Original-Research: INDUS Holding AG - from NuWays AG
Classification of NuWays AG to INDUS Holding AG
Company Name: INDUS Holding AG
ISIN: DE0006200108
Reason for the research: Update
Recommendation: Kaufen
from: 05.06.2024
Target price: EUR 36.00
Last rating change:
Analyst: Christian Sandherr
RS feedback: Well-filled M&A pipeline to support further growth
Topic: On Monday, we hosted a digital roundtable with INDUS. Here are our key takeaways:
Well-filled M&A pipeline: INDUS has a substantial budget of EUR 70m for M&A in FY24e, due to the large cash position of EUR 266m at the end of FY23, driven by a strong FCF of EUR 199m in FY23. As of yet, INDUS has spent approx. EUR 20m and the pipeline for growth as well as add-on acquisitions remains filled. Industries of particular interest for INDUS are automation technologies within the Engineering segment, recycling within Materials and sustainable infrastructure. In our view, now is a good time for value accretive acquisitions in the German Mittelstand, as valuation multiples in recent years have come down.
Operationally, Infrastructure should compensate for a weaker Materials and Engineering Segment in FY24e: Sales in Engineering declined 8.9% yoy in Q1 due to the slowdown particularly in the sorting systems and packaging technology segment. Incoming orders for the entire industry were 10% below the previous year's level in real terms, however, a recovery is expected for the second half of FY24e. Materials in Q1 was affected by declining volumes and massive price pressure from customers (-11% in sales yoy). While in Q1 & Q2 FY23 the Materials segment benefited from lower cost of materials (12% EBIT margin in Q1 FY23, +3.1pp yoy), now these cost reductions are passed through to customers, leading to pressure on the top-line and more normalized levels of profitability.
In contrast, we expect to see an increase in EBIT for Infrastructure in FY24e. The business climate in the construction industry is slightly improving and raw material prices such as steel and timber are falling. Furthermore, the portfolio company Aurora, a specialist in heating and air-conditioning systems (c. 14%
of segment sales), recently realized a substantial improvement in operating efficiency.
Solid FCF expected for FY24e: Due to a lower seasonal working capital increase in the first quarter, free cash flow in Q1 improved significantly to EUR 6.1m (Q1 FY23: EUR 7.5m) adjusted for the EUR 14.4m onetime cash inflow from a property sale in Q1 2023. However, we also expect the seasonal working capital reduction in the second half of the year to be lower than usual. FCF should come in again in the low triple-digit area (eNuW: EUR 104m). Importantly, at the current valuation INDUS provides an attractive adjusted FCF yield of c. 10% (eNuW).
INDUS remains a BUY with an unchanged PT of EUR 36, based on FCFY 2024e.
You can download the research here:
http://www.more-ir.de/d/29975.pdf
For additional information visit our website
www.nuways-ag.com/research.
Contact for questions
NuWays AG - Equity Research
Web: www.nuways-ag.com
Email: research@nuways-ag.com
LinkedIn: https://www.linkedin.com/company/nuwaysag
Adresse: Mittelweg 16-17, 20148 Hamburg, Germany
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