Disclaimer: This isn’t funding recommendation. PLEASE DO YOUR OWN RESEARCH !!!!
Spoiler: In case you are quick on time: I didn’t purchase a place right here. No must learn the whole lot.
Mikron is an organization that I had on my (passive) radar since my “All Swiss shares” collection some years in the past (since I handed on it, it made round +100%, so preserve this in thoughts for the remainder of the put up). It’s a Swiss based mostly equipment producer with a market cap of 200 mn CHF and has some connection to SFS (SFS is a consumer, identical Chairman previously).
These have been the principle gadgets that motivated me to appears deeper into Mikron this time:
+ at the moment very (very !!) low cost (P/E 7,5, EV/EBIT 3,5)
+ at the moment VERY good enterprise momentum (6M 2023: Gross sales +22%, EBIT +33%)
+ higher buyer/product combine than previously
+ Rock strong stability sheet (100 mn CHF money vs 200 mn CHF market cap)
+ good share value momentum
Nevertheless some adverse issues bounce out when wanting on the historical past of Mikron:
– risky enterprise, particularly machining (order consumption already declined 6M 2023)
– no significant service revenues that might stabilize the enterprise
– not very excessive Returns on capital
– present profitability above historic averages (that are fairly low).
So there may be clearly a cause why the inventory is affordable which can also be mirrored within the inventory Chart: Mainly a 15 12 months sidewards growth after a drop put up GFC, howver with one thing like a “mini escape” currently:
Typically, firms with such a previous will be superb investents if one thing structurally has modified. There’s a minimum of a touch that one thing has modified. Within the “previous days” the Machining phase, which caters largely to the Car business, had greater than 50% share in gross sales and this was very risky.
Nevertheless, within the final 9-10 years or so, the Automation phase, which largely sells to the Pharma business has gained significance. As we will see under, the Auomotive business now’s solely within the single digits:
2013: Automotive: 42%
6M 2023: Automotive: 7%
2013: Pharma: 27%
6M 2023: Pharma 55%
As talked about Mikron runs two segments:
- Automation, which comproses automated trial testing equipement
- Machining& Instruments (slicing, metallic working) (2013: 52%, 2022: 38%)
Listed here are two examples of their merchandise:
These are clearly large machines that want time to construct. Mikron subsequently has vital invenotry and work in progress merchandise on the stability sheet. Nevertheless, they obtain vital prepayments from cusomers which, within the first 6M of 2023 really led to adverse working capital.
Valuation/Monetary KPIs (from Tikr)
What stands out is clearly that at a market cap of 200 mn CHF and internet money of round 100 mn CHF, the corporate trades at round 7,5x 2023 P/E and three,5x (!!!!) EV/EBIT. A part of the 2023 revenue is a one in all 2 mn CHF acquire and 20 mn CHF money influx attributable to a sale of an funding property.
The corporate is clearly “dust low cost” for a corporation that has een rising gross sales by greater than +20% within the first 6M of 2023 and EBIT/working revenue by greater than +30%. Nevertheless, if we have a look at all the important thing figures we will see that order consumption within the machining phase already confirmed some weak point:
My essential concern is that at the moment, margins and returns on capital are far above something that has been achieved over the previous 17 years or in order we will see on this TIKR web page:
So the “imply reversion” potential is kind of vital, sadly to the draw back. One may argue that possibly as a result of decrease significance of the machining phase, the downturns look much less dangerous previously. The Automation phase as an example nonetheless broke even in 2020 whereas Machining had a adverse EBIT margin of -22%.
Possession:
41% is owned by the Ammann Group, a privately held firm with round 900 mn in gross sales that manufactures largely street building gear (asphalt mixers). One other 20% is held by wealthy Swiss people (Rudolf Maag, Thomas Issues).
Ammann appears to be concerned because the early 90ies and stepped in when Mikron virtually went bust in 2003 after a giant acquisition spree that backfired. Earlier than the Dotcom bubble burst, Mikron tried to turn out to be a giant participant in TelCo provides however that finally resulted in catastrophe. Ammann appears to be a typical Swiss “patriarch” and has been energetic in a number of different Swiss compaies, resembling Implenia. I suppose his motivation just isn’t purely monetary but additionally “patriotic”.
Administration Incentives:
No return on capital is included within the targets, solely order consumption and EBIT and to a sure extent freee cashflow. Administration solely holds a restricted quantity of shares by way of their incentive plans, however the positions are rising. The present CEO has been put in solely in 2021 in addition to new Supervisory Board members. General not dangerous, but additionally not nice both.
Principal points
Mikron’s manufacturing appears to be nonetheless largely in Switzerland, which clearly creates a possible drawback attributable to prices towards rivals. Personell prices are round 40% of gross sales. Even in a superb 12 months like 2022, they don’t handle working margins above 10% and returns on capital of 15% in 2022 are nonetheless comparatively dangerous for an industrial firm.
In one of many linekd articles above, it was additionally talked about, that the Mikron Machines are sometimes very tailor-made to the wants of the purchasers and therfore it’s a lot arder to attain economies of scale. Which explains the low amrgins over time.
I additionally suppose that Mikron is usually a “late cyclial” firm. They get the orders when their clients did nicely previously and have cash to increase. then it takes a while to fabricate the machines. So Mikron then will get hit some quarters after different gamers are hit.
As we will see with SFS: They simply confirmed not so good leads to the engineered elements sector which is a long run buyer of Mikron. So SFS may not order that many Mikron machines within the subsequent quarters.
In my view the enterprise mannequin of SFS can also be extra versatile: The can use the machines wherever on the planet to construct merchandise additionally regionally, whereas Mikron solely appears to have the ability to manufacture these machines in Switzerland, which is dear.
It ought to be talked about, that a minimum of one promote aspect analyst may be very optimistic about Mikron and thinks that their enterprise has turn out to be much less risky. Additionally in 2020 Mikron appears to have streamlined some items, amongst them a German unit in Berlin.
No funding regardless of “Deep Worth”
Just a few years in the past, I’d fortunately inevsted into Mikron. The valuation is clearly deep worth and there is perhaps a superb likelihood that the inventory may go larger. Then again, I’m wanting lately extra for long run, larger high quality firms that a minimum of seem like “low upkeep”.
In Mikron’s case I’m not 100% positive if the inventory is an effective long run funding. The enterprise stays cyclical, comparatively low margins and returns on capital with unclear progress alternatives. Administration and shareholdes additionally don’t appear to be optimally incentiviced and aligned with minority shareholders.
Due to this fact I’ll cross regardless of the very engaging monetary KPIs and likewise attributable to some focus points, as with SFS and Schaffner, I do have already two Swiss based mostly manufacturing firms in my portfolio. Within the present environement, I don’t wish to chubby cyclicals that a lot.
Perhaps it may very well be a superb “punt” on a a number of growth, however at the moment, I believe it’s a dangerous time for punts.