SOTP valuation
Our SOTP/NAV is EV/EBIT-based on a divisional basis. We have applied the Ebit multiples seen at Dormakaba and Assa Abloy to value the DOM business (locking solutions) with a hefty discount for the difference in size. Similarly, we have used the multiples seen at listed HVAC and heat exchanger competitors (GEA, Alfa Laval) to value the ad hoc SFPI business (NEU and MMB respectively) albeit applying a 33% discount for size. Going granular in these businesses is difficult. The windows manufacturing side is more volatile growth wise (dependent on tax incentives) which weighs on the MAC multiples.
DCF valuation
Our DCF does allow for a modest expansion in the EBITDA margin from its 2022 low at 9% to c.10% in 2033. This assumes that SFPI can digest the cost price surges in 2023. As a rule, it would be hard to expect EBITDA margins sustainably above 11% as SFPI operates in competitive markets.
WCR is regarded as a cash burner onwards as the business normalises/faces supply issues. The necessity to tie up resources in WCR is unlikely to change in these lines of business. On the capex front, we have assumed that the pace could be parallel to sales growth after the efforts to reshape the MAC unit.
All in all, the FCF margin on sales may well remain above 4%. This FCF margin means that the EBITDA conversion rate in FCF is substantially above 40%, good enough to leave room for both dividends and a stream of small acquisitions, i.e. growth.
Peer valuation
A variety of peers aim at re-combining the various end-markets of SFPI from security and locks down to heat exchangers and plain vanilla building materials. We have not allowed for any discount for SFPI’s small size as it caters for proximity markets.
