While overlooked by many investors due to its rather lacklustre operating performance between 2016 and 2021, implemented changes on the back of efficiency and growth initiatives are beginning to bear fruit, making it a BUY with 40% upside.

Between 2016 and 2021, the globally leading (#2 in Europe and #3 globally) supplier of explosion protected electrical components, has not been able to turn its good competitive quality into adequate sales and margin growth. This was mainly the result of the cyclical down-turn of its key end market (oil up- and downstream, which used to account for more than 50% of group sales) but also various internal inefficiencies such as partially unprofitable sites, unnecessary high product complexity and different IT systems across sites.

Yet, the tide has turned and R. STAHL should be able to achieve record sales and EBITDA growth during the short to mid-term, thanks to:

• Structural growth drivers: R. Stahl is the globally leading provider of explosion protection for LNG tankers, terminals and liqufication/regassification plants (25-75% market shares). Further, R.Stahl has begun supplying its LED solutions to outdated nuclear plants in the UK (France to come soon) and offers explosion proof solutions for industrial automation projects within the pharma, chemical and upstream oil and gas industry.
• Self-help measures that pay off: Management implemented three efficiency/growth initiatives (R. STAHL 2020, EXcellence 2023 and EXcellence 2030) that focus on streamlining internal processes, reducing organisational complexity, but also broadening the product offering in order to target emerging trends such as LNG and automation.

With that, the company should also be able  further improve EBIT margins (>7%),  ROCEs (>11%) and free cash flow generation (€ 10-15m) going forward.

Yet, valuation looks undemanding. Shares are trading on a mere 5.1x EV/EBITDA (8x PE) 2024e, clearly below the historical average of roughly 7x. This is despite the structural demand tailwinds, which should fuel mid-term sales and margin growth. BUY with a € 31 PT based on FCFY'24e. -continued-