Mehdi MEZIANE, Asset Management & Equity Research. Page 1

I N V E S T M E N T A N A L Y S I S : S E C U R I D E V

Ticker: SCDV Share Price: €23 (October 12th 2012) Number of shares : 2,443,952 Market Cap: €56M

EPS: €3.34 / Div: €1.50

Trailing P/E: 6.88 EV/ EBITDA: 1.79 P/Book: 0.70 P/Tangible Book: 1.18 Debt/Equity: 10% Current ratio: 2.21 ROE: 10.2%

Valuation: DCF Method: € 40.60 Comparables: € 71 Net-Net: € 4.32

Reco: Buy

PRESENTATION OF THE ACTIVITIES:

Securidev is a French micro cap company, specialist in locking systems and equipments in Europe.

Securidev designs, manufactures and markets conventional and electronic locks as well as security systems for households (32%) and industry (68%). Most of its sales are concentrated in France (36%) and Western Europe (49%). Securidev employs 1638 people, 574 of them being in France.

Brands:

Mechanical and electronic access control systems for large organizations and risky sites: “Dény-Fontaine” and “Dom”

Locking devices for materials and equipment for industrial groups providing turnkey solutions developed in coordination with their engineering departments: “Ronis” and “Dom”.

Building locking systems: “Picard-Serrures” and “Métalux”.

2011 Key Figures (€M): Sales: 150 EBITDA: 21 CFO: 12.3 FCFF: 10 Net Income: 8.2 Equity: 80 Assets: 153 Financial debt: 8.1 Cash: 27

October 16th 2012

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STRATEGIC ANALYSIS:

Securidev is the alternative to the market leader ASSA Abloy. It operates in a mature industry where the brand name, the norms and the products’ quality outweigh the price.

In each market segment, the competition is composed by two to three major players such as ASSA Abloy (around 40% market share in France concerning building locks) and a lot of small competitors. Securidev is much smaller than ASSA Abloy but remains a very strong competitor in France (around 15% market share) and Europe.

The current strategy is to increase sales turnover through both internal and external growth (recent acquisition of UCEM) and to improve production efficiency.

5 PORTER’S FORCES:

Bargaining power of suppliers:

Low (raw commodities).

Bargaining power of buyers: High because of the difficulty to differentiate one’s products.

Threat of new entrants: Low because of the small margins and important capital requirement. It is a mature industry.

Threat of substitutes: Very low.

Competitive rivalry: Very high.

No major change is expected for the next few years in the locking systems industry which is expected to concentrate further through acquisitions of smaller competitors by the top 3 market players. However, no major acquisition is expected because of antitrust rules.

The sharp decline in constructions in Europe should impact Securidev sales for the next two years.

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FINANCIAL ANALYSIS:

Evolution of Sales, Net Income, ROE and Debt ratio:

We can notice the continuous financial deleveraging (debt has been reduced from 26% of equity in 2007 to 10% in 2011).

The average ROE for the past 5 years is 11.2% with a 4.7% standard deviation. Because of the deleveraging, these figures can be considered as overestimates of both the future ROE and its standard deviation.

DUPONT ANALYSIS (ROE ANALYSIS):

ROE = (NI/EBT) x (EBT/EBIT) x (EBIT/Sales) x (Sales/Assets) x (Assets/Equity)

ROE = 0,66 x 0.94 x 0.088 x 0.98 x 1,91

ROE = 0.055 x 0.98 x 1,91

ROE = 10,22 %

NI = 8,168 (€k) EBT =12,440 EBIT = 13,200 Sales = 150,180 Assets = 152,926 Equity = 79,947

The ROE breakdown shows an effective 34% tax rate, a 5.5% net margin and confirms the low equity multiplier (almost no financial leverage).

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CASH FLOWS ANALYSIS:

On average, and for the last 3 years, cash flow from operations has been around €14M and shows great stability. Each year, an average of €6M goes to investments and approximately €5M has been used to reduce the debt on an annual basis. Now that the debt has been almost paid off, we can expect even stronger cash flows.

