Datalogic analisti/Datalogic0525.pdf · 1st airport application in Europe (Milano-Linate Airport) 1994 . 1st 360° scanner/scale . 1997 . 1st industrial high speed bar code reader

See page 21 for full disclosures and analyst certification

Datalogic 25 May 2011

BUY Target Price: EUR 7.15

IT & Technology Initiation of Coverage

Intesa Sanpaolo Research Department

Alberto Francese Research Analyst +39 02 8794 9815

Price performance, -1Y

Ethereal Data Captured in Solid Cash Flow

Datalogic - Key estimates and data Y/E December 2010A 2011E 2012E 2013ERevenues EUR M 392.74 420.00 440.00 460.00EBITDA EUR M 49.76 57.69 61.42 65.16EBIT EUR M 34.68 41.78 45.40 49.02Net income EUR M 18.03 22.93 27.18 30.72Dividend ord. EUR 0.15 0.13 0.15 0.15Adj. EPS EUR 0.31 0.39 0.47 0.53EV/EBITDA x 8.12 6.71 5.91 5.19Adj. P/E x 18.16 14.27 12.04 10.65 A: actual; E: estimates; Source: Company data and Intesa Sanpaolo Research

Company description. Datalogic is one of the most important producers of bar code readers, data collection mobile computers, RFID and vision systems, offering innovative applications in the manufacturing, transportation & logistics and retail industries. In the Automatic Data Capture (ADC) market, which is expected to grow by 8% in 2010-12, Datalogic holds an approx. 10% share (company data) and is a world leader in POS Retail Scanners (31.5% share) and EMEA leader in Handheld Scanners (30.7% share). In the Industrial Automation (IA) market, which is expected to grow by 8% in 2010-12, Datalogic holds an around 4% share (company data), with a leadership in Industrial Stationary Scanners, ranking 2nd in EMEA with a 29% share and 3rd worldwide with a 14.6% share.

Strategy and 3-year plan. Management has indicated 4 key drivers in the plan presented at the end of 2010, which are: 1) a strategic positioning focused on the ADC and IA markets; 2) an international expansion in BRIC through strategic alliances and foreign investments, in large mature markets by addressing high-end products/solutions and higher technology businesses; 3) invest 7-8% of revenue in R&D, with a focus on Vision and Imaging technologies, and aiming to produce 25% of sales from new products; 4) efficiency and productivity through the adoption of best in class supply chain management and the development of scale economies. The key points of the 3 year business plan are: 2012 organic revenues of EUR 420-430M; 2012 EBITDA of EUR 60-65M; investment in capex stable at around 2.5% of revenues per year; 2012 ROE target around 20%. To improve commercial efficiency, the scanning division CEO was recently also appointed CEO of the mobile division. Following the good 1Q11 results, an update of the 3-year plan is expected by year-end.

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M J J A S O N D J F M A MDATALOGICFTSE ITALIA ALL SHARE - PRICE INDEX

Source: Thomson Reuters

Equity Company Note

Corporate Broking Team Alberto Francese Marta Caprini Serena Polini

Estimates and valuation. In our 2011E-13E estimates we assumed that: 1) revenue would increase at a CAGR10-13E of 5.4%, slightly higher than the range indicated in the 2010-12 plan (EUR 420-430M), because of the strong results achieved in 2010A; 2) EBITDA margin to rise by 100bps in 2011E to 13.7%, then by 20-30bps per year in 2012E-13E. Our 2012E EBITDA estimate or EUR 61.4M, would fall within the range shown in the 2010-12 plan (EUR 60-65M); 3) we expect a strong cash generation (cash flow of around EUR 17M in 2011E bringing estimated FY11E debt to EUR 59.5M, of around EUR 23M in 2012E, of around EUR 25M in 2013E). We valued Datalogic with a DCF model, a 7.7% WACC (risk-free rate of 4.0%, equity risk premium of 5.75%, gearing of appx. 28%) and a conservative 0% terminal value growth. We obtain a target price of EUR 7.15/share and rate the company a BUY. On P/E multiples Datalogic trades at a 25-31% discount vs. peers in 2011E-12E.

Data priced on 24.05.2011 Target price (€) 7.15Target upside (%) 27.70Market price (€) 5.6052-week range (€) 6.5/3Market cap (€ M) 327.30No. of shares (M) 58.45Free float (%) 24.6Major shareholder (%)

Hydra SpA, 67.3

Reuters DAL.MIBloomberg DAL IMF TSE It All Shares 21366

Performance % Absolute Rel. to FTSE All Sh-1M -4.7 -1M 0.4-3M -6.0 -3M -0.9

-12M 61.5 -12M 52.6Source: Intesa Sanpaolo Research estimates and Thomson Reuters

Key risks. The market is fragmented and characterised by intense competition. To survive in these markets substantial R&D investments are needed (sure cost), the launch of successful innovative commercial products is uncertain. The ongoing delocalisation of some important clients could require entry to Latin America and Asia (China and India) geographical markets. The company is exposed to foreign currency translation impacts, around 50% of revenues are denominated in non-EUR.


Group Profile

Datalogic is one of the most important producers of bar code readers, data collection mobile computers, RFID and vision systems, offering innovative applications in the manufacturing, transportation & logistics and retail industries.

The company had 2,000 staff members across Europe, the US, Asia and Oceania, with a strong focus on R&D developed through 9 centres which produced a portfolio of 898 patents.

Datalogic has a direct presence in 30 countries around the world that sell to over 100 countries and has over 1,000 partners worldwide.

The two reference markets are Automatic Data Capture (ADC) and Industrial Automation, served through three divisions:

Datalogic Scanning and Datalogic Mobile for the ADC market;

Datalogic Automation for the Industrial Automation market.

To improve commercial efficiency, the scanning division CEO was recently also appointed CEO of the mobile division.

