uponor - raw material-related bump

researchonline.sebgroup.com Important. All disclosure information can be found on pages 1 – 3 of this document

Raw material-related bump ● Raw material pressure ahead – other improvement elements still there

As Q1 earnings showed continued sluggishness in Building Solutions Europe and strong progress in North America, our key take relates to increased uncertainty around the raw material price outlook. The recent spike in plastic-based raw material prices on supply constraints in Europe poses a risk to earnings in Q2 and particularly for the Infra segment – erasing earlier expectations of tailwind due to lower oil prices. Our estimate downgrades reflect expectations of no raw material tailwind in 2015, against assumed EUR 10m benefits previously. Despite short-term raw material based pressure, we still expect earnings growth in 2015 with key elements for improvement being earnings growth in North America and efficiency actions in Europe and Infra. Consequently, we retain our Buy rating on Uponor.

● EPS estimates down 11% for 2015 and 2-3% for 2016-17 Following the Q1 results we have lowered our 2015-17 revenue estimates by 1%, predominantly reflecting lower assumptions for Building Solutions Europe. We have cut our EPS estimates 11% for 2015, based on clear estimate downgrades for Uponor Infra due to a more demanding raw material outlook short term but also some downgrades for Building Solutions Europe. We have lowered our 2016-17 EPS estimates by 3% and 2% with downgrades for the same segments.

● Target price lowered from EUR 19 to EUR 18.5 Our target price on Uponor remains based on our DCF-driven fair value which we have cut from EUR 19 to EUR 18.5 due to our estimate downgrades. We regard the valuation as reasonable as we find that Uponor trades at some discount to historical 12-month forward-looking EV/EBITDA multiple of 9x and EV/EBIT of 13x.

Share Price Performance (%)

-1M -3M -12M UNR1V.HE (5) 10 6 Relative Finland (4) 4 (12) Relative sector (7) 2 5

Building Materials Finland

Results Analysis 29 April 2015

Buy Uponor Key Data (2015E)

Price (EUR)Target price (EUR) - changed from (EUR)RecommendationRisk

ReutersBloomberg

Market cap (EURm)Market cap (USDm)Net debt (EURm)Net gearingNet debt/EBITDA (x) 0.5

Shares fully dil. (m)Avg daily turnover (EURm)Free float 77%

5918%

73.11.0

14.8918.5019.00

BuyNormal

UNR1V FH

1,1951,088

UNR1V.HE

Share Price (12M)

Absolute performance (blue) / Relative to Finland (grey).

5

10

15

20

Apr Jun Aug Oct Dec Jan Apr

Financials (EUR)

Source for all data on this page: SEB (estimates) and SIX/Thomson Reuters (prices)

Year end: Dec 2013 2014 2015E 2016E 2017ERevenues (m) 906 1,024 1,087 1,129 1,166Operating profit (m) 50 63 88 105 113Pre-tax profit (m) 43 56 81 100 110EPS (reported) 0.38 0.49 0.73 0.90 0.98EPS (adjusted) 0.47 0.53 0.73 0.90 0.98DPS 0.38 0.42 0.55 0.60 0.65

Revenue growth (%) 11.6 13.0 6.2 3.8 3.3Operating profit growth (%) (13.0) 26.3 38.8 19.0 8.0EPS (adjusted) growth (%) 5.8 11.5 39.2 21.9 9.2

Operating margin (%) 5.5 6.2 8.1 9.3 9.7ROE (%) 13.1 15.9 22.1 24.5 24.4ROCE (%) 13.2 14.5 20.0 23.8 25.5

PER (x) 30.0 21.8 20.3 16.6 15.2Free cash flow yield (%) 5.6 5.4 5.0 6.8 7.4Dividend yield (%) 2.7 3.7 3.7 4.0 4.4P/BV (x) 4.73 3.63 4.28 3.90 3.54

EV/Sales (x) 1.26 0.90 1.05 0.99 0.92EV/EBITDA (x) 13.7 9.2 9.2 7.8 7.1EV/EBIT (x) 22.7 14.5 13.0 10.6 9.5Operating cash flow/EV (%) 8.1 8.2 7.7 9.3 10.3EV/Capital employed (x) 2.60 2.09 2.62 2.53 2.42

Analyst Artem Beletski (358) 9 616 28729 [email protected]

SEB Equity Research

Results Analysis Uponor

2 29 April 2015

Earnings a notch above consensus, below us Uponor Q1 revenues of EUR 237m, suggesting growth of 3% y-o-y, were somewhat below Inquiry consensus at EUR 239m and even more when compared to our EUR 248m estimate. The gross margin in Q1 of 35.9% was up against 33.8% a year ago and ahead of our 34.3% estimate, suggesting some tailwind from lower raw material prices in the earlier part of the quarter. Clean EBIT in Q1 of EUR 11.3m was 3% ahead of market expectations but fell short of our EUR 14.8m estimate.

Net financials in Q1 at EUR 5.1m were clearly higher than the EUR 1.4m expected by us, being explained by FX. Consequently, tax expenses of EUR 2.3m were less than EUR 4.2m forecast by us – resulting into EPS of EUR 0.06 being less than our EUR 0.13 estimate and also below EUR 0.1 consensus. Operating cash flow was negative at EUR 22m, due to seasonality aspects, and down from a negative EUR 18m a year ago.

Uponor Q1: deviation from estimates

(EURm) Q1/14 Q1/15A Q1/15E Diff. (%) Cons. Diff. (%)

Net sales 230.9 237.1 248.2 -4 239.0 -1 Cost of goods sold -152.8 -151.9 -163.0 Gross profit 78.1 85.2 85.1 0 Operating expenses -73.3 -73.9 -70.3 EBIT 4.8 11.3 14.8 -24 11.0 3 NRI -3.8 0.0 0.0 EBIT excl. NRI 8.6 11.3 14.8 -24 11.0 3 Net financials -2.1 -5.1 -1.4 Pre-tax profit 2.7 6.3 13.4 -53 9.0 -30 Total taxes -0.9 -2.3 -4.2 Net profit 1.8 4.0 9.2 -57 7.0 -43 Minority interest 1.5 0.4 0.3 EPS 0.04 0.06 0.13 -54 0.10 -40

Net sales (%, y-o-y) 29.9 2.7 7.5 3.5 Gross margin (%) 33.8 35.9 34.3 na EBIT excl. NRI margin (%) 3.7 4.8 6.0 4.6 Source: SEB

North America strong, Europe disappointing At segment level, the revenue miss for us came from a revenue decline of 7% in Building Solutions Europe (our estimate being for 1% increase) but the other segments were also a notch below our estimates. The revenue miss in Europe was partly explained by new distribution centre completion, pushing some deliveries in the order of EUR 2m from Q1 into Q2.

