The diversified Uri conglomerate Dätwyler is a manufacturer of industrial components and sealing solutions.
The company was founded in 1915 by Adolf Dätwyler, transformed into a holding company by his two sons in 1958 and listed on the Swiss Stock Exchange in 1986. The Uri-based company currently employs around 7,600 people and its market capitalisation exceeds 2 billion francs.
Originally, the company was involved in the manufacture and repair of tools and machines. Later, it expanded into the manufacture of cables and tires, and finally the pharmaceutical industry and the trade in electronic components.
The industrial group is today composed of two divisions:
- The division sealing solutions, whose customers include the automobile industry, the pharmaceutical industry and civil engineering.
- The division technical components, active in the field of electronics, IT and automation technology in Europe.
The sealing solutions division accounts for around two thirds of sales and is significantly more profitable than the technical components division. (in particular its Distrelec unit, an online distributor of electronic products, whose recovery has been slow to materialize).
With a share of around 10% of the group's revenue, Nespresso is Dätwyler's largest customerThe contract with Nespresso for the manufacture of capsules was also renewed in January for 5 years.
At the end of June 2018, the company had 70% of equity, a very high value for an industrial group. Dätwyler also has 220 million in cash (almost 10% of its market capitalization) which should be used shortly for additional acquisitions.
Profitability is decent for the industry sector, with a net profit margin (NPM) of 9.6% and a return on equity (ROE) of 13.8% in 2017.
The stock lost around 15% following the publication of generally decent half-year results (a 7.7% increase in turnover and a 17.3% increase in net profit), but mixed results for its Distrelec unit.
At the current rate of 166 francs, the 2018 PER is estimated at 18.5, a reasonable value which is within its historical average.
With a yield of 1.8%, the dividend is paltry, but is explained by a conservative payout ratio of 41%.
Conclusion
Dätwyler is a solid and profitable company, but its growth leaves something to be desired.
The current valuation is correct but the evolution of the share in the coming years will depend a lot on the good use of cash (acquisitions) as well as the evolution of the technical components division.
I am neutral on the stock in the short term but much more optimistic about the medium and long term outlook. That's why I just became a co-owner of this company.
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Hi Bro
Thanks for this analysis. I didn't know this company... yet it seems like a big boat!
I looked at the slightest one and I have to say that I'm not a huge fan:
– PE may be correct for 2018, but it implies that the profit is actually realized and especially that it is also good in the future. From the point of view of historical profits, I find the PE high.
– The stock is also expensive relative to tangible assets, relative to sales, and especially relative to FCF
-EBITDA amounts to only 6% of the enterprise value, which confirms this overvaluation
– As you said, the dividend yield is modest. It is also growing weakly (it even fell between 2013 and 2014)
– The payout ratio is certainly conservative compared to profits, but unsustainable compared to FCF (1020% for current free cash flow, 400% for average FCF)
On the positive side, we should nevertheless point out:
– good liquidity as you pointed out
– good gross and net margin (but derisory FCF margin)
– low debt to equity ratio
– good and increasing profitability
In short, for me too expensive and FCF problems.
I must say that I can't find much of value at the moment... 🙁
You are right to point out Daetwyler's weak points. This company does not have the class of a Nestlé and that is why I am neutral on the stock at the moment.
On the other hand, I am much more optimistic for the coming years, mainly for two reasons:
First, the CEO spoke during the presentation of the half-year results about very promising acquisitions that were being evaluated and should soon be finalized.
Basically this implies that if the large cash holdings are invested intelligently, earnings per share should mechanically rise from 10 to 15%.
Secondly, the CEO said he was dissatisfied with the development of the technical components division and that the company would take stock of the conduct to adopt for this segment, which has been in difficulty for some time, at the end of the year.
If Daetwyler were to separate from this problematic division (in my opinion the most likely scenario) and focus only on the sealing solutions division, the stock would rise sharply (this is what happened with Komax, for example, which is now focusing only on its most profitable division).
The comparison of EBIT margins shows the gap between the two divisions: the average margin of the group is 13.1%, but that of the sealing solutions division is 18.5% compared to only 2.9% for the technical components division!
So, it's time for the big cleaning 🙂
If they do, hopefully it will solve their FCF problem.
The weak cash flow doesn't bother me, because it is explained by the fact that Daetwyler is investing heavily for the future, which is positive for future earnings.
Thus, 110 million are currently being invested in a new building in the USA and 70 million by the end of 2019 in increases in production capacity in India.
Selling Daetwyler at 189, I find the stock now overvalued compared to fundamentals.
Daetwyler acquisition at CHF 138.
It's still the same product - only the price has changed 😉
The "Corona mode" market remains very volatile and offers good prospects, which is why I have been more active than usual lately.
I liquidated all of my Daetwyler shares @166.20 today. The proceeds were reinvested half in Forbo @1266 and half in BB Biotech @60.30.
Forbo, here's an old acquaintance! 🙂
Carpet is good for confinement!