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With conference season fast approaching, and 1Q24 reporting around the corner, we thought it would be useful to assist you with a question compendium. Here we provide a list of key questions to discuss with the Cap Goods management and IR teams over the coming weeks, alongside valuation, performance, and financial highlights for each name. What''s the hottest topic to ask management? Marketing meetings related to our recent note, Data Centres, the AI-cing on the cake confirm a high level of attention from investors in respect of demand for Datacentres related Capital Goods. Conversations with companies regarding their respective positions within the AI value chain could prove to be an area of interest, highlighting differences and one may even detect associated new capital allocation needs, both to capture AI related opportunities and mitigate against the risks. In case you missed it Please see below for our recent Sector and single-stock research: Mining capex: should we believe in growth? TRUCKS: In Trucks We Trust The Wheel of Misfortune: Construction pitfalls The BNPPE Wheel 2024: Strong momentum impulse KNORR-BREMSE (=) to (+): Releasing the brakes - upgrade to Outperform KION GROUP (=) to (+): Back for good? - upgrade to Outperform EPIROC (=) to (-): Between a rock and a high valuation - downgrade to Underperform SKF (=) to (+): A positive spin - upgrade to Outperform *Maybe there are a couple? For instance, why didn''t they include the word ''gullible'' in the dictionary?
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We have adjusted our forecasts following the publication of GEA Group''s Q4 2023 results. Please note that we have made only minor changes at group level regarding our PandL forecasts, reflecting higher restructuring charges to adjust the headcount mainly in the FHT segment and a lower interest income in FY24. For FCF, we have now included the higher than expected capex spent of c. EUR 260m in our model that is primarily related to the pharma and new food verticals. Yet, we note that GEA has confirmed the earlier guided cumulative FCF target of EUR 2bn in 2022-26 underlining that underlying cash generation remains healthy as demonstrated by the expressed confidence in the provided guidance parameters vis-a-vis the order pipeline and further headroom to NWC as indicated by the CFO on today''s conference call. We do not consider the changes to be material; our rating is unchanged.
GEA Group Aktiengesellschaft
Ahead of the year-end reporting season we revisited our previous estimates and recommendations as per our proprietary screening tool. We recently upgraded KION (+ vs =), building on the BNPP Wheel for 2024 and our strategists'' positive view on mid-caps. However, we have downgraded Rational (- vs =), primarily driven by valuation, suggesting better risk/reward elsewhere. Our top picks based on our screening are GEA, KION, RHM and VALMT. Industrials - PMIs edging up, yet mixed signals from early reporters In our BNPPE Wheel 2024 we flagged the rerating opportunity particularly in short-cycle names in the sector as a function of an expected pick-up in PMIs vis-a-vis reacceleration in orders. Following the latest earnings releases in the sector, operating profit in the Dec quarter was marginally better, while neither orders in the quarter nor the outlook for the Marc quarter/FY24 surprised to the upside. Look for greater cyclical exposure and visibility, avoid crowded longs Against the backdrop of the generally encouraging outlook for small- and mid-caps in Europe as per our latest strategists'' note, we have created a screening tool for our coverage universe comparing L10Y financial KPIs and valuation metrics versus 2024 and 2025 estimates to identify potential opportunities. While for large capital goods the tool does not show a strong positive signal, our DACH Industrials and Clean Energy universe screens attractively, except for a few such as Rational (- vs =) (see today''s report). Our more recent upgrades - ie KION (link) and GEA (link) - screen well at a second glance, which is also the case for RHM, while we would avoid crowded longs such as VWS. Key ideas into the upcoming results season: GEA, KGX, RHM, VALMT (+), VWS (-) We have revisited our reporting model that combines our fundamental valuation framework and views into the upcoming results release as well as our thoughts around the guidance for this fiscal year and how this might deviate...
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GEA reported another strong quarter and fully confirmed the FY guidance. FX rates were a significant detractor as the figures had to compare with the high prior year levels. Nevertheless, our estimates were beaten at many levels (order intake: -7.1%; sales: +3.7%; adjusted EBITDA: +18.4% – consensus: order Intake: -3.1%; sales: -3.3%; adjusted EBITDA: +1.3%).
