GESCO AG – Value Analysis (XETRA:GSC1) : December 26, 2017

Capitalcube gives GESCO AG a score of 56.

Our analysis is based on comparing GESCO AG with the following peers – Fiducial Office Solutions SA, Conzzeta AG, AdCapital AG and Schuler AG (SACI-FR, CON-CH, ADC-DE and SCUN-DE).

Investment Outlook

GESCO AG has a fundamental score of 56 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance last month is down from a median performance last year.
  • It’s current Price/Book of 1.54 is about median in its peer group.
  • The market expects GSC1-DE to grow at about the same rate as the peers and to maintain the median returns it currently generates.
  • GSC1-DE‘s relative asset efficiency and net profit margins are both around the median level.
  • Changes in annual earnings are in line with its chosen peers but lags in terms of revenue, implying the company is cost conscious and selective about spending for growth.
  • GSC1-DE‘s return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers.
  • The company’s margins are around the peer medians and do not suggest any benefit from a pricing or an operating cost advantage versus peers.
  • While GSC1-DE‘s revenues in recent years have grown faster than the peer median, the market gives the stock a P/E ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company is likely overinvesting in a business with only median returns.
  • GSC1-DE has additional debt capacity.

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Leverage & Liquidity

GSC1-DE has additional debt capacity.

  • With debt at a reasonable 27.66% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 13.56%), and a well-cushioned interest coverage level of 11.71x, GSC1-DE has the capacity to borrow some more.
  • Of the 4 chosen peers for the company, only 3 of the stocks have an outstanding debt balance. Companies with no debt include ADC-DE.

GSC1-DE has moved to a relatively high liquidity from an Some Capacity profile at the recent year-end.

  • GSC1-DE‘s interest coverage is its highest relative to the last five years and compares to a low of 9.29x in 2013.
  • The increase in its interest coverage to 11.71x from 9.35x (in 2017) was also accompanied by an increase in its peer median during this period to 11.71x from 9.35x.
  • GSC1-DE‘s debt-EV continues to trend downward and is below (but within one standard deviation of) its five-year average debt-EV of 30.89%.
  • Though its debt-EV decreased to 27.66% from 32.66% (in 2017), its peer median remained relatively stable during this period at 13.56%.
  • Relative to peers, debt-EV fell 5.00 percentage points. Unlike the peer median, it is also above the 25% leverage benchmark.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Fiducial Office Solutions SA 8.16 1.24 17.91 56.36
Conzzeta AG 0.22 3.5 38.73 2983.56
AdCapital AG 13.56 584.8 8.25 70.43
Schuler AG 25.23 1.64 6.29 53.85
GESCO AG 27.66 2.05 11.71 38.17
Peer Median 13.56 2.05 11.71 56.36
Best In Class 0.22 584.8 38.73 2983.56

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Company Profile

GESCO AG is an investment holding company, which engages in acquiring small and medium enterprises. It operates through the following segments: Tool Manufacture and Mechanical Engineering, Plastics Technology, Gesco AG, and Other and Consolidation. The Tool Manufacture and Mechanical Engineering segment produces machines and tools. The Plastics Technology segment includes plastic processing companies that manufacture injection-moulded plastic parts as well as plastic and paper sticks. The Gesco AG segment comprises the activities of the firm as an investment holding company. The Other and Consolidation segment pertains to companies that are not assigned to any other segment as well as consolidation effects and reconciliations. The company was founded by Klaus M├â┬Âllerfriedrich in 1989 and is headquartered in Wuppertal, Germany.

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