INDUS Holding AG

Mixed Q1 results // strong FCF generation; chg. est.

Christian Sandherr15 May 2024 05:43

Topic: INDUS reported a mixed Q1 with sales below but EBIT above estimates as well as strong free cashflow supported by a lower seasonal working capital increase.

Q1 sales decreased by 9% yoy to € 410m (eNuW: € 434m) due to customers’ current reluctance to buy and spend as a result of the weak German economy. Q1 EBIT was down 40% yoy to € 26.7m (eNuW: € 25.3m), implying a margin of 6.5% (-3.4pp) driven by neg. op. leverage as well as pressure from significantly higher wages and salaries. Mind you Q1 FY23 was an exceptionally strong quarter, which also benefited from decreased material costs within the Materials segment. Positive, while sales in the Infrastructure segment declined 6.8% yoy to € 132m, EBIT rose to € 11.4m (Q1 FY23: € 10.7m) supported by internal efficiency gains.

Strong cash generation: Free cashflow in the first quarter came in at € 6.1m (Q1 FY23: € 7.5) driven by a lower seasonal working capital increase due to the stabilization of supply chains and lower procurement prices. Mind you, last years’ FCF includes a € 14.4m one-time cash inflow from a property sale.  

FY guidance confirmed. Management confirmed its FY24e guidance of € 1.85-1.95m (eNuW: € 1.85m) revenue and € 145-165m EBIT (eNuW: € 157m), despite the challenging start into the year, which was largely anticipated by the market. In our view, the guidance seems plausible, however we expect sales to come in at the lower end of the guidance range due to an increasing pressure on selling prices in the Materials segment. In addition, the outlook for the construction sector remains cautious, as the German construction industry federation (HDB) expects a 3.5% decline in real-term sales in 2024.

INDUS remains an attractive investment case and dividend-stock for the mid-term. Mind you, management proposed a dividend of € 1.20 per share (AGM on 22 May), making INDUS an attractive dividend stock with a yield of 4.4% based on yesterday’s closing price. Due to the divestment of the loss-making automotive business in FY23 and an ongoing solid operating business, we expect a further dividend rise for the current fiscal year (eNuW: € 1.40).     

INDUS remains a BUY with an unchanged € 36 PT based on FCFY 2024e as (1) shares seem attractively valued trading at 4.7x EV/EBITDA 2024e, which is 23% below the 10-year historical average, (2) INDUS is generating double-digit ROCEs and (3) has a strong future dividend yield potential.

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