At EBIT the level, we see the earnings miss as having come predominantly from Building Solutions Europe with a margin of 5.4% against our estimate of 7.4% - this is easily explained by the revenue shortfall. Profitability in North America was particularly strong with the margin improving from 10.2% a year ago now to 14.2% and beating our estimate of 13%. Losses in Uponor Infra at EUR 1.3m were broadly in line with our EUR 1m estimate, down from EUR 4.2m a year ago.

SEB Equity Research


3 29 April 2015

Uponor Q1: deviation from estimates by segment

(EURm) Q1/14 Q1/15A Q1/15E Diff. (%) Net sales Building Solutions - Europe 120.9 112.6 122.1 -8 Building Solutions - North America 40.5 56.9 57.9 -2 Uponor Infra 70.8 68.3 69.7 -2 Others & Eliminations -1.3 -0.7 -1.6 nm Total 230.9 237.1 248.2 -4

Net sales growth (%, y-o-y) Building Solutions - Europe 6.1 -6.9 1.0 Building Solutions - North America 8.9 40.5 43.0 Uponor Infra 156.5 -3.5 -1.5 Total 29.9 2.7 7.5

Operating profit Building Solutions - Europe 5.7 6.1 9.0 -32 Building Solutions - North America 4.4 8.1 7.5 8 Uponor Infra -4.2 -1.3 -1.0 30 Others & Eliminations -1.1 -1.6 -0.7 nm Total 4.8 11.3 14.8 -24

Operating margin (%) Building Solutions - Europe 4.7 5.4 7.4 Building Solutions - North America 10.9 14.2 13.0 Uponor Infra -5.9 -1.9 -1.4 Total 2.1 4.8 6.0 Source: SEB

In terms of revenues by region, market polarization remains clear with the US delivering 50% growth y-o-y (still healthy 21% in local currencies) and Canada up 17% y-o-y (some 8% in local currencies). Respectively, in Germany revenues were down 5% y-o-y, in Finland down 15% y-o-y and in Sweden down 6% (the currency-adjusted decline totalled 1%).

Revenues and growth in key markets

Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 (EURm) (EURm) (EURm) (EURm) (EURm) y-o-y y-o-y y-o-y y-o-y y-o-y

US 35.4 43.2 51.6 49.7 53.1 18 24 28 30 50 Germany 35.8 36.1 38.9 31.0 34.0 7 3 -7 -7 -5 Finland 30.1 40.8 35.8 28.4 25.5 66 38 -19 -14 -15 Sweden 21.6 25.6 23.5 23.4 20.3 22 17 0 1 -6 Canada 13.9 20.9 25.3 23.4 16.3 88 130 21 32 17 Denmark 12.8 11.6 13.5 10.7 11.4 91 29 -2 -26 -11 UK 11.7 8.4 7.6 8.2 9.9 80 45 17 -1 -15 Netherlands 8.3 7.5 7.5 8.2 9.2 8 4 14 8 11 Source: SEB

Raw material-related pressure in sight As expected, Uponor reiterated its 2015 outlook of revenue and clean EBIT improvement y-o-y. Market comments remain unchanged with a rather flat performance expected in Europe and a continuation of growth forecast in North America, although at a somewhat slower pace.

The key message in Uponor’s Q1 results related to a clear reversal in raw material price outlook with emerged disruptions in supply chains of certain key raw materials, lifting prices of some plastic-based raw materials over recent weeks. According to a Plastics News article from 21 April, in Europe producers such as Total Petrochemicals, Sabic, Borealis, Versalis and LyondellBasell have announced force majeures at their European polyethylene and propylene manufacturing facilities.

According to Uponor, the situation could normalize in May-June but the visibility currently remains low. In terms of the segments, the challenges appear to relate to European operations and particularly Uponor Infra.

SEB Equity Research


4 29 April 2015

Raw material price indicators

Source: SEB

Estimate revisions Following the Q1 results we have lowered our 2015-17 revenue estimates by 1%, predominantly reflecting lower assumptions for Building Solutions Europe. Our EPS estimates are down 11% for 2015, due to clear estimate downgrades for Uponor Infra as a result of more demanding raw material outlook short-term but also some downgrades for Building Solutions Europe. We have lowered our 2016-17 EPS estimates by 3% and 2% with downgrades for the same segments.

Earnings revision (EUR) 2015E 2016E 2017E Revenues (m)

Old 1,104 1,140 1,178 New 1,087 1,129 1,166 Change (%) (1) (1) (1) Operating profit (m)

Old 99 109 116 New 88 105 113 Change (%) (11) (4) (3) Pre-tax profit (m)

Old 93 105 113 New 81 100 110 Change (%) (13) (4) (3) EPS (reported)

Old 0.83 0.92 0.99 New 0.73 0.90 0.98 Change (%) (11) (3) (2) EPS (adjusted)

Old 0.83 0.92 0.99 New 0.73 0.90 0.98 Change (%) (11) (3) (2) Source: SEB

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Brent oil Polypropylene Polyethylene

SEB Equity Research


5 29 April 2015

Estimate revisions by segment

2015E 2015E 2015E 2016E 2016E 2016E 2017E 2017E 2017E Old New Diff. (%) Old New Diff. (%) Old New Diff. (%)

