Kendrion — Preparing for stronger growth in Automotive

Kendrion (AMS: KENDR)

Last close As at 23/05/2024

EUR14.50

0.72 (5.22%)

Market capitalisation

209m

More on this equity

Research: Industrials

Kendrion — Preparing for stronger growth in Automotive

Kendrion performed well in FY22 despite the difficult market conditions, such as delayed deliveries of raw materials, inflationary pressures and volatile demand. Organic revenue growth was 8% but margins were lower due to higher input prices and engineering costs. The energy transition will drive growth and higher margins at Kendrion over the next few years, bringing it close to its 2025 financial targets (average organic revenue growth of 5% and an EBITDA margin of >15%). The unweighted average of our three valuation methods points to a fair value of €22.8 per share.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Industrials

Kendrion

Preparing for stronger growth in Automotive

FY22 results review

Industrial engineering

2 March 2023

Price

€15.92

Market cap

€240m

Net debt (€m) at 31 December 2022

140

Shares in issue

15.1m

Free float

43%

Code

KENDR

Primary exchange

Euronext Amsterdam

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.6)

(1.7)

(17.6)

Rel (local)

(4.8)

(4.0)

(21.6)

52-week high/low

€20.25

€13.02

Business description

Kendrion develops, manufactures and markets high-quality actuator products for industrial applications (53% of revenues) and automotive (47%). The geographical spread of FY22 revenues is Europe 68%, the Americas 17% and Asia 15%.

Next events

Q123 results

9 May 2023

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

Kendrion is a research client of Edison Investment Research Limited

Kendrion performed well in FY22 despite the difficult market conditions, such as delayed deliveries of raw materials, inflationary pressures and volatile demand. Organic revenue growth was 8% but margins were lower due to higher input prices and engineering costs. The energy transition will drive growth and higher margins at Kendrion over the next few years, bringing it close to its 2025 financial targets (average organic revenue growth of 5% and an EBITDA margin of >15%). The unweighted average of our three valuation methods points to a fair value of €22.8 per share.

Year

end

Revenue
(€m)

EBITDA*
(€m)

EPS*
(€)

DPS
(€)

EV/EBITDA
(x)

P/E
(x)

12/21

463.6

55.8

1.39

0.69

8.2

15.1

12/22

519.3

57.4

1.45

0.72

6.7

10.7

12/23e

552.5

68.3

1.67

0.83

5.6

9.5

12/24e

593.6

80.4

2.23

1.11

4.5

7.1

Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Industrial still going strong, Automotive in recovery

Organic revenue growth of 11% y-o-y in Q422 was better than expected with a strong recovery in Automotive (14%) and continued good growth in Industrial (7%). Group EBITDA in the quarter was up 4% y-o-y and margins were affected by higher input prices and higher engineering costs in preparation for the ramp up of new projects in 2023. As announced on 8 February, the company took an impairment of goodwill and other intangible assets of €57.3m related to the combustion engine activities. The impairment is non-cash and has no impact on the liquidity position and the operational performance of Kendrion. The company’s financial position remains solid with net debt/EBITDA at 2.4x, well within the covenant of <3.25x.

Positive outlook supported by energy transition

For FY23, Kendrion expects the uncertain economic environment to continue in H123 with potentially better economic circumstances in H223, which is based on the expectation that China’s economy will benefit from the end of the strict zero-COVID policy. Energy transition and accelerating electrification will drive revenue growth and higher margins over the next few years. In 2023, the company will start production of nine new projects in Automotive E (electric vehicles related). We have slightly raised our revenue estimates for FY2324 but hardly changed our EBITDA estimates: we expect sales growth of 6–8% and a 250bp improvement in the EBITDA margin to 13.6%, mainly driven by operating leverage and cost savings.

Valuation: Ample upside

Kendrion is valued at a 17% discount to peers based on 2023e EV/EBITDA, which could gradually diminish over time as the company demonstrates accelerating growth and higher profitability. We value Kendrion based on three different methods: historical multiples, discounted cash flow and peer comparison. On broadly unchanged estimates and assumptions, the average of these methods now points at a value of €22.8 per share (versus €22.2 previously).

