Topic: INDUS will release its half year report on August 13^th. We expect top- and bottom-line of the second quarter to stay muted but above the challenging Q1. However the outlook for H2 remains positive and thanks to the recent share price decline, the stock is now even more of a bargain.

The macroeconomic headwinds and the associated customer reluctance put pressure on the first quarter and improved only modestly in the second quarter. Hence, we expect sales to come in at € 437m (-3.6% yoy) and EBIT at € 32.1m (-20% yoy) with an EBIT margin of 7.3% (-1.5pp). 

While Materials benefited in the first half of FY23 from decreased raw material prices, profitability should now revert to normality as the portfolio companies lower their prices due to pricing pressure from customers. This has already shown up in Q1 and led to an operating margin decrease from 12.1% in FY23 to 8.0% in FY24. Further, business for Material’s largest portfolio company Betek (49% of segment sales in FY23) is currently weak in the agricultural supply sector due to the conflict in Ukraine. Therefore, we expect sales to decline 10% yoy to € 148m with an EBIT of € 11.1m (-38% yoy; -3.4pp).

Sales in the Engineering segment are expected to increase by 6.1% yoy (eNuW) to solid € 147m, however, with a slight pressure on margins due to an unfavorable shift in the product mix (eNuW: EBIT € 8.8m, 6.0% margin, -1.5pp yoy). Despite that, increasing sales and higher margins are expected in the second half of the year.

The Infrastructure segment is also affected by the economic slowdown, especially in the heat pump and for building supplies sector. We expect sales to decline moderately by 5.2% to € 142m paired with a strong EBIT margin of 9.5% (-0.1pp yoy) supported by significant efficiency improvement at the HVAC manufacturer Aurora (eNuW EBIT: € 13.5m; -6.3% yoy).

Nevertheless, INDUS remains a clear BUY in our view as the company is (1) trading at only 7x forward EV/EBIT (eNuW), (2) offers an expected dividend yield of 5.2% (eNuW FY24e: € 1.2 per share), and (3) delivers a strong FCFY24e of c. 10%.

Reiterate BUY with an unchanged PT of € 36, based on FCFY24e.