Analysis: AQ Group AB

AQ Group is a global manufacturer of components and systems for industrial customers with high demands.

The business is organized in two segments: System and Component. System includes our business areas Electric Cabinets and System Products. Component includes our business areas Injection Molding, Inductive Components, Wiring Systems and Sheet Metal Processing.

AQ Group has since its inception in 1994 shown a steady and fast growth with good profitability. The Group has approximately 6300 employees, including 85% in growth countries outside Sweden. The annual turnover is approximately €480 Million. The company is listed on Nasdaq Stockholm’s main market in Sweden.

Summary
For 100 Quarters in a row they have been profitable and at the same time increased their net sales each year during the same time. The numbers add up but the stock is currently not on sale. Current price is 165,8 SEK. Calculated future price in 10 years is between 714 SEK and 1071 SEK. Calculated current price (fair value) 170 SEK – 268 SEK. Sale price 90 SEK – 134 SEK with a 50% Margin of Safety. Recommendation: Wait for a sale.

Zenscore: 9,5 / 10,0

Read more about the Zenscore link

Charts:

Multiyear
1 year

Economic MOAT
The stats (below) look good indicating a sustainable moat. Furthermore 100 quarters or 25 years in a row of profitability even more. The continued industrialization and automatization will continue. The fourth industrial revolution has just begun. With customers operating in everything from vehicle production industries to renewable industries AQ Group stand to profit.

It was hard for me to find competitors. Flex and Foxconn perhaps. Flex main market is the North American, while Foxconn is Asia. AQ Group main market is Europe. See below. The sales have increased much in the US, Canada and Finland but dropped a bit in Sweden and Germany.

Zenscore: 1,5 / 2,0 points (-0,5 for uncertain competitors)

Market distribution, Sales

Management
Current CEO Anders Carlsson took over from one of the founders (Claes Mellberg) 2018. Prior to this he has had a number of leading positions within ABB since 1992.
Owns 16000 shares worth 208 409 USD (165,8 x 16000 = 2 652 800 SEK)
Salary: 3 490 000 SEK
Other compensation: I couldn’t find any other compensation than his Salary which is good.
In the 2019 Annual report outlook his vision was on point and he mentioned the Coronavirus and a risk of dramatically declining economic activity.


Zenscore: 2,0 / 2,0 points

Statistics (10 years):

Year20102011201220132014
Sales (MSEK)19002149216225272616
EPS (SEK)3.855.225.476.838.32
Equity per share (SEK)34.7138.4843.4549.158.51
Cash flow from operating activities (MSEK)n/a10045137308
ROIC10.00%11.00%11.00%10.70%11.80%
P/En/an/an/an/an/a
Year20152016201720182019
Sales (MSEK)29323289402046675113
EPS (SEK)9.4413.0111.148.2314.37
Equity per share (SEK)64.8679.9889.8297.45110.15
Cash flow from operating activities (MSEK)166290147151499
ROIC12.00%13.10%10.30%7.40%10.10%
P/E14.4914.9319.7518.1715.94
Yearly average10 year5 year1 year
ROIC10.74%10.58%10.10%
Sales Growth Rate10.00%12.00%10.00%
EPS Growth Rate14.00%9.00%75.00%
Equity Growth Rate12.00%11.00%13.00%
Cash Growth Rate20% (9)25.00%222.00%

A growth rate of 5% is acceptable. >10% is good. >15% is very good.
Zenscore: 5 / 5

Dividend
0 at the moment.
The dividend policy; the dividend corresponds to about 25 % of profit after tax over a business cycle. However, The Group’s financial consolidation needs must always be considered. 0 – 50% is acceptable.

Zenscore: 0,5 / 0,5

Debt
23,79% (2018 14,01%)
Total long-term debt: 585 MSEK
Free Cash flow: 499 MSEK

585 / 499=1,17

Most of the added debt is from last year acquisitions. The long-term debt can be paid back in 1,17 year. Below 3 years is acceptable.

Zenscore: 0,5 / 0,5

P/E16,7 (Average 2015-2019)24 (2x Equity Growth Rate)
Calculated future price in 10 years (SEK)7141071
Calculated Price (SEK)179268
Margin of Safety 50% (SEK)90134

Current price 165,8 SEK

Conclusion
MOAT: 1,5 / 2,0
Management: 2,0 / 2,0
Statistics: 5,0 / 5,0
Dividend: 0,5 / 0,5
Debt: 0,5 / 0,5
Total Zenscore 9,5 / 10,0

Added to watchlist

A good price would be <134 SEK
A great price would be <90 SEK

Plan
I will add a little to my starter position tomorrow. If the price targets hits I will buy more. Price alerts will be set.

Disclaimer: Zenscore is based on Rule 1 Investing with a preferable holding time of at least 10 years with an expected average yearly return of at least 15%. With an investment of 100 USD and a yearly return of 15% 100 USD will have increased to 405 USD in 10 years because of interst-on-interest.

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