Vertu Motors — Responding to the challenge

Vertu Motors — Responding to the challenge

Vertu Motors has produced another solid set of figures, supported by a series of key investments to strengthen the medium-term outlook. Trading in the new car market has become more challenging, but the key used car and aftermarket operations continue to progress consistently.

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Written by

Vertu Motors

Responding to the challenge

FY17 results

Retail (automotive)

15 May 2017

Price

48.25p

Market cap

£192m

Net cash (£m) at end February 2017

21.0

Shares in issue

397.3m

Free float

97%

Code

VTU

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.6

6.0

(16.8)

Rel (local)

0.3

2.9

(31.4)

52-week high/low

60.0p

37.8p

Business description

Vertu Motors is the sixth largest UK motor vehicle retailer. Established in 2006, it is expanding through the completion and subsequent development of a series of acquisitions, initially in volume cars, but now including the premium segment of the market.

Next events

AGM

July 2017

Analysts

Nigel Harrison

+44 (0)20 3077 5700

Andy Chambers

+44 (0)20 3681 2525

Vertu Motors is a research client of Edison Investment Research Limited

Vertu Motors has produced another solid set of figures, supported by a series of key investments to strengthen the medium-term outlook. Trading in the new car market has become more challenging, but the key used car and aftermarket operations continue to progress consistently.

Year
end

Revenue (£bn)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

02/16

2.42

27.4

6.31

1.30

7.6

2.7

02/17

2.82

31.5

6.43

1.40

7.5

2.9

02/18e

2.90

34.0

6.79

1.50

7.1

3.1

02/19e

3.00

35.5

7.08

1.60

6.8

3.3

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

Another good year

Vertu’s FY17 results are at the upper end of market expectations, showing revenue up by 16.5% to £2.82bn and adjusted PBT by 15.0% to £31.5m; dilution from a £35m (gross) equity fund-raising restricted the rise in adjusted diluted EPS to just 1.9%. The dividend was lifted by 7.7% to 1.4p. While UK new car registrations were at record levels, trading conditions became more challenging from Q1 onwards, especially following the Brexit vote, which led to weaker sterling and rising new car prices. The group’s key used car and aftermarket operations (71.5% of gross profit) performed impressively, delivering a 20% increase in profits.

Investment of almost £80m

Investment continued apace, with net capex and acquisition expenditure over the year of £28.6m and £50.6m. Capex is indicated at £37.5m in the current year, while management continues to assess acquisition opportunities that meet strict internal criteria in terms of quality, location and potential ROC. Meanwhile, there has been management strengthening ahead of the next stage of growth, while new initiatives to reach and retain new customers continue to emerge. Conditions in the new car market may become more challenging, but the impact of management action, especially in recent acquisitions, leaves us confident about the immediate and longer-term prospects. We are leaving our current year adjusted PBT forecast of £34.0m unchanged and introduce an estimate of £35.5m for FY19.

Strong balance sheet

Last year’s investment programme was largely financed by cash generated from operations and the above mentioned fund-raising; net funds were reduced over the year from £23.1m to £21.0m. Unused facilities of some £60m are available to support the group’s continuing ambitious capex and acquisition programme.

Valuation: Quality in an undervalued sector

Vertu’s rating of 7.1x CY17 prospective earnings is at a small discount to the 7.9x average of the other UK motor distributors and little more than half the 13.9x rating of the FTSE General Retailers index. This discount reflects neither the defensive qualities of motor retailing nor the group’s consistent record and growth potential.

Adjusted PBT up 15%

Vertu Motors sustained its impressive rate of progress in the year to February 2017. Like-for-like group revenues were up by 4.4%, with the group delivering sound profits progress in all four core parts of the business: new cars, fleet/light commercial, used cars and aftermarket. Unlike in recent years, there was a modest widening of gross margins; with little change in the mix of business, there was a determination not to chase less profitable sales, especially in the more challenging new car market. Costs as a percentage of revenue rose slightly because of increased investment in the next stage of growth, but remained firmly under control; operating margins edged up from 1.18% to 1.20%. Underlying pre-tax profits of £31.5 were 15% above the £27.4m of the previous year and also ahead of our £30.5m estimate. Reflecting dilution from the £35m equity placing during the year, adjusted diluted EPS rose by just 1.9% to 6.43p; the dividend is lifted by 7.7% to 1.4p, covered 4.7 times.