GEA released mixed Q3 results (orders: 5% miss, adj. EBITDA: in line, strong FCF) and announced a EUR 400m share buyback program (c.7% of MCap) plus it will cancel c. EUR 300m of treasury shares. YTD, GEA is down 14% on fears of a potential rollover in orders vis-a-vis downside risks to consensus; in fact, the business has held up well despite material FX headwinds. As downside risks to consensus look limited, while the shares have derated by c. 20% and now trade at 10x EV/EBITA 24e, a c. 20% discount to its LT 1FW multiple, we upgrade to O/P; our TP is unchanged at EUR 41. Key takes from the call - ''very good pipeline'' supports growth in FY24 at improving margin We acknowledge that longer decision-making and c. EUR 0.1bn of FX headwinds resulted in orders of only EUR 1.25bn, which was driven by all divisions excl. HRT for a b:b of 0.9x (LTM b:b at 1.04x); this appears to have marked the trough though based on mgmt. commentary on the call with the pipeline said to be ''very good''. What is more, mgmt. pointed to ''good growth'' (pre-Q3 VA cons: 2%) backing up that pipeline and underlining the resilience related to Service (LTM Q3: 36%, up 1pp y/y). Last but not least, the CEO pointed to a further margin expansion in his closing remarks (cons: +10bp). Shares worth EUR 700m or 11% of MCap to be cancelled via new and prior buyback program GEA issued a new EUR 400m share buyback program (11/2023-early 2025) with the first tranche of EUR 150m about to start in November and to be completed within six months. In wake of market fears of a potential slump in the business, this sends a strong signal with the CEO convinced of ''GEA''s operational strength and [...] our Mission 26 growth strategy'' looking at 4-6% organic sales growth in 21-26, an adj. EBITDA margin 15% by 2026 vs. 14.5% per LTM Q3 and ROCE 30%. Model update - minor changes for unchanged FCF estimates suggesting c.7% yield in 24e We have reflected slightly longer than previously assumed fixing...
Mr Marcus Ketter, CFO, unexpectedly passed away on Sunday 6 August 2023. We express our deepest condolences to his family and wish them strength to go through these difficult times. Our thoughts are with you. With the loss of Mr Ketter, the management loses a highly valued member and a strong supporter of GEA’s journey in recent years.
We are lowering our full-year estimates ahead of GEA''s Q2 results release on 10 August, reflecting weaker macro data and stronger-than-expected FX headwinds. As we expect a spill-over to FY24 and beyond, we reduce our EBITA 2023-25e by 7%, prompting our new EUR41 target. Despite single digit downside risk to consensus, valuation looks supportive with our new forecasts implying 11.6x and 10.9x EV/EBITA 23/24e. Irrespective of envisaged MandA appetite, the EUR274m net cash per Q1 and structurally decent cash generation could allow a new share buyback to lend further support. Key take-aways from our pre-close call with IR - guidance parameters confirmed IR at GEA conveyed an overall constructive message: 1) demand: we understand that demand has normalised versus the record level in Q1 that benefitted from very strong base and mid-sized and large orders, with only limited FX headwinds (3-4% headwind anticipated in Q2 vs. (1.5)% in the March-quarter); 2) sales: organic growth should reach the 8% target as guided for the full-year of FY23, yet partly offset by FX; 3) EBITDA: after a 120bp margin expansion y/y in Q1, the combination of higher input cost inflation and negative translation effects should prevent an equally strong margin improvement in the June-quarter, while directionally supporting FY23 targets. Thoughts around FY23 guidance - consensus appears to be leaning to the optimistic side GEA raised FY23 guidance with Q1 results, now shooting for organic sales growth of 8% vs. 5% (consensus: 9%) and the upper part of the FX-adjusted adj. EBITDA target corridor of EUR730-790m, with the margin seen at 14.0% in FY23 (consensus: EUR795m / 14.2%), implying a range of EUR ~760-790m when applying 8-10% organic growth, (2-3)% from FX and (0.5)% from scope. Model update for a 7% EBITA 23-25e cut prompts new EUR41 TP - reiterate Neutral Factoring in higher-than-expected FX headwinds and considering that our earlier volume forecasts had moved to...
