I all the time wished to have a fast take a look at A&O and was lastly motivated once more studying about it a number of occasions in my Twitter timeline. In my All Danish Shares sequence, A&O didn’t make the reduce as a result of I had already Photo voltaic within the portfolio, however nonetheless I wish to take a look at them as this typically yields some insights into the opposite firm.
Each firms are headquartered in Denmark and in precept distribute provides for craftsmen/installers.
From what I perceive, Photo voltaic Group is targeted a bit of extra on electrical gear, A&O has a broader assortment however centered on renovation and reworking. A&O Johanson has a small B2C phase that makes up ~12% of gross sales however much less in income, as margins in B2C are smaller.
A&O is lively in Denmark, Sweden and Norway, nonetheless 90% of gross sales appear to be in Denmark. A&O has a twin share construction, with “tremendous voting” shares owned by the household and CEO giving copntrol to the household. Additionally Photo voltaic Group has a twin share class construction, with nearly all of the votes owned by the heirs of the unique founder (4th technology).
Photo voltaic is lively additionally in Denmark, Sweden and Norway, but additionally has a sizeable enterprise within the Netherlands and Poland. Denmark is round ⅓ of gross sales and 45% of income for Photo voltaic. Aside from craftsmen(installers, 33% of their gross sales go to industrial purchasers and a small “commerce” phase. Apparently, the craftsmen/installer phase is the bottom margin phase.
In 2023 they acquired a warmth pump enterprise (giant pumps for commerce), so they’re branching out to a sure extent into manufacturing. That’s clearly a danger however SFS as an illustration exhibits that an organization can do each efficiently.
Numbers, numbers, numbers
Listed below are a lot of KPIs that I discovered attention-grabbing to check with some coloration coding hooked up:
Each firms look very low cost on 2022 numbers and have respectable return on capital which is sort of necessary for distributors.
One factor that stands out is that Photo voltaic has been incomes a lot increased margins lately than some years earlier than. In my understanding the rationale for that is that as much as 2017, Photo voltaic was mainly a turn-around case and so they introduced in a brand new CEO to sort things.Going via the annual studies since then, there’s a clear effort (and success) in focusing the enterprise and making it step by step extra worthwhile yearly.
The principle distinction between Photo voltaic and A&O is that Photo voltaic appears to hold extra stock, whereas A&O has much more fastened belongings. Photo voltaic is extra capital environment friendly (even with out the goodwill) and subsequently decrease margins nonetheless translate into increased ROCEs and ROEs regardless of barely decrease leverage.
Each firms are struggling a bit of bit this yr, apparently Photo voltaic Group greater than A&O after depreciation. Nonetheless, when taking a look at Money stream, issues look completely different: Photo voltaic has managed to return to constructive Working cashflow whereas A&O had nonetheless unfavourable working CF. I’m not certain why and this might flip shortly however it’s one thing to look at.
Photo voltaic has been writing off Goodwill fairly aggressively within the first 6M, nonetheless there isn’t any detailed rationalization. A&O doesn’t present amortization individually within the 6M numbers.
Inventory Efficiency (incl. Dividends):
These are the Complete return charts from NAsdaq Nordic, sadly I discovered no approach to present them in a single chart. Over 10 years, A&O has clearly outperformed Photo voltaic.
I assume the primary motive is that Photo voltaic made a loss in 2014 and no income each in 2017 and 2019. A&O clearly has the extra constant observe report.
Capital allocation smart, each firms appear to prioritize dividends earlier than share purchase backs.
Abstract:
General, I feel each are superb firms. A&O has an excellent Denmark centered technique whereas Photo voltaic has a extra advanced enterprise mannequin with completely different buyer teams and jurisdictions. Nonetheless, this may also enable them to seek out extra development alternatives.
A&O has a greater long run observe report, nonetheless Photo voltaic’s trajectory because the CEO change in 2017 is sort of encouraging and the turn-around appears to have been confirmed.
For each firms, buyers more than likely suppose that they’ve massively “over earned” in 2021 and 2022, in any other case the only digit P/Es for these very nice distribution companies with superb returns on capital make no sense. They’ll clearly see some headwinds if building slows down however in my understanding, each firms have restricted publicity to new constructing building.
I’ll subsequently follow Photo voltaic in the meanwhile, however will monitor A&O as effectively. This appears to be additionally an affordable however good high quality enterprise “beneath the radar” of many buyers and will do each effectively over the following 3-5 years regardless of important brief time period headwinds.
