As projected by them, their EBIT is down from 4,7 to 4,0mm and the are confirming their EBIT guidance for the full year of 17-20mm. Also, it seems like KN was barely profitable in Q1 with an EBIT contribution of 0.1mm.
I would not read too much into a single quarter and am therefore quite relaxed about the numbers, but: Given they have a history of exceeding their expectations, some people may have hoped for more.
I’m a German investor and I have been following this company for 4 years now.
Please allow me to add a few additional comments.
In July 2019 Funkwerk bought a roughly 15 % stake in euromicron, another German listed company back at that time. They invested € 5.8 million, and a few months later the same year, euromicron went into bankruptcy. Kerstin Schreiber back at that time claimed they were deceived by the former euromicron-management. However, if I remember correctly, euromicron was in big trouble at the time of the equity raise, so from a hindsight this move doesn’t look that intelligent. Of course it’s difficult to say who is guilty, but the (rather minor) EUR 5.8 million are lost. This might also explain why Kerstin Schreiber has been waiting 3 more years for the next acquisition. As you conclude correctly, she should know Hörmann KN well as it is another subsidiary of the Hörmann Group.
The stock is trading at a huge discount because of what I call the Hörmann-discount. Hörmann wanted to takeover Funkwerk in total in – I believe it was 2014 – for some Euro 2.x. Speaking as of what we know today, they seem to have been too stingy. As the stock price climbed 15x, it got simply too expensive for them. So they are sticking with the 78 % and have never spoken about their intentions with Funkwerk since 8-9 years now. Neither a move forward (2nd takeover bid), nor a move backward, i.e. selling some shares to increase free-float and to make Funkwerk “capital market viable”. For most institutional investors Funkwerk is simply not investable: Reporting just twice a year, reporting in German-GAAP and not IFRS, No Earnings Calls, no Presentations, no IR-team, no active participation in Equity-Conferences, no mid-term outlook, too little free-float…
If you dig into the annual reports of Hörmann Group itself, you will find that Funkwerk is their only well-running business they have, their diamond so to speak, so maybe they simply don't want to decrease their stake. Excluding the Funkwerk-cash from the Hörmann-Group balance sheet (as they don’t have legal control over this money, but are fully consolidating Funkwerk), you will find that Hörmann is not in the best shape. In 2019 they issued a € 60 million bond which comes due in June 2024. To secure refinancing of the bonds at least 2 years upfront could have led them to sell Hörmann KN to Funkwerk, as this is a legal way to transfer parts of the Funkwerk-cash to Hörmann. However, this is just a speculation. Not disclosing the purchase price to minority shareholders in a 3rd party transaction is indeed a no-go, as minority shareholders have to wait almost 9 months from July 2022 when the transaction was announced until April 2023 when the annual report will be disclosed . I really hope Kerstin Schreiber didn’t overpay for the transaction to the disadvantage of the minority shareholders. In the annual report 2021 they gave a hint that they were planning for € 19 million of investments in 2022, with the major part being capex for the new building and M&A. Let’s hope they have not paid more than € 15 million for Hörmann KN.
While Funkwerk has developed quite well over the years from a fundamental standpoint, the stock trades at the Hörmann-discount. As long as nothing changes, the discount will not dissipate in my view. At the end of the day, stocks follow earnings, and as long as they perform well fundamentally, the stock should trade higher, but keep in mind the Hörmann-discount makes it impossible to being valued fairly.
Thanks a lot for your comment. I agree with most of your points, namely regarding Hörmann not being in the best of shapes, even though the 2024 bonds trade at a yield around 4.2% which is in no way distressed and Hörmann is still profitable. You are correct that the communication is meagre to non-existent and the market surely applying a "Hörmann discount".
With respect to the acquisition, not disclosing the price is bad governance, even though I read that in the annual meeting, a number of 10mm EUR was mentioned (was not there myself).
It would definitely be great to know more about Hörmann's plans for Funkwerk and it is the biggest question mark I see myself. However, given the strength of the business fundamentally, I can personally live with that situation and just wait as long as I do not feel that minority shareholders are taken advantage of.
Also, some of the critical points you make regarding investability for institutionals could in fact be catalysts it the company. Should Hörmann ever be interested in a stronger share price, they could improve communications/ IR , become more transparent, introduce IFRS etc. in order to attract more outside investor interest.
Thanks for your question and sorry for the late reply.
Minority investors in Germany can be abused like in other countries. The concern in the Funkwerk case is that through disadvantageous related party transactions between Funkwerk and Hörmann, wealth is transferred from Funkwerk (78% owned by Hörmann) to Hörmann itself.
Hörmann may decide to stop dividends or try to take out the minorities on the cheap, limit information and transparency to discourage other owners and so forth.
Any idea why the stock is taking a beating lately? I could not find any news. The whole IR site is very scarse for resources.