The momentum of acquisitions and new openings continued, with group net investment of £79.2m. Principal acquisitions involved the introduction of Mercedes Benz (Reading, Slough, Ascot) to the group and the extension of the Jaguar Land Rover network in Yorkshire. The group also secured its first Toyota representation and added to its Nissan and Skoda coverage. In addition, there were several major relocations and franchise upgrades as part of the previously reported medium-term investment programme; the ongoing review of operations again led to a number of disposals, closures and refranchising of underperforming operations.

These developments were largely financed by a £35m (gross) equity placing and a strong cash flow. At February 2016, Vertu had net cash of £21.0m, compared with £23.1m 12 months earlier.

Exhibit 1: Results breakdown

Year to February

2017 (£m)

2016 (£m)

Change (%)

Revenue

New car retail/Motability

New fleet and commercial

Used cars

Aftermarket

909.4

648.7

1,037.5

227.0

796.5

587.6

850.2

189.0

+14.2

+10.4

+22.0

+20.1

Total revenue

2,822.6

2,423.3

+16.5

Gross profit

New car retail/Motability

New fleet and commercial

Used cars

Aftermarket

68.3

21.1

100.7

123.4

59.3

17.6

83.5

102.9

+15.2

+19.9

+20.6

+19.9

Total gross profit

313.5

263.3

+19.1

Operating profit

33.8

28.6

+18.2

Pre-tax profit

31.5

27.4

+15.0

Gross margins

11.11%

10.86%

Operating margins

1.20%

1.18%

Pre-tax margins

1.12%

1.13%

Source: Vertu Motors preliminary statement. Note: Before intangibles amortisation, share-based payments and exceptional items.

New cars/Motability (21.8% of gross profit)

As was generally predicted across the sector, the new car market remained robust throughout the year, although conditions became progressively more challenging after a strong Q1. While CY16 new car registrations rose to a new record of 2.7m (Source: SMMT), the retail segment slipped back by 1.0%, despite the continued strong support of the OEMs in the form of attractive financial packages and a relatively high level of pre-registration activity by certain retailers seeking to meet demanding OEM targets. In this context, the group delivered 41,525 new retail vehicles, representing a 4.4% advance over the previous year. On a like-for-like basis, however, there was a reduction of 6.4%, with a higher shortfall in H2. Management concentrated on sustaining margins, while meeting OEM targets; the group resisted the urge to chase volume.

There was a nominal reduction in Motability volumes to 11,396 vehicles, including a 4.4% like-for-like reduction; the market slipped by 1.1%. Management indicated that its loss of market share reflected a switch in franchise preference, following OEM price adjustments related to the weakness of sterling. Nevertheless, Vertu retained the Motability Dealer Group of the Year accolade earned in the two previous years.

Margin pressures on retail new car sales continued throughout the year, especially when volumes started to fall away in H2. However, a combination of a higher percentage of specialist vehicle sales and the decision not to chase volume enabled the group to sustain gross margins at 7.4%.

The new retail and Motability sectors both face challenging conditions in the current year. A strong new car performance in March was influenced by VED (vehicle excise duty) changes and was followed by a sharp correction in April. Retail registrations for the first two months of FY18 are reported 7.6% lower at 0.36m – ironically, SMMT upgraded its FY17 registrations forecast at the time of the announcement of the April figures. Significantly, Vertu has indicated segmental gross profits ahead of the corresponding period of the previous year. There is increasing uncertainty in the Motability marketplace, but we still look for another sound result from this segment in FY18.

Fleet and commercial (6.7% of gross profit)

Fleet was the mainstay of the new car market last year, supplying all of the growth in registrations, while the light commercial vehicle (LCV) market rose by a further 1.2%. Vertu performed well in both sectors, although for differing reasons. Fleet car sales were largely unchanged, although falling by 4.2% on a like-for-like basis; the quality of the business again rose considerably, with a fall in the ultra-low-margin daily rental business balanced by the impact of higher volumes of premium vehicles carrying a higher margin. Vertu modestly outperformed the LCV market, lifting volumes on an actual and like-for-like basis. Combined unit sales rose by 1.3% to 35,577 vehicles, but with a higher average unit price and increased overall margins, revenue rose by 10.4% and gross profits by 19.9%.