Moreover, the BU Development (which includes the companies: Informatics, USA; Evolution Robotics Retail, USA; and the Self-Shopping Solutions Business Unit, Italy) works transversally with the abovementioned 3 divisions and develops new business platforms and values new merger and acquisition opportunities.

In the graph below we show Datalogic’s geographical footprint. It is important to highlight the concept of serving the local market through a local presence, in order to better perceive and satisfy clients’ specific needs. The last R&D centre and manufacturing plant was opened in Vietnam in 2009 to cover the entire Asian region.

Datalogic - geographical footprint

Direct presence in 30 countries worldwide

EUROPE 40%

7 Manufacturing Plants 9 R&D Centers

ITALY 11%

NORTH AMERICA 29%

APAC 13%

ROW 7%

Direct presence in 30 countries worldwide

EUROPE 40%

NORTH AMERICA 29%

ITALY 11%

APAC 13%

ROW 7%

7 Manufacturing Plants7 Manufacturing Plants 9 R&D Centers9 R&D Centers

Source: company data

2 Intesa Sanpaolo Research Department


Revenue breakdown

Datalogic posted revenues of around EUR 393M in 2010, with the scanning segment taking the lions share (around 46.2% of revenue), and automation and mobile representing 23% and 22.3%, respectively. Informatics weighed 8.5% of revenue.

Geographically, over 50% of revenues came from Europe (11% in Italy), North America weighed around 28.8%, Asia Pacific and rest of the world weighed 12.6% and 7.8%, respectively.

Datalogic - Revenue by business units Datalogic - Revenue by geography

22.3%

23.0%46.2%

8.5% 11.0%

39.8%28.8%

12.6%

7.8%

Mobile Automation Scanning Informatics Italy Europe North America Asia Pacific RoW

Source: company data Source: company data

Innovation and R&D

Innovation and R&D are the keys to gaining and maintaining clients in a very competitive market. Datalogic’s track record in producing innovative products and making them a commercial product is shown in the table below.

Datalogic - Product innovation trend Datalogic - Innovative commercial milestones 1974 1st grocery store scanner in the world

1978 1st industrial bar code reader in Europe

1984 1st airport application in Europe (Milano-Linate Airport)

1994 1st 360° scanner/scale

1997 1st industrial high speed bar code reader designed for sorting applications in the material handling sector with electronic

auto-focus and no moving parts

1999 1st RFID post office application in the world


Datalogic spent EUR 26.3M on R&D in 2010, i.e. 6.7% of revenue (8% and 6.7% in 2009 and 2008, respectively). In particular:

Datalogic mobile: invested about EUR 5.8M in 2010 (6.7% revenues), which resulted in the launch of some retail, warehouse and field force automation product lines, which will be largely commercialised in the next few years.

Datalogic automation: invested EUR 6.6M in 2010, after the intense R&D investments carried out in 2008 and 2009 (EUR 7.5M per year). The main outcomes were:

Fixed scanners for the industrial market (USS): a new product for entry-level OEM (original equipment manufacturer) applications, the re-engineering of existing products, aimed at lowering production costs;

Intesa Sanpaolo Research Department 3


Radiofrequency readers (RFID): re-engineering of existing products, to rationalise and optimise offerings across all the main product families, development of the electronic ticketing offering;

Industrial marking products: focus on the full integration of the production offering for industrial marking within the Automation division's portfolio, the development of laser markers based on fibre technology;

Photoelectric sensors and devices: development of large-format (MAXI) sensors, typically used in long-distance applications/ extreme conditions, development of tubular products, development of intelligent vision sensors (DataVS), an innovative project to build an artificial vision research laboratory.

Datalogic scanning: invested EUR 12.2M ( 6.7% of revenues) in the two sectors in which the Scanning division operates:

Hand-held readers (HHR): new products in bluetooth technology and laser technology, integrated deactivation of anti-shoplifting tags, products for industrial purposes and low-energy applications, products made from antibacterial materials resistant hospital disinfectants, the red/blue readers designed for applications requiring the reading of code stamped with special and/or coloured inks;

Checkout scanners: new systems able to capture images and read bar codes, even bi-dimensional, directly on to mobile phones and PDAs.

The R&D department run by Datalogic, has a track record of innovative commercial milestones, as shown in the following tables.

The acquisition of Evolution Robotics Retail, leader in the field of visual pattern recognition will be a key technology building block in Datalogic industrial focused businesses.

The clients

Datalogic revenue is highly fragmented between clients, retail segment counts around 40% of revenue, manufacturing segment around 30% and logistic around 20%.

Innovation and system reliability are key elements to start and maintain long relationship with clients, such as:

Identification solutions: at Roissy Charles de Gaulle and Fiumicino airports, respectively, over 53M and 33M passengers and their baggage are handled each year;

Scanners and camera systems: over 10 billion letters and packages delivered annually to 31 million Canadians by Canada Post;

2D Imagers: over 360k trays per day processed at United States Postal Service;

Industrial/mobile PDA: several deliveries on behalf of several major third party parcel carriers at the Isle of Man post office, PDAs to read RFID wristbands in a Milan hospital;

Mobile computers: handling over 100k spectators at 2010 F1 Singapore Grand Prix;

RFID products: just-in-time production method supported by RFID in a Mexican automotive facility producing 400k trucks and cars;

POS bar code scanners: installed in leading supermarket retailers in the US, with 140 stores working 24 hours a day, 7 days a week;

Scanning and security tag deactivation: installed in one of the US’ largest food retailers, over 2,400 stores in 32 states;

Mix of industrial handheld readers, scanners and mobile computers: management of 180k cubic meters of world’s largest warehouse of a famous Swedish furniture retailer.



