The value of tomorrow is realized in partnership with Zonebourse.com
The American company Xylem left the bosom of the conglomerate ITT Corporation in 2011. It takes its name from the xylems, the channels that serve to transport the sap of trees. But the comparison with plants stops there: this company is above all a supplier of equipment for the transport, treatment and analysis of water. The kind of hardware that the general public very rarely sees, but which powers quite a few vital systems around the world.
Its catalog includes pumps, treatment systems, boosters, hydraulic turbines, as well as a battery of sensors and specific products for flow management and control. Xylem can equip a municipal wastewater treatment plant, provide equipment to manage wastewater process of a factory, identify the weaknesses of an infrastructure or ensure the proper functioning of the water networks of a housing estate. The company also offers more technological layers in the field of treatment and monitoring of water quality, energy efficiency or data collection and processing. Of course, it is on this last point that she insists the most since, to put it in a trivial way, companies that touch digital technology in any way are generally better valued than those that sell material agitators. organic matter in sewage settling tanks.
The American generates its turnover with three major types of players. Communities, which provide about half of the income. Industry, up to 35%. And collective and residential construction for the remaining 15%. Geographically, the United States weighs 47% of the whole, ahead of Western Europe (26%), emerging markets (19%) and the rest of the world (8%). The company is distributed in 150 countries. As a result, Xylem is well established across the globe, with a good split between public order and private order. The distribution will however be modified by the recent acquisition of Evoque, a compatriot with a strong presence in the industry. This transaction will create the world leader in the sector and strengthen the environmental dimension of the file, since the water cycle is at the heart of the issues of the time. We also find Xylem in many funds related to this theme.
Steady growth by 2025
Now let’s move on to a more financial part. Xylem operates in an industry that shows steady growth, fueled by increasing population, tightening standards and the need for emerging markets to improve, or even create, infrastructure for the water cycle. The company expects to achieve annual revenue growth of between 4% and 6% by 2025, while improving its profitability. Between 2013 and 2022, revenues have grown from $3.8 billion to $5.5 billion, but margins haven’t grown much. Management is more ambitious for the coming years. The end of 2022 and the beginning of 2023 confirmed this. The reinforcement of Evoque, which brings 1.7 billion dollars in annual revenue and a slightly higher margin than that of Xylem, should make it possible to consolidate the dynamic.
Based on current performance, the valuation is a bit high, but still in line with the average multiple of the last decade. Xylem is a high-quality, well-managed file that can be integrated into a long-term vision.