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We have updated our quarterly estimates after the Q2 25 release. We do not consider the changes to be material; our rating is unchanged.
GEA Group Aktiengesellschaft
What happened? GEA released the full set of Q2 25 results after having pre-released order intake, revenues and adj. EBITDA on 31 July. BNPP Exane View: . Order intake: GEA had pre-released group order intake of EUR1,309m, up 2% y/y (5% organically; -2.4% FX) driven by SFT and FT with order intake up 6%/31% y/y while LPT down 13% y/y, Q2 b:b at 1.0x vs. LTM of 1.04x. Order backlog at EUR3.1bn, down 1% y/y. . Sales/margins: Sales came in at EUR1,312m, down 1% y/y (1.5% organically; -2% FX), with SFT flat y/y and LPT down -9% y/y. GEA generated service revenues of EUR526m resulting in improved service penetration of 40.1% of group revenues in the quarter (38.9%). High-margin SFT revenues were up 2.9% y/y organically to EUR385m mainly driven by new machine sales while service revenues were slightly down y/y. Adjusted EBITDA-margin for the group came in at 16.5% driven by an increased gross profit margin which was up 200bps y/y, with operating EBITDA at EUR217m, 8% y/y, a 4% beat. . Free Cash Flow: OpFCF was at EUR83m, down 29% y/y driven by NWC build-up: OpFCF at EUR41m, down 50% y/y. . 2025 guidance: GEA has upgraded its 2025 guidance on 31 July. Management expects now 1) 2025 revenues of EUR5.5-5.6bn based on 2-4% organic revenue growth vs. 1-4% previously (BBG: EUR5.52bn; BNPPE: EUR5.54bn); 2) operating EBITDA-margin of 16.2%-16.4% (prior: 15.6%-16.0%) implying EUR896m-925m for the year (mid-point: EUR910m vs. EUR887m BBG cons./EUR890m BNPPE); 3% upside to consensus to reach the mid-point of the guidance / Source: Company data, BNP Paribas Exane estimates, Bloomberg . Management statement: Management anticipates a strong second half of the year and significantly accelerate revenue growth in 2026. On the tariff side, mgmt. considers the impact of the recently imposed tariffs on GEA is negligible. Moreover, nearly 100% of increased tariffs were passed on to customers (pass-through clauses), i.e. the overall earnings impact is neglectable. ....
What happened? The German government approved the following measures to stimulate the German economy. To accomplish this, it has decided on a ''draft law for a tax investment stimulus program to strengthen Germany as a business location'' with the main pillars: . Incentive for new investments: A 30% annual depreciation booster for equipment investments will benefit all companies and is easy to implement. This accelerated depreciation applies to investments made from July 1, 2025, to December 31, 2027. The new degressive depreciation allows companies to deduct 30% of the acquisition costs in the year of purchase, with additional 30% deductions in the subsequent years. Typically, companies depreciate newly acquired machinery, equipment, or vehicles linearly over the years of their useful life. . Reduction in corporate tax: The corporate tax will be gradually reduced starting in 2028, decreasing by 1% annually over five years, from 15% to 10%. By 2032, the overall tax burden will be approximately 25%, down from the current 30%. . Corporate e-mobility: An investment booster for corporate e-mobility will promote the use of electric vehicles in businesses. Companies can depreciate 75% of the acquisition costs for electric vehicles in the year of investment. This regulation applies to electric cars purchased between June 30, 2023, and December 31, 2027. Additionally, the gross price limit for special tax incentives for electric company cars will increase from EUR70,000 to EUR100,000. . Expansion of research allowance: To encourage investment in research, the research allowance will be expanded. From 2026 to 2030, the upper limit for determining the tax research allowance will increase from ten to twelve million euros. Eligible applications will be broadened, and flat-rate deductions will simplify procedures and reduce bureaucracy. This is the link to the document (German only): Kabinett beschlieBt Investitions-Sofortprogramm | Bundesregierung BNPP Exane...
