Bay Wa – Quick View

A share price little changed over 12 months despite increasing profits suggests the market has concerns over the future, but the two-year-old strategy to internationalise and optimise the portfolio using EVA is beginning to pay off. We are told more reshaping is still to come, so the portfolio could improve further. In these turbulent times BayWa’s complexity may be one of its greatest strengths.

Some things are in management control and some are not…
A solid performance in H1 results from a range of factors. Some of these are a function of the two-year-old strategy to invest in more profitable business segments. However, benefits due to rising agricultural commodity prices and increasing demand for heating oil triggered by temporary price declines are external factors.

… so portfolio management is important
Investing in BayWa exposes you to domestic German variables such as construction industry activity as well as global variables such as renewable energy feed-in tariffs and grain and oil prices. Management’s ability to blend these businesses and manage risk is key. It is reasonable to expect some of the businesses to perform poorly at any point in time. The H1 results show an encouraging bias towards growth over the long term with some concerns over the building materials division.

Consensus estimates: Upgrades surely due
The H1 results reflected only one quarter of the New Zealand acquisition, Turners & Growers. This business is capable of contributing in excess of €450m in a full year to revenues. Despite the other M&A changes, the consensus revenue figure should increase, with resulting upgrades to PBT.

Valuation: A full rating – but reasonably so
The comparisons with UK-based Lonrho end with valuation. BayWa trades at twice the multiple although predicted upgrades to EPS will bring this multiple down to a fairer level. The shares have moved little over 12 months. We would look for resilience in the renewable energy business as a trigger for the shares to move.

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