Jun 1Liked by Carsten Mueller

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.

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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.

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Definitely cheap, which got me interested! Do you happen to know more about the downside risk to minority investors in Germany?

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