Key retailer clients Key banner clients


Key postal/courier clients Key healthcare clients


Key entertainer clients Key auto and tyre manufacturer clients




Key packaging and automated warehouse clients Key airport clients

Atlanta International AirportLondon Heathrow AirportTokyo Haneda Airport

Atlanta International AirportLondon Heathrow AirportTokyo Haneda Airport

Paris Orly AirportParis Orly Airport

Paris Charles De Gaulle AirportMadrid Barajas Airport

Bangkok New SuvannabhumiNew York JFK AirportLondon Gatwick Airport

Kuala Lumpur International AirportTaipei AirportBologna Marconi Airport

Tokyo Narita AirportRoma Fiumicino AirportDubai Airport

Kuala Lumpur International AirportTaipei Airport

Paris Charles De Gaulle Airport Bologna Marconi AirportMadrid Barajas Airport

Bangkok New SuvannabhumiNew York JFK AirportLondon Gatwick AirportTokyo Narita AirportRoma Fiumicino AirportDubai AirportLaGuardia AirportLaGuardia Airport


The cost structure

The most relevant cost is sales, which in 2008-10 weighed around 55% of revenue, except in 2009 when the economic worldwide crisis produced a revenue contraction, which management promptly dealt with, by implementing strong efficiency actions which commenced the turnaround as soon as 1Q10.

Management regard procurement risks as limited, as components are usually sourced from several suppliers. In the few cases when components are sourced from a single supplier, adequate inventories of those components are maintained.

Datalogic - Cost breakdown EUR M 2008A 2009A 2010ACost of sales 211.8 181.6 213.5R&D expenses 25.3 24.9 26.3Distribution 77.2 68.1 77.2G&A 38.8 29.6 37.7

Payroll* 104.0 104.1 114.1Non-recurring costs and revenue 0.7 7.8 -0.8Depreciation & Amortisation for acquisitions 3.9 4.0 4.3Weight on revenue (%) Cost of sales 55.8 58.2 54.4R&D expenses 6.7 8.0 6.7Distribution 20.3 21.8 19.7G&A 10.2 9.5 9.6

Payroll* 27.4 33.4 29.1 Source: company data * Payroll costs are allocated into the abovementioned cost items

The second most important cost is distribution, which weighed around 20% in the last 3 years (slightly higher in 2009). Distribution costs include sales commissions and bonuses, transport costs, travel and accommodation expenses and marketing expenses.

As previously mentioned, R&D is the key to producing innovative products able to gain and maintain clients. The company invests around 6.7% of revenue in R&D.

G&A costs weighed between 9.5-10% of revenue.

Payroll costs, which are allocated to the abovementioned cost items, weighed 27.4% in 2008, 33.4% in 2009 (characterised by a revenue contraction) and 29.1% in 2010.



Acquisitions and goodwill

Acquisitions made by Datalogic to support growth have produced EUR 106M of goodwill which we detail below, together with the key parameters used for the impairment test.

Datalogic - Goodwill breakdown Year of acquisition Goodwill WACC LT growth Revenue CAGR11-15PSC 2005 70.1of which: scanning 2005 60.7 10.2 2 5.4 mobile 2005 9.4 10.2 2 5Informatics 2005 11.8 10.2 2 7Laservall 2004 5.1 12.9 2 2.8Infra 2008 1.7 12.9 2 2.8Idware 1998 3.4 12.9 2 5Minec 2002 0.3 12.9 2 2.5Evolution Robotics Retail 2010 13.7 10.2 2 59.3 Source: company data

The shareholders’ structure

Datalogic’s main shareholder is Hydra, with a 67.3% stake. Hydra is chaired by Romano Volta, the person who started Datalogic in the 70’s.

Datalogic owns 6.9% of own shares.

Datalogic - Shareholders’ structure

67.3%6.4%

2.0%

6.9%

17.4%

Hydra Tamburi Investment Partner D'Amico Treasury shares Free float




The Reference Markets

Datalogic reference markets are Automatic Data Capture (ADC) and Industrial Automation (IA), which, in managements view, should grow at an 8% CAGR in 2010-12.

The global trends in these markets are technological (from analogue to digital, penetration of wireless technology), macroeconomic (globalisation, delocalisation), microeconomic (efficiencies and cost reduction in supply chains), social (safety and security).

The challenge is to provide customers with better and faster information, to help improved real time decisions, to grant reliable tools to make operations more efficient and less expensive, and to increase safety, security and compliance.

ADC market

According to VDC Research, Datalogic ADC’s worldwide addressable market should grow in 2009-12 by 8% per year, driven by:

Mobility (outdoor application);

Applications for government, healthcare and retail sectors;

More data needed to effectively manage supply chains;

Increase efficiency and reduce scanning errors at the point of sale;

Adoption of core retail automation technologies in emerging country markets.

ADC market trend 2009-12

2012E: ADDRESSABLE MARKET $3.6B2009A: AVAILABLE MARKET $2.9B 2012E: ADDRESSABLE MARKET $3.6B2009A: AVAILABLE MARKET $2.9B

Source company on VDC Research data

Within this market, Datalogic holds an approx. 10% share (company data on 2009 market), with some specific leaderships:

POS Retail Scanners: worldwide leader with 31.5% share;

Handheld Scanners: leader in EMEA with 30.7% share, 3rd worldwide with a 15.9% share;

Mobile Computers: ranking 4th in EMEA (7.9% share) and worldwide (4.0% share).



Datalogic positioning in ADC market

$100 M $300 M $950 M

>30%

>10%

<2%4%

$200 M

2009 Revenues$50 M


IA market

According to VDC Research, Datalogic’s IA worldwide addressable market should grow in 2009-12 by 8% per year. The fragmented industry could represent a potential additional market worth USD 2.7Bn. Key demand drivers are:

Manufacturing delocalisation requires traceability of processes and goods;

Cost reduction, productivity, quality control;

New regulations (e.g. traceability, safety and security);

Adoption of technological solutions in industrial segments in emerging markets.

IA market trend 2009-12


Within this market, Datalogic holds an approx. 4% share (company data on 2009 market), with a leading position in Industrial Stationary Scanners, ranking 2nd in EMEA with a 29% share and 3rd worldwide with a 14.6% share.



