Stabilus - Pure player with strong outlook...Stabilus fact sheet Gas springs Stabilus restucturing: 1999-2016 Investment rationale Financial forecast Annex Stabilus Pure player with

Stabilus fact sheetGas springs

Stabilus restucturing: 1999-2016 Investment rationale

Financial forecastAnnex

StabilusPure player with strong outlook

Every car user has managed to lift a heavy tailgate applying hardly any force. How is that possible? The answer lies in the piston-like hinges that support the lid either side. They are called gas springs and make everyone’s life a lot easier, and not just around the car. Stabilus is the world leader of gas springs, for automotive uses and many other industrial applications.

The last twenty years of Stabilus are not typical of a classic market leader: from 2000 to 2009, the company’s revenue stagnated and the ownership changed 5 times. After it defaulted on its debt in late 2009, Stabilus was massively restructured and quickly renewed with success. The company went public in May 2014 to accelerate its development.

The new Stabilus emerged in 2012, led by a new management team and with a focus on innovation, execution (cost reduction, quality…) and geographic expansion. Since then the group achieved a 14% yearly organic growth and its profits were multiplied 5x.

The group still has many opportunities to seize, especially in terms of development of new applications. China operations are ramping up and the outlook is promising. Stab also benefits from a strong momentum on its current main growth driver, the Powerise, used for automatic tailgates.

We target a share price of 77€ in 2020.

1/21

P3P4-6P7-10P11-17P18-20P21

SDAXSTM:GR

STAB.DE€1,31 B

24.3 M98%

XTRABloombergRICMarket capitalizationNumber of sharesFree float

Stabilus February 9th 2017

OMNIUM

Omnium forecast 2016 2017 2018 2019 Sales (M€) 738 849 1,083 1,194 EBIT (M€) 77 105 132 149 Net profit (M€) 48 69 87 100 EPS (€) 2.21 2.85 3.58 4.13 PE ratio (x) 23.5 18.9 15.1 13.1

54€STM stock price

IPO 23€

Disclaimer

This research is strictly reserved to our direct recipients or customers.

The opinion expressed in this document is prepared and published by Omnium Capital Management (Omnium) for your information only. The analysis contained herein is based on numerous assumptions; different assumptions could result in materially different results. Omnium accepts no liability whatsoever from any claims arising from the use or distribution of this material.

Our research strongly evidences Stabilus SA (STAB) to be a good investment opportunity. The group enjoys:ª  A dominant market position in each of its products, protected by high entry barriers. ª  A strong reputation in terms of quality and execution. ª  Healthy margin levels.ª  A strong management who has been able to execute an ambitious strategy with impressive results. ª  Very clear and promising growth drivers, both in terms of products (Powerise) and geographic

expansion (China, where the group is currently only ramping up).

Each of our statements or forecasts is based on verifiable facts & data and we diligently confirmed each of our assumptions. Besides our financial analysis, we had extensive discussions with Stabilus IR manager, Mr. Andreas Shroder. We reviewed the company’s competition and conducted a field study to check on customer interest and products quality.

Nevertheless, we recognize that our report also reflects personal hypotheses, and in particular that our bottom-line deduction in terms of stock price forecast does not reflect the materialization of potential risks nor the impact of certain adverse factors. In particular, Powerise strong growth expectations may not be achieved, due to a shift in customer interest or the emergence of a new superior technology. Additionally, the group’s business remain cyclical, which means any global economic downturn would have a negative impact on STAB mid-term economic outlook. If we target a stock price of €77 by the end of 2019, we acknowledge that the investment we recommend could result in a potential loss.

2/21Stabilus February 9th 2017

Stabilus February 9th 2017 3/21

ª  Stabilus is a German company, the world’s leading provider of gas springs and damping solutions with more than 140 million units annually produced.

ª  The company’s gas springs and dampers optimize opening, closing, and lifting actions, protect against vibration and help absorb shocks. Stabilus has also made the successful transition from component to system supplier through the development of its proprietary Powerise technology, which offers customized solutions for electro-mechanical drives and dominates the powered automotive-tailgate market.

ª  The company employs more than 5,000 people worldwide, and operates production plants in nine countries. Germany accounts for nearly half of the production, with Romania, the USA, Mexico and China sharing most of the balance. The products are distributed in over 50 countries.

ª  Stabilus has reported sales revenues of €737.5 million in the Fiscal Year (FY) 2016. 70% of FY2016 revenues were derived from the automotive business. Europe accounted for 49% of total revenues, North America 39%, China 7%.

ª  Since its IPO in May 2014, Stabilus has been listed in the Prime Standard segment of the Frankfurt Stock Exchange and included in the SDAX index.

ª  Stabilus dominates a well-proven technology whose applications continue to expand. Trends towards better ergonomics and increased comfort, coupled with growing needs for mobility for an ageing population will lead manufacturers to add more comfort & convenience features to their products.

