.3)

(14.4)

(14.0)

(14.0)

(14.0)

Company acquisitions

 

 

(1.2)

(1.2)

 

 

 

Other

 

 

0.8

0.1

 

 

 

Net cash flows from investing activities

 

 

(32.3)

(23.2)

(21.0)

(25.0)

(18.0)

Dividends

(1.0)

(1.0)

(1.0)

(1.0)

(1.0)

Proceeds from equity contributions

13.1

142.0

Loan repayments

(3.8)

(3.8)

Loan proceeds

19.5

4.8

Other

0.0

(0.9)

35.8

Net cash flows from financing activities

 

 

14.7

12.2

176.8

(1.0)

(1.0)

Opening cash position

 

 

13.3

8.5

14.3

173.4

160.2

Change in net cash

(4.8)

5.8

159.1

(13.1)

3.9

Ending cash position

 

 

8.5

14.3

173.4

160.2

164.1

Net debt (cash) at the end of the period

 

 

39.4

34.9

(88.4)

(75.2)

(79.2)

Source: paragon, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by paragon and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by paragon and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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