These trends have continued into the current year, with volume increases in the fleet/LCV segment of the business balancing the shortfall in retail sales. LCV registrations were disappointing in April, but action taken by management to raise the quality of the underlying operations encourages us to view the remainder of the year with optimism.

Used cars (32.1% of gross profit)

Used cars remain fundamental to the development of group profitability – Vertu has a recognised skill base in this area, while the increased sale of service plans increase throughput and efficiency levels in the group’s aftermarket operations. The group sold 81,636 used cars last year, representing a 13.9% increase over the previous year; this included a 7.1% like-for-like advance. The size of the overall market was augmented by the growth in self-registrations, but the group again outpaced the 6% market growth indicated by management.

This represents another impressive performance, in the context of the range of sales inducements in the retail new car market, which will have contributed to a number of traditional used car buyers switching to new vehicles. The sourcing of used cars and the inventory profile across the dealership network remain fundamental, with the recovery in the new car market (which began five years ago) still leading to increased vehicle availability.

It has been clear for some time that this increased availability could put pressure on used car margins, but management was confident that its increased emphasis on investment in inventory profiles, a high stockturn and marketing advances would lift volumes and lead to another strong result. Growing involvement of the OEMs in offering PCPs (personal contract plans) on quality used cars is also helping to sustain margins. Gross profit per vehicle increased by 6.6%, while like-for-like gross margins increased by 50bp to 10.6%. Lower margins on recent acquisitions held back overall gross returns (down from 9.8% in FY16 to 9.7% in FY17), but the outlook remains positive.

The current year has started well, with like-for-like margins and volumes for the first two months of the trading year running ahead of last year. We look for a sustained increase in volumes in the coming months and, although we cannot be sure as to the sustainability of the increased margins, we are confident of useful further profits progress.

Aftermarket (39.4% of gross profit)

Although not matching the impressive revenue growth seen elsewhere in the group, the aftermarket operations again performed consistently. Revenues rose by 20.1% to £227m, including useful like-for-like revenue growth in each segment of the business. Gross profit margins (expressed on internal and external revenue) were little changed at 44.6% despite slightly unfavourable changes in the terms of trade in the parts business.

The development of the used car business across the franchises remains fundamental to the development of aftermarket operations. Vertu has been progressively securing increased market share through consistent investment in CRM and the sale of service plans, which has extended the age profile of vehicles going through the group workshops. The proportion of service work on vehicles more than five years old continues to rise, while the number of service plans (excluding OEM-sponsored plans) rose to 104,040 last year, up from 28,895 just four years ago.

Management continues to introduce initiatives to lift aftermarket revenues. Working hours are being extended, where appropriate, to meet a more demanding customer. The recovery in the new car market over the past four years, the more focused motivation of sales teams to sell service plans and the planned targeting of smaller fleet customers, all point to consistent growth being delivered by Vertu’s aftermarket operations – both in the immediate future and over the medium term.

Conditions more challenging

From the above comments it is clear that the retail new car market is under pressure. While SMMT forecasts for current year registrations have been nudged higher in recent weeks, a reduction from last year’s record still looks likely. We understand from several dealership groups that several OEMs are looking to reduce the number of new vehicles imported to the UK in the coming months, which should help sustain margins, but only the well-managed groups, especially those with investment benefits to accrue, will deliver like-for-like progress in this segment in 2017.

However, more than 70% of gross profits are generated in the used car and aftermarket operations, both of which performed strongly in FY17 and have started the current year positively. Much of the group investment in recent years has been aimed at these segments of the business. Management has been bolstered ahead of the next stage of growth, while there is a clear strategy to respond effectively to the opportunities presented by modern media channels to reach and retain new customers. At the same time, OEM relationships remain fundamental to business development.

Vertu has a pent-up profit momentum in recent acquisitions, which take up to four years to reach their optimum performance. Several businesses acquired during this period are moving ahead, as overall efficiency levels are raised and the used car content builds, with its subsequent impact on aftermarket returns. In addition, several major recent capex projects involving the upgrading and/or relocation of facilities will be moving towards higher returns.

We remain confident about the medium term. The pipeline of potential acquisitions remains extensive, while the group supplemented the available funds in 2016, to respond quickly to opportunities as they arise. Competition for acquisitions has increased in recent months, especially in the premium segment of the market; the weakness of sterling has raised interest from overseas, particularly the US. Vertu has demonstrated an ability to identify and secure deals that meet its demanding quality and returns criteria over the past few years and, with the support of the OEMs, can be expected to continue.