Datalogic positioning in IA market

10%

>12%

5%

<2%

$50 M $100 M $200 M $300 M

2009 Revenues Source company on VDC Research data



Strategy and 3 Year Plan

Management has indicated 4 key drivers in the plan presented at the end of 2010:

Strategic positioning:

o Focus on Automatic Data Capture and Industrial Automation markets;

o External growth mainly in IA.

International expansion:

o Strategic alliances and foreign investments in BRIC countries;

o Increase penetration in large mature markets (Western Europe, North America) by addressing high-end products/solutions and higher technology businesses.

Innovation:

o Invest 7-8% of revenue in R&D;

o Focus on Vision and Imaging technologies;

o 25% of sales from new products.

Efficiency and productivity:

o Adoption of best in class supply chain management;

o Leverage industrial global footprint to activate scale economies.

The key points of the 3 year business plan are:

2012 organic revenues of EUR 420-430M;

2012 EBITDA of EUR 60-65M;

R&D investments between 7%-8% of revenues per year;

Investment in capex stable at around 2.5% of revenues per year;

2012 ROE target around 20%.

To improve commercial efficiency, the scanning division CEO was recently also appointed CEO of the mobile division.

Following the good 1Q11 results, an update of the 3-year plan is expected by the end of 2011.



Latest Results

Datalogic has been growing since 2001 at a 15% CAGR, through organic growth and external acquisitions.

Historical growth trend

Completed transformation into 3 divisions: Scanning, Mobile, and Automation

Acquisition of Datasensor SpA

Listing on the Milan Stock Exchange

Acquisition of MinecAB (Sweden)

Acquisition of Laservall SpA (AO, I)

Acquisition of Informatics Inc. (TX, U.S.A.)

Acquisition of PSC Inc. (OR, U.S.A.)

REVENUES: ~15% 2001-2010 CAGR2010 SALES REVENUES (392.7 M Euro) UP BY 26% VS 2009

2001 2002 2003 20052004 2006 2007 2008 2009 2010

Acquisition of Evolution Robotics Retail, USA

Completed transformation into 3 divisions: Scanning, Mobile, and Automation

Acquisition of Datasensor SpA

Listing on the Milan Stock Exchange

Acquisition of MinecAB (Sweden)

Acquisition of Laservall SpA (AO, I)

Acquisition of Informatics Inc. (TX, U.S.A.)

Acquisition of PSC Inc. (OR, U.S.A.)

REVENUES: ~15% 2001-2010 CAGR2010 SALES REVENUES (392.7 M Euro) UP BY 26% VS 2009

Acquisition of Evolution Robotics Retail, USA

2001 2002 2003 20052004 2006 2007 2008 2009 20102001 2002 2003 20052004 2006 2007 2008 2009 2010


The recent worldwide economic crisis has resulted in a contraction of Datalogic revenue in 2009 (17.9%), promptly recovered in 2010 with a 25.9% growth.

To sterilise results from non-recurring costs and revenue and administrative costs arising from acquisitions, we have introduced EBITDA and EBIT net of these effects (EBITDANR and EBITANR, respectively).

Datalogic - Key financial data 2008A-10A EUR M 2008A 2009A 2010ARevenue 379.8 312.0 392.7yoy gwt (%) -17.9 25.9EBITDANR w/o non recurring 47.8 19.6 49.8EBITDANR margin w/o non recurring (%) 12.6 6.3 12.7EBITANR 35.3 6.2 38.1EBITANR margin (%) 9.3 2.0 9.7EBIT 30.7 -5.6 34.7Net profit 17.8 -12.2 18.0Capex 0.0 7.3 7.9Investments 0.0 1.8 23.1Net debt 106.9 100.5 76.5Equity 135.8 116.7 140.2Trade WC on revenue (%) 19.5 14.8 Source: company data

Adjusted EBITDA margin, except for the negative 2009, was between 12.6% and 12.7% in 2008-10.

Adjusted EBIT margin, except for the negative 2009, was, between 9.3% and 9.7% in 2008-10.

Net income was around EUR 18M in both 2008 and 2010, but a EUR 12.2M loss in 2009.

Capex were broadly stable at EUR 7-8M, a significant investment was made in 2010 for the acquisition of Evolution Robotics Retail for USD 25.5M, an American company with unique



expertise in visual pattern recognition technology for use in retail loss prevention and productivity applications, and which posted revenue of USD 5.1M and an EBITDA loss of USD 2.7M in 2009.

Net debt remained at approximately EUR 100M in 2008-09, then declined to EUR 76.5M in 2010, benefiting from a good control of trade working capital, whose ratio to revenue declined from 19.5% in 2009 to 14.8% in 2010.

1Q11 results

In 1Q11 revenue grew by 17.2% to EUR 105M, driven by the scanning segment (48.5% weighting on total revenue, 21% growth) and by the automation segment (23.3% weighting on total revenue, 28.5% growth). Mobile and business development lagged behind in terms of revenue growth (2.4% and 8.1%, respectively).

Datalogic - 1Q11A key financial data EUR M 1Q10A 1Q11A % chgRevenue 89.5 105.0 17.2Gross operating margin 40.5 49.4 22.1Gross operating margin/revenue (%) 45.2 47.1EBITDA 10.6 14.9 40.4EBITDA margin 11.8 14.2EBITANR 7.7 12.2 58.7EBITANR margin 8.6 11.6EBIT 6.7 11.1 65.2Net income 4.1 5.7 36.9Net debt 76.5 71.2 -7.0 Source: company data

The EBITDA was EUR 14.9M, a 40.4% growth yoy, driven by the good performance of scanning and automation segments, which posted strong revenue growth as previously explained, and have margins higher than the group (15.7% and 14.8%).

