* Summary: Leonteq offers a solution to manufacture structured investment products (SIPs). It offers unique technology, process and distribution capabilities to clients (banks and life insurance companies) to issue, manage and distribute SIPs. Leonteq's B2B platform benefits from quality and cost leadership that is reinforced with further investments in scale and technology. We transfer coverage to Virginia Nordback and re-initiate with a Buy recommendation and a price target of CHF247.00, offering 43% upside potential.* Growing platform partners: Leonteq's focus is to increase the volume of issued products by growing its platform partner business. It currently works with five partners and announced a further five with its H1 2015 results, which we estimate will go live in H2 2015/2016. Its goal is to reach 30 partners by 2020, with an increased focus outside its domestic market.* A business model in transformation: Leonteq is transforming itself from a financial institution (Fin) via a business services company (Finteq) towards becoming a technology player (Teq). The recently introduced Teq business line addresses the needs of large investment banks and allows Leonteq to break into an additional market. These larger partners will carry the market risk of the SIP on their balance sheets. As a result, this business line will have very low capital requirements. We estimate 84% of revenue in 2017 will come from Finteq and Teq.* Scale over profitability: In our view, the market is focusing too much on short-term profitability pressures, which is the result of growing a lower-margin product that requires investment in staff. We think that investors should look beyond the next two years, when these investments will start to pay off. Scale and the resulting lower unit costs, as well as further sell- and buy-side automation, will reinforce Leonteq's cost leadership and, therefore, secure Leonteq's position as market leader, protecting its margins in the long run.* Future growth: Leonteq aims to bring four partners on board per annum - two insurance and two banking partners. Insurance is an attractive market with generally higher-margin products due to a lack of alternative offerings. Unit-linked policies are long-term investments and thus generate very sticky customers, strengthening the quality of revenue.* Valuation: We use a DCF approach to capture the long-term growth potential. Our cost of equity is 8.7% and our long-term growth rate is 0.5%. With no direct competitors, we look at business services companies and tech companies with a software-as-a-service (SaaS) revenue model. On a 2017 earnings comparison, Leonteq currently seems undervalued.* Catalyst: We expect an update on the integration progress in H2 2015. Full-year results are released on 4 February 2016.