Undervalued Croatian Industrial Star with Strong Growth Potential

Ticker: ZGSE:KOEI | Sector: Industrials | Market Cap: ~1.50B EUR | Current Price: 584.00 EUR (July 2025) | Estimated Fair Value: 1,146.52 EUR

Why Invest in KONČAR Group?

KONČAR Group (KOEI), a leading Croatian industrial conglomerate specializing in electrical equipment, renewable energy, and urban mobility, is significantly undervalued, offering ~96% upside to a conservative fair value of 1,146.52 EUR. With a robust order backlog and strong export-driven growth, KOEI is a compelling opportunity for investors seeking exposure to Europe’s green transition and emerging market industrials.

Key Investment Highlights

1. Strong Financial Performance (H1 2025):
   • Revenue: 636.75M EUR (+33.0% YoY), driven by 71.5% export sales (Germany +75.1%, Norway +137.9%).
   • Net Profit: 129.24M EUR (+75.1% YoY, 20.3% margin), reflecting operational efficiency.
   • Order Backlog: 2.32B EUR (+27.9% YoY), covering 2025 revenue (731M EUR) and 1.58B EUR for 2026+, ensuring visibility.
   • Balance Sheet: 194.17M EUR net cash, with a 1.8 current ratio, supports growth investments.
2. Undervalued vs. Peers:
   • P/E Ratio: ~5.8x (annualized EPS: 100.50 EUR) vs. industry average of 15–20x (e.g., Siemens, ABB).
   • EV/EBITDA: ~5.4x (annualized EBITDA: 279.04M EUR) vs. industry 10–12x, signaling deep undervaluation.
   • Conservative Fair Value: 1,146.52 EUR (DCF: 1,053.13 EUR, P/E: 1,507.50 EUR, EV/EBITDA: 1,065.70 EUR, weighted 60/20/20), implying ~96% upside.
3. Strategic Positioning:
   • Green Transition Leader: Investments in renewable energy (e.g., sHPP Peruća) and battery-electric trains align with EU sustainability goals.
   • Export Growth: 71.5% of sales from exports, with strong demand in high-value EU markets.
   • Liquidity Surge: KOEI is the ZSE’s most liquid stock (611,000 EUR daily turnover), outpacing HT (360,000 EUR), with potential for further gains via regional market integration.

Valuation Snapshot

• DCF (60%): Assumes 10% revenue CAGR, 20% EBITDA margin, 10% WACC, 2% terminal growth. Equity value: 2.71B EUR (1,053.13 EUR/share).
• P/E (20%): 15x multiple on 100.50 EUR EPS yields 1,507.50 EUR/share.
• EV/EBITDA (20%): 10x multiple on 254.7M EUR EBITDA yields 1,065.70 EUR/share.
• Weighted Fair Value: 1,146.52 EUR (~96% upside from 584.00 EUR).
• Dividend: 3.00 EUR/share (~0.51% yield), modest but supported by strong cash flows.

Risks to Consider

• ZSE Liquidity: Low trading volume on the Zagreb Stock Exchange may delay price convergence to fair value.
• Macro Risks: Geopolitical tensions and economic volatility could impact export markets (71.5% of sales).
• Debt Increase: Total debt up 26.25M EUR to 97.6M EUR, with rising interest rates a potential concern.
• Capital Allocation: High cash reserves (120 EUR/share) suggest potential misallocation, as KOEI lacks a clear dividend policy or share buyback program.

Why Now?

KOEI’s stellar H1 2025 performance, massive backlog, and alignment with green energy trends make it a standout in an inefficient ZSE market. Despite a 100.9% price surge over the past year, low multiples (P/E 5.8x) and a net cash position signal significant undervaluation. Potential catalysts include H2 2025 results (due late July 2025), ZSE-LJSE integration, and a possible stock split to boost retail investor access.

Recommendation

Buy with a target price of 1,146.52 EUR (~96% upside). Ideal for long-term investors (3–5 years) seeking exposure to undervalued industrials with strong fundamentals. Allocate 2–4% in a conservative portfolio or 5–8% in a balanced portfolio to balance upside with ZSE liquidity and macro risks. Monitor ZSE data (eho.zse.hr) and Q3 2025 results for updates.

Disclaimer: This is not financial advice. Investments carry risks, and share prices may fluctuate. Conduct your own research before investing.