Datalogic - Revenue and EBITDA margin by segments Datalogic - R&D and trade WC by segments EUR M 1Q10A 1Q11A % chgRevenue Total 89.5 105.0 17.2Mobile 20.7 21.2 2.4Automation 19.0 24.4 28.5Scanning 42.1 50.9 21.0Business dev. 7.9 8.6 8.1EBITDA margin (%) Total 11.8 14.2 Mobile 12.6 10.8 Automation 6.8 14.8 Scanning 11.9 15.7 Business dev. 13.9 9.3

% 1Q10A 1Q11AR&D/revenue Total 6.8 6.5Mobile 6.8 6.6Automation 8.9 7.0Scanning 6.7 6.1Business dev. 0.1 5.8Trade WC/revenue Total 18.4 15.4Mobile 13.7 11.3Automation 28.8 20.8Scanning 16.0 13.0Business dev. 9.5 11.9


Looking at R&D expenses, the group ratio to revenue was 6.5%, with slightly higher investments in automation (7% of revenue) and slightly lower investments in scanning (6.1% of revenue).

In the quarter a good control of trade working capital was achieved, with a ratio to revenue down from 18.4% in 1Q10 to 15.4% in 1Q11. In particular the control was particularly effective in the automation segment (an 800bps reduction).

Net debt declined by 7% to EUR 71.2M, thanks to the good operating cash flow (EUR 9.5M) and the positive effect of the exchange rate (EUR 2.9M) and taxes (EUR 2.5M).



Earnings Estimates

In our 2011E-13E estimates we assumed that:

Revenue would increase at a CAGR10-13E of 5.4%, reaching EUR 440M in 2012E, slightly higher than the range indicated in the 2010-12 plan (EUR 420-430M), because of the strong results achieved in 2010A;

We projected an EBITDA margin increasing by 100bps in 2011E to 13.7% (it was 14.2% in 1Q11A), to then increase by 20-30bps per year in 2012E-13E. We estimate a 2012E EBITDA of EUR 61.4M, which would be in the range indicated in the 2010-12 plan (EUR 60-65M);

Consequently net income should jump by around 27% in 2011E, to then grow by around 18% in 2012E and 13% in 2013E;

We also expect a strong cash generation (cash flow of around EUR 17M in 2011E bringing FY11E debt to EUR 59.5M, of around EUR 23M in 2012E, of around EUR 25M in 2013E), driven by the abovementioned operating trends, by a capex at 3% of revenue and a working capital to revenue ratio stable vs. FY10A (around 2%), thus implicitly assuming a trade working capital to revenue ratio broadly stable at around 15%.

Datalogic - Key financial data 2011E-13E EUR M 2011E 2012E 2013ERevenue 420.0 440.0 460.0EBITDA w/o non recurring 57.7 61.4 65.2EBITDA margin (%) 13.7 14.0 14.2EBITANR 46.0 49.7 53.3EBITANR margin (%) 11.0 11.3 11.6EBIT 41.8 45.4 49.0EBIT margin (%) 9.9 10.3 10.7Net profit 22.9 27.2 30.7Net debt 59.5 36.0 10.7 Source: Intesa Sanpaolo estimates



Financials P&L

EUR M 2011E 2012E 2013ERevenue 420.0 440.0 460.0Cost of sales -226.8 -237.6 -248.4Gross profit 193.2 202.4 211.6Other revenue 2.1 2.1 2.1R&D expenses -27.3 -28.6 -29.9Distribution -81.9 -85.8 -89.7G&A -38.1 -38.5 -38.9Other costs -2.0 -2.0 -2.0EBITANR 46.0 49.7 53.3on revenue (%) 11.0 11.3 11.6Amortization &depreciation of assets -11.6 -11.8 -11.9EBITDA w/o non recurring 57.7 61.4 65.2EBITDA margin (%) 13.7 14.0 14.2Non recurring costs and revenue Depreciation & Amortisation for acquisitions -4.3 -4.3 -4.3EBIT 41.8 45.4 49.0EBIT margin (%) 9.9 10.3 10.7Forex impact Subsidiaries earnings Net financial charges -6.5 -3.6 -1.8Profit before tax/minorities 35.3 41.8 47.3Taxes -12.3 -14.6 -16.5Minorities Net profit 22.9 27.2 30.7 Source: Intesa Sanpaolo Research estimates

Balance sheet EUR M 2011E 2012E 2013EFixed assets 220.6 217.8 215.4Net working capital -7.7 -8.1 -8.4Net invested capital 212.9 209.7 207.0Group shareholders’ equity 153.4 173.7 196.3Net financial debt 59.5 36.0 10.7Total cover 212.9 209.7 207.0 Source: Intesa Sanpaolo Research estimates

Cash flow EUR M 2011E 2012E 2013ENet fin debt beg of year 76.5 59.5 36.0Net income 22.9 27.2 30.7Depreciation 15.9 16.0 16.1Change in working capital 0.5 0.4 0.4Operating cash flow 39.3 43.6 47.2Capex -12.6 -13.2 -13.8Investments -1.5Disposals Free cash flow 25.2 30.4 33.4Dividends -8.2 -6.9 -8.2Other movements Cash flow 17.1 23.5 25.3Net fin debt end of year 59.5 36.0 10.7 Source: Intesa Sanpaolo Research estimates



Valuation

DCF valuation We value Datalogic with a DCF model, using the following key assumptions in our valuation:

A 7.8% WACC, incorporating a risk-free rate of 4.0% and an equity risk premium of 5.75%;

A gearing of around 28%;

A conservative 0% terminal value growth;

LT EBIT is calculated starting from 2013E revenue, applying a 5.5% growth (CAGR 2010-13E) and a 14.2% EBITDA margin (the value we expect in 2013E). Depreciation equals capex.

We obtain a target price of EUR 7.15/share and rate the company a BUY.

