PIERER Mobility — Happy biking holidays

PIERER Mobility (AV: PMAG)

Last close As at 04/11/2024

81.00

1.00 (1.25%)

Market capitalisation

2,738m

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Research: Industrials

PIERER Mobility — Happy biking holidays

Global demand for powered two wheelers (motorcycles and e-bikes) has remained strong throughout H220. Production has been increased to meet demand and the volume lost in H120 due to pandemic-induced closures has been recovered. As a result, FY20 sales guidance has been raised again to €1.5bn with operational gearing driving FY20 EBIT of c €100m, 31% above our previous estimate. The 6.6% margin is above the guidance range of 4–6%. Management expects the supportive trends to continue in FY21 and all the improvement is accompanied by better-than-expected cash flows.

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Industrials

PIERER Mobility

Happy biking holidays

Increased guidance and earnings upgrade

Automobiles & parts

15 December 2020

Price

€61.50

Market cap

€1,372m

€0.93:CHF1

Net debt (€m) at 30 June 2020

489.4

Shares in issue

22.3m

Free float

38%

Code

PMAG

Primary exchange

SIX Swiss Exchange

Secondary exchange

Frankfurt Stock Exchange

Share price performance

%

1m

3m

12m

Abs

15.0

15.4

33.7

Rel (local)

16.3

16.3

34.4

52-week high/low

€62.50

€25.00

Business description

PIERER Mobility is a leading manufacturer of powered two wheelers, focusing on premium motorcycles and two-wheeled electric vehicles including e-bikes. With its well-known brands – KTM, HUSQVARNA and GASGAS – it is the largest sports motorcycle manufacturer in Europe.

Next events

FY20 results

1 February 2021

Analyst

Andy Chambers

+44 (0)20 3681 2525

PIERER Mobility is a research client of Edison Investment Research Limited

Global demand for powered two wheelers (motorcycles and e-bikes) has remained strong throughout H220. Production has been increased to meet demand and the volume lost in H120 due to pandemic-induced closures has been recovered. As a result, FY20 sales guidance has been raised again to €1.5bn with operational gearing driving FY20 EBIT of c €100m, 31% above our previous estimate. The 6.6% margin is above the guidance range of 4–6%. Management expects the supportive trends to continue in FY21 and all the improvement is accompanied by better-than-expected cash flows.

Year end

Revenue (€m)

EBIT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

1,462

128.7

1.82

0.30

33.8

0.5

12/19

1,520

131.7

2.42

0.00

25.4

N/A

12/20e

1,514

99.5

1.43

0.30

43.0

0.5

12/21e

1,778

153.3

2.59

0.30

23.7

0.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, and exceptional items

Continuing to surprise in FY20

The improved guidance results from strong global demand for e-bikes and motorcycles during the pandemic, which reflects a trend that has been apparent for increased private mobility, fitness and recreation. As Europe’s leading powered two-wheeler manufacturer with a double-digit share of its global addressable markets, PIERER is well placed to benefit from this trend and the rapidly developing push for increased urban e-mobility solutions. H220 sales are expected to be 17% ahead of H219 at around €900m. Management now expects FY20 group sales of over €1.5bn (€1.45bn previously), generating an EBIT of c €100m. The margin of 6.6% exceeds the prior forecast margin range of 4–6%. Free cash flow is expected to improve by c €130m against previous guidance of around €30m, due to the better operating performance and lower year-end dealership inventory levels.

Positive outlook for FY21

The momentum being seen in markets in H220 is expected to continue in FY21, with strong growth anticipated for both motorcycles and e-bikes. We have increased our FY21 estimates accordingly, lifting our sales expectation 4% with the motorcycle EBIT margin returning to a more normal pre-pandemic range of 8–9%.

Valuation: Change to structure may prove beneficial

The shareholder structure is expected to change, with Bajaj Auto taking a more direct holding in the group in exchange for its minority holding in the main KTM AG subsidiary. Negotiations have just restarted but our understanding is that minority free float shareholders are expected to see a benefit from higher EPS and no decline in absolute share of cash distributions (see below), which may increase if a progressive dividend policy is introduced. In the meantime, the improved trading performance leaves the stock trading on 23.7x FY21 EPS, with incremental growth from e-mobility expected from FY21. Our DCF value stands at €71 per share.

Revisions to earnings estimates

We assume the upgrade to revenues comes from the motorcycle business as we believe the e-bike business is relatively capacity constrained. The motorcycle brands are being produced at very high levels as dealership stock levels were reduced when production was halted in H120 but retail demand remained high. Despite the extra shifts and workforce this has required, operational gearing benefits are expected to modestly improve gross margins from our previous levels, which drops through to EBIT and PBT. Our EBIT estimates increase by 31% in FY20 and 9% in FY21, and PBT and EPS estimates increase by close to 40% in FY20 and 12% in FY21.