Net sales Building Solutions - Europe 487.4 474.9 -3 506.9 493.9 -3 522.1 508.8 -3 Building Solutions - North Am. 276.4 275.4 0 295.8 297.5 1 316.5 318.3 1 Uponor Infra 347.0 343.1 -1 345.0 345.0 0 347.0 347.0 0 Others & Eliminations -7.2 -6.3 -13 -7.5 -7.5 0 -7.8 -7.8 0 Total 1,103.6 1,087.2 -1 1,140.2 1,128.9 -1 1,177.8 1,166.2 -1

Net sales growth (%, y-o-y) Building Solutions - Europe 1.7 -0.9 4.0 4.0 3.0 3.0 Building Solutions - North Am. 37.7 37.2 7.0 8.0 7.0 7.0 Uponor Infra -1.2 -2.3 -0.6 0.6 0.6 0.6 Total 7.8 6.2 3.3 3.8 3.3 3.3

Operating profit Building Solutions - Europe 41.8 35.8 -14 47.5 44.5 -6 50.0 48.3 -3 Building Solutions - North Am. 46.8 48.4 3 48.7 51.0 5 52.3 54.0 3 Uponor Infra 13.2 6.9 -48 15.7 12.2 -22 17.3 14.0 -19 Others & Eliminations -2.8 -3.1 11 -3.0 -3.0 0 -3.2 -3.2 0 Total 99.0 88.0 -11 108.9 104.7 -4 116.4 113.1 -3

Operating margin (%) Building Solutions - Europe 8.6 7.5 9.4 9.0 9.6 9.5 Building Solutions - North Am. 16.9 17.6 16.5 17.1 16.5 17.0 Uponor Infra 3.8 2.0 4.6 3.5 5.0 4.0 Total 9.0 8.1 9.6 9.3 9.9 9.7 Source: SEB

DCF-based target price down to EUR 18.5 Our target price for Uponor remains based on a DCF fair value that we have lowered from EUR 19 to EUR 18.5 as a result of estimate downgrades. We find the valuation reasonable as Uponor trades at some discount to historical 12-month forward-looking EV/EBITDA multiple of 9x and EV/EBIT of 13x on our estimates.

DCF summary

Source: SEB

DCF valuation (EURm) Weighted average cost of capital (%)NPV of FCF in explicit forecast period 603 Risk free interest rate 2.5NPV of continuing value 897 Risk premium 4.0Value of operation 1,501 Cost of equity 6.5

Net debt 59 After tax cost of debt 1.8Share issue/buy-back in forecast period -Value of associated companies - WACC 6.2Value of minority shareholders' equity (92)Value of marketable assets - AssumptionsDCF value of equity 1,350 Number of forecast years 10DCF value per share (EUR) 18.5 EBIT margin - steady state (%) 9.6Current share price (EUR) 15.7 EBIT multiple - steady state (x) 11.8DCF performance potential (%) 18 Continuing value (% of NPV) 59.8

SEB Equity Research


6 29 April 2015

DCF sensitivity I

Source: SEB

DCF sensitivity II

Source: SEB

DCF assumptions

Average Average Average (EURm) 2015E 2016E 2017E 2018E 2019E year 6 year 7-8 year 9-10

Sales growth (%) 6.2 3.8 3.3 3.0 2.5 2.5 2.5 2.3 EBITDA margin (%) 11.5 12.6 13.0 13.1 13.0 12.8 12.7 12.6 EBIT margin (%) 8.1 9.3 9.7 9.8 9.8 9.7 9.7 9.6 Capital expenditures as % of sales 3.1 2.7 2.6 2.6 2.6 2.6 2.6 2.6 Working capital as % of sales 9.4 9.4 9.3 9.3 9.3 9.3 9.3 9.3

Sales 1,087 1,129 1,166 1,201 1,232 1,263 1,310 1,373 Depreciation -37 -38 -38 -40 -39 -39 -39 -41 EBIT 88 105 113 117 120 122 127 131 Taxes on EBIT -25 -29 -32 -33 -34 -34 -36 -37 NOPLAT 63 75 81 84 87 88 92 94

Net capital expenditure -34 -30 -30 -31 -32 -32 -34 -35 Increase in working capital -5 -3 -3 -3 -3 -3 -3 -3 Free cash flow 61 80 87 90 91 92 94 98

ROIC (%) 14.5 17.1 18.3 19.2 19.9 20.4 21.4 22.4 ROIC-WACC (%) 8.2 10.9 12.1 13.0 13.7 14.1 15.2 16.2 Share of total net present value (%) 0.0 4.9 5.1 4.9 4.7 4.5 8.4 7.7 Source: SEB

5.5 6.0 6.5 7.0 7.574 28.9 26.3 24.1 22.2 20.6

Equity capital 84 25.2 22.9 21.0 19.3 17.8weight (%) 94 22.3 20.2 18.5 17.0 15.7

100 20.8 18.9 17.3 15.9 14.6100 20.8 18.9 17.3 15.9 14.6

Cost of equity (%)

-2% -1% 0 +1% +2%-2% 13.2 14.9 16.6 18.3 20.0

Abs. change in -1% 13.9 15.7 17.5 19.3 21.1sales growth - 0 14.7 16.6 18.5 20.4 22.3

all years +1% 15.5 17.5 19.5 21.5 23.5+2% 16.3 18.4 20.6 22.7 24.8

Absolute change in EBITDA margin - all years

SEB Equity Research


7 29 April 2015

Interim financials Interim financial statement

(EURm) Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15E Q3/15E Q4/15E 2012 2013 2014 2015E 2016E 2017E