Cash Flows (€k) 2009 2010 2011

CFO 13 174 17 279 12 264

CFI -5 142 -5 284 -7 443

CFF -5 045 -2 389 -7 067

Total 2 987 9 606 -2 246

BALANCE SHEET ANALYSIS:

Securidev has a very strong balance sheet with a current ratio of 2.2 and a quick ratio of 1.44. Long term and short term financial debt amount for €8.15M only or 10.2% of Equity to be compared with the impressive €27M cash position.

Assets 2009 2010 2011

Intangible Assets: 31 568 31 566 32 306

LT Tangible Assets: 26 544 26 649 27 111

Total LT Assets: 68 689 68 088 69 388

Inventory: 25 174 26 298 29 037

Accounts & Receivables: 25 186 25 191 24 816

Cash: 19 643 29 709 27 083

Total Current Assets 73 932 83 959 83 538

Total Assets 142 621 152 047 152 926

The inventory turnover remained around 5.4 (68 days) for the past 3 years. We can notice the same stability concerning the receivables turnover which is a good sign of operational efficiency.

QUALITATIVE FACTORS:

CORPORATE GOVERNANCE:

Mr Morel is both CEO and chairman of the board which is a not a good point in terms of corporate governance.

However, interests of the management converge with shareholders’ ones (Mr Morel being a major shareholder through SFPI).

Liabilities 2009 2010 2011

LT Financial Debt 6 758 5 537 3 685

Total LT Liabilities 36 659 36 243 35 118

ST Financial Debt 3 928 4 178 4 463

Payables 10 738 11 291 11 460

Total Current Liabilities 36 499 37 875 37 861

Equity 69 463 77 929 79 947

Total Liabilities 142 621 152 047 152 926

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OWNERSHIP:

SFPI (Société Financière de Participation industrielle): 69% (81.4% of voting rights) IVA (International Value Advisers): 15% (9.7% of voting rights) Treasury stock: 2.3%

INSIDER TRADING AND MISCELLANEOUS:

Securidev repurchased for €1.4M of its shares at an average price of €28 in 2011 (2% of outstanding shares).

Securidev may issue new shares for €1M in order to create an incentive scheme for its employees.

SHARE PRICE:

As it often occurs, the price range of Securidev’s shares appears to be irrationally wide compared to the economic reality of the company.

FAIR VALUE ESTIMATION:

Using a single stage Gordon growth model with a 8.5% discount rate (cost of equity estimated using the CAPM model) and considering a sustainable growth rate of 4.63%, we can estimate the fair value to be around €40 per share.

Price per share Growth

0,00% 2,00% 4,00% 6,00%

Co

st o

f Eq

uit

y 14,00% 10,71 € 12,50 € 15,00 € 18,75 €

12,00% 12,50 € 15,00 € 18,75 € 25,00 €

10,00% 15,00 € 18,75 € 25,00 € 37,50 €

8,00% 18,75 € 25,00 € 37,50 € 75,00 €

6,00% 25,00 € 37,50 € 75,00 €

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Using the method of comparables shows a huge gap between Securidev and its competitors:

P/E (trailing) Price/Book Price/Sales

ASSA Abloy (Stockholm) 22.8 3.57 1.92

Gunnebo (Stockholm) 10.8 1.1 0.35

Kaba (Switzerland) 17 2.64 1.64

Mean 16.8 2.4 1.3

Securidev’s equivalent price € 56 € 78 € 80

Applying such multiples would result in a €71 average price per Securidev’s share. Applying a 20% discount for the lack of liquidity still yields a €57 price per share.

However, being both conservatives and absolute value investors, we retain the €40 per share estimated by the discounted cash flow method.

CONCLUSION:

Securidev’s current market price does not reflect its strong balance sheet and cash flows. We consider Securidev to be a well managed company operating in a mature and profitable industry. Its size and the lack of liquidity for its shares may explain the current gap between its share price and what we estimate to be its fair value.

The current €23 market price per share presents a margin of safety which is sufficient to recommend a strong buy.

Author: Mehdi MEZIANE, Independent Financial Analyst and Portfolio Manager.

Contact: mehdi.meziane8@gmail.com

Information related to AMF: The author of this analysis personally owns shares of Securidev.

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