Management now expect free cash flow to be around €130m, c €100m above previous guidance, largely due to lower than expected year-end inventory levels, which should at least partially normalise in FY21.

Unlike in the car industry, motorcycle buyers do not normally expect to have to wait to ride away on their desired machine. Therefore, we think retail sales and wholesales are closely matched at present, which leads to a sharp decline in inventory at the year-end compared to the prior year when dealership stocks at pre-pandemic levels were normal. A rebuild of stocking levels in FY21 seems likely and should lead to higher inventory levels, subduing cash flow performance.

We have upgraded our FY21 expectations for PIERER e-bikes to reflect the strong demand growth. We still believe we are some way below management’s expected ramp up of volumes despite the higher growth assumed. While PIERER’s main market is in the well-developed but rapidly growing European market, we note that at the EKF conference management indicated the North American market had trebled to around 300k units, which could be a future opportunity for the group as it starts to sell e-bikes through its motorcycle dealerships.

Exhibit 1: PIERER Mobility adjustments to earnings estimates

Year to December

2020e

2021e

€m

Prior

New

% change

Prior

New

% change

Revenues

Core Motorcycle business

1348.0

1403.7

4.1

1604.2

1623.8

1.2

E-motorcycles

0.0

0.0

0.0

0.0

E-bikes

110.0

110.0

0.0

132.0

154.0

16.7

Total revenues

1458.0

1513.7

3.8

1736.2

1777.8

2.4

Gross profit

Core Motorcycle business

392.1

415.3

5.9

468.6

480.8

2.6

E-motorcycles

0.0

0.0

0.0

0.0

E-bikes (PEXCO)

15.0

15.0

0.0

23.8

27.7

16.7

Total gross profit

407.1

430.3

5.7

492.3

508.5

3.3

Operating expenses

-204.7

-204.7

0.0

-207.3

-210.9

1.7

EBITDA

202.3

225.5

11.5

285.0

297.6

4.4

D&A

-126.0

-126.0

0.0

-144.3

-144.3

0.0

EBIT

76.3

99.5

30.5

140.7

153.3

9.0

PBT

60.8

84.0

38.2

125.6

141.0

12.3

Net Income

23.0

32.2

39.8

51.9

58.3

12.3

EPS (€)

1.02

1.43

39.8

2.30

2.59

12.3

Dividend (€)

0.30

0.30

0.0

0.3

0.30

0.0

Adjusted net debt

413

322

-21.9

366

296

-19.1

Source: Edison Investment Research

Potential ownership structure change

On 27 November 2020 PIERER Industrie announced that a previous discussion to transfer Bajaj Auto’s interest in the group from a subsidiary level (KTM AG) to the parent group has restarted.

As an initial step PIERER Industrie is transferring 60% of its 63% shareholding in PIERER Mobility to a new 100% owned company PTW Holdings.

In the transactional phase, the 48% Bajaj stake in KTM would be transferred via a payment in kind to a minority stake in PTW Holdings that would own a stake in PIERER Mobility.

The ramifications for the PIERER Mobility free float shareholders are indicated below, but we suspect the arrangement should be positive for them in aggregate, despite the likely dilution to proportionate ownership. In other words, we expect them to receive at least as much in absolute terms of earnings and cash flow per share although as in any minority free-float situation there is no direct control over that. The expected effects are:

No change to company trading performance.

Bajaj’s minority holding in KTM AG is eliminated and the associated cash payment changes from a minority dividend to a normal PIERER Mobility dividend paid to Bajaj through its stake in PTW Holdings.

A lower free float share of the total market capitalisation as the Bajaj stake is effectively a capital injection to the group requiring the issue of additional PIERER Mobility shares.

Clearly how the financial mathematics of the deal work will depend on the terms agreed, which have yet to be negotiated.

