Topic: INDUS reported mixed results for Q3 with sales above but margins below estimates. Management cut the guidance to adjust for a soft construction sector, which is still impacted by a weaker economic environment.

Q3 sales grew by 0.2% yoy to

€ 460m

(eNuW: € 446m) as Engineering (+ 6.3% yoy to € 154m) compensated for a weaker growth in Materials (-5.7% yoy to € 153m) and Infrastructure (+0.6% yoy to € 153m). The slowdown in the construction sector impacted the majority of portfolio companies in the infrastructure segment. The new construction business was impacted in particular, whereas the renovation business was less affected.

Q3 EBIT increased by 209% yoy to € 32.1m

(eNuW: € 38.9m), with a margin of 7.0% (+ 4.7pp yoy). However, Q3 2022 was affected by an impairment charge of € 39.8m, which was largely related to goodwill. Adjusting for this charge, one can see that the adjusted operating profit of € 49.7m in Q3 2023 remained flat compared to last year (Q3 2022: € 50.2m). This is despite significant cost increases within the infrastructure segment (e.g. wage inflation, material prices), which could largely be offset by higher selling prices.

FY'23 guidance reduced

. Management lowered its expected sales range down to € 1.8-1.9bn from previously € 1.9-2.0bn (eNuW: € 1.82bn). INDUS still aims for an EBIT between € 145-165m but anticipates being at the lower end of the range (eNuW: € 152m). Considering the portfolio realignment after the sale of the lossmaking subsidiaries SCHÄFER and SELZER as part of the 'PARKOUR' efficiency program, the guided EBIT margin of 7.0-8.0% seems to be well in reach (eNuW: 8.3%). Regarding the top-line growth, our expectation is at the lower end of the guidance, reflecting the difficult economic environment in Germany, which accounts for 50% of sales.

Indus remains attractively priced

trading at only 4.4x EV/EBITDA 2023e, which is 37% below its historical average. Furthermore, the company is already delivering ROCEs above cost of capital and has the potential to become an attractive dividend stock with a dividend yield in the upcoming year of 6% based on a dividend per share of € 1.20 (eNuW) for FY'23.

Hence, we reiterate our BUY rating with an unchanged € 36 PT based on FCFY 2024e.