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Alcadon: Taking a closer look at “Vision 2025” - ABG

Benefitting from strong structural growth trends

A value-creating M&A strategy

Vision 2025 could imply 7x ‘25e EV/EBITA

Sales growth of 20% (14% org, 6% M&A) reasonable
Yesterday, Alcadon hosted its CMD with plenty from management presenting. Our key conclusion from the day is: Alcadon is benefiting from several structural growth drivers, with the common denominator being the rapidly increasing amounts of data driving demand for increased transfer capacity (e.g., fiber/FTTH and 5G) and storage capacity (datacenters). Thus, we view its target of annual organic growth of 14% as achievable, and in line with our estimates. We also appreciate Alcadon’s pragmatic approach to acquisitions, with its focus on geographical expansion or the strengthening of local operations, all while extracting synergies (scale, cross-selling, sharing of expertise etc.) and being disciplined about paying reasonable multiplies. All in all, we view Alcadon’s acquisition journey so far as successful, and we have confidence in it continuing to be so. Thus, we expect Alcadon to add 6% annually to sales through acquisitions as its new financial target stipulates, and for it to be value-creating both short- and long-term, providing upside risk to our estimates.

EBITA margin of 10.8% by ’25e is possible
We view the EBITA margin target of >10% over a business cycle and 10.8% by ‘25e as ambitious, and above our current estimates (ABGSCe 9% ‘25e). However, we note that the EBIT margin was an average of 11.9% between ’14 and ’18, and that the current Q2’22 L12m pf EBITA margin of 7.1% is depressed due to 1) price increases lagging cost increases, 2) scaling up in Germany resulting in planned opex increases not yet translating into sales increases, and 3) FX headwinds. Thereby, with high organic growth and its operating leverage, we consider a ~11% EBITA margin by ‘25e as reachable (given that future acquisitions are not margin-dilutive, among other things).
Trading at ~7x ‘25e EV/EBITA, if ”Vision 25” ...
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