Dit zijn zijn conclusies:
Building a track record of high profitable growth Kendrion is building its profile of high growth and profitable technology-driven
company by reporting solid quarterly results ahead of expectations. Although its comparison base becomes more challenging, we believe that the company has sufficient growth opportunities resulting in high single digit organic EPS growth in the years ahead. We raise our EPS estimates by 38% on average. While the EC fine remains an uncertain factor, valuation multiples are undemanding even when we include a high-fine scenario. We reiterate our Accumulate recommendation.
Our PT is set at EUR 18, based on a target EV/EBITDA of 6x. If management is able to further build out its high profitable growth track record, we believe that the $target multiple can expand to 8x.
Kendrion finalized its focus strategy in 2008, transferring from a conglomerate into a dedicated electromagnetic components and systems company. The business profile changed into a high growth and highly profitable technology driven company.
Although the economic downturn in 2009 disturbed trends, recent results are confirming this ‘new’ profile. Sales are already at pre-crisis level while operating margins are at company record levels. Results are beating estimates by far and shareholder value is created again since ROIs have substantially improved. The company is now gradually building its track record of high profitable growth.
The company’s growth prospects remain strong. The German order intake for
plants & machineries continues to grow at high double digit rates. Also clients such as VW, Siemens and Kuka, and competitors such as BorgWarner and Johnson Electric and Sumida, are in general optimistic on market developments, despite the more challenging comparison base. Therefore, we believe, that management’s FY10 guidance of a strong deceleration in growth is too cautious, particularly since the number of working days in 4Q is higher this year.
We raise our EPS estimates by 38% on average on the back of an increased topline and margin estimates, reflecting the increased confidence in Kendrion’s growth profile. As FY10 operating margins are already high, we expect growth to derive increasingly from sales expansion. In our view, Kendrion has sufficient room to grow top-line organically. Market share gains, international expansion, entering new
(adjacent) segments and cross selling should continue to push organic sales growth at its historical growth rate of c. 9% per annum for the mid term. In our estimates, we do not include any new acquisitions. The new credit facilities provides sufficient room for small to mid-sized acquisitions (for c. EUR 50m sales).
Management does not rule out a share issue for larger acquisitions.
We reiterate our Accumulate recommendation on Kendrion. As the company
continues to fill in its growth track record, current valuation multiples are undemanding. The EC fine remains an uncertain factor, impacting the risk profile.
However, EV/EBITDA multiples FY11E of 5.3x to 5.8x based on a higher EC fine scenario remains very attractive related to the growth potential. We set a new PT of EUR 18 based on an EV/EBITDA multiple of 6x. If management is able to further build a track record of low double digit EPS growth, we believe the target multiple could be expanded to 8x. Share price catalysts are new acquisitions, positive German industry figures and another strong set of numbers at the 4Q10 and FY10 report.