GEA’s consensus-beating Q1 figures (sales: +3.0%; adjusted EBITDA: +5.7%) confirmed our recently adopted more optimistic stance on profitability in that the higher share of the service business had the expected positive effect. Order intake continued to improve compared with an already-high prior year basis.
After a year of overachievements, GEA gave quite a positive outlook for 2023 with some upside potential. The basis for the 2023 achievements is the strong order book leading to a book-to-bill ratio of 1.10x. GEA reported a decent set of figures, moderately beating our estimates (sales: +0.6%; adjusted EBITDA: +1.8%), except for EPS (+10.1%). The same is true for consensus (sales: +0.6%, adjusted EBITDA: +1.7%; EPS: +17.5%). The company beat its own targets.
After the easy part is behind - calling the shares higher on FY23 guidance in anticipation of a too conservative consensus; in fact, our new EBITDA 2023-26e sits 9% above the Street - the question is what to do from here. While GEA does not look expensive at 13x/12x EV/EBITA 2023/24e, it does not screen as particularly cheap either and our EBITDA 23e of EUR814m is already above the EUR730-790m target corridor for this year. To sum up: beyond tailwinds from technical upgrades the story appears somewhat exhausted here, so we reiterate Neutral with a new TP of EUR44. Key takeaways from the call - 2023 EBITDA target range apparently conservative GEA telegraphed a bullish message for orders (Q1: EUR1.5bn | FY23 b:b at 1x, i.e. implying EUR5.7bn) and EBITDA upon strong visibility and decent backlog pricing plus high confidence in passing on expected FY23 cost inflation to customers. Thus, even the upper end of the EBITDA range looks conservative (consensus: EUR755m). On the contrary, FCF 23e might be a touch below consensus'' EUR388m given a temporary spike in capex but it should bounce back as of FY24. Model changes - 3% hike to EBITDA 23-26e reflects faster execution and better pricing power While our estimates had been above consensus already prior to today''s release, the print and related commentary on the call further supported our optimistic view. Our slightly altered forecasts (sales / EBITDA 23-26 is up 1%/3%) mirrors better execution in the plant engineering activities and tailwinds from price/mix, while we consider FCF weakness temporary (2023e: -9% / 2024-26e: +6%). Maintain Neutral recommendation with a new EUR44 target - the easy money has been made As compelling as GEA looks in light of a still rather moderate valuation and a favourable upgrade cycle, which is likely to continue beyond the actual FY22 release as GEA has meanwhile built a track record of under-promising / over-delivering, we struggle to chase the shares here. With...
Welcome to the BNPPE Wheel 2023. Capital Goods end markets screen as cyclically mature. Growth rates have passed their peak and, in many cases, will now fall into decline. Yet the coming recession will be unlike any other. Traditionally cyclical parts of the Sector will still grow. Next year is far from a washout! Auto production should rise, Mining and Energy markets too. However, the Sector''s order growth momentum is now an issue. We forecast it to deteriorate rapidly during H1 but model a recovery later in the year. We expect investors to buy stocks in anticipation of improving order momentum following a PMI trough early in the 2023. Up to Outperform: Electrolux and Melrose Down to Underperform: ABB and Rexel
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Dear Client, We are delighted to be hosting our fifth European Mid Cap CEO Conference in Paris, and to be welcoming a record 105 companies, plus 280 investor attendees. Leading events such as this are just part of our deep commitment to the European SME ecosystem. We continue to strengthen the SME services we provide our clients, through our pan-European coverage, our growing roster of top-ranked analysts and our burgeoning sponsored research product. Thanks to the full integration of Exane into BNPP, we are investing more than ever before. Just this January, we launched our new DACH Midcaps team. Ten months later they have taken 32 companies under coverage, bringing our Mid Cap universe to 100+ companies. But growth cannot come at the expense of quality. Nor does it. In the 2022 Institutional Investor survey, we again ranked Number One for Industry Research in Europe, our sixth year at the top. No less than 14 of our teams ranked first, with another 13 in the top three, while we were also Number One in Sales, Specialist Sales and Trading and Number Two in Corporate Access. Ultimately, however, everything we do to build our franchise is possible only because of you. On behalf of everyone at BNP Paribas Exane, thank you - and enjoy the conference! Ben Spruntulis Head of Cash Equities BNP Paribas Exane