Exhibit 2: Financial summary

Accounts: IFRS, year end December (€m)

 

 

2018

2019

2020e

2021e

Income statement

 

 

 

 

 

 

Total revenues

 

 

1,462

1,520

1,514

1,778

Cost of sales

 

 

(1,031)

(1,074)

(1,083)

(1,269)

Gross profit

 

 

431

446

430

508

SG&A (expenses)

 

 

(194)

(191)

(179)

(183)

R&D costs

 

 

(27)

(24)

(25)

(26)

Other income/(expense)

 

 

1

10

(1)

(1)

Depreciation and amortisation

 

 

(82)

(109)

(126)

(144)

Reported EBIT

 

 

129

132

100

153

Finance income/(expense)

 

 

(15)

(14)

(15)

(12)

Other income/(expense)

 

 

(1)

0

(1)

0

Reported PBT

 

 

112

118

84

141

Income tax expense

 

 

(27)

(22)

(20)

(34)

Minorities

 

 

(44)

(41)

(32)

(49)

Reported net income (post-minorities)

 

 

41

54

32

58

Basic average number of shares, m

 

 

23

23

23

23

Basic EPS (€)

 

 

2.99

2.42

1.43

2.59

Dividend per share

 

 

0.30

0.00

0.30

0.30

Adjusted EBITDA

 

 

211

241

226

298

Adjusted EBIT

 

 

129

132

100

153

Adjusted PBT

 

 

112

118

84

141

Adjusted EPS (€)

 

 

1.82

2.42

1.43

2.59

Adjusted diluted EPS (€)

 

 

1.82

2.42

1.43

2.59

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

Property, plant and equipment

 

 

283

326

353

345

Goodwill

 

 

96

130

131

131

Intangible assets

 

 

327

392

441

465

Other non-current assets

 

 

39

29

27

26

Total non-current assets

 

 

745

878

952

967

Cash and equivalents

 

 

89

161

252

258

Inventories

 

 

287

322

260

301

Trade and other receivables

 

 

220

248

226

258

Other current assets

 

 

13

5

5

5

Total current assets

 

 

609

736

743

822

Non-current loans and borrowings

 

 

339

470

476

456

Other non-current liabilities

 

 

95

118

120

121

Total non-current liabilities

 

 

435

589

596

577

Trade and other payables

 

 

191

223

231

243

Current loans and borrowings

 

 

73

86

98

98

Other current liabilities

 

 

104

98

105

105

Total current liabilities

 

 

368

407

434

446

Equity attributable to company

 

 

297

338

353

405

Non-controlling interest

 

 

253

280

311

360

 

 

 

 

 

 

 

Cashflow statement

 

 

 

 

 

 

Profit for the year

 

 

114

96

64

107

Taxation expenses

 

 

29

22

20

34

Net finance expenses

 

 

(16)

(18)

18

14

Depreciation and amortisation

 

 

91

109

126

144

Movements in working capital

 

 

(83)

71

88

(61)

Interest paid / received

 

 

(15)

(13)

(16)

(12)

Income taxes paid

 

 

(36)

(10)

(20)

(34)

Cash from operations (CFO)

 

 

85

257

280

193

Capex

 

 

(167)

(157)

(160)

(160)

Acquisitions & disposals net

 

 

70

(13)

(0)

0

Other investing activities

 

 

(6)

4

0

0

Cash used in investing activities (CFIA)

 

 

(102)

(166)

(160)

(160)

Movements in debt

 

 

(38)

5

(10)

(20)

Dividends paid

 

 

(19)

(20)

(13)

(7)

Other financing activities

 

 

(6)

(0)

(1)

0

Cash from financing activities (CFF)

 

 

(63)

(21)

(29)

(27)

Currency translation differences and other

 

 

0

0

0

0

Increase/(decrease) in cash and equivalents

 

 

(80)

72

91

6

Cash and equivalents at end of period

 

 

89

161

252

258

Net (debt) cash

 

 

(323)

(396)

(322)

(296)

Movement in net (debt) cash over period

 

 

52

(73)

74

26

Source: Company reports, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by PIERER Mobility and prepared and issued by Edison, in consideration of a fee payable by PIERER Mobility. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by PIERER Mobility and prepared and issued by Edison, in consideration of a fee payable by PIERER Mobility. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Healthcare

Ergomed — MedSource acquisition to boost US CRO business

Today Ergomed announced it has agreed to acquire US-based MedSource. Headquartered in Houston, Texas, MedSource is a full-service clinical research organisation (CRO) specialising in oncology and rare diseases, so a good fit for Ergomed. Ergomed will pay $16.2m (£12.2m) in cash and $1.8m (£1.4m) in shares (at a 30-day average daily closing price before the acquisition). There is also an earn out up to $7m (same 90:10 cash and shares split) depending on performance in 2021. MedSource booked $19.3m (£14.4m) and $17.0m (£12.8m) in service fees in 2019 and 2020, respectively. The gross margin was 47% in 2019 and 41% in 2020, while adjusted EBITDA was $1.3m (£1m) in 2019. Ergomed indicated that MedSource is on track to rebound from the COVID-19 pandemic impact in 2021 (existing order book is valued at $41m or £30.6m). The transaction will be immediately accretive, according to Ergomed. Our valuation is under review. Next key event is the H220 trading update in January 2021.

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