You would be forgiven if you’ve never heard of Wacker Neuson SE (ETR:WAC) (FRA:WAC) (OTCMKTS:WKRCF). Wacker Neuson is not a popular, fast growing company, nor is it a global behemoth. Wacker Neuson is in fact a leading manufacturer of light and compact equipment for the construction, landscaping and agricultural sectors. Supplying individuals, companies and municipal bodies within the industrial, recycling and energy sectors.
Europe’s economy bad for Wacker Neuson
Obviously, in this tough economic environment with global machinery behemoths such as Caterpillar Inc. (NYSE:CAT) and Joy Global Inc. (NYSE:JOY) reporting falling sales across all equipment divisions, Wacker Neuson SE (ETR:WAC) (FRA:WAC) (OTCMKTS:WKRCF) would seem to be a poor investment choice. Indeed, as Wacker Neuson’s home market is Europe, prospective investors would be forgiven if they ran away and never looked back.
However, Wacker Neuson has actually outperformed all of its larger peers so far this year and the company recently surprised the market by reporting a blow-out second quarter.
Wacker Neuson earnings
For the second quarter, Wacker Neuson SE (ETR:WAC) (FRA:WAC) (OTCMKTS:WKRCF) reported strong double-digit sales growth across all of its divisions, which ultimately lead to first half revenue growth of 28%. Year-on-year second quarter EBITDA expanded 20.4%, EBITDA margins grew by 50bps and EBIT margins expanded 60bps; all highly impressive number considering the state of the rest of the construction machinery industry.
That said, the company did report a poor first quarter. Still, the record second quarter means that Wacker Neuson SE (ETR:WAC) (FRA:WAC) (OTCMKTS:WKRCF)’s first half EBITDA is only 10% behind that of the same period last year. What’s more, management remain highly proactive and optimistic, reiterating their forecast revenue target of 1.2 billion euros for fiscal 2013, up 10% from 2012. The company is also targeting growth in the rapidly growing South and North American construction markets.
Nonetheless, despite these attractive growth rates and forecasts, Wacker Neuson is still trading at a low valuation, in part thanks to its exposure to the depressed European construction market.
Wacker Neuson’s balance sheet
Wacker Neuson SE (ETR:WAC) (FRA:WAC) (OTCMKTS:WKRCF) has a relatively clean balance sheet. Total current assets cover current liabilities 2.3 times and current assets of 612 million euros cover the company’s total liabilities of 482 million euros. Net-debt only accounts for 18% of assets and the company’s net-asset-value per share is around E13.2. So, at current levels the company is trading at a price-to-book valuation of around 0.8, (according to the company’s primary listing on Deutsche Börse XETRA).
Moreover, taking into account the earnings forecasts for Wacker Neuson, which on consensus predict EPS growth of 30% for this year, it is entirely visible to suggest that Wacker Neuson should be trading at a growth premium to the rest of its sector.
Comparison of Wacker Neuson, Caterpillar and Joy Global
However, Wacker Neuson SE (ETR:WAC) (FRA:WAC) (OTCMKTS:WKRCF) is only trading at a forward earnings multiple of around 11, and a forward price-to-sales multiple of around 0.7. In comparison, the average forward earnings multiple of Joy Global Inc. (NYSE:JOY), John Deere and Caterpillar Inc. (NYSE:CAT), all leaders in their own fields, is 12, while the average price-to-sales multiple is 0.9, despite the fact that earnings are expected to fall at all three companies for this financial year.
So overall, Wacker Neuson SE (ETR:WAC) (FRA:WAC) (OTCMKTS:WKRCF) appears cheap on both a price-to-book basis. Furthermore, the company’s earnings growth this year is expected to outpace all of its peers, despite the fact that the company has the heart of its operations inside the depressed European economy.