Fact Sheet

Stabilus Gas Springs (GS) global market Shares

Automotive GS Industrial GS Powerise

72%

30% 35%

44%

30%

26% Auto GS Industrial GS Powerise

Stabilus revenues by segment

Stabilus revenue by Region

49%

40% Europe Nafta Rest of the W

China 7%

Others 4%


Stabilus products: behind the scene

What is a gas spring?

A gas spring is a hydro-pneumatic adjusting element that uses a pressurized inert gas (nitrogen) contained in a cylinder and compressed by a piston to exert a force. The compressed nitrogen acts with equal pressure on differently dimensioned cross-sectional areas of the piston. This produces a force in the extension direction. This extension force can be exactly defined within physical limits through appropriate selections of variables (filling pressure, piston & tube sizes, etc…).

Main applications

Gas springs are versatile: they offer simple mounting, compact size, a wide variety of forces, speed-controlled damping and cushioned end motions. They require no power source or maintenance. Therefore, they have a lot of possible applications:ª  Volume wise, the automotive industry is the biggest market: the gas springs are

primarily used to help open and support the weight of tailgates, trunks and hoods but are also used in steering columns or fuel injection pumps.

ª  But many other industrial applications are found in the furniture, medical, aerospace businesses to name just a few (annex 1 page 21). Much larger gas springs are also found in machines used in industrial manufacturing and agricultural/construction equipment.

Powerise

Powerise is a system associating a gas spring and an electrical drive; it allows cars tailgates to be automated and opened or closed with a remote control as well as being stopped in any intermediate position. The spindle drive technology adapted by Stabilus is reported lighter and cheaper than competing ones. Powerise can be delivered as standard features but also as customized solutions.

Nitrogen

Piston package

Oil

Seal and guide package

Gas springs vs. ordinary metal springs

A gas spring can do a similar job as an ordinary metal spring, though it has a number of advantages. Thanks to the high pressure of the gas inside it, a gas spring can be much more compact than a metal spring that would provide the same amount of force. Gas springs expand and contract more smoothly than metal springs and can be designed to open and close at an constant predefined speed. Mechanically, gas springs are simple and have few moving parts, so they end up relatively cheap, extremely reliable and often last many years without any maintenance at all.


Stabilus dominates the gas springs and dampers markets (1/2)

AUTOMOTIVE DIVISION – 60% of total revenues and ≈ 45% of total gross margin (on a FY 2016 post acquisition pro forma basis).

Auto gas springs - A 72% global market shareª  In FY 2016, auto gas spring sales reached €320 million, 43% of total revenue.ª  Stabilus is a Tier1 supplier. Its gas springs and dampers are sold to more than

100 automotive customers including major global Original Equipment Manufacturers (OEM’s) and other Tier 1/Tier 2 suppliers. Ford, VW and BMW are the group’s biggest customers with more than 10% of total revenue each. Top of the list is Ford who is also an important Powerise customer.

ª  Stabilus’ 72% global market share in automotive is more than 10 times larger than its closest competitor’s. The company enjoys a near 90% market share in Europe and NAFTA. That share is protected by Stabilus global scale, technology and quality leadership, which create high barriers to entry.

ª  Asia and the Rest of the World “lag behind” with 30% of the market for Stabilus. In Asia, the market is much more fragmented with a lot of low-cost providers. It is also where the group has the biggest growth potential.

Powerise – A major growth ª  Sales of Powerise have increased substantially over the last 5 years: +61%

CAGR to €195 million in 2016, which represents more than 26% of total sales.ª  The number of cars equipped with automated tailgate systems rose at a CAGR of

24% over the same period. Stabilus has therefore managed to outpace its competitors.

ª  Stabilus main competitors on Powerise are Brose AG and Edscha AG, each gathering roughly 20% of the market. The key variables of competitiveness are price, quality and flexibility (product customization).

ª  If this technology was mainly installed in top-of-the-range vehicles in the past, it is now reaching the mid-range and compact classes.

Stabilus Edscha Brose Other

Powerise Global Market Shares

Automotive Gas Springs Market Shares

Europe NAFTA Rest of the world

Stabilus

Others

INDUSTRIAL DIVISION – 40% of total revenues and ≈ 55% of total gross margin (on a FY 2016 post acquisition pro forma basis).

Gas springs and dampers are Stabilus historical products and represent approximately the major part of the division sales. On those markets, Stab owns dominant market shares in Europe (40%) and North America (25%) but has a lot of room for improvement in Asia (less than 10% market share) where all segments face a stronger competition from low-cost producers.

The industrial division is a strategic axis for developmentª  Margins are higher than in the auto division: gross margin is close to 35% vs.

22% for auto gas springs and just below 20% for Powerise (2016 estimates*).ª  The business is less cyclical than the automotive supply.ª  There are also more opportunities to develop comprehensive value added

systems in the industrial world. Besides traditional gas springs and dampers, Stab aims to develop more value added systems, such as industrial Powerise or other complex applications featuring vibration and velocity control.