The OEMs are becoming less tolerant of underperforming franchises. The independent retailers (60% of the market) have benefited from benign market conditions for the past three years and are under increasing pressure to commit substantial capital investment to upgrade their dealership facilities. Many of those without family succession in place will be tempted to exit in the near future, especially as trading conditions are becoming more challenging.

Industry dynamics, especially those involving the necessary investment in internet visibility, all point to the industry becoming more focused towards the larger dealership groups over the next two to three years. Vertu should continue at the forefront of this trend.

We have left our FY18 adjusted PBT estimate unchanged at £34.0m, while other analysts have been taking a more cautious line in recent months in response to sterling weakness and consumer spending fears following last year’s Brexit vote. We believe that the underlying momentum from recent acquisitions and the continued progress being delivered in used cars and the aftermarket point positively to the immediate future. As the year progresses, we anticipate that the market will take a less cautious line and lift their targets in line with our own. We look to further benefits from recent and current investment plans in the following year and are introducing an adjusted PBT estimate of £35.5m for FY19.

Finances remain strong

The Vertu balance sheet remains strong, with management well able to respond quickly to acquisition opportunities in the market.

Last year’s funds flow statement shows £58.1m in cash flow generated from operations, benefiting from a further £16.0m reduction in working capital – year-end inventory levels were again below our estimates. With the outflow related to interest payments (£2.4m), taxation (£5.7m) and dividends (£5.4m) totalling £13.5m, there was a net £44.6m generated to finance investment. The substantial capital (£28.6m) and acquisition (£50.6m) expenditure totalling £79.2m, was largely financed by the operational cashflow and the £32.6m net proceeds of the share placing. Net funds decreased year-on-year by £2.1m from £23.1m to £21.0m.

On the basis of our current estimates, the group will generate just over £46m from operations in the current year, of which up to £15m will be absorbed by tax, interest and dividend payments, leaving in excess of £30m available for investment. With capex indicated at around £37.5m, we anticipate a net cash outflow over the year of up to £10m.

The group balance sheet at February 2017 shows shareholders’ funds of £246.4m, equivalent to 62.3p per share; net tangible assets amount to 39.5p per share.

Current banking facilities comprise £68m related to the general financing of the business, including working capital (the balance sheet date tends to be favourable for working capital ratios). In addition, the group has a £40m acquisition facility, which can be extended by a further £30m to facilitate larger deals – the group has drawn £10m of this facility. On this basis there are substantial funds available to support the group’s ongoing ambitious acquisition programme.

Exhibit 2: Financial summary

£000s

2013

2014

2015

2016

2017

2018e

2019e

Year end 28 February

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

Revenue

 

 

1,259,335

1,684,500

2,074,912

2,423,279

2,822,589

2,900,000

3,000,000

Cost of sales

(1,110,254)

(1,492,335)

(1,846,843)

(2,160,000)

(2,509,049)

(2,575,200)

(2,661,000)

Gross profit

149,081

192,165

228,069

263,279

313,540

324,800

339,000

EBITDA

 

 

13,281

23,574

28,650

35,451

42,435

45,000

46,600

Operating profit (before GW and except.)

 

 

9,139

17,904

22,735

28,648

33,770

36,200

37,600

Intangible amortisation

(291)

(293)

(405)

(558)

(614)

(650)

(650)

Exceptionals

(3,606)

(1,180)

0

0

0

0

0

Other

(99)

(195)

(645)

(911)

(1,082)

(1,150)

(1,150)

Operating profit

5,143

16,236

21,685

27,179

32,074

34,400

35,800

Exceptionals

316

0

0

0

0

0

0

Net interest

(1,081)

(394)

(687)

(1,217)

(2,254)

(2,200)

(2,100)

Profit before tax (norm.)

 

 

8,058

17,510

22,048

27,431

31,516

34,000

35,500

Profit before tax (FRS 3)

 

 

4,378

15,842

20,998

25,962

29,820

32,200

33,700

Tax

(989)

(3,414)

(4,459)

(5,282)

(5,800)

(6,440)

(6,740)

Profit after tax (norm.)

