INDUS treaded difficult roads in 2022. Yet, the company’s business model is durable. INDUS looks set to easily achieve its 2025 target of 50 ex-family-led portfolio companies (eNuW, implying at least 2 aquisitions p.a.) by taking advantage of Germany’s rising number of family business handovers during the coming years.

Intrinsic advantage of the business model. Between 2022 and 2026, around 190,000 German family businesses will be handed over to successors (Institute für Mittelstandsforschung). This is a 13% increase compared to the previous period (2018 to 2022). The highest number of handovers (39,000) are estimated to come from Nordrhein-Westfalen. 7400 of the handovers have revenues ranging between € 20 to 100m, and 26% of those (1900) are active in the manufacturing sector. This is good news for INDUS because – 1) INDUS’ strategic focus is to acquire family businesses with succession issues in the German-speaking region, 2) with 34% of its portfolio based out of Nordrhein Westfalen, INDUS already has a strong hand in the game and 3) INDUS has a high probability of finding ‘niche’ and ‘> 10% EBIT generating’ companies from a pool of 1900 suitable candidates.

Whats more, the divestment from non-core businesses should be on track. The already announced divesstment of two heavily loss-making non-core companies – Selzer and Schäfer – is expected to be completed by the end of FY 2023 (eNuW). The successful sale of these two companies coupled with the finalization of the ongoing deconsolidation of SMA (eNuW: also by the end of the year) should help to reduce the former Automotive segment’s FY 2023 EBIT loss by some € 50m (eNuW).

INDUS continues to remain a reliable dividend payer. Though the underlying FY 2022 EBIT looks set to be down by 85% yoy (eNuW), INDUS should stick to its historic dividend policy. With an historic dividend yield of 3-6%, INDUS should pay a dividend of € 0.8-0.9/share in FY 2023 (eNuW).

Trading at 9x 2023 EV/EBIT, valuation appears to be fair. In the light of current macro uncertainties – inflation, supply chain disruptions and rising interest rates – we keep the stock on a HOLD, with an unchanged PT of € 24 PT based on FCFY 2023e.