In 2016, Stabilus took an important step towards this strategic goal, with the acquisition of a complete industial division from Swedish Group SKF. This division gathers 4 brands specialized in dampers, motion & vibration control. They form a new Stabilus division named Vibration and Velocity Control, with $120 million in sales (FY 2015) and an estimated 40% gross margin (25% EBIT margin reported in the acquisition release) this division mostly serves niche markets (more details page 14).

The transaction cost was €339 million (roughly 11x 2015 EBIT). It was financed with a €159 millions capital increase and a new loan facility.

*Derived from data disclosed in the IPO prospectus.

Global industrial gas springs market share:

Stabilus

Others

NaftaEurope Rest of the World

Stabilus dominates the gas springs and dampers markets (2/2)

*Includes: Kayaba (Japan), Suspa (German), AVM Industries (USA), Hanil (Korea), Geysan (Turkey)… All have primarily regional profiles


*

Historically, industrial division sales have exceeded 35% of group sales. Going forward, Management wants to keep this level as a minimum.

IFRS P&L (€ million) 09.30.1999 09.30.2004 09.30.2009 09.30.2010 09.30.2011 Revenue 361 375 281 360 412 Cost of Sales -275 -280 -230 -285 -308 Gross profit 86 23,8% 95 25,3% 45 16,0% 75 20,8% 103 25,1% R&D -13 3,7% -14 3,4% Selling expenses -43 12,1% -37 8,9% SG&A -17 4,8% -21 5,1% Others 4 -2 EBIT 28 7,8% 95 25,3% -20 -7,1% 5 1,4% 30 7,3% Finance costs -34 -22 Income tax 0 2 Net Profit (+)/ Loss (-) -29 -8,1% 11 2,6% Total share number 17,7 17,7 Diluted EPS -1,66 0,59

Stabilus transformation (1/4) – 1999 to 2011: the long stagnation

ª  Between 1999 and 2010, Stabilus went through 6 different ownerships, including Vodafone, Siemens, KKR and three other private equity firms. As part of larger divisions at Vodafone, Siemens and KKR, the group was not treated as a strategic asset. Montagu Private Equity bought the group in September 2003 and sold it four years later to Paine & Partners. Highly leveraged (through Mezzanine and Senior high yield debts), the company quickly faced solvency issues as the Lehman recession led its customers to delay their payments and its suppliers to request payment on delivery.

ª  Stabilus eventually defaulted on its debt, and was acquired and restructured by another private equity fund Triton Partners (April 2010).

ª  Triton Partners injected fresh cash, set-up a new management team and restructured the company with a specific focus on innovation and geographic expansion.

Estimation*

*No public disclosure (Stabilus was then privately owned)

+1% CAGR


The first step of the new strategic plan is to modernize and standardize the manufacturing processes to improve productivity and therefore competitiveness (product price is the major variable of competitiveness, in particular in the auto field). ª  Debt is restructured: the $100 million mezzanine debt (10.75% p.a) and a $70

million senior loan (10.00% p.a) are refinanced with a “classic” high yield €315 million bond (7.75% p.a). Two profit participating loans/Equity upside sharing instruments are closed.

ª  Strong CAPEX investments are made to optimize productivity: US and

German plants are re-built as fully automated plants, perfectly suited to the gas spring low labor intensive production process. Spain and Italian plants are closed, and new plants are built in Mexico, Romania and China, to both enlarge the group’s footprint and to decrease cost on more labor-intensive Powerise.

Building on its new strengths, the group aims to renew with growth, gain market shares and penetrate new markets. The strategic plan, called STAR (for Stabilus Reloaded) includes many precise targets such as: ª  To reach €800 million in revenue by 2020, in particular through geographical

expansion towards high growing markets (China is the main target). ª  To increase Powerise global market share from 22% in 2013 to 30% in 2017. ª  To make several acquisitions to shift from a component supplier to a more value-

added system supplier: in its IPO prospectus (May 2014), the group mentions its will to strengthen its expertise in shock absorption through potential acquisitions.

All these goals have been achieved well ahead of plan.

IFRSP&L(€million) 09.30.2011 09.30.2012 09.30.2013 09.30.2014 Revenue 412 444 460 507 Cost of Sales -308 -336 -350 -388 Gross profit 103 27,6% 107 24,1% 110 24,0% 120 23,6% R&D -14 3,7% -14 3,2% -18 3,8% -20 4,0% Selling expenses -37 9,7% -37 8,4% -39 8,5% -39 7,6% SG&A -21 5,5% -28 6,3% -21 4,6% -33 6,4% Others -2 4 3 3 EBIT 30 8,1% 32 7,3% 35 7,7% 31 6,2% Finance costs -22 -14 -41 -21 Income tax 2 -10 -10 0 Net Profit (+)/ Loss (-) 11 2,8% 9 2,0% -16 -3,5% 10 2,0% Total share number 17,7 17,7 17,7 18,3 Diluted EPS 0,59 0,49 -0,90 0,54

Gross margin decline: growth driven by auto applications with lower gross margin (≈19% vs. 35% for industrial goods, in 2013)

The debt restructuring includes unwind costs and penalties

Stabilus transformation (2/4) – 2011 to 2014: building a new group


The strategy pays off and Stabilus restores growth in all its markets.