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What happened? GEA released Q1 25 results. This is our first take. BNPP Exane View: . Order intake: GEA generated group order intake of EUR1,415m, up 4% y/y with orders up across all major divisions, a 2% beat vs. consensus; Q1 b:b at 1.09x vs. LTM of 1.03x. Order backlog at EUR3.2bn, flat y/y. . Sales/margins: Sales came in at EUR1,258m, up 1% y/y, driven by SFT with revenues up 6% y/y; overall a small 1% driven by LPT which came in 5% below expectations. GEA generated service revenues of EUR525m resulting in improved service penetration of 42% of group revenues in the quarter. High-margin SFT revenues were up 6% y/y to EUR379m driven by 5% y/y organic growth on new machine sales and 18% y/y organic increase in service sales. Adjusted EBITDA-margin for the group came in at 15.7% driven by an increased gross profit margin and improved operating costs y/y with operating EBITDA at EUR198m, % y/y, a 4% beat. . Free Cash Flow: FCF was at EUR-49m, reflecting a seasonal NWC build-up of EUR61m and variable compensation outflow of booked in Others of EUR120m. . 2025 guidance: Management continued to expect 1) 2025 revenues of EUR5.46-5.64bn based on 1-4% organic revenue growth (BBG: EUR5.56bn; BNPPE: EUR5.54bn); 2) operating EBIT-margin of 15.6% - 16.0% implying EUR854m-902m for the year (mid-point: EUR878m vs. EUR878m BBG cons./EUR890m BNPPE); BBG consensus sits at the mid-point of the guidance. . Update on tariffs: . Exposure: U.S. accounted for ~18% of our sales in 2024, thereof ~1/3 were generated with products imported (mainly Europe; 50% from Germany) ~90% of procurement spend in the U.S. is done locally. . Facts on tariffs: Tariffs must be paid by customers; majority of contracts already contain pass-through clauses; tariffs of low single digit EURm are subject to negotiations with customers (contracts had no passthrough clauses yet . Conference call at 2pm CET Dial-in: https://register-conf.media-server....
What happened? What happened? GEA (G1A) is scheduled to report Q1 2025 earnings on 8 May, 2025. We attended the company''s pre-close call for the sell- and buy-side that was hosted today. Guidance is unchanged. The comments below should be read as our interpretation of the discussion rather than specific company commentary. BNPP Exane View: Demand: On earlier earnings calls, mgmt. had pointed to ''a lot of interesting projects in the pipeline'' and as such 2025 is expected to be ''a really good year for GEA'' (CEO on the 4Q24 call). On today''s call, IR stated that in general order intake is good, repeating earlier statements that customers are returning to negotiate large orders. Yet, while Q4 had turned out to be better than expected - in fact, the quarter marked a record at EUR 1.60bn (+27% y/y) - Q124 is considered decent rather than extraordinary. Squaring this with end market related commentary (Food: activity continuing, Beverages: stable y/y, Dairy Processing: promising, Dairy Farming: net improvement y/y) we model order intake of EUR 1.40bn (+3% y/y | -12% q/q) for a b:b of 1.09x in the quarter, which is bang in line with BBG consensus. Sales: Execution-wise we understand that Q1 is likely to start at the lower range of the full-year OSG range of 1-4% that we would attribute to the phasing in the project businesses mainly (especially LPT, FHT) as admittedly order intake activity only started to truly pick up in Q424. Based on our segment assumptions, we model organic growth of 1.5% at group level for Q1 sales of EUR 1.26bn (+2% y/y | -16% q/q) vs. BBG''s forecast of EUR 1.29bn. Adj. EBITDA: Despite the lower support from revenue compared to consensus, we find our Q1 estimate of EUR 189m / 15.0% margin to be about in line with BBG''s EUR 187m / 14.4% as 1) the sequential backlog improvement should lend support to the OE business, 2) continuing tailwinds from service, and 3) a gradual improvement in mix. IR pointed to Q1 being a very decent...
We have adjusted our forecasts following the release of GEA GROUP''s Q4 2024 results, which were published on 11 March. Please note that we have only fine-tuned our estimates. We do not consider the changes to be material; our rating is unchanged.
