Wednesday, September 27, 2023

Mikron Team AG – Tremendous Reasonable (EV/EBIT ~4) and +33% EBIt 6M 2023- what isn’t to love ?


Disclaimer: This isn’t funding recommendation. PLEASE DO YOUR OWN RESEARCH !!!!

Spoiler: In case you are quick on time: I didn’t purchase a place right here. No wish to learn the whole lot.

Mikron is a corporation that I had on my (passive) radar since my “All Swiss stocks” sequence some years in the past (since I handed on it, it made round +100%, so stay this in thoughts for the remainder of the submit). This is a Swiss primarily based equipment producer with a marketplace cap of 200 mn CHF and has some connection to SFS (SFS is a consumer, similar Chairman previously).

Those had been the primary pieces that motivated me to appears to be like deeper into Mikron this time:

+ these days very (very !!) reasonable (P/E 7,5, EV/EBIT 3,5)
+ these days VERY just right trade momentum (6M 2023: Gross sales +22%, EBIT +33%)
+ higher buyer/product combine than previously
+ Rock cast stability sheet (100 mn CHF money vs 200 mn CHF marketplace cap)
+ just right percentage value momentum

On the other hand some detrimental issues leap out when having a look on the historical past of Mikron:

– risky trade, particularly machining (order consumption already declined 6M 2023)
– no significant carrier revenues that might stabilize the trade
– no longer very prime Returns on capital
– present profitability above ancient averages (which can be fairly low).

So there may be obviously a reason the inventory is affordable which may be mirrored within the inventory Chart: Principally a fifteen 12 months sidewards construction after a drop submit GFC, howver with one thing like a “mini get away” in recent times:

Occasionally, firms with one of these previous may also be superb investents if one thing structurally has modified. There may be a minimum of a touch that one thing has modified. Within the “previous days” the Machining section, which caters most commonly to the Automotive trade, had greater than 50% percentage in gross sales and this used to be very risky.

On the other hand, within the closing 9-10 years or so, the Automation section, which most commonly sells to the Pharma trade has won importance. As we will be able to see beneath, the Auomotive trade now could be most effective within the unmarried digits:

2013: Automobile: 42%
6M 2023: Automobile: 7%
2013: Pharma: 27%
6M 2023: Pharma 55%

As discussed Mikron runs two segments:

  • Automation, which comproses automatic trial trying out equipement
  • Machining& Equipment (reducing, steel operating) (2013: 52%, 2022: 38%)

Listed here are two examples in their merchandise:

Those are obviously giant machines that want time to construct. Mikron due to this fact has vital invenotry and paintings in growth merchandise at the stability sheet. On the other hand, they obtain vital prepayments from cusomers which, within the first 6M of 2023 if truth be told resulted in detrimental operating capital.

Valuation/Monetary KPIs (from Tikr)

What stands proud is obviously that at a marketplace cap of 200 mn CHF and web money of round 100 mn CHF, the corporate trades at round 7,5x 2023 P/E and three,5x (!!!!) EV/EBIT. A part of the 2023 benefit is a certainly one of 2 mn CHF acquire and 20 mn CHF money influx because of a sale of an funding belongings.

The corporate is obviously “grime reasonable” for an organization that has een expanding gross sales via greater than +20% within the first 6M of 2023 and EBIT/working benefit via greater than +30%. On the other hand, if we take a look at the entire key figures we will be able to see that order consumption within the machining section already confirmed some weak point:

My primary fear is that these days, margins and returns on capital are some distance above the rest that has been completed during the last 17 years or in order we will be able to see in this TIKR web page:

So the “imply reversion” possible is fairly vital, sadly to the disadvantage. One may argue that possibly because of the decrease importance of the machining section, the downturns glance much less unhealthy previously. The Automation section for example nonetheless broke even in 2020 while Machining had a detrimental EBIT margin of -22%.


41% is owned via the Ammann Team, a privately held corporate with round 900 mn in gross sales that manufactures most commonly highway building apparatus (asphalt mixers). Every other 20% is held via wealthy Swiss people (Rudolf Maag, Thomas Issues).

Ammann appears to be concerned for the reason that early 90ies and stepped in when Mikron virtually went bust in 2003 after a large acquisition spree that backfired. Sooner than the Dotcom bubble burst, Mikron attempted to develop into a large participant in TelCo provides however that in the end led to crisis. Ammann appears to be a normal Swiss “patriarch” and has been energetic in a couple of different Swiss compaies, comparable to Implenia. I assume his motivation isn’t purely monetary but in addition “patriotic”.

Control Incentives:

No go back on capital is integrated within the goals, most effective order consumption and EBIT and to a undeniable extent freee cashflow. Control most effective holds a restricted quantity of stocks by means of their incentive plans, however the positions are expanding. The present CEO has been put in most effective in 2021 in addition to new Supervisory Board participants. General no longer unhealthy, but in addition no longer nice both.

Primary problems

Mikron’s manufacturing appears to be nonetheless most commonly in Switzerland, which obviously creates a possible downside because of prices in opposition to competition. Personell prices are round 40% of gross sales. Even in a just right 12 months like 2022, they don’t organize working margins above 10% and returns on capital of 15% in 2022 are nonetheless fairly unhealthy for an commercial corporate.

In one of the crucial linekd articles above, it used to be additionally discussed, that the Mikron Machines are regularly very adapted to the desires of the purchasers and therfore it’s a lot arder to succeed in economies of scale. And is the reason the low amrgins through the years.

I additionally assume that Mikron is really a “past due cyclial” corporate. They get the orders when their shoppers did smartly previously and feature cash to amplify. then it takes a while to fabricate the machines. So Mikron then will get hit some quarters after different avid gamers are hit.

As we will be able to see with SFS: They only confirmed no longer so just right ends up in the engineered elements sector which is a long run buyer of Mikron. So SFS would possibly no longer order that many Mikron machines within the subsequent quarters.

Individually the trade fashion of SFS may be extra versatile: The can use the machines anyplace on the earth to construct merchandise additionally in the community, while Mikron most effective turns out so to manufacture those machines in Switzerland, which is costly.

It will have to be discussed, that a minimum of one promote facet analyst could be very constructive about Mikron and thinks that their trade has develop into much less risky. Additionally in 2020 Mikron turns out to have streamlined some gadgets, amongst them a German unit in Berlin.

No funding regardless of “Deep Price”

A couple of years in the past, I’d thankfully inevsted into Mikron. The valuation is obviously deep worth and there may well be a great opportunity that the inventory would possibly pass upper. However, I’m having a look in this day and age extra for long term, upper high quality firms that a minimum of seem to be “low upkeep”.

In Mikron’s case I’m really not 100% certain if the inventory is a superb long run funding. The trade stays cyclical, fairly low margins and returns on capital with unclear enlargement alternatives. Control and shareholdes additionally don’t appear to be optimally incentiviced and aligned with minority shareholders.

Due to this fact I’ll go regardless of the very horny monetary KPIs and in addition because of some focus problems, as with SFS and Schaffner, I do have already two Swiss primarily based production firms in my portfolio. Within the present environement, I don’t wish to obese cyclicals that a lot.

Perhaps it can be a just right “punt” on a a couple of growth, however these days, I feel this is a dangerous time for punts.


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