FY22 results: Better-than-expected revenue growth

Kendrion performed well in FY22 despite the difficult market conditions, such as a volatile economy, delayed deliveries of raw materials, geopolitical instability and inflationary pressures. Revenues were better than we expected, with growth of 12% y-o-y to €519m (Edison estimate was €515.5m). Acquired 3T (industrial control technology) contributed 2% to FY22 growth and currencies also had a positive impact of 2%. In Q422, revenue growth was also 12% y-o-y with a positive currency impact of 1% and no further acquisition effect from 3T, as it was acquired in September 2021.

Exhibit 1: Kendrion results

€m

Q421

Q422

Change

FY21

FY22

Change

Industrial

62.9

68.0

8%

231.5

276.5

19%

Automotive

53.3

61.6

16%

232.5

242.8

4%

Total revenues normalised

116.2

129.6

12%

464.0

519.3

12%

Industrial

28%

7%

20%

13%

Automotive

-6%

14%

13%

2%

Total organic revenue growth

9%

11%

16%

8%

Industrial

N/A

N/A

39.0

47.5

22%

Automotive

N/A

N/A

16.8

9.9

-41%

Total EBITDA normalised

11.5

12.0

4%

55.8

57.4

3%

Industrial

N/A

N/A

16.8%

17.2%

Automotive

N/A

N/A

7.2%

4.1%

Total EBITDA margin

10.0%

9.3%

12.0%

11.1%

Exceptionals

(0.4)

(1.3)

(0.8)

(5.3)

Impairment

(3.3)

(58.7)

(3.3)

(58.7)

EBIT reported

1.0

(55.2)

N/A

23.9

(34.6)

N/A

Net profit reported

0.3

(59.1)

N/A

14.4

(46.3)

N/A

Net profit normalised

4.1

2.7

-34%

20.6

21.7

5%

EPS reported (€)

0.02

(3.91)

N/A

0.97

(3.09)

N/A

EPS normalised (€)

0.27

0.18

-35%

1.39

1.45

4%

Source: Kendrion, Edison Investment Research

Despite all the market challenges, organic revenue growth in FY22 was a solid 8% y-o-y, with an acceleration to 11% y-o-y in the last quarter. To cope with input pressure, Kendrion has raised its prices by 5% on average. The building blocks for organic revenue growth in Q422 were different compared to the previous three quarters in the year. Whereas Industrial (53% of FY22 revenues) was the driver for growth in 9M22, it was a recovery in Automotive (47% of FY22 revenues) that caused the better-than-expected revenue growth in Q4. Please note that Q421 was a very strong quarter for Industrial thus the comparison base was relatively tough.

Industrial showed strong revenue growth of 19% in FY22, with organic growth of 13%, driven by high demand for actuators for electrification applications. Growth slowed to 7% in Q422, but the comparison base was strong (+28% growth in Q421). Industrial Brakes (29% of total revenues) continued strong growth of 19% y-o-y in FY22, with organic growth of 17%, driven by high demand for electromotors and electrified solutions for intralogistics, robotics and wind power, as well as adding new customers such as Hilti and Nord. Industrial Actuators and Controls (IAC, 24% of revenues) also showed high growth of 21%, of which 9% came from 3T. Organic growth of 11% was driven by higher demand for rotary solenoids for logistics, rotary locks for washing machines and fluid control valves for beverage makers and high demand for inductive heating solutions.

Automotive showed a clear improvement during 2022, with an organic revenue decline of 4% in H122 but ending the year with 2% growth and a strong recovery of 14% in Q422. Car production in Europe was up 5% in Q422 but down 1% in FY22 (source: S&P Global). Kendrion is outperforming the market, fuelled by the ramping up of orders won in previous years. As communicated on 8 February 2023, Kendrion has completed the split of its Automotive activities into ‘E’ and ‘Core’, which it announced at its capital markets day in September 2022 (with both full P&L responsibility). Core focuses on operational excellence and cash flows and manufactures products that are related to the combustion engine. E is focused on innovation and growth to benefit from the strong growth in electric vehicles. In FY22, Core realised revenues of €180m and E had revenues of €63m.

Kendrion’s operations in China (one of its strategic growth areas) felt the impact of the zero-COVID policy and as a result FY22 revenues ended up equal to last year. Kendrion is constructing a new factory, which will double capacity towards 28,000 square metres. Kendrion expects the new facility to be finalised in Q123 and fully operational in Q323 after a period of testing and moving activities from the current two locations to the new one (this reflects only a small delay of about one quarter versus previous plans). Kendrion expects to start six new Automotive E projects in China in H223.

