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Research: TMT
While Germany’s 3U HOLDING (3U) reported declines in H121 top-line revenue, both its information and telecom technology segment (ITC) and sanitary, heating and climate segment (SHAC) showed organic growth. The growing cloud computing and e-commerce industries should boost 3U’s prospects, although shortages continue to hamper its SHAC business. To justify multiple expansion, 3U needs to return to growth in its higher-margin renewable energy areas and improve margins in its SHAC segment.
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3U HOLDING |
Organic growth in key segments
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Diversified industries |
Deutsches Eigenkapitalforum 2021
27 October 2021 |
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While Germany’s 3U HOLDING (3U) reported declines in H121 top-line revenue, both its information and telecom technology segment (ITC) and sanitary, heating and climate segment (SHAC) showed organic growth. The growing cloud computing and e-commerce industries should boost 3U’s prospects, although shortages continue to hamper its SHAC business. To justify multiple expansion, 3U needs to return to growth in its higher-margin renewable energy areas and improve margins in its SHAC segment.
H121: Divestments and material shortages
While 3U’s H121 revenues fell 10% y-o-y to €27.3m, largely due to the Q420 divestment of two portfolio assets (a wind farm and a non-core SHAC subsidiary), it grew organic revenues by c 4%. Notably, the ITC segment grew 20% to €11m (or 40% of 3U’s revenues), as the high-margin cloud computing unit grew revenues by 45%. SHAC, 3U’s largest segment at 51% of group revenues, saw revenues fall 14.1% due to the divestment, although the segment did improve continuing revenue by 11% y-o-y from its e-commerce business. Consequently, 3U reaffirmed its guidance of flat FY21 revenues of c €58–63m and EBITDA of c €11–13m as organic growth should continue to offset lost revenue from disposed assets.
Cloud computing and e-commerce as megatrends
One trend benefiting 3U is the growing ERP cloud computing market, where MarketsandMarkets predicts a 17% annual growth rate through 2025, then reaching $101.2b in global sales. This trend should boost 3U’s weclapp high-margin, cloud-based solutions business, which continued its strategy of purchasing businesses to accelerate growth with its Q321 acquisition of ITscope. Another key trend is the e-commerce market that management estimates should grow at more than 10% per year through 2030. While e-commerce generates lower margins, 3U is making progress towards lifting them. 3U’s Selfio, part of the SHAC segment, should benefit from e-commerce’s growth, as it runs an online platform for the professional DIY market. However, the supply shortages in the construction businesses will likely continue to hamper SHAC’s business in the near term.
Valuation: Trading at slight premium to peers
At the €3.98 close on 20 October, 3U is up 95% over the last 12 months. Its 11.0x FY22e EV/EBITDA appears to reflect a return to c 20% growth, while it trades at a slight premium to peers. To justify further multiple expansion and upside in its share price, 3U needs to continue growing its higher-margin renewable energy areas, boost its e-commerce margins, and address the SHAC supply shortage.
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Consensus estimates
Source: Company, Refinitiv |
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Research: Metals & Mining
Since August, there have been a number of developments at Newmont Corporation pertaining to its operational performance for the remainder of FY21. Chief among these was the announcement on 5 October that it had delivered the gold industry’s first Autonomous Haulage System (AHS) fleet to its Boddington mine in Western Australia. Notwithstanding COVID-19, the fully autonomous haulage fleet was delivered on time and on budget and will improve both mine safety and productivity as well as its life. Newmont expects full ramp up and realisation of these benefits in the near future. However, during commissioning, the project faced a number of challenges, including unusually severe weather and heavy rainfall, shovel reliability and operational delays associated with managing bench hygiene, as a result of which it now expects to produce 140koz fewer ounces of gold than originally anticipated in FY21 (cf company-wide attributable production guidance for FY21 of 6.5Moz ±5%).