Topic: On Friday, we hosted a digital roadshow with the CEO of INDUS. Here are the key takeaways:

Free cashflow from continuing operations more than quadrupled yoy with

€ 106.1m at 9M 2023 (9M 2022: € 22.2m). Going forward, management aims to further reduce the working capital intensity to more normalized levels of 25-27% in Q4. Hence, FCF generation looks set to significantly outperform the annual target of € 100m (eNuW: € 126m).

INDUS plans to invest

€ 50-70m

next year in strategic acquisitions. The company wants to sharpen its focus on global megatrends like energy efficiency, recycling and agriculture engineering. Positively, valuation multiples in the PE market came down since 2021 as buyer hesitance in connection with increased financing costs prevailed.

Order intake is set to remain at a strong level. Particularly, the subsidiary MBN Maschinenbaubetriebe Neugersdorf GmbH showed a positive dynamic in its order intake. The manufacturer for final vehicle assembly systems secured large orders from BMW and Audi for new factories in the US, thus creating sound visibility on future earnings.

Positive price effect to revert. In FY23, INDUS benefited from lower material prices, especially in the Materials segment, which led to a segment EBIT margin of 10.4% at 9M. On group level, the material cost ratio declined by 4.3pp to 45.9%. However, maintaining double-digit margins in the segment will be challenging, as customers are starting to renegotiate in light of the deflating price levels.

Wage inflation remains an issue. After the personnel expense ratio rose by 1.2pp yoy to 28.6% at 9M, further wage increases are in the books as unions are increasing the pressure. For example, the German labor union IG Metall recently started the negotiation for the steel industry demanding an 8.5% salary increase. As INDUS employs c. 10,000 employees of which c. 7,000 in Germany, management hence expects further pressure related to wage inflation in the upcoming year (eNuW: +0.27pp).

Despite the aforementioned short-term headwinds, INDUS remains attractively priced trading at only 4.5x EV/EBITDA 2023e, which is 36% below its historical average.

We reiterate our BUY rating with a new PT of € 34 (old: € 36) based on FCFY 2024e.