INDUS announced the realignment of its strategy during the Analyst Day. The company will increasingly focus on growth technologies within industrial engineering such as energy efficiency, automation, and logistics. The strategic change is underpinned by regrouping its portfolio companies into three segments (previously five) and the divestment of two heavily loss-making automotive companies. Here are our key takeaways:

• Reclassification of its segments to better align them with the newly identified growth topics.

  INDUS plans to grow its portfolio (2-3 aquisitions p.a.) in promising areas like waste management, circular industry, measurement technology, energy technology, logistics etc. To better quantify the results of this strategic shift, INDUS reclassified its 47 portfolio companies into three (previously five) segments. These three segments are Infrastructure (2021 sales: € 515m, EBIT margin: 12.8%), Materials (2021 sales: € 586m, EBIT margin: 9.9%), and Engineering (2021 sales: € 484m, EBIT margin: 11%).

• Divestment of heavily loss-making automotive suppliers.

  By the end of 2023, INDUS intends to sell ‘SELZER’ and ‘SCHÄFER’ (FY 2021 sales: €60m), which do not fit INDUS’ strategic positioning anymore. Since the two companies need to be restructured, the potential sales proceeds should be approx. € 10-12m (0.2x EV/sales), in our view. Positively, INDUS is seen to end its exposure to series suppliers, whose businesses should continue to be negatively affected by the structural change towards e-mobility. Until their divestment is completed, those two companies will be considered “non-core” businesses.

• On track to reach mid-term guidance.

  Considering the core business’ financial performance in FY 2021 (€ 1.6bn sales and 11.2% EBIT margin), coupled with two to three annual acquisitions within attractive niche markets, INDUS is seen to be well on track to reach its mid-term targets of 2025 (sales > € 2b, EBIT margin > 10%).

While we regard the strategic realignment, in particular the planned divestment of the two automotive suppliers, as positive, we maintain our HOLD rating with an unchanged PT of € 24 (based on FCFY 2023e)  due to prevailing macro uncertainties, which could weigh on the portfolio companies performance, looming higher interest rates and uncertainties in regards to the planned divestments.