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Activists Are Circling Germany's GEA Group

Elliott Management and Albert Frere together own 8% of GEA Group, which could propel the price higher

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Apr 11, 2018
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GEA Group (

GEAGF, Financial) is a German manufacturer of industrial food processing and other equipment. The stock is not cheap, but there are several activist investors involved.

The stock trades for 34.66 euros ($42.87), there are 192.5 million shares and the market cap is 6.67 billion euros ($8.27 billion). It takes $1.24 to buy one euro. Earnings per share were 1.23 euros and the price-earnings ratio is 28. The dividend is 0.85 euros and the dividend yield is 2.5%. So far, it doesn’t look like a cheap stock.

According to Morningstar, sales were 4.14 billion euros in 2012, grew to 4.6 billion euros in 2015, then fell to 4.49 billion euros in 2016 and are currently at 4.57 billion euros for the trailing 12 months. Growth seems kind of sluggish. EBITDA margins were 12.2% and operating margins 10.4%. Return on equity is usually in the mid-teens. Free cash flow is usually 200 billion euros to 400 billion euros, but was 164 billion euros in the trailing 12 months. That would be a free cash flow yield of 2.45%. Not a cheap stock unless the company can get back to old free cash flow.

Management has given estimates for fiscal 2018 of 5% to 6% sales growth, 12% to 13% operating margins and cash flow growth of 8.7% to 9.7%. Not bad if they can pull this off.

GEA makes all types of products for the manufacturing industry: milking, chemical, pharmaceutical, brewing, pumps, valves, compressors, freezers, sterilizers and hundreds of other applications. Dairy farming accounts for 13% of revenues, 21% for dairy processing, 28% food, 12% beverages, 14% pharmaceutical and chemical and 13% other industries. By far, food is the largest segment. Asia generates 22% revenue, followed by Germany and Eastern Europe with 21%, Western Europe, the Middle East and Africa (that’s a strange group of areas to lump together) at 13%, Latin America at 7% and North America at 18%.

The balance sheet shows 250 million euros in cash and 1.39 billion euros in receivables. The liability side shows 736 million euros in payables and 245 million euros in bank debt. Strong balance sheet.

I found the stock by perusing Morningstar’s 10 Most Undervalued Non-US Stocks With Wide Moats. Two activist organizations together own GEA’s stock: Elliott Management and Albert Frere. Elliott owns over 3% and Frere over 5%. CEO Juerg Oleas announced he would step down in April of next year. Frere is involved with Pargesa (

PRGAF, Financial) and Group Bruxelle Lambert (GBLBF, Financial), which we owned last year and made a nice little profit in. Perhaps these two activist can shake things up and get the stock to rise.

A Reuter’s article quoted two additional institutional managers: “GEA is a good company but profit warnings in the past speak against its ability to forecast earnings,” Jella Benner-Heinacher from the German shareholder association DSW, said, adding that she also supported the idea of an external candidate to take over as chief executive.

“He did not make as much progress with his restructuring as he had hoped,” Dieter Tassler, a spokesman for investor association SdK, said.

An activist situation is the only reason I can see buying the stock as it isn’t cheap and sales have been flat. Perhaps there could be some mergers and acquisitions, a dividend or a spinoff. I don’t see any great reason why sales are going to rise other than management has given positive guidance.

Disclosure: We do not own shares.

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