Datalogic – DCF calculation (2011E-13E) EUR M 2011E 2012E 2013E LTEBIT 41.8 45.4 49.0 54.9Tax -12.3 -14.6 -16.5 -18.6Depreciation 15.9 16.0 16.1 0.0NOPAT 45.3 46.8 48.6 36.3WC 0.5 0.4 0.4 0.0Capex -12.6 -13.2 -13.8 0.0FCF 33.2 34.0 35.2 36.3Discounted FCF 33.2 31.5 30.3 29.1WACC (%) 7.7 TV growth (%) 0.0 Sum 95 TV 376 EV 471 Debt 2010A 76 Treasury shares 22 Equity 417 Shares 58.4 Share price 7.15 Source: Intesa Sanpaolo Research estimates

Multiples comparison In the following table we show Datalogic’s peers’ key financial indicators and P/E and EV/EBITDA multiples.

Datalogic - Key financial indicators Price (EUR) Mkt cap (EUR M) Revenue CAGR10-12E EBITDA CAGR10-12E Net income CAGR10-12E Debt/EBITDA 2011EIntermec 8.46 503 15.6 84.9 NM -1.9Zebra Tech. 29.60 1,617 2.1 13.3 13.7 -0.7Psion 1.02 144 5.3 42.5 92.6 -1.8Zetes Industries 18.60 100 2.9 4.0 6.6 -0.5Datalogic* 5.80 339 5.8 11.1 23.2 1.0 Source: Factset consensus * Intesa Sanpaolo estimates

On EV/EBITDA Datalogic trades at an approx. 7% discount vs. peers in 2011E and at a 20% premium in 2012E, while it trades at a 25-32% discount on 2011E-12E P/E.

Datalogic - Multiples comparison Price Mkt Cap EV/EBITDA P/E EUR EUR M 2011E 2012E 2011E 2012EIntermec 8.5 503 9.5 5.7 23.6 16.8Zebra Tech. 29.6 1,617 10.0 8.4 17.7 16.6Psion 1.0 144 5.3 4.3 33.4 17.1Zetes Industries 18.6 100 4.6 4.2 10.6 10.4Median 7.4 5.0 20.7 16.7Datalogic* 5.8 339 6.8 6.0 14.2 12.4Premium/(Discount) vs. peers -7.4 20.4 -31.5 -25.6 Source: Factset consensus * Intesa Sanpaolo estimates



Datalogic - Key figures Ordinary RatingSector IT & Technology Mkt price EUR/Share 5.60 BUYREUTERS CODE DAL.MI Target price EUR/Share 7.15 Values per share (EUR) 2009A 2010A 2011E 2012E 2013ENo. ordinary shares (M) 58.45 58.45 58.45 58.45 58.45No. NC saving/preferred shares (M) - - - - -Total no. of shares (M) 58.45 58.45 58.45 58.45 58.45Adj. EPS -0.21 0.31 0.39 0.47 0.53CFPS 0.09 0.58 0.66 0.74 0.80BVPS 2.00 2.40 2.62 2.97 3.36Dividend Ord - 0.15 0.13 0.15 0.15Dividend SAV Nc - - - - -Income statement (EUR M) 2009A 2010A 2011E 2012E 2013ESales 311.97 392.74 420.00 440.00 460.00EBITDA 19.63 49.76 57.69 61.42 65.16EBIT -5.58 34.68 41.78 45.40 49.02Pre-tax income -12.84 28.18 35.28 41.82 47.26Net income -12.16 18.03 22.93 27.18 30.72Adj. net income -12.16 18.03 22.93 27.18 30.72Cash flow (EUR M) 2009A 2010A 2011E 2012E 2013ENet income before minorities -12.16 18.03 22.93 27.18 30.72Depreciation and provisions 17.43 15.90 15.90 16.02 16.14Change in working capital 11.51 20.23 0.50 0.37 0.37Operating cash flow 16.78 54.16 39.34 43.57 47.23Capital expenditure -7.30 -7.86 -12.60 -13.20 -13.80Other (uses of Funds) -1.10 -22.36 -1.53 - -Free cash flow 8.38 23.95 25.21 30.37 33.43Dividends and equity changes -1.93 - -8.16 -6.88 -8.16Net cash flow 6.45 23.95 17.05 23.49 25.27Balance sheet (EUR M) 2009A 2010A 2011E 2012E 2013ENet capital employed 217.19 216.66 212.91 209.72 207.01of which associates - - - - -Net debt/-cash 100.50 76.50 59.49 36.00 10.73Minorities - - - - -Net equity 116.70 140.16 153.41 173.71 196.28Market cap 327.30 327.30 327.30 327.30 327.30Minorities value - - - - -Enterprise value (*) 427.80 403.80 386.79 363.30 338.03Stock market ratios (x) 2009A 2010A 2011E 2012E 2013EAdj. P/E -26.91 18.16 14.27 12.04 10.65P/CEPS 62.12 9.65 8.43 7.58 6.98P/BVPS 2.80 2.34 2.13 1.88 1.67Dividend yield (% ord) - 2.68 2.26 2.68 2.68Dividend yield (% sav) EV/sales 1.37 1.03 0.92 0.83 0.73EV/EBITDA 21.79 8.12 6.71 5.91 5.19EV/EBIT -76.74 11.64 9.26 8.00 6.90EV/CE 1.97 1.86 1.82 1.73 1.63D/EBITDA 5.12 1.54 1.03 0.59 0.16D/EBIT -18.03 2.21 1.42 0.79 0.22Profitability & financial ratios (%) 2009A 2010A 2011E 2012E 2013EEBITDA margin 6.29 12.67 13.73 13.96 14.16EBIT margin -1.79 8.83 9.95 10.32 10.66Tax rate 5.24 36.03 35.00 35.00 35.00Net income margin -3.90 4.59 5.46 6.18 6.68ROE -10.42 12.86 14.95 15.65 15.65Debt/equity ratio 0.86 0.55 0.39 0.21 0.05Growth (%) 2010A 2011E 2012E 2013ESales 25.89 6.94 4.76 4.55EBITDA 153.43 15.93 6.48 6.08EBIT 722.10 20.47 8.66 7.96Pre-tax income 319.54 25.20 18.53 13.02Net income 248.21 27.21 18.53 13.02Adj. net income 248.21 27.21 18.53 13.02 (*) EV = Mkt cap+ Net Debt + Minorities Value - Associates A: actual; E: estimates; Source: Company data and Intesa Sanpaolo Research



Notes



Notes



Notes



Disclaimer Analyst certification

The financial analyst who prepared this report, and whose name and role appear on the first page, certifies that:

(1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed.