Normalised EBITDA in FY22 increased a bit slower than we expected with 3% y-o-y growth to €57.4m, reflecting a 90bp lower margin at 11.1%. According to Kendrion, the 5% revenue growth due to increased average sales prices to offset inflationary pressure on costs had a negative impact on EBITDA margin of 0.5%. Other reasons for the decline were higher energy costs and higher developments costs in Automotive for the preparation of new projects in 2023. The EBITDA margin in Industrial increased 40bp to 17.2%, while the margin in Automotive was 310bp lower at 4.1%.

The reported EBIT loss of €34.6m was affected by one-off restructuring costs (mainly related to reorganisations within automotive) and an impairment of goodwill and other intangible assets of €57.3m as well as a €1.2m deferred asset write-down related to Automotive Core. This was announced on 8 February 2023 and was based on the expectation that the combustion engine will phase out over the next 10–15 years, combined with the increased interest rates.

Normalised free cash flow was stable at €3.1m, thereby absorbing €10m higher capex (mainly due to investments in the facility in China) and higher working capital due to the higher activity level.

Net debt increased from €130.6m in FY21 to €140.3m in FY22, mainly due to the cash part of the dividend of €7m and the €10m higher capex. In line with the company’s expectation at the Q322 results last November, inventories and trade receivables were lower at year-end, resulting in a decline in net debt of €13m versus Q322 (free cash flow in Q4 was a solid €16.7m). Net debt/EBITDA was stable at 2.4x and is well within the covenant of below 3.25x.

Positive long-term outlook

For FY23, Kendrion expects the uncertain economic environment to continue in the first half of the year with potentially better economic circumstances in the second half, based on the expectation that China’s economy will benefit from the end of the strict zero-COVID policy. Based on its product and project pipeline in Industrial, Kendrion expects further growth in these activities, despite the strong comparison base. In FY23, Kendrion again will compensate for the input pressure by raising its prices. During the analyst call, management commented to expect inflation to decline, which should result in price increases below the 5% achieved in FY22. The energy transition will drive revenue growth and higher profitability for Kendrion over the next few years.

Exhibit 2: Kendrion Automotive nominations

Source: Kendrion FY22 presentation

Kendrion won new orders in Automotive worth €305m in FY22, including €207m related to Automotive E. Exhibit 2 shows that over the past five years, total new orders in automotive amounted to €1.5bn and the book-to-bill stands at >1, corrected for cancellations and the extended lifetime of legacy products. Original equipment manufacturers are reducing their investments in legacy products (internal combustion engine related), which shows in the book-to-bill for Kendrion’s Automotive Core of 0.9. The strongest growth in order book comes from Automotive E, which had a book-to-bill of 2.2.

During the analyst call, management commented to expect a higher EBITDA margin in 2023, which is fuelled by the previously announced cost savings of €8m, being the €4m due to the split within Automotive and €4m savings due to closure of an automotive plant in Austria. Management does not expect much negative margin impact in H123 from the start-up of the new facility in China, where new Automotive E projects are expected to have a positive contribution margin as from H223.

Despite the difficult market conditions over the past three years, Kendrion remains confident in realising its medium-term targets for the period 2019–2025: organic revenue growth of 5% or more on average per year with an EBITDA margin of at least 15% in 2025 (11.1% in FY22) and return on invested capital of at least 25% in 2025 (FY22: 15.6%).

Kendrion is well positioned to benefit from the energy transition. As Exhibit 3 shows, 50% of the company’s revenues is exposed to strong growth, being the activities in Industrial Brakes, Automotive E and China. Automotive Core (35% of revenues) is now set up as a cash cow, while the other 65% of group revenues comes from clean energy applications with exposure to attractive end-markets (for growth and/or profitability).

Exhibit 3: Kendrion’s focus on clean energy

Source: Kendrion FY22 presentation

We have raised our FY23 revenue growth estimate from 5% to 6.5% due to the higher-than-expected revenue base in FY22 while raising our growth expectations for the Automotive division from 5% to 8%, driven by the contribution of new projects. For Industrial, we maintain our 5% revenue growth forecast, driven by the continuing electrification trend. For FY24, we stick to our previous growth estimate of 7.5%, which is based on 5% growth in Industrial and 9% in Automotive. As FY22 EBITDA was a bit lower than expected, we have left our EBITDA estimates broadly unchanged despite the raised revenue estimates. This reflects an adjustment of 30bp in margins for both FY23 and FY24, although this still means a decent improvement compared to FY22, which is mainly driven by operating leverage and cost savings. Kendrion seems well on the way to achieving the targeted 15% EBITDA margin in 2025. The CAGR in our estimated EPS in 2022–24e is 25%.