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Regaining investor confidence is a top priority for the management and, in our view, the latter is getting closer to this objective. Additionally, the measures being implemented will support profitability. The management also shed positive light on 2023. The Q3 figures were above the consensus expectations (revenues: +3.5%; adjusted EBITDA: +9.3%)
Q3 execution beating consensus by 8% at EBITDA level, while orders were only in line Q3 orders of EUR 1.37bn were only in line with consensus (b:b at 1.01x), yet the high margin SFT segment fell 6% short of consensus. On the contrary, execution was strong with decent sales (4% ahead) and EBITDA (8% above) benefitting from volume and pricing tailwinds with all segments contributing to the beat and showing a sequential margin improvement, and SFT defending the margin at 25%. FCF came in at EUR 74m thanks to decent operating profit mitigating another sequential NWC built-up (quota to sales: 9% vs. 5% at YE21). GEA now sees EBITDA at the upper bound of the EUR 630-690m corridor (consensus: EUR 679m | LTM Q3: EUR 684m). Key takes from the call - solid message plus one-wake-up call To start from the back, the call has served as a wake-up call, in the sense that (parts of) the market has been made aware that the EBITDA target (narrowed to upper bound of EUR 630-690m) is ex FX, which should add EUR c.25-30m vs. pre Q3-consensus at EUR 678m, i.e. pointing to 5-6% upside risk. Other than that, we found the call solid: NWC is likely to have peaked, c. 2-3% from earlier price hikes should spill over to FY23, and service should continue outgrowing OE, while the Q4 order guide of EUR 1.3bn and commentary on still tight supply chains were rather neutral. We have lifted our adj. EBITDA 2023/24e by 6% for a similar upside to consensus A stronger than expected Q3 2022 results regarding execution and encouraging statements around price quality and strength in service, we have lifted our adj. EBITDA 2023/24 by 6% putting us ahead of consensus for a similar magnitude, which is likely to follow us in the coming days. Unchanged TP given rising interest rates, no short-term catalyst beyond earnings upgrades Despite our forecast hike we leave our TP at EUR 40 now implying 12.4x EV/EBIT 2023e, which is in line with the historical 1Y FWD average. While before we had...
We recap the key findings from the Q2 2022 reporting season, which played out largely as expected: demand remained strong, while covid restrictions in China, the rollover of earlier commodity spikes and initial wage inflation impacted earnings negatively, especially at NOEJ and KBX. We stick to our preference for businesses with high visibility via firm order books (ANDR, KRN) over shorter cycle names (e.g. INRN, RAA), unless these combine structural growth with an attractive valuation as is the case for KGX and JUN3. Following the sell-off pre/post Q2 results, we upgraded RHM to + (vs =) as the mid- to long-term opportunity is not in our view priced in. Recap of Q2 results Overall, the reporting season turned out to be less share-price relevant and less negative than feared. However, two profit-warnings that were largely expected, from Knorr-Bremse and NORMA, still triggered double-digit negative share price reactions on even-weaker margins and increased uncertainty around mid-term margin recovery potential. Besides these, only Rheinmetall printed a double-digit share price move on results, with more companies surprising positively than negatively. A review of our trading ideas Our positive view on Andritz and Krones into numbers was validated by double-digit positive surprises on order intake as well as earnings, while Rational''s gross margins disappointed on mix and cost inflation. Knorr-Bremse cut guidance as we had expected, although the cut to mid-term China expectations was more pronounced than anticipated and drove shares lower. In the case of NORMA, Water Management growth surprised positively, as we had expected, but margin pressure in the auto business triggered a bigger-than-expected profit-warning. Long ideas - positive view on ANDR and KRN confirmed, RHM added to the list (+ vs =) At Andritz, Hydro orders were an obvious positive highlight and we were equally impressed by the profitable execution of the record-high order backlog....