ª  2015 and 2016 are very strong. For 2016 alone, organic growth reached 15%: 21% growth as reported, including 6% from the acquisition* (≈ €27 million).

ª  Industrial sales benefit from innovation and expansion. After 10 years of subdued growth, they grow organically by 6% in 2015 and 11% in 2016.

ª  Powerise is the biggest factor of growth thanks to increased penetration and market share gains. As explained page 11 & 12, this strong growth generates economies of scale but also indirectly boosts auto gas spring sales.

ª  Debt is restructured following the 2016 acquisition: high-yield debt (previous page) is refinanced by a new €455 million loan, the main part of it being financed at Euribor +2% (NB: at the end of FY 2016, Stab redeemed €50 million of this new loan à End FY 2016 gross debt = €405 million).

* Consolidated since Q4 FY 2016. Details page 14.

236 254 243 255294 320

+4%+8%

-4%

+5%

+15%

+9%

2011 2012 2013 2014 2015 2016

Auto gas springs sales (€ million)

159 161 162 167 177 196

0% +1% +1% +3%+6%

+11%

2011 2012 2013 2014 2015 2016

Industrial sales exc. acquisition (€ million)

Sluggish Dynamic

Stabilus transformation (3/4) – 2014 to 2016: back to profitable growth

09.30.2014 09.30.2015 09.30.2016

Revenue 507 611 738

Cost of Sales -388 -464 -548

Gross profit 120 23.6% 148 24.2% 190 25.7%

R&D -20 4.0% -24 4.0% -27 3.6%

Selling expenses -39 7.6% -44 7.2% -55 7.5%

SG&A -33 6.4% -27 4.5% -34 4.6%

Others 3 4 3

EBIT 31 6.2% 56 9.1% 77 10.4%

Finance costs -21 -25 -11

Income tax 0 -14 -18

Net Profit (+)/ Loss (-) 10 2.0% 17 2.8% 48 6.5%

Total share number 18.3 20.7 21.7

Diluted EPS 0.54 0.82 2.21

Growth acceleration

Debt cost decline thanks to debt restructuring

Improved profitability


Sluggish Dynamic

18 29 55 86 140

195+80%+58%

+93%

+55% +63%

+40%

2011 2012 2013 2014 2015 2016

Powerise sales (€ million)

Dynamic

If Stabilus financial debt remains high following the acquisition, its reimbursement capacity has strongly improved. At the end of FY 2016, net debt amounted €305 million (gross debt €405 million): ª  Gearing = 1.25x (€263 million Equity) ª  Leverage = 2.5x (€140 million EBITDA) However, free cash flow generation has significantly improved and will continue to do so, mainly due to organic growth and contribution from recent acquisition, that combined should roughly add €35 million to FY 2017 operating cash flow. Moreover, the cash expenses are expected to either decrease or to remain stable: ª  Interest rate payments should not excess €15 million this year as the cost of

debt averages 3% (vs. 9% 5 years ago). ª  CAPEX will remain stable in absolute terms. The main part of recent CAPEX

consisted in expansion CAPEX. Management now expects total CAPEX to remain close to €50 million over the next two years*.

ª  Dividend payout ratio is low: Stab will pay its first dividend in 2017 (based on FY 2016 results): the proposed amount is €0.50, implying a total charge of €12 million. The underlying payout ratio is 25% (FY 2016 net profit = 48 million), leaving some room for debt reimbursement.

Over 2017-2020, free cash flow after dividend payment could reach an average €75 million per year (total free cash flow over 2011-2014 = 0). Assuming no further acquisition, the group should significantly strengthen its balance-sheet. Based on those assumptions, by the end of FY 2020, net financial debt could drop to €100 million, implying a Gearing level below 30%.

*Source: Q4 2016 earnings conference call

€ million FY 2015 FY 2016 FY 2017 (F)Cash flow from operating activities 86 110 145CAPEX -51 -53 -50Interest rate payments -25 -11 -15Free cash flow 10 46 80Dividend payments - - -12Potential debt reimbursement 10 46 68

Stabilus transformation (4/4) – Cash-flow improved substantially



Investment rationale (1/7) – Powerise, THE growth driver

Powerise sales grew from €18 million to €195 million between 2011 and 2016 (61% CAGR). They now represent 26% of Stab total revenue (from 4%).

A strong commercial success: opening/closing a car rear door by pressing a button is very convenient. High customer “take rate” highlights the product attractiveness and as the penetration rate is climbing, OEM’s are now considering the product as a standard application, as opposed to a fancy option. As the product integrates OEM’s standard platforms, its selling price to final customers decreases: from €500 as a standalone feature in its early days, its price now averages €200.