Exhibit 4: Change in estimates

€m

2022

2023e

2024e

Old

Actual

Change

Old

New

Change

Old

New

Change

Sales

516

519

0.7%

541

553

2.1%

584

594

1.6%

EBITDA normalised

58.6

57.4

-2.1%

68.7

68.3

-0.6%

81.1

80.4

-0.8%

EBITDA margin

11.4%

11.1%

12.7%

12.4%

13.9%

13.6%

EBITA margin

6.9%

6.6%

8.1%

7.8%

9.6%

9.3%

Net profit adjusted

24.2

21.7

-10.3%

29.6

25.2

-15.0%

39.0

33.7

-13.7%

EPS adjusted (€)

1.60

1.45

-9.7%

1.96

1.67

-15.0%

2.58

2.23

-13.7%

DPS (€)

0.80

0.72

-10.3%

0.98

0.83

-15.0%

1.29

1.11

-13.7%

Source: Kendrion, Edison Investment Research

Valuation

For the valuation of Kendrion, we look at three different valuation methods: historical multiples, discounted cash flow (DCF) and peer comparison (as discussed in our report).

Historical valuation: based on our forecast EV/EBITDA multiple for FY23, Kendrion is trading at a discount of 34% compared to its historical valuation of 8.4x. Based on our previous assumption that a small discount of 5% to its historical multiples is justified, given that current profitability is slightly below the historical average, this gives a value of €20.3 per share (down from €20.7 per share previously).

DCF valuation: we have only changed the risk-free rate from 3.0% to 3.5% in our assumptions, bringing the WACC to 8.4% (was 8.0%). We slightly raised our estimates and rolled over our model by one year, which overall has resulted in a higher value per share of €26.9 vs €24.1 previously.

Peer group comparison: we have not changed our assumption that a valuation in line with its peers is merited based on the 2023e EV/EBITDA multiple, versus the current discount of 17%. This assumption delivers a value per share of €21.2, down from €21.9.

The updated average of these valuation methods points to a valuation of €22.8 per share (previously22.2).

Exhibit 5: Valuation methods for Kendrion

Valuation method

Edison assumptions

Equity value per share (€)

Historical valuation

2023e EV/EBITDA at a small discount of 5% to its historical multiples

20.3

DCF

Terminal growth 1.5%, terminal EBITA margin 7.5%

26.9

Peer group

2023e EV/EBITDA in line with peers

21.2

Average value per share

22.8

Current share price

15.9

Source: Edison Investment Research

Exhibit 6: Financial summary

€ m

2020

2021

2022

2023e

2024e

2025e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

396.4

463.6

519.3

552.5

593.6

640.6

Gross Profit

191.0

225.8

249.3

265.7

286.0

309.3

EBITDA normalised

44.6

55.8

57.4

68.3

80.4

94.6

EBITDA reported

40.2

51.7

(6.6)

68.3

80.4

94.6

Depreciation & Amortisation

(25.7)

(23.9)

(23.3)

(25.3)

(25.3)

(25.4)

EBITA normalised

18.9

31.9

34.1

43.0

55.1

69.2

Amortisation of acquired intangibles

(4.4)

(3.9)

(4.7)

(5.0)

(5.0)

(5.0)

Exceptionals (Edison definition)

(4.4)

(4.1)

(64.0)

0.0

0.0

0.0

EBIT reported

10.1

23.9

(-34.6)

38.0

50.1

65.2

Net Interest

(4.4)

(3.7)

(5.1)

(5.2)

(4.6)

(4.0)

Participations

0.0

(0.1)

0.0

0.0

0.0

0.0

Profit Before Tax

5.7

20.1

(39.7)

32.7

45.5

61.2

Reported tax

(1.4)

(5.7)

(6.6)

(11.3)

(15.6)

(20.6)

Profit After Tax

4.3

14.4

(46.3)

21.5

29.9

40.6

Net income (normalised)

11.7

20.6

21.7

25.2

33.7

43.4

Net income (reported)

4.3

14.4

(46.3)

21.5

29.9

41.6

Average number of shares (m)

14.8

14.8

15.0

15.1

15.1

15.1

Total number of shares (m)

14.9

14.9

15.1

15.1

15.1

15.1

EPS normalised before amortisation (€)

