CLARITY IS CONFIDENCE HOLT

F5 Networks (FFIV) in HOLT

Relative Wealth Chart & What’s Priced In: FFIV dramatically improved its

CFROI® profile over the past decade while also growing its asset base at a high rate.

Nonetheless, the market is skeptical of FFIV going forward as its price embeds

margins to decrease 800bps from forecast levels with long-term sales growth of 6%.

Market & Analyst Sentiment: While expectations may appear low, price

performance has been poor (down 45%+ the last year) and CFROI revisions

continue to fall, which may weigh on the shares in the near-term.

Relative Valuation: Compared to Communication Equipment peers, FFIV is priced

for one of the steepest declines in near-term forecasts.

Risk/Reward Profile: Assuming FFIV can achieve long-term sales growth of 9%

with margins in-line with forecasts, upside of 40% is warranted. In a 20% downside

scenario, long-term sales growth of 3% with materially lower margins are required. In

sum, risk/reward appears attractive if 9%+ growth can be sustained longer term.

1

CLARITY IS CONFIDENCE HOLT 2

Risk

Probability of Default 0%

Average Credit Rating NA

Accounting Quality Good

Momentum

6m 3m 1m

CFROI Revisions -2.60 -1.71 -1.83

Price Change % -29.22 -24.94 -22.13

Valuation

Price USD 72.77 upside

+78% Warranted Price 129.36

Dividend Yield 0.0%

Relative Wealth Chart

Current 14.0

Regional Industry 14.9

Low

10.8 Median

22.5

High

41.8

Economic PE Ratio 5 year observed range

Communications Equipment, US-Americas

Relative Wealth Chart: FFIV dramatically improved its CFROI® profile over the

past decade while also growing its asset base at a high rate; Nonetheless, the

market is skeptical FFIV can sustain these improvements going forward.

HOLT’s default warranted valuation presented above

Historical CFROIs Forecast CFROIs Market-Implied CFROI

CLARITY IS CONFIDENCE HOLT 3

Price Momentum

18 mth 1 yr 6 mth 1 mth 1 wk

Absolute -13.88 -46.14 -29.22 -22.13 -17.82

Rel. To Peers -29.90 -46.66 -40.11 -18.15 -13.90

CFROI Revisions

6 mth 3 mth 1 mth 1 wk

CFROI Revisions -2.60 -1.71 -1.83 -1.83

As % of CFROI -10.96 -7.20 -7.73 -7.73

Average of Peers 0.23 0.27 0.05 -0.03

Weekly Price (18 Month)

CFROI Revisions (18 Month)

Communications Equipment, US-Americas

Communications Equipment, US-Americas

1 Month CFROI Revisions 3 Month CFROI Revisions

Market & Analyst Sentiment: While expectations may appear low, price

performance has been poor and CFROI revisions continue to fall, which may weigh

on the shares in the near-term.

Note: CFROI Revisions measures the impact on CFROI forecasts from a change in consensus estimates.

CLARITY IS CONFIDENCE HOLT 4

What’s Embedded in the Current Price?: Assuming a 5-year valuation window,

FFIV is priced for margins to decrease 800bps from forecast levels (to 32%) along

with long-term sales growth of 6%.

6%

32%

IBES consensus estimates

used for 2013/2014

CLARITY IS CONFIDENCE HOLT 5

Peer Relative Valuation: Compared to Comm Equipment peers, FFIV is priced for

one of the steepest declines in near-term forecasts.

0

6

12

18

24

30

HTC FFIV AAC QCOM BBRY CSCO HRS ERICB JNPR ZTE MSI NOK1V

CF

RO

I %

5-yr CFROI Median LFY CFROI CFROI Forecast Market Implied CFROI

-5

5

15

25

35

HTC FFIV AAC QCOM BBRY CSCO HRS ERICB JNPR ZTE MSI NOK1V

Asse

t G

row

th %

5-yr Median Asset Growth LFY Asset Growth Forecast Asset Growth Market Implied Asset Growth

-40

-20

0

20

40

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

HTC FFIV AAC QCOM BBRY CSCO HRS ERICB JNPR ZTE MSI NOK1V

Pri

ce

Re

turn

(%

)

CF

RO

I R

evis

ion

s (

bp

s) CFROI Revisions (3 Month) Relative Price Return (3 Month)

Note: Communication industry greater than $5b presented above. Sorted by the spread between forecast CFROI and market-implied CFROI.

CLARITY IS CONFIDENCE HOLT 6

FFIV Bull Case (40% Upside)

After warning on its Q2 results last week, FFIV has

dropped over 20%. Assuming FFIV can achieve

long-term sales growth of 9% with margins in-l ine

with forecasts, upside of 40% is warranted. In a 20%

downside scenario, long-term sales growth of 3%

with 29% margins are required. In sum, risk/ reward

appears attractive if FFIV can sustain high single-

digit / low double-digit growth longer term.

FFIV Bear Case (20% Downside)

Valuation Matrix (Risk/ Reward Profile)

Risk/Reward Profile: Assuming 9%+ sales growth can be sustained along with

margins in-line with forecasts, 40%+ upside appears warranted.

-3.0% 0.0% 3.0% 6.0% 9.0% 12.0% 15.0%

23.0% $39.3 $44.0 $50.0 $57.7 $67.6 $80.3 $96.8

26.0% $42.2 $47.5 $54.3 $62.9 $73.9 $88.2 $106.6

29.0% $45.1 $51.0 $58.5 $68.0 $80.2 $96.0 $116.3

32.0% $48.0 $54.5 $62.7 $73.1 $86.5 $103.8 $126.1

35.0% $50.9 $58.0 $66.9 $78.3 $92.8 $111.6 $135.8

38.0% $53.8 $61.4 $71.1 $83.4 $99.1 $119.4 $145.5

41.0% $56.7 $64.9 $75.3 $88.5 $105.4 $127.1 $155.1

2017 E

BIT

DA

Marg

ins

2017 Sales Growth

Downside scenario assumptions Upside scenario assumptions

CLARITY IS CONFIDENCE HOLT 7

Appendix

CLARITY IS CONFIDENCE HOLT 8

HOLT’s Price Tracking Chart: Historically, HOLT’s default warranted valuation has

tracked FFIV’s price fairly closely (1% historical deviation).

CLARITY IS CONFIDENCE HOLT

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