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Q2 results beat expectations on all lines, despite supply chain related headwinds at FHT GEA reported decent Q2 results with orders (+8% y/y) beating consensus by 3%, driven by all segments, and adj. EBITDA surpassing expectations by 6% despite supply chain related headwinds impacting FHT, not least as YTD price hikes of 5-6% drove above-proportionate growth in the high-margin service business (+13% vs. +9% in OE). The increase in semi-finished goods at FHT also affected FCF of EUR11m, which was held back by a EUR92m NWC build-up q/q, with the quota up 180bp q/q at 7.9%. We rate the call constructive (if not bullish), implying MSD upside risk to consensus The key positives from the call are: 1) orders are seen about stable both y/y and q/q as per the indicated EUR1.3-1.4bn Q3 trading update, 2) Q2 suffered from supply chain issues, mainly hitting FHT, i.e. u/l EBITDA was about EUR5m better, 3) GEA seeing shortages in electronic components easing implying good (better) execution in H2, and 4) FX tailwinds (EUR10m tailwind to H1 EBITDA) to continue, which are not included in the EUR630-690m EBITDA target (LTM Q2: EUR656m). We have only fine-tuned our estimates, reflecting better volumes, yet also higher DandA While volumes have been stronger than expected during FY22 YTD (for both orders and revenues), DandA has increased faster than anticipated, too. We increase our sales 2023-25e by 3%, yet higher DandA charges result in unchanged EBIT estimates overall for the period 2023-25. Unchanged TP of EUR40 - upside risk to consensus widely reflected in the price We continue to value GEA based on ~13.5x EV/EBIT 2023e, a c. 10% premium to the historical 1Y FWD multiple of 12x, which gives us our unchanged TP of EUR40. While we still see ~5% upside risk to consensus for FY22, which is also spilling over to outer years, we do not have the impression that GEA is currently running ahead of its 2026 ambition for a 15% EBITDA margin (consensus 2025e: ~14%). In...
The Q2 2022 reporting season is likely to have seen demand at about the same level as Q1. However, Covid restrictions in China, the time lag of earlier commodity price spikes and headwinds from initial wage inflation are likely to have left a mark on earnings. While capital goods could bottom out in late Q3 / early Q4 on (further) falling PMIs, direct and indirect impacts of potential gas rationing add another layer of complexity such that we continue to prefer plant engineers (e.g. ANDR, KRN) over shorter cycle names (e.g. INRN, RAA) at this point in the cycle. Big picture - direct and indirect impact from potential gas rationing still holding us back In our note Quo gasis? DACH - INDUSTRIALS: Quo gasis?, we outlined a scenario in which German industrial production could drop by 13.5% (even excluding indirect second-round effects, e.g. hysteresis) in H1 2023 if Russian gas supplies are cut to zero. The title of the last sector report of BNPPE''s capital goods team doesn''t sound less alarming: Lights out for the Sector?, though at least their view reminds us that ''investors have almost always made money'' buying cyclical value when the ISM first slides below 45, which they believe might happen by September 2022. Long ideas - positive view on Andritz, Krones and Norma should be backed by Q2 results Andritz is the most clear-cut long idea into numbers as it is a beneficiary of required investments in renewable power generation capacity. Besides, Q2 results should be solid too - with strong Hydro and continued good execution of the backlog with margins remaining around 8% (BNPPEe). For Krones, we take an equally positive view with visibility mounting further and also decent execution on all lines. On NORMA, we believe strong Water Management growth might surprise positively and would buy the shares into numbers, despite still somewhat elevated margin forecast risk. Other thoughts and risks into numbers For Knorr-Bremse we expect weaker margin...