0.79

1.39

1.45

1.67

2.23

2.87

EPS reported (€)

0.29

0.97

(3.09)

1.42

1.98

2.75

DPS (€)

0.40

0.69

0.72

0.83

1.11

1.43

Revenue growth

-3.9%

17.0%

12.0%

6.4%

7.4%

7.9%

Gross Margin

48.4%

48.3%

48.1%

48.1%

48.2%

0.0%

EBITDA Margin

11.3%

12.0%

11.1%

12.4%

13.6%

14.8%

Normalised Operating Margin

4.8%

6.9%

6.6%

7.8%

9.3%

10.8%

BALANCE SHEET

Fixed Assets

299.6

324.5

278.5

273.7

269.7

266.3

Intangible Assets

159.1

183.4

126.5

124.1

121.6

119.2

Tangible Assets

118.7

121.9

131.6

129.2

127.7

126.8

Investments & other

21.8

19.2

20.4

20.4

20.4

20.4

Current Assets

129.5

166.3

198.1

209.0

227.3

251.3

Stocks

61.7

79.7

85.1

90.0

96.0

103.0

Debtors

47.2

56.8

58.8

62.6

67.2

72.5

Other current assets

7.6

11.2

16.4

17.5

18.7

20.2

Cash & cash equivalents

13.0

18.6

37.8

39.0

45.3

55.6

Current Liabilities

87.9

97.6

104.8

110.4

117.3

126.2

Creditors

44.0

51.6

54.9

58.4

62.8

67.7

Other current liabilities

31.9

33.2

38.4

40.5

43.0

46.0

Short term borrowings

12.0

12.8

11.5

11.5

11.5

11.5

Long Term Liabilities

137.8

170.2

196.8

186.8

176.8

166.8

Long term borrowings

104.2

136.4

166.6

156.6

146.6

136.6

Other long term liabilities

33.6

33.8

30.2

30.2

30.2

30.2

Shareholders' equity

203.4

223.0

175.0

185.6

202.9

224.7

Balance sheet total

429.1

490.8

476.6

482.7

497.0

517.7

CASH FLOW

Op Cash Flow before WC and tax

40.6

54.6

52.1

68.3

80.4

94.6

Working capital

5.4

(17.4)

(4.9)

(4.1)

(5.1)

(5.8)

Tax

(1.3)

(6.2)

(5.2)

(11.3)

(15.6)

(20.6)

Net interest

(2.9)

(3.2)

(4.1)

(5.2)

(4.6)

(4.0)

Net operating cash flow

41.8

27.8

37.9

47.7

55.2

64.2

Capex

(16.0)

(30.0)

(37.7)

(25.5)

(26.3)

(27.1)

Acquisitions/disposals

(78.2)

(18.8)

(0.2)

0.0

0.0

0.0

Equity financing

0.0

0.0

0.0

0.0

0.0

0.0

Dividends

0.0

(4.3)

(7.1)

(10.9)

(12.6)

(16.8)

Other

(6.4)

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

(58.8)

(25.3)

(7.1)

11.2

16.3

20.3

Opening net debt/(cash)

50.4

109.2

134.5

141.6

130.4

114.1

Closing net debt/(cash)

109.2

134.5

141.6

130.4

114.1

93.8

Source: Kendrion, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Kendrion and prepared and issued by Edison, in consideration of a fee payable by Kendrion. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Kendrion and prepared and issued by Edison, in consideration of a fee payable by Kendrion. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Kendrion

View All

Latest from the Industrials sector

View All Industrials content

Research: Investment Companies

Diverse Income Trust (The) — Manager is the most bullish in the last 30 years

The Diverse Income Trust (DIVI) is managed by Gervais Williams and Martin Turner at Premier Miton. They are very optimistic about the prospects for UK stocks, with Williams recently stating: ‘I am more bullish than I have been in the last 30 years’. UK equity valuations are looking very attractive versus other markets and their own history, while there is a historically wide discount between the valuation of DIVI’s portfolio and that of the UK market. The trust’s income is now higher than pre-COVID-19 levels, with the improvement exceeding that of UK stocks in aggregate, which Williams attributes to the success of its portfolio companies. He believes that DIVI’s shareholders will be rewarded with a higher level of income, while successful stock selection, which has been demonstrated in the past, could lead to outperformance versus the UK and global markets.

Continue Reading
Diverse Income Trust (The)_resized

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free