Net sales 230.9 264.5 277.0 251.5 237.1 285.4 296.0 268.6 811.5 906.0 1,023.9 1,087.2 1,128.9 1,166.2 Cost of goods sold -152.8 -177.8 -184.8 -168.3 -151.9 -194.1 -194.7 -176.5 -500.7 -585.9 -683.7 -717.2 -740.3 -764.8 Gross profit 78.1 86.7 92.2 83.2 85.2 91.3 101.2 92.1 310.8 320.1 340.2 369.9 388.6 401.4 Operating expenses -73.3 -69.1 -63.0 -71.3 -73.9 -67.5 -67.3 -73.1 -253.1 -269.9 -272.5 -278.6 -279.0 -283.7 EBIT 4.8 17.6 29.2 11.8 11.3 23.8 33.9 19.0 57.7 50.2 63.4 88.0 104.7 113.1 NRI -3.8 0.5 -0.1 -0.9 0.0 0.0 0.0 0.0 0.0 -5.0 -4.3 0.0 0.0 0.0 EBIT excl. NRI 8.6 17.1 29.3 12.7 11.3 23.8 33.9 19.0 57.7 56.3 67.7 88.0 104.7 113.1 Net financials -2.1 -3.7 -1.4 -0.2 -5.1 -1.0 -1.0 0.0 -8.6 -7.1 -7.4 -7.1 -4.4 -3.2 Pre-tax profit 2.7 14.0 27.8 11.8 6.2 22.8 32.9 19.0 49.1 43.1 56.0 80.9 100.3 109.9 Total taxes -0.9 -4.6 -11.0 -3.5 -2.3 -7.1 -10.2 -5.6 -16.5 -16.1 -20.0 -25.1 -31.1 -34.1 Net profit from cont. ops. 1.8 9.4 16.8 8.3 4.0 15.7 22.7 13.4 32.6 27.0 36.0 55.8 69.2 75.8 Minority interest 1.5 -0.3 -1.3 0.6 0.7 -0.5 -1.7 -0.7 0.0 1.0 -0.5 -2.2 -3.8 -4.4 EPS, cont. ops. 0.04 0.12 0.21 0.12 0.06 0.21 0.29 0.17 0.44 0.38 0.49 0.73 0.90 0.98

Net sales growth (%) 29.9 25.1 -0.8 5.9 2.7 7.9 6.8 6.8 0.6 11.6 13.0 6.2 3.8 3.3 EPS growth (%) 0.0 -22.9 3.6 -417.7 41.5 67.8 35.5 43.2 2,630.4 -14.1 27.5 51.2 21.9 9.2 Gross profit margin (%) 33.8 32.8 33.3 33.1 35.9 32.0 34.2 34.3 38.3 35.3 33.2 34.0 34.4 34.4 EBIT margin (%) 2.1 6.7 10.5 4.7 4.8 8.3 11.5 7.1 7.1 5.5 6.2 8.1 9.3 9.7 Tax rate (%) 33.3 32.9 39.6 29.7 36.3 31.0 31.0 29.3 33.6 37.4 35.7 31.0 31.0 31.0 Source: SEB

Interim financial statement by division

(EURm) Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15E Q3/15E Q4/15E 2012 2013 2014 2015E 2016E 2017E Net sales Building Solutions - Europe 120.9 122.0 123.5 112.7 112.6 123.2 124.7 114.4 517.7 479.5 479.1 474.9 493.9 508.8 Building Solutions - North Am. 40.5 49.5 54.7 56.1 56.9 71.8 74.9 71.8 151.1 171.5 200.8 275.4 297.5 318.3 Uponor Infra 70.8 95.3 100.3 84.9 68.3 92.4 98.3 84.1 149.0 261.4 351.3 343.1 345.0 347.0 Others & Eliminations -1.3 -2.3 -1.5 -2.2 -0.7 -2.0 -2.0 -1.6 -6.3 -6.4 -7.3 -6.3 -7.5 -7.8 Total 230.9 264.5 277.0 251.5 237.1 285.4 296.0 268.6 811.5 906.0 1023.9 1,087.2 1,128.9 1,166.2

Net sales growth (%, y-o-y) Building Solutions - Europe 6.1 -1.9 -4.5 0.6 -6.9 1.0 1.0 1.5 -4.8 -7.4 -0.1 -0.9 4.0 3.0 Building Solutions - North Am. 8.9 13.0 16.6 28.7 40.5 45.0 37.0 28.0 24.5 13.5 17.1 37.2 8.0 7.0 Uponor Infra 156.5 111.8 -4.6 1.4 -3.5 -3.0 -2.0 -1.0 -0.5 75.4 34.4 -2.3 0.6 0.6 Total 29.9 25.1 -0.8 5.9 2.7 7.9 6.8 6.8 0.6 11.6 13.0 6.2 3.8 3.3

Operating profit Building Solutions - Europe 5.7 9.6 15.0 4.7 6.1 9.0 15.0 5.7 47.2 32.7 35.0 35.8 44.5 48.3 Building Solutions - North Am. 4.4 8.6 9.2 9.3 8.1 13.8 13.9 12.6 17.8 24.7 31.5 48.4 51.0 54.0 Uponor Infra -4.2 0.4 4.2 -0.9 -1.3 1.5 5.5 1.2 0.0 -2.3 -0.5 6.9 12.2 14.0 Others & Eliminations -1.1 -1.0 0.8 -1.3 -1.6 -0.5 -0.5 -0.5 -7.3 -4.9 -2.6 -3.1 -3.0 -3.2 Total 4.8 17.6 29.2 11.8 11.3 23.8 33.9 19.0 57.7 50.2 63.4 88.0 104.7 113.1

Operating margin (%) Building Solutions - Europe 4.7 7.9 12.1 4.2 5.4 7.3 12.0 5.0 9.1 6.8 7.3 7.5 9.0 9.5 Building Solutions - North Am. 10.9 17.4 16.8 16.6 14.2 19.2 18.5 17.5 11.8 14.4 15.7 17.6 17.1 17.0 Uponor Infra -5.9 0.4 4.2 -1.1 -1.9 1.6 5.6 1.4 0.0 -0.9 -0.1 2.0 3.5 4.0 Total 2.1 6.7 10.5 4.7 4.8 8.3 11.5 7.1 7.1 5.5 6.2 8.1 9.3 9.7 Source: SEB

SEB Equity Research


8 29 April 2015

Overview

Investment case ● Uponor's profitability improvement is set to be driven by a residential market recovery in the US and benefits stemming from cost savings actions in Infra. In Europe, construction markets are stagnant. Plastic-based raw material prices pose a risk to earnings outlook with clear decline seen at the end of 2014 being followed by a surge in early 2015 as a result of supply constrains in Europe.

Company profile ● Uponor is a leading provider of plumbing and indoor climate systems for the residential and commercial building markets in Europe and North America. Its solutions play an important role in people's lives by providing products that create a comfortable setting for living, work and leisure. In the Nordic countries, Uponor is also a prominent supplier of pipe systems for utility infrastructure.

