I at all times needed to have a fast have a look at A&O and was lastly motivated once more studying about it a number of occasions in my Twitter timeline. In my All Danish Shares collection, A&O didn’t make the lower as a result of I had already Photo voltaic within the portfolio, however nonetheless I wish to have a look at them as this usually yields some insights into the opposite firm.
Each firms are headquartered in Denmark and in precept distribute provides for craftsmen/installers.
From what I perceive, Photo voltaic Group is concentrated just a little extra on electrical tools, A&O has a broader assortment however centered on renovation and transforming. A&O Johanson has a small B2C phase that makes up ~12% of gross sales however much less in earnings, as margins in B2C are smaller.
A&O is lively in Denmark, Sweden and Norway, nevertheless 90% of gross sales appear to be in Denmark. A&O has a twin share construction, with “tremendous voting” shares owned by the household and CEO giving copntrol to the household. Additionally Photo voltaic Group has a twin share class construction, with nearly all of the votes owned by the heirs of the unique founder (4th technology).
Photo voltaic is lively additionally in Denmark, Sweden and Norway, but in addition has a sizeable enterprise within the Netherlands and Poland. Denmark is round ⅓ of gross sales and 45% of earnings for Photo voltaic. Aside from craftsmen(installers, 33% of their gross sales go to industrial purchasers and a small “commerce” phase. Curiously, the craftsmen/installer phase is the bottom margin phase.
In 2023 they acquired a warmth pump enterprise (massive pumps for commerce), so they’re branching out to a sure extent into manufacturing. That’s clearly a danger however SFS as an illustration exhibits that an organization can do each efficiently.
Numbers, numbers, numbers
Listed below are numerous KPIs that I discovered attention-grabbing to match with some colour coding connected:
Each firms look very low cost on 2022 numbers and have first rate return on capital which is kind of essential for distributors.
One factor that stands out is that Photo voltaic has been incomes a lot greater margins lately than some years earlier than. In my understanding the rationale for that is that as much as 2017, Photo voltaic was mainly a turn-around case they usually introduced in a brand new CEO to sort things.Going by means of the annual experiences since then, there’s a clear effort (and success) in focusing the enterprise and making it progressively extra worthwhile yearly.
The primary distinction between Photo voltaic and A&O is that Photo voltaic appears to hold extra stock, whereas A&O has much more fastened property. Photo voltaic is extra capital environment friendly (even with out the goodwill) and due to this fact decrease margins however translate into greater ROCEs and ROEs regardless of barely decrease leverage.
Each firms are struggling just a little bit this yr, apparently Photo voltaic Group greater than A&O after depreciation. Nevertheless, when Money movement, issues look totally different: Photo voltaic has managed to return to constructive Working cashflow whereas A&O had nonetheless destructive working CF. I’m not positive why and this might flip rapidly however it’s one thing to observe.
Photo voltaic has been writing off Goodwill fairly aggressively within the first 6M, nevertheless there isn’t any detailed clarification. A&O doesn’t present amortization individually within the 6M numbers.
Inventory Efficiency (incl. Dividends):
These are the Whole return charts from NAsdaq Nordic, sadly I discovered no option to present them in a single chart. Over 10 years, A&O has clearly outperformed Photo voltaic.
I assume the principle purpose is that Photo voltaic made a loss in 2014 and no earnings each in 2017 and 2019. A&O clearly has the extra constant observe document.
Capital allocation sensible, each firms appear to prioritize dividends earlier than share purchase backs.
Abstract:
General, I feel each are superb firms. A&O has an excellent Denmark centered technique whereas Photo voltaic has a extra complicated enterprise mannequin with totally different buyer teams and jurisdictions. Nevertheless, this may additionally enable them to seek out extra development alternatives.
A&O has a greater long run observe document, nevertheless Photo voltaic’s trajectory for the reason that CEO change in 2017 is kind of encouraging and the turn-around appears to have been confirmed.
For each firms, traders more than likely suppose that they’ve massively “over earned” in 2021 and 2022, in any other case the only digit P/Es for these very nice distribution companies with superb returns on capital make no sense. They are going to clearly see some headwinds if building slows down however in my understanding, each firms have restricted publicity to new constructing building.
I’ll due to this fact keep on with Photo voltaic in the intervening time, however will monitor A&O as nicely. This appears to be additionally an inexpensive however good high quality enterprise “beneath the radar” of many traders and may do each nicely over the subsequent 3-5 years regardless of important quick time period headwinds.