Specific disclosures

1. Neither the analyst nor any member of the analyst’s household has a financial interest in the securities of the Company.

2. Neither the analyst nor any member of the analyst’s household serves as an officer, director or advisory board member of the Company.

3. The analyst named in the document is a member of AIAF.

4. The analyst named in this document is not registered with or qualified by FINRA, the U.S. regulatory body with oversight over Banca IMI Securities Corp. Accordingly, the analyst may not be subject to NASD Rule 2711 and NYSE Rule 472 with respect to communicates with a subject company, public appearances and trading securities in a personal account. For additional information, please contact the Compliance Department of Banca IMI Securities Corp at 212-326-1133.

5. The analyst of this report does not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.

6. The research department supervisors do not have a financial interest in the securities of the Company.

This research has been prepared by Intesa Sanpaolo SpA and distributed by Banca IMI SpA Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo SpA accepts full responsibility for the contents of this report and also reserves the right to issue this document to its own clients. Banca IMI SpA and Intesa Sanpaolo SpA, which are both part of the Intesa Sanpaolo Group, are both authorised by the Banca d'Italia and are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.

Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.

This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient’s own judgment. No Intesa Sanpaolo SpA or Banca IMI SpA entities accept any liability whatsoever for any direct, consequential or indirect loss arising from any use of material contained in this report. This document may only be reproduced or published together with the name of Intesa Sanpaolo SpA and Banca IMI SpA.

Intesa Sanpaolo SpA and Banca IMI SpA have in place a Joint Conflicts Management Policy for managing effectively the conflicts of interest which might affect the impartiality of all investment research which is held out, or where it is reasonable for the user to rely on the research, as being an impartial assessment of the value or prospects of its subject matter. A copy of this Policy is available to the recipient of this research upon making a written request to the Compliance Officer, Intesa Sanpaolo SpA, 90 Queen Street, London EC4N 1SA. Intesa Sanpaolo SpA has formalised a set of principles and procedures for dealing with conflicts of interest (“Research Policy”). The Research Policy is clearly explained in the relevant section of Intesa Sanpaolo’s web site (www.intesasanpaolo.com).

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Intesa Sanpaolo SpA issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 1 William Street, New York, NY 10004, USA, Tel: (1) 212 326 1230.

Residents in Italy: This document is intended for distribution only to professional clients and qualified counterparties as defined in Consob Regulation no. 16190 of 29.10.2007 either as a printed document and/or in electronic form.

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Coverage policy and frequency of research reports

The list of companies covered by the Research Department is available upon request. Intesa Sanpaolo SpA aims to provide continuous coverage of the companies on the list in conjunction with the timing of periodical accounting reports and any exceptional event that affects the issuer’s operations. The companies for which Banca IMI acts as sponsor or specialist are covered in compliance with regulations issued by regulatory bodies with jurisdiction. In the case of a short note, we advise investors to refer to the most recent company report published by Intesa Sanpaolo SpA’s Research Department for a full analysis of valuation methodology, earnings assumptions, risks and the historical of recommendation and target price. Research is available on Banca IMI’s web site (www.bancaimi.com) or by contacting your sales representative.



Valuation methodology (long-term horizon: 12M)

The Intesa Sanpaolo SpA Equity Research Department values the companies for which it assigns recommendations as follows:

We obtain a fair value using a number of valuation methodologies including: discounted cash flow method (DCF), dividend discount model (DDM), embedded value methodology, return on allocated capital, break-up value, asset-based valuation method, sum-of-the-parts, and multiples-based models (for example PE, P/BV, PCF, EV/Sales, EV/EBITDA, EV/EBIT, etc.). The financial analysts use the above valuation methods alternatively and/or jointly at their discretion. The assigned target price may differ from the fair value, as it also takes into account overall market/sector conditions, corporate/market events, and corporate specifics (ie, holding discounts) reasonably considered to be possible drivers of the company’s share price performance. These factors may also be assessed using the methodologies indicated above.

Equity rating key: (long-term horizon: 12M)

In its recommendations, Intesa Sanpaolo SpA uses an “absolute” rating system, which is not related to market performance and whose key is reported below:

Equity rating key (long-term horizon: 12M) Long-term rating Definition BUY If the target price is 20% higher than the market price ADD If the target price is 10%-20% higher than the market price HOLD If the target price is 10% below or 10% above the market price REDUCE If the target price is 10%-20% lower than the market price SELL If the target price is 20% lower than the market price RATING SUSPENDED The investment rating and target price for this stock have been suspended as there is not a sufficient

fundamental basis for determining an investment rating or target. The previous investment rating and target price, if any, are no longer in effect for this stock.

NO RATING The company is or may be covered by the Research Department but no rating or target price is assigned either voluntarily or to comply with applicable regulations and/or firm policies in certain circumstances, including when Intesa Sanpaolo is acting in an advisory capacity in a merger or strategic transaction involving the company.