What happened? Q4 orders/ sales/ adj. EBITDA/ EPS were +16%/ +3%/ +2%/ -36% vs. BBG; EPS miss on higher charges, DandA and NFR. Guidance for FY25 was introduced - all guidance parameters for FY24 were achieved: . Sales: EUR 5.48-5.64bn (BBG: EUR 5.5bn | LTM Q4: EUR 5.42bn); OSG target: 1-4% (BBG: 3.2%) . Adj. EBITDA: EUR 850-900m (BBG: EUR 873m | LTM Q4: EUR 837m); margin target: 15.6-16.0% (BBG: 15.7%) . ROCE: 30-35% (BBG: ND | LTM 33.8%) | Dividend proposal at EUR 1.15 (+15% y/y) for a 50% payout BNPP Exane View: After Krones'' solid earnings print and FY25 guidance on 20 Feb. GEA is the next FandB equipment and solutions provider to report Q4 results, which are above expectations. While the print and FY25 targets do not call for any meaningful changes to Street PandL/CF estimates for 25ff, BBG cons. is still shy of the constructive 2030 framework as presented at the CMD. Given structurally improved profitability vis-a-vis cash generation, valuation is still reasonable, we think at ~13x and 17x EV/EBITA and P/E 26e, bolstered by mgmt.''s proven track record and focus on shareholder value (cf. buyback program). Order intake reached EUR 1.60bn (+16% vs. BBG), up 27% y/y (org.: +29%! | all divisions ex HRT were up y/y); LPT the key driver thx to large orders totalling EUR 230m, a new record, besides a strong base biz, but also SFT and FHT with meaningful beats vs. Street and growth for a Q4/LTM b:b of 1.06x/1.02x); backlog: EUR 3.13bn (up EUR 10m y/y). Execution: 1) OSG growth was 9% y/y for sales of EUR 1.51bn (+3% vs. BBG) led by SFT/HRT; LTM SE share: 38.9% (+380bp y/y); 2) Adj. EBITDA at EUR 239m / margin: 15.9% (+2%/ -10bp vs. BBG); the abs. beat was broad-based ex FHT (on a 3% sales miss mainly), most pronounced at SFT/HRT (+13%/+22% vs BBG), held back by higher overhead costs; 3) Q4/FY FCF at EUR 355m/505m was again decent (~150%/60% vs. adj. EBITDA in Q4/FY) on good op. profit / seasonal NWC relief (down EUR 167m q/q) for a quota of only 6% at YE24 vs....
What happened? German Chancellor Olaf Scholz (centre-left Social Democrats, SPD) and Chancellor-candidate Friedrich Merz (Union parties of CSU/CDU, and leader of the Christian Democratic Union, CDU) discussed their respective views on key matters in the upcoming elections and provided their competing visions for the country''s future. Various election research institutes have not seen a clear winner in this debate, hence, the impact on the polls is likely to be minor, ie from today''s perspective, the Union parties should take the senior role in any future government coalition as we had argued in our note on 29 January. Below, we recap on the most relevant discussion points wrt to selected sectors in question and we note that Mr Merz''s position on defence was directionally positive, while more balanced wrt the (onshore) wind sector. BNPP Exane View: Economy: As the agenda of the 90-minutes debate did not leave sufficient room for a dedicated discussion on the key action points, we note, however, that Mr Scholz pointed to Russia''s invasion of Ukraine as the root cause for the energy crisis and subsequently for negative growth of the German economy (2023/24: -0.3%/-0.2%). As part of his economic stimulus plans, Mr Scholz advocates for 10% tax reimbursement on new investments (so-called ''Made in Germany'' bonus), which Mr Merz considers to be unsustainable one-time effects. In regard to corporate taxes, Mr Merz highlighted that he is in favour of a reduction in corporate taxes to 25% (vs. 30%) if the economy was growing, stressing that economic growth is a key means to obtain the necessary funding for key areas (see below). Besides, Mr Merz said that Germany could reduce subsidies and take a look at public services and ... the number of people working there. Defence: Mr Scholz called for Germany to dedicate at least 2% of its GDP to defence over the next four years adding that Germany will have to finance EUR 30bn as of 2028, ie once the support from...
