Overlooked niche player, Initiating coverage with BUY

The business can be subdivided into the two segments Semperit Industrial Applications (SIA) and Semperit Engineered Applications (SEA). Both segments follow different strategies.

SIA is a commoditized business where Semperit aims for a high degree of standardization and competitive quality based on cost leadership. As Semperit is the third largest producer of hydraulic hoses globally and the second largest in Europe, the company can substantially benefit from economies of scale.

SEA on the other hand is characterized by a high level of customization and innovation. Semperit can excel thanks to its extensive know-how in rubber processing based on over 200 years of experience in the rubber market. Over the years, the company has developed hundreds of different mixtures of rubber, which are hard to copy for its competitors. Further, years of successful partnerships with its customers and a consistent high product quality created a positive brand perception.

Semperit's business is cyclical and currently at the bottom of the cycle after three years of slowdown. Nevertheless, the company has not been idle but invested massively in expanding its capacities to come back even stronger in the next upswing. In addition, Semperit acquired the highly profitable and fast-growing RICO group in 2023 (14% sales CAGR 2010-2022), a specialist in the liquid silicone sector. Although FY25e could still be challenging, we expect a medium-term sales CAGR of 3.7% (FY24-FY27e) and an EBITDA CAGR of 4.5% (FY24-FY27e), supported by the announced € 500bn infrastructure program in Germany.

Semperit has not only demonstrated resilience in the crisis through disciplined cost management but is also ideally equipped for the upswing thanks to strategic investments. Looking at the current valuation of 6x trailing EV/EBITDA, the potential reward clearly outweighs the risks.

We initiate coverage with a BUY recommendation and PT of € 18.2, based on DCF.