7,069

14,096

17,589

22,149

25,716

27,560

28,760

Profit after tax (FRS 3)

3,389

12,428

16,539

20,680

24,020

25,760

26,960

Average number of shares outstanding (m)

199

299

340

341

391

398

398

EPS - normalised (p)

 

 

3.15

4.69

5.15

6.46

6.54

6.90

7.20

EPS - normalised fully diluted (p)

 

 

3.14

4.64

5.06

6.31

6.43

6.79

7.08

EPS - FRS 3 (p)

 

 

1.70

4.15

4.87

6.06

6.14

6.47

6.77

Dividend per share (p)

0.70

0.80

1.05

1.30

1.40

1.50

1.60

Gross margin (%)

11.8

11.4

11.0

10.9

11.1

11.2

11.3

EBITDA margin (%)

1.1

1.4

1.4

1.5

1.5

1.6

1.6

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

0.7

1.1

1.1

1.2

1.2

1.2

1.3

BALANCE SHEET

Fixed assets

 

 

129,695

163,810

190,928

227,339

295,542

331,492

350,742

Intangible assets

22,585

44,361

52,772

70,881

96,113

103,313

110,513

Tangible assets

102,932

116,380

135,153

150,361

197,545

226,295

238,345

Pension surplus

4,178

3,069

3,003

6,097

1,884

1,884

1,884

Current assets

 

 

301,622

414,371

468,907

638,274

598,860

608,790

641,706

Stocks

250,443

334,452

394,287

530,406

506,470

520,360

538,304

Debtors

43,939

42,971

53,500

63,416

52,545

53,986

55,848

Cash

7,240

36,948

19,254

43,915

39,845

34,444

47,555

Other

0

0

1,866

537

0

0

0

Current liabilities

 

 

(300,980)

(400,233)

(470,244)

(641,556)

(624,400)

(641,170)

(663,424)

Creditors

(298,980)

(398,233)

(466,821)

(634,800)

(615,729)

(632,670)

(654,424)

Short-term borrowings

(2,000)

(2,000)

(3,423)

(6,756)

(8,671)

(8,500)

(9,000)

Long-term liabilities

 

 

(23,696)

(14,569)

(9,957)

(26,198)

(23,573)

(22,573)

(21,573)

Long-term borrowings

(11,454)

(3,512)

(161)

(14,011)

(10,166)

(10,166)

(10,166)

Other long-term liabilities

(12,242)

(11,057)

(9,796)

(12,187)

(13,407)

(12,407)

(11,407)

Net assets

 

 

106,641

163,379

179,634

197,859

246,429

276,539

307,451

CASH FLOW

Operating cash flow

 

 

12,973

47,392

26,113

65,810

58,123

46,450

48,473

Net interest

(1,236)

(521)

(714)

(1,415)

(2,413)

(2,200)

(2,100)

Tax

(1,430)

(2,350)

(4,471)

(7,700)

(5,744)

(6,280)

(6,665)

Capex

(5,510)

(14,447)

(17,161)

(19,657)

(28,598)

(37,500)

(21,000)

Acquisitions/disposals

(13,481)

(37,512)

(16,685)

(25,837)

(50,632)

0

0

Financing

256

47,614

47

200

32,477

0

0

Dividends

(1,296)

(2,526)

(2,895)

(3,923)

(5,353)

(5,700)

(6,098)

Net cash flow

(9,724)

37,650

(15,766)

7,478

(2,140)

(5,230)

12,611

Opening net debt/(cash)

 

 

(3,510)

6,214

(31,436)

(15,670)

(23,148)

(21,008)

(15,778)

HP finance leases initiated

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

Closing net debt/(cash)

 

 

6,214

(31,436)

(15,670)

(23,148)

(21,008)

(15,778)

(28,389)

Source: Company accounts, Edison Investment Research

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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.

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US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Acarix — Preparing for commercialisation

Following the successful SEK140m IPO in December 2016, Acarix is commercialising its novel CE-marked CADScor System in Germany. CADScor is used as a frontline test by doctors to help assess a patient’s risk of coronary artery disease (CAD) by “listening” to the blood flow in the coronary arteries. This can enable CAD to be ruled out, so avoiding expensive further testing. Full EU reimbursement may start in 2019. US marketing will probably require a US clinical study, with sales from 2021 possible. The unchanged indicative value remains at SEK728m, equal to SEK31.62/share.

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