Despite a strong competitive quality and structural growth drivers, MAX Automation had difficulties translating it into operating performance between 2016 and 2020. Thanks to MAX having done its homework by adjusting its portfolio and structural trends kicking in, shares look poised for a re-rating.

Until 2025e, MAX Automation should be able to grow sales to € 510m while achieving disproportionate EBITDA growth of 15% (2022-25e CAGR) thanks to:

• Structural growth drivers: MAX's subsidiary bdtronic is a leading provider of trickling impregnation, which significantly improves performance and safety metrics of electric drive trains. With the number of electric vehicles likely to continue to soar during the foreseeable future, the need for its automated solutions, that enable particularly high production speed without sacrificing quality, should enable bdtronc’s sales to grow >20% annually.
• Defensible competitive quality: Bdtronic's trickling impregnation business is based on highly specific know-how and a strong reputation, establishing lock-in effects and hence high entry barriers. Once the impregnation machines are installed, it is costly for OEMs to switch to different suppliers, enabling bdtronic a lucrative service business, allowing for EBITDA margins north of 17% for bdtronic (eNuW).

With that, MAX’s group KPIs should also further improve: EBIT margins (5.4% in FY22 -> 7.6%), ROCEs (9.4% in FY22 to >11%) and free cashflow generation (neg. in FY22 to € 20m) going forward.

In addition to the improving operating performance, a successful divestment of the subsidiary MA micro (company news 08.09.2023) should  be a notable share price catalyst, revealing that the value of the “parts” clearly exceeds the current Enterprise Value of the MAX Automation group, in our view. A strategic buyer should be willing to pay at least 10x EBITDA for this highly profitable and return-rich specialty business, implying a purchase price of above € 100m (eNuW).

Importantly, even after a divestment, MAX would own hidden Mittelstand champions such as bdtronic and Vecoplan, amongst other, whose combined value alone would well exceed the remaining (theoretical) € 200m EV of the group ex MA micro (eNuW), underpinning the undervaluation of the stock. Hence, we reiterate our BUY rating with an increased € 8.20 PT (old: € 7.30) based on DCF. -continued-