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Our strategy team recently published an in-depth report (Russia-Ukraine: The Peace Dividend) on the implications of a potential ceasefire in the Russian-Ukrainian conflict. If such a scenario were to materialise, we think European Small/Mid-Caps should strongly outperform. We compile here a list of those names where we see the most opportunity. Potential effects of a ceasefire We think a ceasefire is likely to lead to: a) lower gas prices; b) higher real wages; c) a pickup in industrial production; d) positive GDP impulse; e) continued defence spending; f) post-war reconstruction spend; g) a potential return in Russian tourism; h) more policy flexibility for the ECB. Most opportunity: Danieli, Maire and SanLorenzo Stocks that were most exposed to Russia/Ukraine should benefit the most from a ceasefire. We found Maire, Danieli and SanLorenzo had 17%, 15% and 8% of backlogs with Russian clients in ''21. We think Danieli stands out as lower gas prices may also help margins in steelmaking. Other stocks with smaller exposure to Russia/Ukraine (5% of sales) include Ariston, Ferretti, Viscofan, Verallia. Stocks involved in the reconstruction: Webuild, Nordex Public infra construction company Webuild could play a role in the reconstruction, benefiting from the supportive geopolitical relationship between Italy and the US. Renewables (eg Nordex) can also play a role in the reconstruction. Stocks exposed to recovery of PMIs and/or lower energy costs PMI plays include Andritz, Bekaert, GEA Group, Imerys, Interpump, Interroll, Jungheinrich, Kion, Krones, Rational, Valmet. Bechtle/Cancom could be positively impacted as well as Melia and SEB among consumer stocks. If energy costs fall, we identify Vidrala, Verallia (c. 25% of total costs related to gas/electricity) and Viscofan (12%) as most positively impacted.
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What happened? Over the weekend, President Trump issued an executive order levying a 25% tariff on Mexico, a 25% tariff on non-energy goods from Canada, a 10% tariff on Canadian energy, and a 10% increase in tariffs on China. Barring a sudden reversal before then, these tariffs will come into effect on 4 February. We have screened our DACH coverage universe for the respective U.S. revenue exposure, the related localisation share vis-a-vis the share of imports into the U.S., and based on those values, we have computed the respective business at risk or say the share of business that will be impacted by any existing and future tariffs as Trump signaled substantial tariffs on the European Union in the future. For the time-being, the most impacted companies based on our screening are Logitech (=), Rational (-) and Andritz (=). BNPP Exane View: In the following we provide our initial assessment on the most impacted companies based on the mentioned framework: Logitech (30%): with CQ4 results, the company commented that it produces ''less than half of its products in China'' (50% own production/50% outsourced) with the long-term focus being a China for China strategy. The group''s sales exposure to the US is c. 30% (total ''Americas'' is c. 44%). Thus, technically Logitech could supply the US from outside China, but practically impossible due to product mix etc. While we estimate that production outside of China (i.e.SE Asia) can cover around 65% of US demand, it leaves still c. a third of the US sales exposed to tariffs. While difficult to evaluate (Logitech''s peers also manufacture in China), we estimate that a 10% baseline tariff of Chinese imports to impact Logitech EPS by 5-10%. Rational (20%): For the time-being, the company has two production hubs, its headquarters in Landsberg (Germany) for the iCombi and the iHexagon series, and one plant in Wittenheim for the iVario product line; a site in China is under construction and will become available by...
What happened? This note recaps on an intense week in the U.S. meeting 30+ investors discussing key ideas in our DACH coverage universe wrt recent news flow, upcoming elections in Germany and regulatory changes affecting the onshore wind sector. ENR (+) is stealing the show, closely followed by strong interest in the European defence sector, and we sense that our view on the political landscape in Germany differs from the Street. BNPP Exane View: German elections - can it only get better? The outcome of the snap elections (due: 23 Feb.) remains quite uncertain, yet we sense that the Street is far more complacent wrt the results and their implications. Beyond the question of which coalition ultimately might make the cut, we are seemingly less convinced that a common ground can be found neither easily, nor quickly. Simply put: these elections are, in essence, about putting the economy (pro: Union parties, FDP) as a funding source to support the population or social welfare (SPD, BSW) first. Against that backdrop, a true restart, for which, in our view, structural reforms in an Agenda-2010 style would be required, might, however, take longer than the Street expects to take (full) effect. Key debates - ENR in the lead: If we look through positioning and styles, ENR (+) has caught the strongest interest, which has been ignited by the sell-off in AI and data center exposed names on Monday, yet, in this case for the wrong reasons. Key debates included the 2028 targets vs. Q125 pre-release, the status quo and outlook at SGRE, the Bund''s counter-guarantees and not least valuation, and we continue to like the case. ... followed by European defence: The sector is liked as Europe is expected to continue catching up with the many years of underspending. For RHM, the focus is on the growth trajectory until and beyond 2027, headroom to margins and structurally improved FCF generation as well as on potential consolidation opportunities, while a ceasefire or peace deal...
