Topic: INDUS reported solid FY23 figures especially in light of the currently challenging macro environment. Results are in line with the preliminary numbers and FY23 guidance. Further, INDUS had its capital markets day yesterday in Frankfurt. Here are the key takeaways:

FY23 sales came in at € 1.80bn, roughly unchanged from last year, despite a difficult macro environment. While EBIT increased by 11.9% yoy to € 150m, it is important to note that the impairments of € 19m in FY23 due to higher interest rates were significantly lower compared to the € 43m in FY22. Adjusted EBIT (excl. impairments) stood at € 169m (- 4.3% yoy) resulting in an implied adj. EBIT margin of 9.4% (- 0.4pp yoy). For FY24e we expect no further impairment of goodwill, as interest rates are seen to reached the zenith.

FY23 sales in the Engineering segment increased slightly to € 600m (+ 3.2% yoy; eNuW: € 590m) and adj. EBIT increased 1.5% to € 62m, leading to a solid adj. margin of 10.4% (- 0.1 pp), supported by an improved situation in measurement and control engineering due to an ease of the semiconductor shortage in FY22. Sales in the Infrastructure segment came in at € 582m (eNuW: € 588m), almost at the previous year’s level (- 0.6% yoy). Adj. EBIT came in at € 57m with a margin of 9.8% (-1.1 pp) and declined 11% due to high costs for concrete and sand as well as a strong slowdown in the construction sector. The Materials segment showed slightly lower sales of € 620m (- 2.7% yoy; eNuW: € 641m), as a result of lower sales prices and volumes, while adj. EBIT was roughly unchanged at € 64m (- 1.1% yoy), with a margin of 10.3% (-0.1 pp).

CMD feedback: Free cashflow in FY23 came in at € 199m and reached a new record high, growing 96% yoy. However, cashflows were supported by a reduction in working capital of € 30m during FY23 (FY22: + € 53m) and a € 15m inflow from the disposal of an office building. Supported by the strong FCF, management intends to spend € 70m for acquisitions during FY24e. The 1.1m recently acquired treasury shares could serve as form of payment and are not included in the € 70m budget. Hence, we expect to see more acquisitions coming in this year, especially in the field of infrastructure networks, automation and energy technologies. Considering the currently low valuations of the German Mittelstand, this is a good opportunity to acquire further niche players to fuel the growth for the coming years. -continued-

Attractive dividend yield: Management proposed a dividend of € 1.20 per share (eNuW: € 1.20), making INDUS an attractive dividend stock with a yield of 4.8% based on yesterday’s closing price. Due to the divestment of the loss-making automotive business in FY23 and an ongoing successful operating business, we expect a further dividend rise for the current fiscal year (eNuW: € 1.40). Mind you, INDUS plans to pay out up to 50% of the group’s net income. During the short- to mid-term, management plans to grow EBIT to more than € 200m, which could lead to a dividend of € 1.90 per share (40% payout), a 7.5% yield.

Valuation looks undemanding with shares trading at 4.4x EV/EBITDA 2024e (26% below the 10y historical average) while offering 11% adj. FCF yield. We reiterate BUY with an unchanged PT of € 36 based on FCFY 2024e.