Diskus Werke has countered the disappointment of its September profit warning by clearly exceeding reduced PBT guidance for 2018 (€14.6m vs €14m) and securing a strong 9% rise in its year-end order book. This is impressive, given a slowing German machine tool market and procurement cost pressures. As in 2017, continued loss elimination at three problematic subsidiaries has been accompanied by volatility at some larger businesses. Current-year guidance is for 4% revenue growth at higher margin, driving a 10% increase in PBT to c €16m (€14.6m). Finances remain resilient (the debt/equity ratio is down slightly at 51%).
Lowered guidance post-H1 results, prompted by pronounced margin disappointment (down slightly in H1 in contrast to the sharp rise expected for the full year) and softening conditions, suggested that H2 revenue and margin would do well to hold steady. It was therefore creditable that revenue was up by 6% y-o-y at maintained margin, allowing 10% higher PBT. While half-year subsidiary and divisional performance is not disclosed, we assume that continued turnround at three longstanding loss-makers (combined loss before tax reduced to €0.5m from €2m in 2017) was accompanied by volatility at major contributors NAXOS (full year profit more than doubled) and DVS Production (full year profit down by two-thirds). We also assume the strongest growth has again come from Production and Tools & Components, if from a much smaller base than the main Machine Tools business.
While the recent slowdown in the machine tool market (Q1 down 7% worldwide, per VDW) is troubling, an opening order book of €139m should ensure a good workload in 2019 (over 50% of 2018 sales) and supports guidance of a 4% rise in revenue to €275m. Expected margin gain (6.6% on total operating income vs 6.3%) may seem ambitious, especially after last year’s disappointment, but would be achieved simply by loss elimination. On this admitted ‘best case’ scenario, management forecasts 2019 PBT at c €16m
The vast bulk of the company’s equity is firmly held and likely to remain so. With a free float of 0.4%, Diskus Werke may not appeal to most institutional investors. Headwinds justify caution but their impact is expected more in 2020, by which time management is confident that the company should have been able to adjust.