IPO: Defense company Hensoldt appears interesting

D.he Bavarian armaments electronics group Hensoldt is offering its shares in a price range between 12 and 16 euros as part of the planned IPO. These can be drawn from Wednesday until September 23rd.

With the IPO, Hensoldt wants to raise at least 400 million euros and gross 300 million euros for the company itself, with costs of 39 million euros incurred. How many new shares will be issued will depend on the actual selling price; the number will then be between 18.75 and 25 million.

This also applies analogously to the shares that the old shareholders surrender, in this case KKR. The financial investor reserves the right to increase the issue if there is a corresponding demand, which could bring him a total of 277 million euros including the additional placement option.

Revenue side with potential for improvement

The company intends to use the proceeds to repay part of its debts. KKR bought the former armament electronics division of Airbus four years ago for 1.1 billion euros and renamed it Hensoldt. The acquisition was partly financed by the company’s borrowing; the remaining debt amounts to a billion euros. With the proceeds from the IPO, Hensoldt could reduce the debt burden to three times the operating profit (Ebitda) expected for 2020 of around 210 million euros, which would be a very low rate.

Within the range, Hensoldt would have a stock market value between 1.26 billion and 1.58 billion euros. With revenues of 1.11 billion euros in 2019, the ratio of price to sales is moderate.

In 2017 and 2018, Hensoldt recorded losses of around 100 and 60 million euros. Only in 2019 was there a small profit of around 8 million euros. Based on this, the price-earnings ratio (P / E) based on the past would be between 154 and 206. In addition, the company posted further losses of around 88 million euros in the first half of the current year.

Adjusted for the effects of acquisitions, transactions, spin-offs, valuations of credit derivatives and other items, the P / E ratio for 2019 would be 31 to 41, which is a more interesting level. In the first half of the year, the adjusted profit fell from around 25 to 16 million euros compared to the same period in the previous year. The effects of the corona pandemic could also have had an impact here, although Hensoldt is more likely to be indirectly affected.

In contrast, incoming orders rose to 1.77 billion euros in the first half of the year, around four times as much as in the same period in 2019 and significantly more than the roughly one billion euros in each of the years 2017 to 2019.

The German government’s goal of permanently increasing defense spending also speaks for the company. After all, the Bundeswehr is the company’s main customer. When it was sold to KKR, the federal government had already secured the option of acquiring up to 25.1 percent of Hensoldt in a “security agreement”. By the end of the year, the federal government would have to pay KKR 600 million euros for this, after which it can access the average stock market price if KKR lets its stake fall to less than 25 percent. On the basis of the issue range, the share would be valued at EUR 300 to 400 million, although this depends on the number of shares actually issued.


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