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With this note we provide an update on the potential outcome of the snap elections that will be held in Germany on 23 February. The conservative Union parties (CDU/CSU) should be the senior partner in any potential coalition that might technically be possible, while a Grand Coalition with the Social Democrats (SPD) looks most likely for now. Not only based on the numeric lead over eg a coalition with the Green Party, but also reflecting statements from the Union parties'' top politicians. What is at stake and what is the debate? Putting the economy or social welfare first Following the implosion of the traffic light coalition (SPD, Grune, FDP) in early November as a result of repeated disagreements regarding the German budget for 2025 (financing, strategic priorities), the higher-level debate is around what should be prioritised, in our view: the economy (pro: Union parties, FDP) as a funding source to support the general population or social welfare (SPD, BSW). Sharp rise in unit labour costs reflects the gradual decline in competitiveness The competitiveness of the German economy has suffered from a mix of high energy costs, corporate taxes and bureaucratic hurdles, all of which have resulted in an unfavourable trend in unit labour costs relative to other countries, both in Europe and globally. As a consequence, the debate boils down to the need for structural reforms vs maintaining the status quo, also via taking on more debt. 2-party scenario allows a coalition of Union-SPD or Union-Grune Based on the latest polls, there are 3 potential outcomes - this assumes that the more established parties stick to their word to not team up with the AfD party. While there isn''t an absolute majority of the votes in any of the 2-party coalition scenarios (requires a 3-party coalition of Union-SPD-Grune), the 5% hurdle-rule would allow a parliamentary majority for 1) Union-SPD and 2) Union-Grune. Also see ECONOMICS: Germany: Early elections positive, but no...
What happened? GEA (G1A) is scheduled to report Q4 2024 earnings on 11 March, 2025. While we have very briefly spoken to IR, the call served to discuss the latest developments since the Q3 release on 6 November and to recap on the latest mgmt. statements that have been made since. The comment below should be read as our interpretation of the discussion rather than specific company commentary. Guidance is unchanged. BNPP Exane View: Demand: On earlier earnings calls, mgmt. had pointed to ''a lot of interesting large projects in the pipeline'' and to expect H2 orders above H1 in 2024 implying Q4 orders of EUR 1.35bn, which is where BBG consensus has settled. While the latest PMI and ISM prints do not necessarily call for a strong December-quarter from an order perspective per se, we understand that mgmt. has struck a constructive tone on demand in Q4 lately. Against that backdrop, we consider our unchanged EUR 1.39bn in Q4 as achievable (+10% y/y | +7% q/q). Sales: Execution-wise we understand that the company has not seen any disruptions from supply chains, while tailwinds from the earlier shift to a new logistics partner in Q1 should continue. We thus expect organic growth to have remained within the guided 2-4% growth corridor for the full-year (BBG: 3.8% in Q4e / 2.5% in FY24e), led by SFT (cf. upgrade in Q2 to 5-8% vs 1-4% before), which is compensating for slow/er growth at LPT (cf. d/g in Q2 to neg. 2%-pos. 2% vs. 2-8%), and not least continued service growth (9M +6% nom. vs. OE down 5% y/y). As FX headwinds should ease somewhat vs 9M, we model Q4 sales of EUR 1.42bn (+1% y/y | +5% q/q) vs. BBG''s forecast of EUR 1.45bn though. Adj. EBITDA: Our Q4 estimate of EUR 233m / 16.4% margin vs. BBG''s EUR 231m / 15.9% is based on the combination of profitable service growth, moderate SFT related tailwinds, FHT finally starting to catch up and sequentially lower FX headwinds and compares to company guidance of c. EUR 820-850m implying c. EUR 220-250m...
