DD on KION GROUP
I just wanted to share some figures on this German company I mentioned a few times on wsb talks (but they bullied me as they don't want value investing). It is a leading company in the supply chain equipment industry which made an important acquisition back in 2016 of a Supply Chain Software.
KION Group is among the world’s leading suppliers of industrial trucks and supply chain solutions. You might recon the lifting machinery used in warehouses, right? Let's see the market share:
Top 1 in this sector is Toyota;
Top 2 is KION; a german company
Top 3 is Junheinrich, another German company
KION Group business operations can be split into 3 different segments: (a) Industrial trucks & Services, (b) Supply Chain Solutions and (c) Corporate Services
The 3 different business segments
What caught my attention was there most relevant acquisition, back in 2016, of a software solution for the supply chain industry. The company acquired was Dematic and they paid $3.25Bn. The overall company (group) has been trading at $3.3Bn – $3.7Bn after a massive correction given the obvious reasons -> Inflation, Russia-Ukrain war and therefore a Recession. But only the Dematic business unit revenues was 1:1 the price they paid for it. In 2020 the revenue reported was $3.26 Bn
If we believe that eCommerce will keep growing, then it makes a very good case.
Let's brief the synergy of this acquisition (every M&A has to have a clear synergy, otherwise, bullshit)
The takeover will allow Kion to combine its industrial forklift trucks systems with Demantic’s fully automated warehouses to become a one-stop supplier for retailers and logistics companies
You will like a quote from McKinsey report on the sector:
Consider that the size of the global warehouse automation market grew by 10.3 percent each year from 2015 to 2019—a more than twofold jump compared to the previous five years. This trajectory appears set to continue, with the market expected to double by 2026.
See the market share of this sub-sector:
Dematic next competitor was also bought by Honeywell, a US company.
Let's go through the financial statements:
The growth rate of their top line confirms that they are very competitive.
- We have 12.4% of CAGR in Rev. during the last 5 Years
- We see that they were able to maintain their gross margins at 25%
- Their net margins fluctuate between 4% and 6%
- The dividend yield is close to 7%
- The historic P/E ratio seems to be at the high teens, but currently it is trading below 7
- They had to issue debt for the acquisition and got some equity dillution as well since 2016. So we need to pay attention to this. If the debt remains at current levels (it is far from being highly leveraged, the debt is completely under control) and they stop issuing more equities to capitalise the company, this is a real player in the global eCommerce and supply chain boom.
Let's see the market correction (as almost every single sector went through) since the peak at 2021:
The stock is trading at 28€ now, and it had peak at 101€ in Nov. 2021.
You can run historic valuation metrics, being conservative and capping the PE ratio at 15, plus applying a conservative growth rate for the next 3 years (8% growth) and you might get a target price of 84€ or a 3x from here
You could run a FCF and [work in progress and I might delegate this to another person who is willing to help us building the investment case for this]
Bonus track:
(1) looking at their shareholding structure, where you will find a Chinese company who bought a significant stake back in 2012 in the group, and letter increased the capital, during the “bail out period” in mid of Eurocrisis -> This is Arab and Chinese money buying stake in strategic companies and infrastructure given that eurozone was f*ked up after the Great Financial Crisis of 2008.
It is a good sign as it erase the typical industrial risk of “What if the chinses build the same product, cheaper, and compete you?” There is no such competition as this company is almost chinese xD. Currently owns 45.23% !!! of the company.
(2) Germany just say “f* you” Biden, and went last week to meet Xi Jinping. The German prime minister took their top industrial representatives in the same flight with him in order to re-take the good business relations with them. (The US keeps boycotting europeans trade partnerships for obvious reasons)
Full Disclosure: I am very long on this company and I hold shares at avg. price of 21. I also hold a lot of options with strike price at 52€ expiring end of 2023.
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