Investors dislike Georg Fischer’s broad positioning

The Schaffhausen-based industrial group Georg Fischer is struggling with its broad positioning. Some investors would prefer it to focus on the production of piping systems.

If the gloomy forecasts of economists come true, Georg Fischer should once again do best with its piping systems.

Gaetan Bally / Keystone

It’s a question that customers, employees and investors keep asking themselves when it comes to Georg Fischer (GF): What do wastewater pipe systems have to do with cast parts for cars and machine tools? Even the management of the Schaffhausen industrial group cannot give an answer to this. The three business areas of the traditional company, which can look back on a 220-year history, have grown historically.

ABB does things differently

At the same time, one has to realize in Schaffhausen that industrial conglomerates are becoming increasingly rare, at least in Europe and the USA. And on the capital market day, which the company held on Tuesday in the premises of its top-selling division, Piping Systems (piping systems), the question arose among the assembled financial analysts once again: why does GF continue to have three divisions while other industrial groups such as ABB have one division after the other independent?

Andreas Müller, who has headed the Group Management since April 2019 and had previously worked as CFO for two years, replied that all three divisions were successfully serving their target markets. The company as it stands today can no longer be compared to what it was 20 years ago.

Only one division is profitable

In general, people have become more resilient. The Casting Solutions division (castings), for example, has reduced what was once a major dependency on the combustion engine and now also offers various structural parts for cars and components for electric vehicles. In the mechanical engineering sector, it was possible to diversify sales towards medical technology, while companies from the cyclical economic sectors of electronics and automobiles used to be more on the list of customers.

Nevertheless, some investors would probably prefer it if GF concentrated on the Piping Systems division. This division, which contributed around half to total sales of CHF 3.7 billion in 2021 (almost a quarter each was attributable to casting solutions and mechanical engineering), is not only characterized by a high level of stability in its business. It is also by far the most productive. In the past first half of the year, it achieved a return on sales of 14.4 percent at the operating result (EBIT) level, while the casting business had to be content with 3.2 percent and the Machinery Solutions division with 4 percent.

If the gloomy forecasts of economists come true and large parts of the global economy slide into recession in the coming months, GF should once again do best with its piping systems. Müller said it is not to be expected that water suppliers would stop investments that have already been decided. In response to the economic slump caused by the coronavirus pandemic, many governments have decided on major infrastructure projects that have yet to be completed.

Huge waste of drinking water

The Piping Systems division also appreciates that, in view of increasing periods of drought, there is a growing awareness that something needs to be done to prevent drinking water being wasted. As division head Joost Geginat calculated, water suppliers lose an estimated 126 billion liters of water every year due to leaks in pipes. This amount corresponds to around 32 times that what Lake Zurich can hold. If the industry could avoid even a third of the loss, about 800 million people could be supplied with it.

As part of its infrastructure package, the USA recently approved investments totaling 11 billion dollars for the nationwide modernization of the drinking water supply. GF hopes other countries will follow suit. A major issue is evidently increasing efforts to be able to use waste water again as drinking water. This enables the scarce resource to be used sparingly, and according to GF, annual spending in this area worldwide is likely to increase from around $20 billion to $49 billion by 2030.

The group expects opportunities in the Casting Solutions division because many new suppliers are pushing their way into the automotive market, especially in China. Like the American newcomer Tesla, Chinese manufacturers of electric cars would completely rethink the design of the vehicles and their production, it said. At the same time, these companies are dependent on external support because, unlike the established German car manufacturers, they do not operate their own foundries.

According to its own statements, GF has managed to create a unique starting position in China compared to the competition. You can get actively involved in the construction of the new e-cars.

Still full order books

While the spirit of optimism was clearly expressed in the foundry business, the statements on the future of mechanical engineering remained rather vague. Apparently, however, orders there are still at a high level. The order books are well filled, said Müller, referring to the entire group. As for the economic situation, especially in China, he feels “pretty good,” he added.

Nevertheless, investors are skeptical. Since the beginning of the year, GF has lost a third of its value on the stock exchange. The listing barely moved on Tuesday.

Georg Fischer falls out of favor

Share price in CHF

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