What happened? After repeated disagreements in regard to the German budget for 2025, Chancellor Olaf Scholz has dismissed Finance Minister Christian Lindner yesterday night. Based on the declaration of Mr Scholz, the next steps are planned as follows: 1) Nov./Dec.: pending laws of the hitherto 3-party coalition of Social Democrats (SPD), the Greens (Grune) and Liberals (FDP) addressing cold progression, the statutory pension scheme and a harmonization of the European immigration policy; considering the low support for SPD / Greens / FDP at 16%/11/4%, passing any laws will require the support by the opposition parties, not least by the Union parties (CDU/CSU) scoring 34% of votes followed by AfD/BSW at 17%/6%. 2) Jan.: Scholz asking the Parliament for a vote of confidence in the first week of Jan., Parliament to decide on 15 Jan. 3) March: potential elections brought forward until late March versus scheduled federal elections on 28 Sept. 2025 BNPP Exane View: Reflecting on the declarations of Economy Minister Robert Habeck and of Mr Scholz that both made specific reference to the U.S. elections outcome, point to 4 crucial elements in the future course of action of the remaining government coalition of SPD/Greens - 1) affordable energy costs vis-a-vis focus on climate protection, 2) support of the Automotive sector, 3) improving conditions for corporates in Germany, 4) step-up of Ukraine support (key beneficiary: RHM) - we lay out potential winners and losers in our DACH coverage universe depending on the following potential action points: . Change in focus on / support for green transformation - potential winners / losers: . Reduction: Automotive OEMs and suppliers, property developers, Hypoport . Increase: renewable energy OEMs (e.g. Nordex, Vestas, Siemens Energy, SMA Solar) and developers . Corporate tax cuts - potential winners: . High % age of profits in Germany: Bechtle, Cancom, flatexDEGIRO, Rheinmetall . Higher capex from SMEs (end of...
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We have updated our forecasts following the publication of GEA Group''s Q3 2024 results that were released today. Please find our first reaction to the Q3 release here and our discussion of 2030 targets as per the recent CMD in October here. We do not consider the changes to be material; our rating is unchanged.
What happened? GEA has confirmed Q3 results that were pre-released on 11 Oct.; orders/sales/adj. EBITDA were -2%/-2%/+8% vs. VA. Guidance for FY24 was reiterated: . Sales: EUR 5.32-5.45bn (VA: EUR 5.394bn | LTM Q3: EUR 5.32bn); OSG target: 2-4% (VA: 2.6%) . Adj. EBITDA: EUR 820-850m (VA: EUR 828m | LTM Q3: EUR 802m); margin target: 15.4-15.6% (VA: 15.1%) BNPP Exane View: After Krones'' overall decent earnings print yesterday GEA is the next FandB equipment and solutions provider to report final Q3 results that are in line with the pre-release of Q3 KPIs at group level on 11 Oct. While the print does not call for any relevant changes to consensus PandL/CF estimates for 24, continued momentum in Service and the constructive tone at the recent CMD suggest that Cons. might edge higher for 25ff with G1A trading at 12x/10x EV/EBITA 25/26e. In wake of its resilient end market exposure and a credible margin/FCF expansion story, we consider the name attractive that is sweetened by mgmt.''s proven track record and focus on shareholder interests (cf. buyback program). Orders confirmed at EUR 1.30bn (-2% vs. VA at time of pre-release) were up 4% y/y (org.: +6.6% | all divisions were up y/y) and driven by SFT / HRT LPT (+8%/6%/+4% y/y nom.) for a Q3/LTM b:b of 0.96x/0.98x); backlog: EUR 3.0bn. Execution: 1) OSG growth was confirmed at 1.4% y/y for sales of EUR 1.35bn (-2% vs. VA) led by HRT/SFT/FHT, while LPT/FT were down y/y. 2) Adj. EBITDA and margin also confirmed at EUR 217m (+5% y/y) / 16.1% (+80bp y/y) - beating VA by 8%/60bp with the pre-release. The beat was broad-based, most pronounced at LPT/HRT (+6%/7%), held back by higher overhead costs. FCF at EUR 126m was decent (58% vs. adj. EBITDA) despite a slight NWC build-up q/q. 2024 guidance was raised with the pre-release with the adj. EBITDA now seen at 15.4-15.6% (vs. 14.9%-15.2% / 14.5-14.8% before). Based on unch. OSG guide of 2-4% (9M: +1.9%) and assuming FX at (250-300)bp in FY24 (9M: -310bp) implies...
