Morningstar | Thyssenkrupp Scraps Split in Favour of Potential Elevator Business IPO--an Even Better Plan We Think
No-moat Thyssenkrupp's proposed revised restructuring plan to spin out the elevator business instead of the previously announced split, still offers the opportunity for upside. The new plan offers a more straightforward way to realize the fundamental value of the moaty elevator business through a pure-play investment vehicle. We are maintaining our EUR 20 fair value estimate, which still offers upside after the sharp rally recently.After indications from the European Union that it would not approve the company's current proposed joint venture with Tata Steel, Thyssenkrupp announced that it was scrapping its previously announced split into two entities, one including the elevator business plus nonrelated components and engineering businesses and the other with the mix of steel-related businesses, including production and distribution. In our sum-of-the parts valuation, the elevator business carries the greatest value of the total group. It also has the potential to expand its below-peer EBIT margin of 12% to levels closer to 13%-15%, given that the size of its installed base is not far off from peers with higher margins.
Under the latest plan, management said it is considering an initial public offering of the elevator business alone. This would provide a much cleaner opportunity to invest in a moaty business with potential for near-term growth and ROIC upside through margin expansion. The next step is for management to present the elevator division IPO plan to the group supervisory board, and we await further details following the board's decision.
ThyssenKrupp is the parent company of the ThyssenKrupp Group. Co. has six business areas: Components Technology, which provides components for the automotive and machinery sectors; Elevator Technology, which supplies passenger and freight elevators, escalators and moving walks, passenger boarding bridges, stair and platform lifts; Industrial Solutions, which comprises the System Engineering and Marine Systems units; Materials Services, which focuses on materials distribution and technical services; Steel Europe, which develops, produces and markets flat carbon steel in the European market; and Steel Americas, which produces, processes and markets steel products in North and South America.
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