Penetration rate is still low: in FY 2016, Stabilus sold 4.6 million Powerise systems, which roughly implies 3.0 million vehicles, as small segment cars only require one Powerise (see below). Stabilus having an estimated 35% market share*, a simple math gives a total market of 8.6 million vehicles, implying a 10% penetration rate (91 million cars produced worldwide).

Positive impact on gas spring sales: initially designed for large cars and SUV’s, Powerise lately penetrated smaller cars. Lighter trunks only require only “one-sided motorized” applications (one Powerise), whereas the other side of the truck is activated by a “Federbein”: a gas spring that also involves a mechanical spring which enhances the product reliability in case of extreme outdoor temperatures (a standard gas spring would not be sufficient in such conditions). These applications account for 15% of the total automatic tailgate/trunk applications. Federbein sales are reported in auto gas spring sales. They constitute the main growth driver of that item, as their price is 3 to 5 times higher than regular gas springs (we estimate that they represented 50% of gas spring sales growth since 2015).

Opportunities outside the auto world: since 2016, Powerise is used in high-quality centrifuges for blood banks that open automatically when the next step can be taken. Many other application are in Stab current pipeline (annex 1 on page 21).

* Source: Q3 FY 2016 conference call

4.2

3.0

1.6

0.01.02.03.04.05.0

By region

NAFTAEuropeAsia

Number of car (million units) equipped with an automatic rear door opening system

1.6 1.8 1.7 2.7 3.2 3.84.7 5.3

6.9

8.6Total

22%

12%

3%

0%5%

10%15%20%25%

By region

NAFTAEuropeAsia

3% 4% 4% 4%5% 5%

6%7%

9%10%

GlobalSystem penetration rate

Market shares

Stabilus22%

Edscha16%

Brose16%

Magna5%

Valeo5%

Others36%

2013

Stabilus35%

Edscha20%

Brose20%

Magna5%

Valeo5%

Others15%

2016


Investment rationale (2/7) – Powerise: pricing and profitability aspects

Powerise targets a mass market where price is the major source of competitiveness. Any pricing power will come from very high market share and its associated scale competitive advantage. That is why Powerise gross margin is still slightly below traditional gas springs (≈22% vs. 20%), although this high electronic content product seems more value-added.

Stabilus sells its Powerise solution at an average €42/unit vs. €46/unit three years ago (vs. €3 in average for a gas spring). Contracts with OEM’s are based on long-term purchase agreements that include 3-4% yearly price reductions, in exchange for volume increase. If these price reductions force Stabilus to improve its productivity, they contribute to protect its market share against new competitors.

Stabilus is in a good position to replicate the strategy it has developed for automotive gas springs (where it now owns a 72% market share). Powerise is a “young” industrial product and many of its components are sourced from suppliers, unlike gas springs that now come out from fully automated manufacturing units. Powerise is therefore more material intensive (as it requires more intermediate products) but also more labor intensive (more assembly work). But as volumes increase, Stabilus will integrate its manufacturing process. Since 2016:ª  China sales are sourced from its new Chinese plant (there were previously

shipped from Romania and Mexico). ª  The flocking (surface treatment) is now made in-house.

Higher volumes bring cost reduction (bargaining power and vertical integration). The main part of these cost reductions are given back to OEM’s through price reductions which in return boosts Stab market share and product penetration. The last chain-link is execution (quality, on-time delivery), which is an undisputable competitive advantage of Stab (page 16).

4645

4443

42

Powerise selling price (€)


As Powerise penetration rate is very different from one region to another, we build a forecast for each region: NAFTA: the region is driven by the US, where penetration rate for automatic rear-door opening systems is now close de 35%: 25% of cars offer the system as a standard feature and another 25% as an option (take rate ≈ 40%). The growth rate should remain healthy as customer interest should further drive standardization. Increased penetration on lower car segments and compact SUV’s should also support the trend. We forecast a 20% sales growth over the next two years, and then 10% in FY 2019 and 2020, suggesting a normalization from recent growth levels. Europe: the growth trend should remain above 30% for the next two years, as penetration rate should continue to catch up with the US, where the product was introduced earlier. Growth rate should normalize in 2019 and 2020: we assume a 10% growth/year. Asia/Pacific: the region will be led by China where Stab is ramping up the product and expect a very strong dynamic. We forecast sales to reach €12 million in FY 2017 and €25 million in FY 2018, €35 million in 2019 and €50 million in 2020.

Investment rationale (3/7) – Powerise sales forecast

18 21 2125 25 26 28

33

28% 29% 32%42%

37%28%

36%30%

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

NAFTA

11 13 1417 18

22 22 21315%

183%126%

102%56% 67% 58%

23%

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Europe

Powerise quarterly sales by region (€ million)

Growth rate vs. same quarter previous year

0.2

1.2

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Asia/Pacific

140195

253325

379445

Powerise total sales (€ million)

In April 2016, Stabilus acquired 4 industrial brands from the Swedish group SKF, enabling the group to accelerate its developments:

Stabilus industrial offer is reinforced: ª  Product diversification with a new expertise on vibration control

technologies (materials engineering).ª  Existing portfolio extension with a focus on motion control and shock

absorption for dedicated niche applications and smaller orders (hard to serve with a fully automated process).

