London, UK, 9 April 2021

Schaltbau Holding (SLT): Initiation - DC specialist on the verge of margin recovery

Schaltbau Holding should benefit from trends towards digitalisation and interconnectivity in its core Rail segment (68% of FY20 revenues), while restoring profitability levels. The ability to leverage direct current (DC) switching expertise should provide opportunities in growth markets, such as new energy, e-mobility, the DC industry and smart grids. Schaltbau's valuation offers re-rating potential now that the company is on the verge of restoring profitability after an extensive restructuring programme.

We value Schaltbau at €40 per share, which is the average of historical multiples (€42), DCF (€40) and peer comparison (€38). Schaltbau is valued at a large discount to peers due to its lower margins. We believe that the company's focus on high-growth segments and anticipated improvements in profitability should trigger multiple expansion once the margin gap to peers declines.

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