KSB AG (KSBBF, Financial) is a German maker of pumps and valves. The stock is reasonably priced. It has been sold off with the downturn in commodities; however, it may continue to do well if countries continue to urbanize.
KSB has 1.75 million shares and trades at a market cap of €554 million ($620 million). Earnings per share were €22.3 in 2015, and the price to earnings ratio is 14.2. The dividend was cut to €5.5 from €8.5, and the dividend yield is 1.7%. It takes $1.12 to buy one euro.
The balance sheet shows €273 million ($306 million) in cash, €663 million ($743 million) in accounts receivable and €454 million ($508 million) in inventories. The liability side shows €239 million ($278 million) in accounts payable and €219 million ($245 million) in debt. Pretty solid balance sheet.
Sales were €2.33 billion ($2.6 billion) in 2015, up 7% over 2014. Operating cash flows were €116.6 million ($130 million), and capital expenditures were €75.8 million ($85 million). Free cash flow was €40.8 million ($45.7 million), and the free cash flow yield is 7.3%. That’s an awesome free cash flow yield in today’s market.
Sales grew from €1.974 billion ($2.21 billion) in 2011, €2.188 billion ($2.45 billion) in 2012, €2.151 billion ($2.4 billion) in 2013 and €2.278 billion ($2.55 billion) in 2014. Sales have grown decently over the last few years and do not seem to have gotten crushed with the selloff in oil and other commodities. Return on equity was 11.1% last year.
Asia accounts for 35.8% of sales, Americas/Oceana 27.5% (I think that’s a strange way to break down that percentage, but that’s the way KSB wants to do it), Middle East/Africa 12.1% and Europe 24.6%. Eighteen percent of sales are made in services, 16% in valves and 66% in pumps. A whopping €58 million ($65 million) was spent on R&D. That’s astounding!
Future Markets Insights put out a report stating that centrifugal pumps will grow at 4.6% a year from 2015 to 2025, reaching $48.3 billion. The theory goes that, as the world continues to industrialize and urbanize, these pumps will be used to move water and other liquids. I can see that thought process but can also see a global recession putting a kink into that idea.
First quarter sales were down 1.8%. Management has begun cutting €200 million ($224 million) in costs. Management expects lower sales of pumps in valves due to a weakening economy in China and Latin America. There are a few contracts locked in that should buoy sales.
There are 886.6 million ordinary shares and 864.7 million preference shares. The ordinary shares receive one vote at the annual meeting and are 80% owned by the KSB Foundation.
So KSB is a reasonably priced stock in an industry that may be taking a break for awhile or may keep going up. If it’s affected by commodities, it will be in a slump. If the world continues to urbanize, KSB should do well. Without knowing much about the pump business, my guess is KSB makes a pretty good pump. With the amount of R&D it spends, it should. It’s a solid company in what may be a growing industry, with a reasonably priced stock.
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