ª  Access to different distribution networks.

Ability to develop complex systems solutions rather than single components: new R&D projects will combine all fields of expertise within the new Stabilus and offer more comprehensive solutions to the industrial customers.

Increase profitability: these brands generated a 25% EBIT margin (on $120 million sales in 2015): twice as much as Stabilus before the acquisition.

ª  It supplies mostly niche markets with customized products, in small lots, generating higher margins.

ª  Stabilus started consolidating the acquisition in its 4th quarter financial statements. The revenue contribution was €27 million. The full contribution will be visible in the fiscal year ending Sept. 2017.

ª  This business enjoyed a 5-6% growth over the last few years (confirmed in the FY 2016 earnings conf. call). We will use this growth figure to build our forecast, and therefore expect a full year contribution of €127 million for FY 2017 (+€100 million vs. FY 2016).

Management is still assessing the market to identify companies that could contribute to its development in the same way.

Investment rationale (4/7): building complementary industrial solutions

Acquisition rationale

New engineering processesability to serve small lots

Strong established brands

Access to complementary niche markets

STABILUS- Diversification

- Revenue & Margin Increase- Business Rebalancing

Higher margin products

Complementary businesses

The 4 acquired brands:

•  Hahn Gasferdern: focus on motion > Mainly gas springs.•  ACE: focus on automation > Shock absorbers, dampers.•  Fabreeka: focus on vibration control > Insulation material.•  Tech Products: focus on vibration control > Shock mounts, anti-

vibration elements.



Investment rationale (5/7) – CHINA: another major opportunity

We expect a 25% CAGR over the next five years in Chinaª  In FY 2016, China sales reached €53.3 million, up 25% (+30% in constant

currencies): China sales account for 2/3 of the Asia/Pacific sales (€84.3 million), which also include Japan, Korea and Brazil.

ª  In FY 2017, Stab targets a 15% growth in Asia/Pacific*, suggesting strong expectations for China, as the other countries recently showed subdued growth.

ª  Investor relations Mr. Shroder confirmed this point and actually told us the group was excepting China sales to grow by 30%/year over the two next years.

Last year, the group made several investments, preparing a new growth cycle: ª  New Powerise production plant (operating since august 2016).ª  New industrial gas spring production line.ª  Set up of local engineering, sales and management teams.

What kind of opportunities?Powerise: Edscha and Brose have already penetrated the Chinese market but Stab seems confident on its product technical superiority and affordable price. Stab now supplies several local OEM’s and has a strong pipeline of launches over the following quarters (sales forecast on previous page).

Auto gas springs accounted for 85% of China sales last year. On this commoditized market, Stab has been able to leverage its production process expertise and scale effect to offer higher quality products and equivalent prices compared to low cost local products. Its market share is around 30% (vs. an average global 72%) but is growing strongly. China auto gas springs sales grew by an average annual 20% over the last two years (without any “Federbein” effect).

Industrial gas springs: the group aims to differentiate from local low cost competitors by promoting its superior quality and high production standards.

* Source: FY 2016 Annual report

Auto gas springs 91%

Powerise 3%

Industrial springs

6%

FY 2016 China sales = €53.3 million

0.2 1.2

12Powerise sales in China (€ million) Omnium

forecast


Investment rationale (6/7) – Competitive advantages

High market share: Stab dominant market share provides economies of scale in an industry that is characterized by high initial capital expenditure requirements. Highly efficient production process: Stab is the only company with fully automated lines, applying standardized production processes, resulting in even greater economies of scale and more efficient quality checks. These processes enable Stab to produce gas springs in a cycle of as little as two seconds long. This is also an advantage, as timeliness of delivery is another major source of competitiveness. Within the last ten years, several competitors discontinued the majority of their auto gas spring operations. In this field, Stab market share have continued to step up, from 68% in 20031 to 72% in 20162. Technology expertise: Stab expertise in dampening technologies, locking systems, temperature control and height control, enables the company to create new innovative products . In its Powerise system, Stabilus was the first player to adapt the “spindle drive” technology, traditionally used as a motion system for elevators and supermarket doors. This technology has now proven to be cheaper, lighter and more silent than other technologies. In 2015, Stab was awarded a new contract from Tesla for the model X gullwing doors (also called “Falcon wings”), after Tesla decided to change from another supplier that used an hydraulic technology. Quality: besides its highly efficient production platforms, Stab also benefits from 80 years of experience, providing a specific ability to understand and meet customer requirements. The group has also built high-quality testing systems such as driving simulators that deliver precise and reliable data, improving its quality standards. 1- Source: IPO prospectus 2- Source: FY 2016 annual report