Valuation approach ● Our target price is based on DCF fair value.

Target price risks ● The risks relate primarily to residential market trends in North America and Europe.

Plastic related raw material price fluctuations may impact profitability in the short-term (we estimate Uponor’s raw material bill is EUR 200m a year).

Revenues by region Revenues by division

Source: SEB Source: SEB

Finland: 14% Other Nordic: 18%Other Europe: 42% Americas: 26%Asia: 0% RoW: 0%

Building Solutions - Europe: 46%Building Solutions - North Am.: 20%Uponor Infra: 34%

SEB Equity Research


9 29 April 2015

PER - 12 month forward P/BV - 12 month forward


EV/Sales - 12 month forward EV/EBITA - 12 month forward


Net sales & EBITDA margin EBIT & Operating margin


Comparison with sector index - 1 year Comparison with Geberit - 1 year

Source: SIX Source: SIX

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2005 2007 2009 2011 2013 2015E 2017E

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m)

Net sales EBITDA margin

0100200300400500600700800

1998 2001 2004 2007 2010 2013 2016

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0.02.04.06.08.010.012.014.0

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Uponor Rel Nordic Building Materials

579

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Apr 14 Jul 14 Sep 14 Dec 14 Mar 15Uponor Rel Geberit

SEB Equity Research


10 29 April 2015

Profit & loss statement - Uponor(EURm) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017ENet Sales 1,031 1,157 1,219 949 734 749 806 812 906 1,024 1,087 1,129 1,166Other revenues 6 0 0 0 0 0 0 0 0 0 0 0 0Total revenues 1,038 1,157 1,219 949 734 749 806 812 906 1,024 1,087 1,129 1,166

Total expenses (883) (975) (1,031) (866) (660) (668) (742) (725) (822) (925) (962) (987) (1,015)Profit before depreciation 154 182 188 84 74 82 65 86 84 99 125 142 151

Depreciation - Fixed assets (31) (36) (37) (33) (33) (29) (29) (28) (33) (36) (37) (38) (38)Depreciation - Other assets 0 0 0 0 0 0 0 0 0 0 0 0 0Amortisation - Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 0Amortisation - Other intangibles 0 0 0 0 0 0 0 0 0 0 0 0 0Operating profit 123 146 151 51 41 52 35 58 50 63 88 105 113

Associated companies 0 0 0 0 0 0 0 0 0 0 0 0 0Net interest expenses (2) (2) (3) (10) (13) (5) (5) (9) (7) (7) (7) (4) (3)Foreign exchange items 0 0 0 0 0 (6) 0 0 0 0 0 0 0Other financial items (1) 0 0 0 0 0 (13) 0 0 0 0 0 0Value changes - Fixed assets 0 0 0 0 0 0 0 0 0 0 0 0 0Value changes - Financial assets 0 0 0 0 0 0 0 0 0 0 0 0 0Value changes - Other assets 0 0 0 0 0 0 0 0 0 0 0 0 0Reported pre-tax profit 121 144 149 41 29 42 18 49 43 56 81 100 110

Minority interests 0 0 0 0 0 0 0 0 0 0 0 0 0Total taxes (38) (45) (43) (11) (11) (15) (16) (17) (16) (20) (25) (31) (34)Reported profit after tax 83 99 106 30 17 27 2 33 27 36 56 69 76Associated companies 0 0 0 0 0 0 0 0 0 0 0 0 0Discontinued operations 0 0 0 42 (5) (2) (1) (0) (0) (0) 0 0 0Extraordinary items 0 (3) 0 0 0 0 0 0 0 0 0 0 0Net Profit 83 97 106 73 12 25 1 33 27 36 56 69 76

Adjustments:Discontinued operations 0 0 0 (42) 5 2 1 0 0 0 0 0 0Interest on convertible debt 0 0 0 0 0 0 0 0 0 0 0 0 0Minority interests (IFRS) 0 0 0 0 0 0 (0) 0 1 (1) (2) (4) (4)Value changes 0 0 0 0 0 0 0 0 0 0 0 0 0Goodwill/intangibles amortisations 0 0 0 0 0 0 0 0 0 0 0 0 0Restructuring charges 0 0 0 0 0 0 0 0 0 0 0 0 0Other adjustments 0 2 0 0 0 0 12 0 7 3 0 0 0Tax effect of adjustments 0 0 0 0 0 0 0 0 0 0 0 0 0Adjusted profit after tax 83 98 106 30 17 27 13 33 35 39 54 65 71

Margins, tax & returnsOperating margin 11.9 12.6 12.4 5.4 5.6 7.0 4.4 7.1 5.5 6.2 8.1 9.3 9.7Pre-tax margin 11.7 12.5 12.2 4.3 3.9 5.6 2.2 6.1 4.8 5.5 7.4 8.9 9.4Tax rate 31.4 31.2 28.8 26.6 39.6 35.3 89.0 33.4 37.4 35.5 31.0 31.0 31.0ROE 19.7 26.0 31.2 9.4 6.1 10.6 0.7 15.7 13.1 15.9 22.1 24.5 24.4ROCE 27.6 35.7 37.6 15.7 10.9 15.7 10.8 26.3 13.2 14.5 20.0 23.8 25.5

Growth rates y-o-y (%)Total revenues n.a. 11.5 5.4 (22.2) (22.7) 2.1 7.6 0.6 11.6 13.0 6.2 3.8 3.3Operating profit 25.4 18.9 3.2 (66.1) (19.5) 27.2 (32.4) 63.0 (13.0) 26.3 38.8 19.0 8.0Pre-tax profit 30.3 19.6 3.1 (72.4) (30.4) 46.1 (57.6) 179.1 (12.8) 30.6 43.7 24.0 9.5EPS (adjusted) 15.7 19.9 9.1 (71.5) (42.6) 56.6 (51.1) 149.2 5.8 11.5 39.2 21.9 9.2

