An old financial aphorism is that during a gold rush, pickaxe and shovel sellers usually do better than prospectors. Applied to the vast universe of the Internet of Things, this adage makes Kontron a record that matters. The company is a relatively large European player in the world of industrial computing, which over time has focused on hardware and software that allow machines to communicate with each other and interact via the network. It can deploy the infrastructure behind an emergency rescue service, the timing of a rail network, the management of hospital medical equipment, the in-flight entertainment system of an airplane or even the lighting of rooms. of the Louvre Museum.
Refocusing on profitable activities
Kontron is the result of the acquisition of the original company by the Austrian company S & T. This operation set up in 2016 allowed the buyer to diversify its skills in industrial computing, in particular in embedded systems. Seven years after this merger, it is Kontron’s activities that have taken over, especially since S & T sold most of its IT services branch last year. Hence the decision to move the entire group under the Kontron banner, with the label of specialist in the Internet of Things (IoT) for industries. This refocusing was quite logically carried out on the most profitable and dynamic activities, which helps to feed the story of a player with a strong technological component, clearly more attractive in the eyes of investors. The operation also had the merit of silencing the rumors born of the attack, in 2020, of a British hedge fund which criticized the management and the reliability of the accounts. The group is now easier to decipher and its cash is well stocked.
Two targets in sight
Financially, there is therefore a before and after sale of IT services. The company plans to improve its Ebitda margin, which has averaged 9% in recent years, to 13% by 2025. At the same time, revenue is expected to increase from 1.1 billion euros in 2022 to 2 billion euros in 2025. Part of the growth will be of internal origin – the dynamic is good in the IoT businesses -, the rest will come from acquisitions made possible by the renewed solidity of the balance sheet. Analysts believe that the investment envelope can reach 700 million euros without threatening the balance of the group. It is rumored that two major targets are being analyzed. At the same time, profitability will therefore increase, allowing net profit to double in four years to reach 140 million euros. As always, the promises are only binding on those who listen to them, but Kontron’s discount to its counterparts is such that the balance between opportunity and risk tips in its favor.
The visibility on the activity is quite solid. The order book covers more than a year of turnover and management assures us that the potential for new contracts is considerable. Kontron can also count on a privileged relationship with Ennoconn Corporation, its main shareholder with 26.6% of the capital. The Taiwanese is none other than an offshoot of the Foxconn empire, a company well known for being a major subcontractor for Apple. Strong support, which helps to mitigate one of the main criticisms made of the file: a relatively small size compared to a few sector ogres, including another Taiwanese, Advantech, and the German Siemens, to name but two. For the rest, if the management keeps its promises, Kontron displays attractive fundamental qualities: quite correct valuation ratios, an attractive dividend and a healthy balance sheet.