At €54 per share, STAB currently trades at 18.9x its next expected earnings, using consensus forecast. Auto supplier stocks currently trade at an average PE multiple of 12.5x and industry suppliers trade at a 18.0 PE multiple. As Stab Profit is split 50/50 between auto and industry, we get a hybrid PE ratio benchmark of 15.25x, implying a 24% premium for Stabilus. We consider this premium to be justified: ª  Like many other successful pure players, Stab is a vertically integrated and

highly profitable company. When compared to diversified multi-division auto suppliers such as Faurecia, Magna or Valéo, Stabilus is surely more expensive, but far more profitable. A more relevant comparison would be Brembo, the Italian braking system specialist, that currently trades at 16.6x 2017 earnings. But Brembo is far more dependent on auto sales. Stab is surely cyclical too, but again, 50% of its profit is linked to highly diversified industrial goods (from solar panels to hospital beds) and the driver of its auto division is Powerise, that relies more on its underlying penetration than on worldwide auto sales growth.

ª  Norma Group AG seems to be the more meaningful comparison: one of the

leaders in joining technology solutions supplying a diversified range of industrial sectors (35% revenue linked to Auto), Norma currently trades at 15.5x PE multiple which is 22% cheaper than Stab. But Norma has achieved a 2% organic growth over the past two years vs. 12% for Stabilus. In terms of perspective, Norma is guiding for low single digit growth, vs. high single digit/low double digit growth for Stab. Based on 2019 earning consensus forecast, Stabilus is 20% cheaper than Norma.

Investment rationale (7/7) – Valuation analysis

Stabilus Faurecia Magna Valéo Brembo

Gross margin 25.7% 9.3% 14.2% 17.40% 21.5%

EBIT margin 10.4% 4.7% 7.8% 7.0% 12.5%

Stabilus Norma group

Gross margin 25.7% 27.0%

EBIT margin 10.4% 14.0%

42 45 48

28 32 35 3847

38

16 17 18 20 19 22 17 18.9

54€STM stock price and PE ratio

18.9

15.1

13.1

15.5

15.0

14.5

Stab vs Norma PE ratio


FY 2017 Sales: €949 million, up 14% organically from FY 2016 (€737 million)

ª  Recent acquisition should add €100 million to sales (page 14).ª  Powerise will add €58 million additional sales (page 13).ª  Auto gas springs sales growth will continue to be driven by Federbein sales,

and market share gains in China. We forecast a 10% growth this year, constant over last year.

ª  We forecast industrial sales to be driven by new application developments. We assume a 7% organic increase (compared to 11% in FY 2016) and do not include at this stage cross sales synergies with the new entities.

Our forecast stands far above management €865 million guidance. Nevertheless: ª  Taken separately, each of our division sales forecast is actually very compatible

with management outlook, either in terms of figures or commentaries. This enforces our feeling of a very conservative guidance.

ª  Over the last two years, management guidance was extremely conservative:•  2015 initial guidance: €550 million à 11% below actual figure•  2016 initial guidance: €660 million à 12% below actual figure•  Our 2017 forecast is 9% above initial guidance.

2020 sales: €1,321 million. We assume:ª  Powerise sales to reach €445 million by 2020 (page 13).ª  Auto gas springs to grow by 10% in 2018 and 7% in 2019 and 2020 (they would

reach €443 million by then).ª  Industrial sales to grow by 7%/year driven by innovation and footprint

expansion (€433 million in 2020).

611737

9491 083 1 194

1 321Stab Sales Forecast (€ million)

320 352

195 253

222 244

100

FY 2017 Stab Sales Forecast (€ million)

"Consolidation effect" Capital goods Powerise Auto gas springs

737

949

Financial forecast (2/4)

Industrial


2017 margins to increase: ª  Net of PPA amortization1, acquisition should be 100 bps EBIT accretive: the

acquired entities have a 25% EBIT margin (twice as much as Stab prior to the acquisition). PPA amortization charges will amount €8.5 million/year.

ª  Powerise strong volume growth will drive economies of scale (page 12). Management has initially guided for a 13-14% range of “adjusted” 2 EBIT margin (vs. 13.4% last year) which seems surprisingly conservative. During its FY 2016 earnings release conference call, Management was asked by several analysts to justify such a conservative stance. Although they confirmed each of the above positive factors and specified no restructuring cost were expected on the new entities, they nevertheless maintained their 13-14% guidance. We believe there is a high probability of several guidance improvements during the course of the year and we think adjusted EBIT margin could even reach 15.5%. However we only factor a 14.1% adjusted EBIT margin (corresponding to a 11.1% EBIT margin): ª  We thus adopt a conservative approach, keeping a certain “margin of safety”. ª  We acknowledge that integration costs may be necessary, even if no restructuring

action is planned today.