After Germany activated stage 2 of its 3-stage emergency gas plan, we provide our views regarding the potential impact on the industrial names in our DACH coverage if Germany moved to stage 3, i.e., gas supply rationing. The key message is that while none will be able to hide, simple exposure to Germany does not factor in who is protected by being ''system relevant''. Our scenario analysis would see average downside risk of 7%/15% to our base case adj. EPS 2022/23e, which sits 3%/10% below consensus. While we would not call the bottom, much looks reflected in the price for the mid-cap industrials, also supported to some extent by our price-book approach. Phase 3 might lead to a 2.2% drop in Germany''s real GDP, driven by knock-on effects Based on analysis by five leading German economists (Prof. Dr. Gornig et al.), the move to stage 3 could result in 2.2% contraction of German real GDP in 2023 (BNPPE: +1.7% growth) including 13.5% decline in industrial production in Q223. The authors base their view on gas supply rationing, which drives several knock-on effects, such as ongoing supply chain disruptions and a spike in natural gas prices, fuelling inflation further, which in turn is weighing on consumer demand. German production exposure highly divergent, energy costs at 0.25-0.8% of sales Based on our analysis of the direct production exposure to Germany we were surprised by the divergence by companies, ranging from as low as ~5% at KBX to as high as ~90% at JUN3. Yet food and beverage suppliers were classified as ''system relevant'' during covid so the simple focus on the exposure to Germany might be a false friend. Energy costs represent only 0.25-0.8% of sales, and from 1% (RAA) to 10% (KRN) of adj. EBITA, but the latter''s order book reaches well into FY23. We make no recommendation changes, but would prefer plant engineers at this point We might see 10%/25% downside risk to consensus based on our scenario approach, which is comparatively minor...
We initiate coverage on three German machinery providers primarily serving the food and beverage sector. Our top pick Krones (+) screens best on bottom-up customer capex, margin expansion and valuation. For Rational (-) we see downside risk to consensus and valuation, should slowing consumer spend weigh on restaurant capex. For GEA (=) the risk-reward looks balanced. Market leaders in their field of activity - Krones is our preferred play While all three are confirmed leaders in their respective segments, both GEA and Krones recorded a mixed performance over 2017-19, which led to rigorous cost-cutting. Now, with the macro weakening, we analyse who screens best on demand trends vs. pricing power, cost structure, and under an ESG angle, and how this is reflected in consensus and valuation. Krones - Resilience or growth? A combination of both! Initiate with Outperform, TP EUR104 The leader in beverage equipment should benefit from pent-up demand, tailwinds from rising RPET share at customers and structural growth in intralogistics. Operating leverage, cost measures and stickiness of price hikes drive our 12% EBITDA CAGR 2021-25e. It now trades at a 10-15% discount to its average historical EV/EBIT despite upside risk to its prior margins and FCF profile. Rational - Too good to be true? Initiate with Underperform, TP EUR550 Rational''s oven/combi-steamer solutions for commercial kitchens are industry leading. However, with ~50% of sales from restaurants, a slowing economy could leave ''23e consensus of double-digit growth and ~200bp margin lift looking ambitious. Our ~22% EBIT margin ''24e is ~500bp shy of the group''s ''12-19 average, putting the 31x EV/EBIT 23e (~10% above hist. av. multiple) at risk. GEA - Self-help well-understood, margin expansion priced-in. Initiate with Neutral, TP EUR40 GEA has re-established itself as a quality name in the FandB machinery sector after 2Y of beat-and-raises, mainly via unlocking the self-help potential on...
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GEA reported Q1 22 results close to expectations, with a 9% beat on the order intake. The NWC/sales is getting back to higher, yet normalised, levels as inventories increase in line with the inflation of raw materials. The additional cost headwinds are expected to be fully covered by the price mix, in FY22 at least. Overall, this highlights the radical improvement of the company’s internal management over the last few quarters, which keeps on delivering results while showing good forecasting skills.
GEA exposed a promising mid-term outlook with a double focus on organic sales growth and operational improvements. The 2021 and 2022 outlooks have been confirmed, hence reassuring about the ability of the new management to turn around the company while delivering on its promises. That said, GEA will count on the New Food business, sales efficiency, and service growth to fuel a healthy FCF generation despite higher R&D and capital expenditures. Shareholders should be pleased to see the dividend trending upward from FY22.
RPS Group CEO Video, GEA, boohoo Group, Harworth, Kennametal, Sirius Minerals, SMID Market Highlights
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