Cash flow(EURm) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017ENet profit 83 97 106 73 12 25 1 33 27 36 56 69 76Non-cash adjustments 31 36 13 (33) 41 47 44 8 43 43 37 38 38Cash flow before work cap 114 132 119 40 53 72 46 40 70 79 93 107 114

Ch. in working capital / Other 54 (0) (19) 56 26 (23) 12 (8) 22 (4) (5) (3) (3)Operating cash flow 168 132 100 95 79 49 58 33 92 76 88 103 111

Capital expenditures (49) (54) (58) (40) (24) (19) (23) (19) (34) (31) (34) (30) (30)Asset disposals 20 7 5 2 7 5 0 8 0 0 0 0 0L/T financial investments 0 0 0 0 0 0 0 0 0 0 0 0 0Acquisitions / adjustments 0 0 0 76 (2) 0 (6) 1 9 0 0 0 0Free cash flow 139 84 47 134 61 35 29 23 67 45 54 73 81

Net loan proceeds (48) (19) 57 19 (38) (1) 35 (8) (3) (11) (27) (27) (27)Dividend paid (52) (166) (103) (102) (62) (37) (40) (26) (28) (28) (31) (40) (44)Share issue 0 0 0 (1) 0 0 0 0 0 0 0 0 0Other (0) (0) (2) (2) 0 0 (7) 0 0 0 (0) 0 0Net change in cash 39 (100) 0 47 (40) (1) 17 (11) 36 7 (4) 6 10

AdjustmentsC/flow bef chng in work cap 114 132 119 40 53 72 46 40 70 79 93 107 114Adjustments 0 0 0 0 0 0 0 0 0 0 0 0 0Int on conv debt net of tax 0 0 0 0 0 0 0 0 0 0 0 0 0Cash earnings 114 132 119 40 53 72 46 40 70 79 93 107 114

Per share informationCash earnings 1.51 1.77 1.62 0.54 0.72 0.98 0.62 0.55 0.95 1.08 1.27 1.46 1.56Operating cash flow 2.23 1.77 1.36 1.3 1.07 0.67 0.79 0.45 1.25 1.04 1.2 1.42 1.52Free cash flow 1.85 1.13 0.64 1.82 0.83 0.48 0.39 0.31 0.91 0.62 0.74 1.01 1.11

Investment coverCapex/sales (%) 4.8 4.7 4.8 4.2 3.3 2.5 2.8 2.4 3.7 3.0 3.1 2.7 2.6Capex/depreciation (%) 157 152 156 123 74 65 78 68 102 85 92 80 79

Source for all data on this page: SEB

SEB Equity Research


11 29 April 2015

Balance sheet - Uponor(EURm) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017ECash and liquid assets 49 12 6 53 13 12 29 18 54 60 56 63 73Debtors 141 170 145 128 115 110 107 107 127 137 146 151 156Inventories 111 128 151 105 74 84 82 79 115 117 125 129 134Other 24 0 22 0 0 0 23 34 34 30 30 30 30Current assets 325 310 324 286 203 207 240 238 330 345 357 374 393

Interest bearing fixed assets 0 0 0 0 0 0 0 0 0 0 0 0 0Other financial assets 19 4 4 6 8 8 3 1 11 11 11 11 11Capitalized development cost 0 0 0 0 0 0 0 0 0 0 0 0 0Goodwill 85 98 102 101 102 72 75 75 84 84 84 84 84Other intangibles 0 0 0 0 0 25 22 19 19 14 14 14 14Fixed tangible assets 215 212 219 185 175 171 162 152 202 208 205 197 189Other fixed assets 18 21 16 17 12 14 13 14 16 19 19 19 19Fixed assets 338 334 341 309 296 291 275 261 331 337 334 326 318

Total assets 663 644 664 595 499 497 515 499 661 682 691 700 711

Creditors 73 82 75 50 45 51 46 43 61 68 72 75 77Other trade financing 87 98 106 66 68 72 83 76 98 108 114 119 123S/T interest bearing debt 3 17 76 37 18 35 3 4 14 16 16 16 16Other 7 7 7 22 13 6 23 18 18 12 12 12 12Current liabilities 169 205 265 175 143 165 154 142 191 203 214 221 227

L/T interest bearing debt 19 17 15 77 60 44 110 108 136 126 99 72 45Other long-term liabilities 30 42 28 28 22 22 0 0 0 0 0 0 0Convertible debt 0 0 0 0 0 0 0 0 0 0 0 0 0Pension provisions 0 0 0 0 0 0 0 0 0 0 0 0 0Other provisions 8 16 9 1 6 6 26 24 30 36 36 36 36Deferred tax 18 20 15 8 10 10 12 15 16 19 19 19 19Long term liabilities 75 95 67 114 98 80 149 147 182 181 154 127 100

Minority interests 0 0 0 0 0 0 3 0 68 67 69 73 77

Shareholders' equity 418 344 333 306 258 252 209 210 220 231 254 279 307

Total liabilities and equity 663 644 664 595 499 497 515 499 661 682 691 700 711

Net debt (m) (27) 22 85 61 65 67 84 94 97 82 59 25 (12)Working capital (m) 110 110 129 94 64 65 60 83 99 98 103 106 109Capital employed (m) 440 379 424 419 336 331 325 322 438 440 438 440 445Net debt/equity (%) (6) 6 25 20 25 26 40 45 34 28 18 7 (3)Net debt/EBITDA (x) (0.2) 0.1 0.4 0.7 0.9 0.8 1.3 1.1 1.2 0.8 0.5 0.2 (0.1)Equity/total assets (%) 63 53 50 51 52 51 41 42 44 44 47 50 54Interest cover 24.3 66.5 60.4 2.6 3.3 10.5 6.9 2.4 7.1 8.6 12.4 23.9 35.2

