Hanseatic Championship - Finals Results

Quest for top equity investments

We have ongoing results of the finals week:

Acomo/NL (soft commodities)

MCap €0.7bn, EV €0.9bn

3-year trend growth estimate p.a.: sales +na%, operating profit +na% (recent big acq)

Current year valuation: EV/sales 0.8x, EV/operating profit 12x

Our bottom-up analysis concludes with a complete picture of this company that is very nice looking: a long trading history in soft commodities, a healthy eating trend supporting growth and a CEO undertaking the right strategy. The stock is starting to move after a long sideways phase in line with more interest in the stock due to a large acquisition 6 months ago. We contacted the company for an update on the acquisition integration and the CEO himself answered. This is good and bad: good for the response directly from the top, bad for the stock as there is no real IR function. In summary, the investment case is good, but not quite a champion yet.

Adesso/D (IT services)

MCap €0.9bn, EV €0.9bn

3-year trend growth estimate p.a.: sales +15%, operating profit +15%

Current year valuation: EV/sales 1.4x, EV/operating profit 9x

Of all the finalists, Adesso has the most attractive valuation while also offering accelerating growth. While its base growth comes from servicing their corporate and public clients’ digitalization efforts, its higher growth potential comes from its IT solutions, here foremost its insure-tech suite. The recent string of client pitch wins versus the key incumbent, msg Systems, speaks for a superior product. The stock moved into a positive trend about 9 months ago, but now needs additional analysts’ coverage to reach higher valuation levels. Adesso could become a champion if it would show more operating leverage.

Sixt/D (car rental)

MCap €4.6bn, EV €6.4bn

3-year trend growth estimate p.a.: sales +29%, operating profit +43%

Current year valuation: EV/sales 3.1x, EV/operating profit 9x

This is one of the best family run and owned companies of our whole investment universe. The transfer of power by the founder to the next generation is succeeding and the company keeps winning market share from weaker competitors. Sales declined 54% in corona-stricken 2020 and analysts have modest rebound expectations with pre-corona levels to be reached only by 2023. However, we have another consumer stock in the “solid growth” category that is less driven by the macro theme corona. Therefore, Sixt does not become a champion, but is certainly a stock to buy on any corona-induced dip.

Vitrolife/SWE (fertility)

MCap €4.1bn, EV €4.0bn

3-year trend growth estimate p.a.: sales +15%, operating profit +20%

Current year valuation: EV/sales 26x, EV/operating profit 63x

Vitrolife is the most expensive stock of all finalists. It is valued at 26x sales, but with very good reasons. For years now, the company is rolling out the most successful invitro fertilization on a global scale. After a corona dip, it is back on a +15% p.a. sales growth path and could surprise positively as China is now pushing a 2-plus child policy given its awful demographics. Even so, we have two other healthcare stocks in the finals that are slightly better positioned to become a champion.

Sinch/SWE (communications interface)

MCap €9.9bn, EV €10.7bn

3-year trend growth estimate p.a.: sales +45%, operating profit +58%

Current year valuation: EV/sales 7.1x, EV/operating profit 72x

The company’s services enable communications between consumers and corporates. App interfaces (often AI automated) are fast becoming one of the hottest tech areas with huge benefits to both sides. Sinch was one of our four original Hanseatic Champions from 2020.

That leaves 8 stocks left to compete and the announcement of the Hanseatic Champions will take place this Sunday night.

The HanseaticHunter

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