GEA hosted a hybrid CMD in the Netherlands featuring an innocent brand factory tour. While 2030 targets look ambitious at first glance, we think the Street is likely to edge higher on margins due to confidence in the service and COGS reduction opportunity; the 5% sales CAGR ambition remains more of a show-me case given a lacklustre macro environment. However, the latter remains a wild card following increased localisation that better exploits the opportunity in APAC, and our new forecasts sit c. 10% above VA EBIT 26e. Our new TP of EUR50 implies DD upside; we reiterate O/P. New financial framework suggests double-digit upside to consensus at first glance After reaching its Mission 26 targets two years earlier than expected, GEA is now shooting for 5% organic sales CAGR (VA consensus 25-27e: 3.6%), a 17-19% reported (changed vs. previous focus on adjusted values) EBITDA margin (VA 26/27e: 15.5%/15.3%), a ROCE of 45% and OpFCF of EUR4bn in 2024-30 for an average of c. EUR570m p.a. (VA 25-27e: EUR 515m). Key takes from presentations and QandA - a mixed bag overall, especially for OE sales growth We acknowledge that GEA has increasingly prepared its portfolio for a pick-up in OE growth e.g. via pushing for new products (cf. AdBetter, New Food) and greater digitization; yet, the jury is still out in regards to the take-up rate, not least as 2021-24 has only been driven by pricing. For Service, we find the 6% growth ambition more credible, in part because running existing machines longer drives ad hoc service demand and a pick-up in use cases should support the goal of connecting more machines. As footprint measures and the ERP overhaul appear to be rather backend-loaded, that might equally apply to reaching the 2030 EBITDA margin target of 17-19% Reiterate O/P, new TP is EUR50 - likely market pushback plus cash return story still attractive We slightly hike our sales estimates (solely driven by SFT and FHT) and give GEA credit for additional COGS...
What happened? GEA has just published its new 2030 targets ahead of its CMD in Amsterdam (mgmt presentations) / Rotterdam (Innocent factory tour) that is taking place today after a dinner with mgmt last night. In short, the company is shooting for 5% organic sales CAGR (VA consensus 25-27e: 3.6%), a 17-19% adj. EBITDA margin (VA 26/27e: 15.5%/15.3%), a ROCE of 45% and OpFCF of EUR 4bn in 2024-30 for an average of c. EUR 570m p.a. (VA 25-27e: EUR 515m). Top-line growth: Among the key growth drivers one can find: 1) digitalization and AI with the 2030 target looking at 35k connected machines vs. 7k today with related revenues from digitalization expected to rise to EUR 200m vs. EUR 67m in 2023 (CAGR: ~20%); 2) service should continue growing at a ~6% CAGR vs. ~4% GEA in the product / project business for a share of 40% by 2030 vs. today''s 38%; 3) New Food should contribute order intake of EUR 400m in 2030 with today''s contribution a far cry from that at around EUR 0.1bn. Adj. EBITDA: Beyond yet unquantified tailwinds from operating leverage, GEA points to 2 cost related EBITDA levers: 1) the harmonization and process optimization in the areas of production, purchasing and supply chain management - we understand this will not least include a further consolidation of the manufacturing footprint from currently 43 sites to a low/er 30s number - should yield a ''net contribution to EBITDA'' of EUR 120m by 2030; 2) a sizable reduction in GandA expenses to a quota of 10% of sales (2023: 11.4%) for an ''improvement potential of EUR 100m p.a. by 2030'', which should not least be supported by the global harmonization of ERP systems via the so-called Transform360 program. ROCE / FCF: Contrary to the top-line and margin levers, GEA has not provided any further details around the 45% ROCE target and/or cumulative FCF ambition of EUR 4bn through 2030, especially with regard to the expected NWC trajectory and/or capex spent, namely in the area of the ERP...
The German mid-cap space has seen fallen darlings taken down by short-seller pressure and negative external factors. We believe these cases have something in common: weak corporate governance and insufficient financial disclosure. Hence, we built an ESG tool for our coverage universe to identify leaders and laggards, with a focus on corporate governance. We highlight Swissquote, Nordex and Nemetschek for their particularly strong governance and see room for improvement at CTS Eventim, Sixt and CompuGroup. Our new ESG tool with a focus on governance There are many ESG tools available - so where does our work differ? We have undertaken an in-depth analysis of conflicts of interest, company disclosures, management compensation structures and the quality of financial figures as well as potential red flags which might suggest signs of underperformance in the future. From governance to a broader ESG framework Our ESG tool includes more than just governance. For our coverage universe, we assess customer and employee satisfaction by analyzing review websites, innovation power, competition and selling practises. However, the governance dimension is key in our view, and we assign it a 70% weighting in the total score vs. 20% and 10% for the social and environmental pillars respectively. Leaders: Nemetschek, Nordex and Swissquote | Laggards: CompuGroup, CTS and Sixt We rate 20% of our coverage universe as ESG leaders and 20% as laggards. Swissquote (+) surprised us positively and we view Nordex (+) positively as well, though this is perhaps controversial. We consider Nemetschek (+) to be best in class. We see CompuGroup (=), CTS Eventim (=) and Sixt (+) as notable ESG laggards.
