European Business Services "The Signal Service" McKenzie

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European Business Services "The Signal Service" McKenzie

Valuation Method and Risk Statement

The Support Services sector is exposed to a variety of risks, including: cyclical exposure,

regulatory risk and legal risk, risk from M&A integration and corporate activity, FX risk (mainly

translational but some transactional), reputational risk from failure of execution, and pricing

risk within long-term contracts. Valuation methods in the sector include DCF and

SOTP analysis.

IMCD NV:

Our valuation for IMCD is based on a DCF methodology, using a WACC of 8.4%, terminal

growth rate 2.5%, and terminal EBITA margin 36.0%. Key risks include cyclical slowdown,

particularly in the c55% of end-markets that are industrial; regulatory/health & safety risk due

to the very nature of the chemicals business; the loss of suppliers and/or customers; and

fluctuations in product costs that could have an adverse effect on COGS, working capital and/

or leverage if not passed on. Accretive M&A is a potential upside risk, although if the

company struggles to find attractive targets or is not able to integrate them successfully, this

could also be a headwind.

Teleperformance:

Our price target is DCF-based (WACC of 7.6%, Long term growth rate of 2.6%). Risks to our

investment thesis for Teleperformance include: 1) Client risk: Teleperformance now provides

services for more than 1,000 customers and has improved over time its client diversification.

However significant exposure to fast growth segments such as the e-economy, while

attractive, does bring with it some risk of insolvencies. 2) The pricing environment remains

tough. Teleperformance has now expanded its offshore capacity, which should meet the

client pricing requirement in a potential deflationary environment. Wage inflation in the