Valuation(EUR) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

No of shares, fully dil. (y/e) 75.2 74.6 73.6 73.4 73.5 73.5 73.5 73.5 73.5 73.1 73.1 73.1 73.1No of shares, fully dil. avg. 75.2 74.6 73.6 73.6 73.5 73.5 73.5 73.5 73.5 73.1 73.1 73.1 73.1Share price, y/e 18.0 28.4 17.2 7.7 15.0 13.8 6.9 9.6 14.2 11.5 14.9 14.9 14.9Share price, high 19.8 29.4 31.5 18.9 15.1 15.7 14.1 9.9 15.7 14.9 17.1Share price, low 13.7 18.0 15.3 6.1 6.8 10.6 6.1 6.8 9.8 9.4 11.4Share price, avg 16.6 22.2 25.4 11.7 10.0 12.9 10.1 8.5 12.4 12.3 15.0EPS (reported) 1.10 1.33 1.44 0.41 0.23 0.37 0.02 0.45 0.38 0.49 0.73 0.90 0.98EPS (adjusted) 1.10 1.32 1.44 0.41 0.23 0.37 0.18 0.45 0.47 0.53 0.73 0.90 0.98Cash earnings/share 1.51 1.77 1.62 0.54 0.72 0.98 0.62 0.55 0.95 1.08 1.27 1.46 1.56Dividend/share 2.27 1.40 1.40 0.85 0.50 0.55 0.35 0.38 0.38 0.42 0.55 0.60 0.65Enterprise value/share 17.6 29 18.4 8.5 15.9 14.7 8.0 10.9 15.5 12.6 15.7 15.2 14.7Book value/share 5.6 4.6 4.5 4.2 3.5 3.5 2.9 2.9 3.0 3.2 3.5 3.8 4.2Adjusted equity/share 5.6 4.6 4.5 4.2 3.5 3.5 2.9 2.9 3.0 3.2 3.5 3.8 4.2PER (adjusted) 16.4 21.5 12.0 18.8 63.9 37.7 38.2 21.4 30.0 21.8 20.3 16.6 15.2CEM 11.9 16.0 10.6 14.3 20.8 14.2 11.1 17.5 15.0 10.6 11.7 10.2 9.6Dividend yield 12.6 4.9 8.1 11.0 3.3 4.0 5.1 4.0 2.7 3.7 3.7 4.0 4.4EV/EBITDA 8.6 11.8 7.2 7.5 15.8 13.3 9.1 9.3 13.7 9.2 9.2 7.8 7.1EV/EBIT 10.8 14.6 9.0 12.2 28.3 20.7 16.6 13.8 22.7 14.5 13.0 10.6 9.5EV/Sales (x) 1.29 1.85 1.11 0.66 1.59 1.45 0.73 0.99 1.26 0.90 1.05 0.99 0.92Price/Book value 3.22 6.11 3.79 1.84 4.25 4.01 2.40 3.34 4.73 3.63 4.28 3.90 3.54Price/adjusted equity 3.22 6.11 3.79 1.84 4.25 4.01 2.40 3.34 4.73 3.63 4.28 3.90 3.54Free cash flow/Market cap (%) 8.8 3.7 3.3 9.8 5.0 3.0 7.0 1.9 5.6 5.4 5.0 6.8 7.4Operating cash flow/EV (%) 12.7 6.2 7.4 15.2 6.8 4.5 9.8 4.1 8.1 8.2 7.7 9.3 10.3EV/Capital employed (x) 3.0 5.6 3.2 1.5 3.5 3.3 1.8 2.5 2.6 2.1 2.6 2.5 2.4

Main shareholders Management Company informationName (%) Votes Capital Title Name ContactOras Invest 22.6 22.6 COB Jorma Eloranta Internet www.uponor.comFranklin Resources Inc. 7.7 7.7 CEO Jyri Luomakoski Phone number (358) 20 129 211Nordea Funds 7.2 7.2 CFO Riitta Palomäki Fax number (358) 20 129 2841Foreign owners (total) 29.1 29.1 IR

Source for all data on this page: SEB

SEB Equity Research


12 29 April 2015

Target prices and risks Target price definition and associated risks Our target price is the analyst's assessment of what total return an investor should expect over the coming six to 12 months. The target is based on fundamental equity research and other factors at the analyst's discretion.

Our current target price of EUR 18.5 was set today (29 Apr 2015). The main risk to our target price on Uponor is as follows. The risks relate primarily to residential market trends in North America and Europe. Plastic related raw material price fluctuations may impact profitability in the short-term (we estimate Uponor’s raw material bill is EUR 200m a year).

Risk levels The risk level is the analyst’s view of the uncertainty in the earnings forecasts based on an assessment of the company’s business model, operating risk as well as financial risk. We use two risk levels with the following explanations:

● Normal risk: All forecasts involve uncertainty and we view companies in this risk level to have normal forecast risks

● High risk: The earnings forecasts are more uncertain than for an average listed company due to business model, operating risk, financial risk or any other reason at the analyst’s discretion. All companies with shorter track record than 12 months as a listed company are by definition classified as high risk according to SEB.


SEB Equity Research

13 29 April 2015

Authors' statement of independence (Analyst Certification) We, the authors of this report, hereby confirm that notwithstanding the existence of any potential conflicts of interest referred to herein, the views expressed in this report accurately reflect our personal views about the companies and securities covered. We further confirm that we have not been, nor are or will be, receiving direct or indirect compensation in exchange for expressing any of the views or the specific recommendation contained in the report. We are not registered or qualified as research analysts, representatives or associated persons under the rules of any US exchange, regulatory organization or State.

This statement affects your rights This report is confidential and may not be reproduced, redistributed or republished by any recipient for any purpose or to any person.

Recipients SEB Research is approved and issued by Skandinaviska Enskilda Banken AB (publ) (“SEB”), a bank organized under the laws of the Kingdom of Sweden, on behalf of itself and its affiliates for institutional investors. SEB is not a registered Broker-Dealer under the US Securities and Exchange Act of 1934. This report must not be distributed to retail clients except those of SEB Oslo Branch and, in case of research distributed via SEB Helsinki Branch, to its retail clients located in Finland.

Use This research report is produced for the private information of recipients - if you are not a client of ours, you are not entitled to this research report, and should destroy it. The document is not, and should not be construed as, an offer to sell or solicitation of an offer to buy any securities. Opinions contained in the report represent the author's present opinion only and may be subject to change. In the event that the author's opinion should change or a new analyst with a different opinion becomes responsible for our coverage of the company concerned, we shall endeavour (but do not undertake) to disseminate any such change, within the constraints of any regulations, applicable laws, internal procedures within SEB, or other circumstances. If you are in doubt as to the meaning of the recommendation system used by SEB in its research, please refer to the "Disclaimer" section of SEB Research Online, to which our clients are granted access.