1- PPA: Purchase Price Allocation. An important part of the acquisition price concern intangible assets (customer relationships… ), amortized over 15 years. 2- Adjusted EBIT: STAB management builds its guidance on this metric, that deducts from the EBIT certain one-off charges: Advisory, restructuring, PPA amortization…

09.30.2016 09.30.2017 (F)

Revenue 738 949

Cost of Sales -548 -698

Gross profit 190 25.7% 251 26.5%

R&D -27 3.6% -33 3.5%

Selling expenses -55 7.5% -73 7.7%

SG&A -34 4.6% -40 4.2%

Others 3 0

EBIT margin 77 10.4% 105 11.1%

Finance costs -11 -15

Income tax -18 -22

Net Profit (+)/ Loss (-) 48 6.5% 69 7.3%

Total share number 21.7 24.3

Diluted EPS 2.21 2.85

12% capital increase related to the acquisition

Main debt item is a €405 million loan financed at Euribor +2%



2020 EPS to reach €4.81ª  We do not factor additional acquisitionsª  Cash flow generation will lead to debt reimbursements, reducing finance costs.ª  We expect income tax rate to remain close to its recent historical level of 27%.

Stock Valuation: Stabilus currently trades on a 18.9x PE ratio. As we said earlier, we consider this ratio to be justified by a strong growth momentum. However, our financial forecast assumes that several item’s growth will normalize from 2019. We therefore use a 16x PE ratio (15% discount) to project our 2020 stock price target.

à OUR 2020 STOCK PRICE FORECAST IS €77


Stab stock price simulation

€77

09.30.2016 09.30.2017 (F) 09.30.2018 (F) 09.30.2019 (F) 09.30.2020 (F)

Revenue 738 949 1083 1194 1321

Cost of Sales -548 -698 -794 -873 -963

Gross profit 190 25.7% 251 26.5% 289 26.7% 321 26.9% 358 27.1%

R&D -27 3.6% -33 3.5% -35 3.2% -39 -3.3% -42 -3.2%

Selling expenses -55 7.5% -73 7.7% -78 7.2% -86 -7.2% -93 -7.0%

SG&A -34 4.6% -40 4.2% -44 4.1% -47 -3.9% -51 -3.9%

Others 3 0 0 0 0

EBIT margin 77 10.4% 105 11.1% 132 12.2% 149 12.5% 172 13.0%

Finance costs -11 -15 -13 -12 -12

Income tax -18 -22 -32 -37 -43

Net Profit (+)/ Loss (-) 48 6.5% 69 7.3% 87 8.0% 100 8.4% 117 8.9%

Total share number 21.7 24.3 24.3 24.3 24.3

Diluted EPS 2.21 2.85 3.58 4.13 4.81

€54

Annex 1: Mega Trends pave the way for Stabilus future development

ª  The ageing population will increasingly create more needs for mobility related products: people are more frail and need assistance for mobility and more automated systems. Hospital and homecare equipment evolve to give people with disabilities more mobility. Powered comfortable wheelchairs, ergonomic medical beds or furniture are just a few examples where Stabilus can provide more new solutions.

ª  General comfort increase in all aspects of our daily life is a structural trend. Swivel chairs, furniture, plane/train seats, storage optimization, roof windows, elevators... In all these products gas spring solutions can play a key role.

ª  Manufacturing environment regulations are evolving, and important themes include ergonomics optimization and maximum operating safety for the workers. Gas springs and new generation dampers enable workers to manipulate heavy equipment/products. They also protect from recurring vibrations in certain work environment (production plants, transportation, testing sites…).

ª  A growing proportion of industries deal with high precision constraints (nanotech, aerospace, electronics are just the most obvious). Vibration and motion dampers give valuable technical equipment effective insulation from / protection against damage and impairments from vibrations or impacts.

Those global trends will definitely support more penetration for all sorts of damping, shock absorption or vibration control equipment.

Practice case: the solar applications The last decade has been characterized by a quick penetration of solar power production. The capacity installed in 2015 was 227 GW, 7 times higher than 5 years ago. Up to 70GW should have been installed in 2016. Individual solar equipment as well as giant solar farms are multiplying around the globe. When solar modules are mounted on a sub-structure that aligns the modules with the sun rays in such a way that the highest energy yield is achieved in the course of the year. The sub-structure can also be designed to track the sun (adding a rotation motion) in order to optimize the energy yield. This mobility makes the module more sensitive to the weather conditions, and prevailing winds in particular. Impaired panels cost a lot to replace. Stabilus dampers minimize the impact of wind on solar modules and their carrier systems by preventing vibrations that adversely affect the structure. Down the road, they are viewed as a factor of economic efficiency by the solar industrial players. In 2016 they were awarded contracts with 3 solar panels manufacturers, to equip an equivalent of 5 GW of production capacity.


Documents

Stabilus - Pure player with strong outlook...Stabilus fact sheet Gas springs Stabilus restucturing: 1999-2016 Investment rationale Financial forecast Annex Stabilus Pure player with