London, UK, 10 September 2018

Edison issues initiation on Rubicon (RBC)

The simplified corporate structure presents investors in Rubicon (RBC) with a pure-play, advanced forestry genetics business with leading positions in large international markets for its seedlings. The conversion of these positions into profitable growth through customer migration to more advanced seedlings is the likely driver of further share price outperformance in our view. Our own DCF analysis - implicitly more conservative than the company's - yields a NZ$0.74 per share valuation.

Over the last 12 months, Rubicon's share price has travelled well and at NZ$0.27 is up c 29%. Given the corporate transformation, some recognition of the company's improved prospects is entirely appropriate and we believe there is more to come as ArborGen's underlying financial performance becomes more visible. For now, the P&L is relatively immature; this is reflected in the current year P/E and EV/EBITDA (US GAAP) of 15.8x and 21.5x, which reduce to 7.1x and 8.9x on our estimates by FY21. Our own DCF-based analysis indicates a core gross equity value for Rubicon of U$240m (or NZ$0.74 per RBC share), before adjusting for outstanding warrants and options.

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