EDAG Engineering Group — Engineering the ‘e-motive’ future

EDAG Engineering Group — Engineering the ‘e-motive’ future

EDAG is one of the world’s leading independent engineering service providers to the global automotive manufacturing industry. With a reputation built over decades in the core German market, the company appears well positioned to benefit from the surge in new vehicle projects being driven by the megatrend towards electromobility. Its existing customer base, composed of many of the leading car manufacturers, needs to transition entire product ranges, and new independent vehicle projects are emerging around the world, requiring specialist engineering resources.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

EDAG Engineering Group

Automobiles and parts

Price

€17.52

Market cap

€438m

Share price graph

Share details

Code

ED4

Shares in issue

25.0m

Net debt (€m) as at 30 June 2018

116.1

Business description

Founded in 1969, EDAG has grown into one of the world’s leading independent automobile design and engineering specialists. The group’s expertise is in the integrated design and optimisation of vehicles, production facilities, derivatives and modules. It listed on the Frankfurt Stock Exchange in December 2015.

Bull

The trend to e-mobility is an encouraging surge in new, often independent vehicle projects.

Megatrends in digitalisation and connectivity are providing new areas of collaborative focus.

Dividend yield provides significant support.

Bear

Automotive plans can often change rapidly with OEMs, which can be extremely fickle.

Increased competition in e-mobility engineering services requires robust contract risk controls.

Dividend was paid from reserves in the past two financial years but should be covered in FY18.

Analysts

Andy Chambers

+44 (0)20 3077 5700

Annabel Hewson

+44 (0)20 3077 5700

Engineering the ‘e-motive’ future

EDAG is one of the world’s leading independent engineering service providers to the global automotive manufacturing industry. With a reputation built over decades in the core German market, the company appears well positioned to benefit from the surge in new vehicle projects being driven by the megatrend towards electromobility. Its existing customer base, composed of many of the leading car manufacturers, needs to transition entire product ranges, and new independent vehicle projects are emerging around the world, requiring specialist engineering resources.

Leading independent automotive engineer

With 8,400 employees and a global network of around 60 sites in 19 countries, EDAG provides engineering services to the global vehicle OEMs and sophisticated automotive suppliers. It offers complementary solutions across its Vehicle Engineering (62% of FY17 sales), Electrics/Electronics (20%) and Production Solutions (18%) activities. It can support customers across the entire value chain from the original concept, though product development and prototype construction to delivery of turnkey production systems. It also has established centres of excellence that design innovative technologies for future automotive applications, with expertise in both established and emerging trends, such as vehicle lightweighting, e-mobility, autonomous driving, safety and connectivity.

Growth focused on mobility of the future

The focus on e-mobility is driving a surge in engineering resource requirements at the major OEMs, but competitive propositions are also emerging from potential new entrants. The electrification of model ranges not only requires innovative drive systems, but also accelerates trends such as new production systems, weight reduction and digital contents. All of this is encouraging EDAG to selectively shift towards a more global perspective where there is even less competition. Managing contract profitability will remain key in this dynamic environment.

Valuation: Attractive income as growth resumes

In an update on 16 October 2018, the company raised FY18 revenue guidance to at least 8% growth, with an adjusted operating margin of 5–7%. Consensus estimates appear slightly below that. Q3 results are due on 8 November 2018. Achievement of these forecasts with a return to growth leave the 12.5x FY19e reported PE looking undemanding, and supported by an attractive historical dividend yield of 4.3%.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16

715.0

28.8

72.2

75.0

24.3

4.3

12/17

716.7

22.1

57.3

75.0

30.6

4.3

12/18e

771.0

38.3

105.0

77.0

16.7

4.4

12/19e

811.8

49.6

140.6

78.4

12.5

4.5

Source: EDAG Engineering Group reports, Bloomberg consensus estimates

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2014]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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