Worlds leading provider of solutions for all aspects in vehicle washing. Represented in 80 countries. Their segments are products/machinery, services and chemicals. Chemicals is the smallest segment contributing around 12% of revenue. I think below picture explains what they are doing and next time you wash your car you might notice that you are using some of their products.
Q3
Revenue up. Supported by strong USD.
Margins down.
EBIT down.
Drop in equity ratio (caused by dividend payment).
Order intake significant above previous year.
Costs impacted by supply chain issues and material and energy costs caused by China lockdown and Ukraine war. Company built up stock and was therefore always able to deliver. Washtec couldn’t fully pass costs on.
Increase in NWC (Net working capital) to secure delivery capability.
Quick review last years.
Shares outstanding slightly reduced over the years with buyback in 2015 but no further reduction since.
Company has been growing but more or less stagnant since 2017. Around the same time share price peaked. Share price was driven by growth, buybacks and sentiment.
Margins are falling over last years (R&D, marketing and general expenses are up since 2020).
Valuation ratios suggest that despite massive share price drop over recent years the company didn’t become so much cheaper looking back until 2018.
Dividend payments impacted by Covid. Dividend cancelled in 2020 and resumed 2021 on lower lever vs. 2019. Dividend for business year 2022 might be lower than 2021 on declining profits and cash.
Drop Equity ratio over the years.
As the time of writing the company has 2 open positions (vocational training) on their German website which suggests turnaround is still in progress and management is cautious. It is good that management focuses on profitability.
Washtec AG is covered by a few analysts which all have a buy rating.
Some value focused investors are holding a position:
The company appears as undervalued on my screener.
Conclusion: Well managed company and good turnaround story. Market leader. Business model is cyclical and depending on macro environment. Question is how business will be impacted by inflation/stagflation. Customers might wash their cars less often as daily expenses (food, rent, mortgages) impact their wallets. The company got hit in previous crisis (2000 and 2008) but recovered very well. A deeper dive is required to understand the business model better and see how the company managed the other two recessions (were they in a better financial position that time?). A big positive is that the company has a strong cash flow and is still profitable. The next dividend might be lower but there should be one given their Washtecs dividend policy. Personally, I prefer companies with more consistency in their dividend payouts for my dividend portfolio. Washtec AG could suit a long term focused investor who wants to own part of a leader in their industry with a good management and for someone who can stand a share price drop as we have seen in 2001/2008. For me right now I would like to see the share price a bit more down or an improving macro environment where I can anticipate margin improvements before starting a position. The reason for that is that I have already too many positions. There is a good chance that we are at the bottom already (nobody knows). Im ok with missing out here as still too many unknowns and I will keep looking for companies with better valuation metrics and lower risk but keep this definitely on my watchlist.
PS: This post was sitting in my drafts for a month but no news from the company since. What changed is market keeps recovering while the share price is coming down and currently at EUR 34.50. So company valuation vs. market improved.
Please note these are just my thoughts and that this is no financial advise. I encourage you to do your own research and due diligence.