Well, it has been trading in a range while making significant moves on a daily basis. They published Q1 results in German here: https://funkwerk.com/corporate-news/pressemitteilung-zum-quartalsbericht-01-2023/
As projected by them, their EBIT is down from 4,7 to 4,0mm and the are confirming their EBIT guidance for the full year of 17-20mm. Also, it seems like KN was barely profitable in Q1 with an EBIT contribution of 0.1mm.
I would not read too much into a single quarter and am therefore quite relaxed about the numbers, but: Given they have a history of exceeding their expectations, some people may have hoped for more.
I’m a German investor and I have been following this company for 4 years now.
Please allow me to add a few additional comments.
In July 2019 Funkwerk bought a roughly 15 % stake in euromicron, another German listed company back at that time. They invested € 5.8 million, and a few months later the same year, euromicron went into bankruptcy. Kerstin Schreiber back at that time claimed they were deceived by the former euromicron-management. However, if I remember correctly, euromicron was in big trouble at the time of the equity raise, so from a hindsight this move doesn’t look that intelligent. Of course it’s difficult to say who is guilty, but the (rather minor) EUR 5.8 million are lost. This might also explain why Kerstin Schreiber has been waiting 3 more years for the next acquisition. As you conclude correctly, she should know Hörmann KN well as it is another subsidiary of the Hörmann Group.
The stock is trading at a huge discount because of what I call the Hörmann-discount. Hörmann wanted to takeover Funkwerk in total in – I believe it was 2014 – for some Euro 2.x. Speaking as of what we know today, they seem to have been too stingy. As the stock price climbed 15x, it got simply too expensive for them. So they are sticking with the 78 % and have never spoken about their intentions with Funkwerk since 8-9 years now. Neither a move forward (2nd takeover bid), nor a move backward, i.e. selling some shares to increase free-float and to make Funkwerk “capital market viable”. For most institutional investors Funkwerk is simply not investable: Reporting just twice a year, reporting in German-GAAP and not IFRS, No Earnings Calls, no Presentations, no IR-team, no active participation in Equity-Conferences, no mid-term outlook, too little free-float…
If you dig into the annual reports of Hörmann Group itself, you will find that Funkwerk is their only well-running business they have, their diamond so to speak, so maybe they simply don't want to decrease their stake. Excluding the Funkwerk-cash from the Hörmann-Group balance sheet (as they don’t have legal control over this money, but are fully consolidating Funkwerk), you will find that Hörmann is not in the best shape. In 2019 they issued a € 60 million bond which comes due in June 2024. To secure refinancing of the bonds at least 2 years upfront could have led them to sell Hörmann KN to Funkwerk, as this is a legal way to transfer parts of the Funkwerk-cash to Hörmann. However, this is just a speculation. Not disclosing the purchase price to minority shareholders in a 3rd party transaction is indeed a no-go, as minority shareholders have to wait almost 9 months from July 2022 when the transaction was announced until April 2023 when the annual report will be disclosed . I really hope Kerstin Schreiber didn’t overpay for the transaction to the disadvantage of the minority shareholders. In the annual report 2021 they gave a hint that they were planning for € 19 million of investments in 2022, with the major part being capex for the new building and M&A. Let’s hope they have not paid more than € 15 million for Hörmann KN.
While Funkwerk has developed quite well over the years from a fundamental standpoint, the stock trades at the Hörmann-discount. As long as nothing changes, the discount will not dissipate in my view. At the end of the day, stocks follow earnings, and as long as they perform well fundamentally, the stock should trade higher, but keep in mind the Hörmann-discount makes it impossible to being valued fairly.
Thanks a lot for your comment. I agree with most of your points, namely regarding Hörmann not being in the best of shapes, even though the 2024 bonds trade at a yield around 4.2% which is in no way distressed and Hörmann is still profitable. You are correct that the communication is meagre to non-existent and the market surely applying a "Hörmann discount".
With respect to the acquisition, not disclosing the price is bad governance, even though I read that in the annual meeting, a number of 10mm EUR was mentioned (was not there myself).
It would definitely be great to know more about Hörmann's plans for Funkwerk and it is the biggest question mark I see myself. However, given the strength of the business fundamentally, I can personally live with that situation and just wait as long as I do not feel that minority shareholders are taken advantage of.
Also, some of the critical points you make regarding investability for institutionals could in fact be catalysts it the company. Should Hörmann ever be interested in a stronger share price, they could improve communications/ IR , become more transparent, introduce IFRS etc. in order to attract more outside investor interest.
Definitely cheap, which got me interested! Do you happen to know more about the downside risk to minority investors in Germany?
Thanks for your question and sorry for the late reply.
Minority investors in Germany can be abused like in other countries. The concern in the Funkwerk case is that through disadvantageous related party transactions between Funkwerk and Hörmann, wealth is transferred from Funkwerk (78% owned by Hörmann) to Hörmann itself.
Hörmann may decide to stop dividends or try to take out the minorities on the cheap, limit information and transparency to discourage other owners and so forth.