TARGET PRICE The market price that the analyst believes the share may reach within a one-year time horizon MARKET PRICE Closing price on the day before the issue date of the report, as indicated on the first page, except

where otherwise indicated

Historical recommendations and target price trends (long-term horizon: 12M)

Target price and market price trend (-1Y) Historical recommendations and target price trend (-1Y)

INITIATION OF COVERAGE

INITIATION OF COVERAGE

Equity rating allocations (long-term horizon: 12M)

Intesa Sanpaolo Research Rating Distribution (at May 2011) Number of companies subject to recommendations: 94 (**) BUY ADD HOLD REDUCE SELL Total Equity Research Coverage % 29 38 30 2 1 of which Intesa Sanpaolo’s Clients % (*) 78 56 50 100 - (*) Companies on behalf of whom Intesa Sanpaolo and the other companies of the Intesa Sanpaolo Group have provided corporate and Investment banking services in the last 12 months; percentage of clients in each rating category. (**) The total number of companies covered is 101

Valuation methodology (short-term horizon: 3M)

Our short-term investment ideas are based on ongoing special market situations, including among others: spreads between share categories; holding companies vs. subsidiaries; stub; control chain reshuffling; stressed capital situations; potential extraordinary deals (including capital increase/delisting/extraordinary dividends); and preys and predators. Investment ideas are presented either in relative terms (e.g. spread ordinary vs. savings; holding vs. subsidiaries) or in absolute terms (e.g. preys).

The companies to which we assign short-term ratings are under regular coverage by our research analysts and, as such, are subject to fundamental analysis and long-term recommendations. The main differences attain to the time horizon considered (monthly vs. yearly) and definitions (short-term ‘long/short’ vs. long-term ‘buy/sell’). Note that the short-term relative recommendations of these investment ideas may differ from our long-term recommendations. We monitor the monthly performance of our short-term investment ideas and follow them until their closure.



Equity rating key (short-term horizon: 3M)

Equity rating key (short-term horizon: 3M) Short-term rating Definition LONG Stock price expected to rise or outperform within three months from the time the rating

was assigned due to a specific catalyst or event SHORT Stock price expected to fall or underperform within three months from the time the rating

was assigned due to a specific catalyst or event

Company specific disclosures

Banca IMI discloses interests and conflicts of interest, as defined by: Articles 69-quater and 69-quinquies, of Consob Resolution No.11971 of 14.05.1999, as subsequently amended and supplemented; the NYSE’s Rule 472 and the NASD’s Rule 2711; the FSA Policy Statement 04/06 “Conflicts of Interest in Investment Research – March 2004 and the Policy Statement 05/03 “Implementation of Market Abuse Directive”, March 2005. The Intesa Sanpaolo Group maintains procedures and organisational mechanisms (Information barriers) to professionally manage conflicts of interest in relation to investment research. We provide the following information on Intesa Sanpaolo Group’s conflicts of interest:

1 The Intesa Sanpaolo Group has a conflict of interest inasmuch as it plans to solicit investment banking business or intends to seek compensation from the Company in the next three months.

2 The Intesa Sanpaolo Group has an equity stake above 1% in DATALOGIC S.p.A.




Banca IMI SpA

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Banca IMI Securities Corp.

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Banca IMI London Branch

90 Queen Street London EC4N 1SA, UK Tel +44 207 894 2600

Intesa Sanpaolo Research Department – Head of Research Gregorio De Felice Head of Equity & Credit Research Giampaolo Trasi +39 02 8794 9803 [email protected] Equity Research Monica Bosio +39 02 8794 9809 [email protected] Bacoccoli +39 02 8794 9810 [email protected] Carmignani +39 02 8794 9813 [email protected] Ciaramella +39 02 8794 9814 [email protected] Meroni +39 02 8794 9817 [email protected] Luca Pacini +39 02 8794 9818 [email protected] Permutti +39 02 8794 9819 [email protected] M. Picardi +39 02 8794 9820 [email protected] Ranieri +39 02 8794 9822 [email protected] Corporate Broking Research Alberto Francese +39 02 8794 9815 [email protected] Caprini +39 02 8794 9812 [email protected] Polini +39 02 8794 9821 [email protected] Research Production Anna Whatley +39 02 8794 9824 [email protected] Bovina +39 02 8794 9811 [email protected] Marshall +39 02 8794 9816 [email protected] Ricci +39 02 8794 9823 [email protected] Banca IMI

Institutional Sales Nicola Maccario +39 02 7261 5517 [email protected] Cavalieri +39 02 7261 2722 [email protected] Guadagni +39 02 7261 5817 [email protected] Meier +39 02 7261 2158 [email protected] Sartori +39 02 7261 5880 [email protected] Stucchi +39 02 7261 5708 [email protected] Wilson +39 02 7261 2758 [email protected] Corporate Broking Carlo Castellari +39 02 7261 2122 [email protected] Mortari +39 02 7261 5853 [email protected] Spinella +39 02 7261 5782 [email protected] US Institutional Sales Stephane Ventilato +1 212 326 1233 [email protected] Del Duca +1 212 326 1234 [email protected] Leonardi +1 212 326 1232 [email protected] Halvorsen +1 212 326 1237 [email protected] Sales Trading Roberto Gussoni +39 02 7261 5929 [email protected] Manes +39 02 7261 5542 [email protected] Pennati +39 02 7261 5647 [email protected] Equity Derivatives Institutional Sales Andrea Martini +39 02 7261 5977 [email protected] Manini +39 02 7261 5936 [email protected] Murgino +39 02 7261 2247 [email protected] Market Hub – Brokerage & Execution Italian Equities - Sergio Francolini +39 02 7261 5859 [email protected] Equities - Francesco Riccardi +39 02 7261 2901 [email protected] Market Hub – Exchange Traded Derivatives Biagio Merola - Milan +39 02 7261 2420 [email protected] Market Hub – @ sales Giovanni Spotti +39 02 7261 2339 [email protected]

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Datalogic analisti/Datalogic0525.pdf · 1st airport application in Europe (Milano-Linate Airport) 1994 . 1st 360° scanner/scale . 1997 . 1st industrial high speed bar code reader