Good faith and limitations All information, including statements of fact, contained in this research report have been obtained and compiled in good faith from sources believed to be reliable. However, no representation or warranty, express or implied, is made by SEB with respect to the completeness or accuracy of its contents, and it is not to be relied upon as authoritative and should not be taken in substitution for the exercise of reasoned, independent judgement by you. Recipients are urged to base their investment decisions upon such investigations as they deem necessary. To the extent permitted by applicable law, no liability whatsoever is accepted by SEB for any direct or consequential loss arising from the use of this document or its contents.

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The SEB Group: members, memberships and regulators SEB is a member of, inter alia, Nasdaq OMX Nordic, Oslo Stock Exchange, the London Stock Exchange, NYSE Euronext, Frankfurt Stock Exchange, Tallinn Stock Exchange as well as certain European MTF’s such as BATS-Chi-X, Turquoise, Burgundy, XUBS, POSIT and Sigma-X. SEB is regulated by Finansinspektionen in Sweden and, for the conduct of investment services business, in (i) Denmark by Finanstilsynet, (ii) Norway by Finanstilsynet, (iii) Finland by Finanssivalvonta, (iv) Germany by Bundesanstalt für Finanzdienstleistungsaufsicht, (v) the UK by the Financial Conduct Authority and Prudential Regulation Authority (details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request), (vi) Estonia by the Estonian Financial Supervision Authority, (vii) Lithuania by the Bank of Lithuania, and (viii) Hong Kong by Securities and Futures Commission. SEBSI is a U.S. broker-dealer, registered with the Financial Industry Regulatory Authority (FINRA). SEBSI is a subsidiary of SEB. SEBSI is authorized to engage in the underwriting of securities but does not make markets or otherwise engage in any proprietary trading in any securities.

SEB’s research reports are prepared in accordance with the industry standards and codes of conduct applicable to financial analysts in the countries where they are based. In Denmark, Finland, Norway and Sweden, analysts act in accordance with the rules of ethics of each country’s Society of Financial Analysts. Analysts comply with the recommendations and industry standards of the Danish, Norwegian and the Swedish Securities Dealers Associations and with those of the Federation of Finnish Financial Services. Analysts certified by the CFA Institute also comply with the Code of Ethics of the CFA Institute.


SEB Equity Research

14 29 April 2015

Prevention and avoidance of conflicts of interest All research reports are produced by SEB’s Research department, which is separated from the rest of its activities by an Information Barrier; as such, research reports are independent and based solely on publicly available information. Following standard practice, recommendations and target share prices are removed from research on companies which are the subject of public offers on which SEB is advising. The remuneration of staff within the Research department is determined exclusively by research management and senior management and may include discretionary awards based on the firm’s total earnings, including investment banking income; however, no such staff receive remuneration based upon specific investment banking transactions. SEB’s Compliance department monitors the production of research and the observance of the group's procedures designed to prevent any potential conflicts of interest from affecting the content of research; the latter are described in greater detail in the "Statement of Policies for dealing with potential conflicts of interest surrounding our Research activities" which is available on our Research Online website.

Your attention is also drawn to the fact that: The current market price of the securities shown in this report is the price prevailing at the close of the business day preceding the date of publication, save where such price was more than 5% different from the price prevailing as at the time of publication, in which case it is the latter.

Unless explicitly stated otherwise in this report, SEB expects (but does not undertake) to issue updates to this report following the publication of new figures or forecasts by the company covered, or upon the occurrence of other events which could potentially have a material effect on it.

The securities discussed in this research report may not be eligible for sale in all countries, and such securities may not be suitable for all types of investors. Offers and sales of securities discussed in this research report, and the distribution of this report, may be made only in countries where such securities are exempt from registration or qualification or have been so registered or qualified for offer and sale, and in accordance with applicable broker-dealer and agent/salesman registration or licensing requirements.

Any valuations, projections and forecasts contained in this report are based on a number of assumptions and estimates and are subject to contingencies and uncertainties, and their inclusion in this report should not be regarded as a representation or warranty by or on behalf of the Group or any person or entity within the Group that they or their underlying assumptions and estimates will be met or realized. Different assumptions could result in materially different results. Past performance is not a reliable indicator of future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities, such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk.

Company specific disclosures and potential conflicts of interest A member of, or an entity associated with, SEB or its affiliates, officers, directors, employees or shareholders of such members (a) is not, and has never been, represented on the board of directors or similar supervisory entity of Uponor, (b) has from time to time bought or sold the securities issued by the company or options relating to the company, and (c) SEB or its affiliates beneficially own less than 1% of a class of common equity securities of Uponor as of 31 Mar 2015. The analyst(s) responsible for this research report (jointly with their closely related persons) hold(s) 0 shares in Uponor and do(es) not have holdings in other instruments related to the company. Current recommendation for Uponor - Buy - was set on 24 Apr 2014, changed from Hold. The dates of previous recommendation changes in relation to Uponor can be found on our Research Online website.

SEB Equity Research Online researchonline.sebgroup.com

SEB’s standardised recommendation structure

Consolidated distribution Investment banking as per 31 Mar 2015 (%) clients last 12M Buy Attractive risk/reward - at least 10% upside to target price. 45.4 8.3 Hold Fairly valued - the shares are trading close to target price. 39.6 3.3 Sell Unattractive risk/reward - the shares are trading above target price. 15.0 0.8 Unrated Company not covered, or we are not allowed to have a recommendation for compliance reasons Source: SEB

Target price and recommendation revision history

Source: Thomson Reuters / SIX / SEB

Skandinaviska Enskilda Banken AB (publ). All rights reserved.

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UNR1V.HE Target price revisions

Please note, in the chart to the right: 1=Buy 2=Hold 3=Sell The grey spots mark the point where target prices have been changed. The price chart is not adjusted for dividends paid, whereas our recommendations are based on expected return including dividends

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uponor - raw material-related bump

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