Value Ideas Blog
Microwave Vision, can you get a growing business for free? (Executive Write-Up)

Disclaimer: This is not an investment advice, please do your own research and don’t follow anyone blindly. Furthermore, it has to be mentioned that the author has a position in MicroWave Vision, so do affiliated parties. Thus they participate if the share price increases. Additionally, the author and related parties may sell their shares without further notice.

 

Nearly 2 years ago we stumbled for the first time upon the small French company Microwave Vision, since then we followed them closely and bought in at around 7 Euro per share. As we see the fair share price around 15 Euro which could now be reached due to the ongoing catalyst in form of a new CFO, we would like to share our thoughts  with you and are looking forward to your comments. (Ben from WertArt covered Microwave in April 2015 and bought in and sold out within the year, here you can find what he has written back than.)

 

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Business Description

Microwave Vision (“MVG”) is a French company active in the niche market of antenna testing equipment (“AMS”).

The main segment AMS stands for 85% of Sales, 11,5% EBIT-Margin and is a decent business with a moat coming from high R&D spending (10% of Sales) in a small market niche (Total market size is around 320 Mio. USD) where MVG has more than double the size of its next competitor and with 30%, a high proportion of after sales. The products of MVG measure and display electromagnetic waves of all kinds of antennas. The equipment is used during all stages of a product’s life cycle, including product development, pre-production qualification, production testing and product maintenance. Typical companies using MVGs products are in the telecom, smartphone, satellite, automotive and aerospace/defence industry. Customers of MVG are Airbus, VW, Foxconn, Apple, Google and many more.

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Since our last post some interesting things happened which we think are still not reflected in the share price of the Hornbach Baumarkt AG. Hornbach-Treppe   1. The representatives of Kingfisher, which had owned 25% of the common stocks of the holding and 5% of the Baumarkt shares have left the supervisory board and have sold the shares back to the family and the Baumarkt shares to institutional investors. Kingfisher is now entering the German market. But I think that was not the main reason why they sold their shares and here is a very good article of the FAZ over the reals reasons.   Kingfisher would like to target the “professional” market and not the retail sector. I think that Hornbach has a little stronger position in the professional market than in the retail sector, but in total we are not concerned about this development due to the fact that Kingfisher’s major markets are in UK and France. At the moment you can observe what happened to Tesco etc. when Aldi and Lidl entered the UK market due to the fact that the German retail market is one of the most brutal markets in the world; our players know how to play the game.   2. A few days ago Hornbach Baumarkt was announced to become a SDAX member, this will attract new investors for the share.   3. Hornbach announced incredibly good Q1 numbers. EBIT nearly doubled for the Baumarkt and same store sales increased by more than 15%, this development actually exceeds our own expectations and you can observe a really big “Schlecker effect”.   But a really interesting thing is the development and valuation gap between the holding and the Baumarkt shares. What you can observe is that the Holding nearly performed twice as good as the Baumarkt shares did. We think this is due to the fact that if a bigger fund would like to establish a position it prefers to buy into the more liquid Holding.   Hornbach   So what can be a potential catalyst to change this valuation gab? We heard some rumors from knowledgable persons that the midterm perspective of the Hornbach family, now after they solve the problem with Kingfisher, would like to merger the two companies back into one company with two different traded shares. This is a logical step for the family due to the fact that they can save the money and still hold the full control over the company. So in our opinion it is way better to hold the common shares of the Baumarkt like the family is doing it, because we think the bearer shares of the Holding AG will be switched to bearer shares in the Baumarkt AG. With this move the family will also increase the free float of the total company, with this Hornbach is a clear MDAX candidate and will enhance the stock price of the Baumarkt AG shares.   We think these facts, the development and the future potential show that our first target price of 41,2 € was quiet conservative and still implies an upside potential of around 25% for the Baumarkt Shares which would lead to the same performance which the Holding AG shares already showed. At the moment the operational performance of Hornbach also exceeds our best case scenario which results in a share price of around 50 €. All in all we are really happy with the outcome and we think that  the future which lies ahead of Hornbach is also bright.   Disclosure: Long Hornbach Baumarkt AG