Reflecting solid Q2 results and upgraded guidance with the pre-release, we lift our rep. EPS 24-27e by 6%. The 15% adj. EBITDA margin target, initially expected in 26, is likely to be reached in 24 thanks to service growing twice as fast as OE. We believe the CMD on 1-2 Oct will lend further support as VA models a 16% margin in 26. Only ~50% of the EUR400m buyback program has been executed at this point, while the company''s ~70% exposure to food and beverage should support a positive disconnect from ongoing macro weakness. We thus reiterate O/P with a new TP of EUR46 (vs. EUR43), implying 12.6x EV/EBITA 24/25e, which is fully in line with the 2014-23 average. Q2 review - continued strength in service and solid OpFCF compensating for light orders After the pre-release on 11 July, the focus of the final Q2 results was on growth in service (+12% y/y organic) and segment details (cont''d strength at SFT on all lines, LPT''s strong margin watered down by weak orders) vis-a-vis changes to divisional 24 targets (OSG: SFT up, LPT down) resulting in the new group adj. EBITDA margin target range of 14.9-15.2% (vs. 14.5-14.8%). OpFCF at EUR83m was solid given higher NWC in the absence of better orders (Q2/LTM b:b both at 0.97x). Key conf. call takeaways - optimistic comments on H2 orders, strict on pricing 1) Demand: the CEO suggested H2 orders above H1''s EUR2.65bn, and thus would be comfortable with VA''s EUR2.7bn forecast, as could be presumed from the guidance hike. 2) Pricing: similar to Krones, mgmt. stated that ''pricing has become more of an issue'', adding that GEA is keeping prices stable. 3) Capex: although only EUR68m was spent in H1, the CFO confirmed the EUR260m budget for 24, adding that this should come down to EUR200m, if not less, in outer years. Reiterate O/P with new EUR46 TP - risk-reward still leaning to the positive side While we raise our adj. EBITA 24-27e by 1%, the EPS impact is 6%, reflecting the lower share count. We sit LSD-MSD above...
Our two-day field trip meeting with mostly Industrial companies in Germany has shown that - and while political progress around key challenges might be (slowly) improving - corporates are not experiencing any tangible improvement in their respective business conditions, as of late. We thus favour investment cases that combine structural appeal (e.g. Nemetscheck) that is ideally paired with positive revisions and where valuation continues to look supportive (e.g. Siemens Energy). Politics - urgency tends to drive progress, energy policy has moved into the spotlight We understand that there is an increased political willingness to jointly work on key challenges (e.g. energy supply, education); yet, the degree of which depends on the respective urgency as could be seen with defence, which now might be followed by more swiftly readjusting the energy policy. Demand - no gradual pick-up compared to Q1 message per se, pricing remains stable None of the companies has witnessed an uptick in demand despite the latest PMI beat in Germany and France. Pending monetary stimulus customers appear to do what is needed instead of taking a more positive view on accelerating macro conditions at this point, irrespective of the region. Yet, pricing commentary suggests that no price action is either needed or planned to stimulate demand. Most positive message sent by Befesa (BFSA), Siemens Energy (ENR) and Nemetschek (NEM) Comments of BFSA regarding short-term momentum and the mid- to long-term opportunity were encouraging. This also applies to ENR, leaving aside seasonality at exGP. NEM is benefitting from digitalisation demand buckling otherwise soft activity in key end markets such as construction. Constructive tone by Rheinmetall (RHM) and GEA, Siltronic (WAF) still waiting for pick-up We consider the tone at RHM and G1A fairly unchanged vs. their Q1 calls with both reiterating their constructive mid-term growth and margin outlook. Visibility at WAF is still low as...
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We have updated our intra-year forecasts following the publication of GEA Group''s Q1 2024 results that were released today. We do not consider the changes to be material; our rating is unchanged.
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.
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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