Topic: ASW announced a 23% capital increase at CHF 1.50 per share, worth CHF 4.1m and including subscription rights.

The main shareholder Pellegrino Capital AG (i.e. Patrick Liotard-Vogt; 64% of shares) already confirmed its participation in the capital increase by converting CHF 2.6m of its CHF 4.6m outstanding shareholder loan (2.75% interest rate p.a.) to equity. Further, Pellegrino Capital AG intends to subscribe additional shares, should the remaining shareholders not exercise their subscriptions rights. This would imply (assuming all other shareholders do not exercise their right) an almost complete debt-to-equity swap of CHF 4.1m by ASW's main shareholder and hence a non-cash effective capital increase. In the scenario of all other shareholders exercising their rights, cash proceeds in the volume of max. CHF 1.5m could be expected (see p. 2).

With a current cash position of CHF 2.4m (as of H1), positive cash flows (eNuW: CHF 1m FCF in FY23e) and no imminent debt maturities (CHF 0.4m debt repayment p.a. on the outstanding bank loan), ASW does not need any additional cash to finance operations. Therefore, a fully non-cash capital increase should serve the purpose of improved balance sheet ratios and lowered interest expenses of CHF 74-112k annually. The negative equity (eNuW: CHF -0.8m at FY23e) should also turn positive to CHF 3.4m (see p. 2). ASW has a negative equity position because, according to Swiss GAAP-FER, ASW chose not to activate goodwill of past acquisitions (currently CHF 30.9m) and hence opted to avoid P&L-effective goodwill impairments. In return, the goodwill needs to be offset with equity, resulting in the negative equity. (FY23e equity ex goodwill offset: CHF 30.2m pre capital increase).

Both scenarios lead to improved ratios (FY23e net debt: CHF 3.5m pre capital increase, CHF 0.6m net cash post capital increase) should turn out to be helpful in the future in order to raise money for promising M&A opportunities.

Moreover, the potential increase of Pellegrino Capital's share in ASW shows a renewed commitment of the largest shareholder, given the scalable business model coupled with promising growth initiatives, in our view. Trading at only 9x EV/EBITDA (vs. 15x EV/EBITDA '20-'22), the stock looks attractively valued.

Hence, we reiterate our BUY recommendation with unchanged PT of CHF 6.00, based on DCF.