Aalberts: Joining the Ranks of Europe’s High-Quality Industrial Business

Henrik Andersson of Didner & Gerge presented his investment thesis on Aalberts (Netherlands: AALB) at European Investing Summit 2021.

Thesis summary:

Aalberts is a €5 billion market cap Dutch-based corporation involved in a number of attractive end-markets with a strong environmental focus that the company articulates very well. More than 65% of sales can be traced directly to four SDG objectives, which will steadily increase, not the least because of 100% of capex being directed into these products and services. The company is active towards four end markets: eco-friendly buildings, semicon efficiency, sustainable transportation, and industrial niches.

Henrik believes the company has just begun its journey towards quality-industrial type margins and profitability. Furthermore, this is a company that is not very well-known outside of the midcap-crowd in Europe. Management every opportunity to change that during the next mid-term plan, which Henrik expects to be presented in December 2021.

Aalberts was founded in 1975 by Jan Aalberts, with a base in the steel industry that dominated much of the Benelux industrial scene at the time (think Arcelor and its satellite suppliers). Slowly the company branched out into other areas – piping systems for buildings, for instance – and these efforts were multiplied starting in 2012 when current CEO Wim Pelsma succeeded Mr. Aalberts. The management team acts long-term, shows integrity and honesty in its communications, and has installed a system based on decentralization in its ten operational niches. The company has modeled some of its modus operandi on other successful holdco structures, such as Lifco of Sweden. While a success like that is rare to come by, it is Henrik’s belief that Aalberts has the odds in its favor for strong value creation in the next decade and beyond.

The current business plan was presented in 2018. Its most crucial targets were organic growth of >3%, EBITA margins of >14%, and ROCE of >18% before December 2022. The first two have already been met, whereas ROCE most likely will pass the target in 2022. While these numbers are very good in their own right, Henrik believes the company is primed for more given the leading position of its brands and the buoyant end-markets in, especially, eco-friendly buildings (where they supply products spanning “from source to emitter”) and semiconductors (the main customer is ASML). Henrik’s base case is for organic growth of around 5% and ROCE of 20%, which would push Aalberts up the ladder towards Europe’s high-quality industrial businesses. Along these lines; R&D, pricing power and client relationships are also very much improved.

Aalberts recently traded at ~€50 per share, a P/E of 17-18x. The valuation assumes slightly lower returns of capital than today and growth of ~3%. These are highly beatable numbers, in Henrik’s view. Finally, touching on idea sourcing, Henrik first came across the idea in an article announcing “The World’s Greenest Building”, which gave the award to Aalberts’ headquarters.

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About the instructor:

Henrik Andersson has worked within a framework of investing in quality franchises in a concentrated portfolio setting since the early 2000s. After five years as an assistant fund manager and analyst at Handelsbanken Asset Management, in 2003 he launched a discretionary portfolio named European Quality with 15 holdings, inspired by Peter Cundill’s approach of “never shoot into the broom”. That later branched out to a family of funds named the Selective Funds. In 2011 he joined Didner & Gerge, an employee-owned asset management boutique, to launch a Global Equity Fund together with a colleague. D&G Global is now applying these same principles in trying to identify sustainably great companies with an appealing valuation starting point. Over the years, an increased emphasis has been put on corporate leadership with a clear preference for owner-operated companies with a history of outstanding operations.