Nils Herzing of Active Ownership Capital presented his in-depth investment thesis on Schaltbau Holding (Germany: SLT) at European Investing Summit 2018.

Thesis Summary:

Schaltbau Holding is a German mid-cap company with a top-three position in the niche market for train doors, high-voltage components, and level crossings. The company is positioned in the attractive and growing railway infrastructure and rolling stock market, which is forecasted to grow at a CAGR of 5+% from 2016-2025.

The rail market is attractive, as Schaltbau delivers mission-critical C-components that have high safety regulations and supply obligations of more than thirty years. Thus, customer purchasing behavior is primarily driven by quality rather than cost.

Additional growth comes from the fact that OEMs want a strong number-three player and are therefore willing to give business to Schaltbau instead of the top two players, Knorr-Bremse and Wabtec, especially as the latter recently acquired the train business of GE.

Furthermore, Schaltbau’s well-known brand makes it an excellent buy-and-build platform, and the ongoing trend to e-mobility and renewable energy drives demand for the highly profitable components business.

Due to strategic missteps as well as weak management and supervisory board, the company lost its way in recent years. In 2017, Active Ownership Capital saw an opportunity to become one of the company’s largest shareholders. It has since strengthened the board and management in order to execute on the strategic plan of refocusing the company on the core business and increasing profitability.

Schaltbau is half-way through its turnaround. The shares offers investor an opportunity to buy into an investment idea with indicative upside of up to 170%, an IRR of ~25% over the next four years.

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About the instructor:

Nils Herzing has worked as a Manager of a German Family Office and is currently working at Active Ownership Capital. B.A. in Management, Philosophy, Art. MSc in Finance from the EBS Business School and EDHEC Business School. CFA Charterholder as of 2016.