Topic: INDUS is working at full speed on its well filled M&A pipeline and closed already five deals during this year. We take the opportunity to give more granularity on the case and particularly on INDUS’s acquisition side and the recent operating development. We continue to like the stock and keep INDUS on our Alpha list.   

More value accretive deals in the pipeline: At the end of August, INDUS announced the acquisition of DECKMA, a system supplier of technical marine equipment. The company generates c. € 19m in revenue and should deliver low double-digit EBIT margins (eNuW). With a transaction multiple of c. 6x EV/EBIT and considerable growth opportunities ahead, the acquisition should be value accretive in our view. Further, INDUS has spent only € 31.5m (eNuW) on M&A this year, which leaves room for further acquisitions. Mind you, the company intends to spend up to € 70m on portfolio additions this year alone. Due to the decline in valuation multiples of German SMEs in recent years, management is confident to meet their targets. In fact, several opportunities should be in advanced stages.

More deals should come in the long run: About one third of SME owners in Germany is 60 years or older and as the boomer generation is successively leaving their businesses and searching for successors, more opportunities should arise. Importantly, thanks to INDUS’ positive brand perception, the company is seen to be a preferred partner for successions, as soft factors such as safeguarding jobs and maintaining the reputation are often equally important as the purchase price.

Attractive valuation: Even though the upcoming quarters will still be influenced by a challenging macroeconomic environment, the capital market is in our opinion overreacting to the recent guidance cut (company news: July 31st) and the temporary weakness, neglecting the long-term operative performance and currently depressed valuation of the stock.

Hence, the stock is trading at only 7x forward P/E (eNuW), offers an expected dividend yield of 5.4% (eNuW FY24e: € 1.2 per share), and delivers a strong FCFY24e of c. 10% (eNuW). We reiterate BUY with an unchanged PT of € 34, based on FCFY24e. -continued-