Topic: FY24e was clearly overshadowed by macroeconomic challenges for INDUS, especially in the first quarter. While we do not expect a fast improvement of the economic environment, we also do not see the situation deteriorating further.
Sales are seen growing in the low to mid-single digit % range yoy to € 1,810m (eNuW) as we do not expect the weakness in the first quarter (€ 410m sales in Q1'24 vs. € 451m in Q1'23) to repeat to a comparable extent as in the previous year. In addition, we expect c. € 30m (eNuW) sales growth contribution from acquisitions made in FY24e and the recently announced add-on acquisition of Kettler GmbH (company news 7th January). However, on the other hand order intake remained on a low level with € 1,220m in 9M'24 (-0.8% yoy; book-to-bill 0.95x) leading to a decrease in order backlog to € 678m (vs. € 711m end of FY23). Hence, we do not expect to see significant organic sales increases in FY25e.
We expect the EBIT margin to improve to a solid 8.3% as the product mix in the Engineering segment should be more profitable in FY25e than in H1'24 and we also do not expect further impairments for FY25e (€ 6.7m in FY24). Nevertheless, we still see the challenges due to a competitive environment and price pressure in the agricultural and construction technology field to persist throughout the year which affects the Materials segment.
Enhanced capital allocation: During the past quarters, we noticed a clear improvement in management's capital allocation decisions. For instance (1) INDUS used excess cash to acquire strong niche players at multiples of 5.5-6.5 EV/EBIT last year (as stated by the CEO Schmidt) at a time when valuation multiples have come down considerably and other companies hesitated to invest money. At the same time, INDUS was disciplined enough to spend only c. € 35m (eNuW) of its total M&A budget of € 70m in FY24e by focusing on high margin acquisitions with an attractive return on invested capital. This shows us that management also prioritizes value creation above growth.
(2) In addition, INDUS repurchased c. 1.85m shares (6.9% of total shares) at an average price of € 22.45 via two tender offers and a still ongoing open market buyback program. Considering the current undervaluation of the stock, the repurchased shares offer an attractive ROIC as well.
Reiterate BUY with an unchanged PT of € 34, based on FCFY'24e.
ISIN: DE0006200108
