German SDAX shares part 4
from HORNBACH to KWS Saat
Hello fellow investor,
after a remarkable week in the markets with stocks ridiculing the efficient market hypothesis and tulips aka “crypto assets” showing, that the emperor had no clothes - what could be better than grabbing a glass of wine and checking out some german small-caps?
Hornbach Holding AG (Mcap 1,24 Mrd. EUR)
Hornbach is the Home Depot of Europe, a classic hardware store and building center that operates really big stores in Germany and the rest of Europe. It has a long history, the company was established back in the 19th century. The Hornbach-family is still a significant shareholder with 37,50 % ownership. Just one year ago, there were two different Hornbach shares, but the Hornbach Baumarkt AG (the shares of the german stores) were delisted in February 2022 and the family consolidated the business in the holding company.
The stock is quite stable and conservative, the P/E stands at 6,36, dividend yield is 3 %. As you can see in the chart, the covid-DIY boom is over and not priced-in any more. I think the business is attractive because it will not be disrupted like many other fields in retail. My observation is, that Hornbach is a well run company, better than their main competitor OBI that is part of the Tengelmann holding. Revenues rose constantly over the last 10 years, operating margins are retail-like between 3-6%, but always positive! The balance sheet worsened because of the delisting of the Hornbach AG shares and the cash settlement, but this is manageable. This stock will not be the next big thing, but it is a sound and reasonable investment at the current price. I will watch it.
Hypoport (Mcap 862,94 Mio. EUR)
This is an “icarus stock”, a former high-flyer that crashed a whopping 90% in the last months. The company operates platforms/marketplaces in the finance industry and the main platform is Europace, a mortgage marketplace that is widely used by german banks and financial advisors to find the best mortgage for their client. It is a near monopoly with 50% market share. In addition to that, they have Dr. Klein, a subsidiary that directly brokers mortgages and insurance products to end-clients.
The driving force behind the company is Roland Slabke, a passionate entrepreneur that owns 34,50 % of the company. I admire his dedication and achievements, he is also one of few german CEOs that is quite active on Twitter.
All in all, this is a fintech with an achilles heel, because their revenue is completely volume dependent on the german real estate market. Since this market is “frozen” at the moment due to the interest rate hikes, the company has to adapt. The latest news is that 10% of the workforce will be fired and more cost cuts are being implemented.
All in all, I really like the business because it has a dominant position in its market, more growth is ahead and the founder is still on board. I am confident that the crisis is manageable, people will still buy houses in the future. But expect volatility in the near term with this stock.
It is on my watch-list.
If you are interested in a good and extensive write-up of the current situation, check out the value and opportunity blog.
INDUS Holding (Mcap 615,91 Mio. EUR)
INDUS is a holding company that invests in smaller companies in german speaking areas of Europe. The goal is to find and buy “hidden champions” and develop the companies. I scanned their current portfolio but to be honest, I have no clue how good these companies are and what their future will look like. The stock has not created long term value in the last 10 years. This goes into the too hard pile, I will pass.
Instone Real Estate Group (Mcap 392,98 Mio. EUR)
Instone is the next real estate company on the list. A groundhog day moment for me, I start to see a pattern:
This company specializes in residential real estate projects. People that are familiar with the underlying assets, accounting rules and refinancing schedules might make a killing with informed picks of real estate stocks at current prices. I am not one of them.
Fun fact: I checked the “fact sheet” on their website where they include a price chart of the stock - which time interval would you chose as appropriate for a “fact sheet”? Well, they went with 9am till 5pm, I am not kidding. How to lie with statistics 101 - honestly Instone?!
I will pass.
JENOPTIK (Mcap 1,45 Mrd. EUR)
Jenoptik AG engages in the optics and photonics business in Germany and internationally. It has an interesting history: It was founded by Carl Zeiss in 1846, a poster child entrepreneur and scientist of the time. The company survived two world wars, 40 years of socialism and is now a diversified company with outstanding products in the field of optical technologies and solutions. The chart shows that significant shareholder value was created in the long term:
Revenue growth is in the single digits, gross margins and operating margins are stable stable at around 33% / 10%. However, return on capital is low and declined from 13% in 2018 to 6% in 2021. The P/E of 20 does not look cheap.
I will pass.
JOST Werke (Mcap 694,34 Mio. EUR)
JOST is an industrial company that offers truck and trailer components like hitches, axles, container systems etc. Everything you need to connect the towing vehicle with the trailer. One of those companies whose products you see everywhere but the stock flys under the radar. The company has a long history dating back to the 1950s, the stock is relatively new as its IPO was only 4 years ago. Before the IPO, the company was acquired in 2008 by CINVEN, a London based private equity company.
Since the IPO, revenues are up nicely and margins (gross 30%, net 10%) are quite stable. Total debt/EBITDA is surprisingly OK at 2,5 for a private equity IPO. The valuation is cheap at a single digit P/E TTM of 9. Return on capital is good at 15% for an industrial company. All in all, this seems to be a well managed company and a reasonable investment.
I will watch it.
Klöckner (Mcap 926,68 Mio. EUR)
This company is the winner of this weeks valuation contest, since it trades at a P/E TTM of 3! But we should not get over excited, since this is a classic cyclical stock at the peak of the commodity cycle. The company trades in steel and this P/E can and will become negative within months or years, who knows? Over 10 years, no real shareholder value was created:
People familiar with the commodity cycle and the strange rules of commodity stocks can make decent money, but I will pass.
KRONES (Mcap 3,33 Mrd. EUR)
Krones is a typical german hidden champion and manufactures machines for bottling, beverage production and product filling. The Kronseder founder-family owns more than 52% of the shares, so expect a long term mindset. The company is really diversified and international, more than 90% of revenues are outside of Germany. But some things do not look so good. Net margins are low at around 4%, return on capital is below
10%, not super impressive. At a P/E TTM of 19, the stock is not cheap. The company says it is a world market leader, so a valuation premium might be appropriate, but the upside seems limited.
I will pass.
KWS SAAT (Mcap 2,05 Mrd. EUR)
KWS Saat produces seeds for vegetables and grain and is number 4 in the world in its niche. The stock price did not do much within the last 10 years. The valuation is not cheap at around PE/TTM of 20. Return on capital and margins are not impressive.
I will pass.
Thanks for reading, this is not investment advice, do your own research, make your own decisions. Remember Elvis, only fools rush in!
To be continued.