Is the correction to Sto benefits finished yet? After a nice low in October, everything looks set for a rebound. But the outlook for the operating business for 2023 is dim.
Sto (DE0007274136) still cannot convince the stock market. The Baden-Württemberg specialist for paints, varnishes and plasters is trying to lure Frankfurt with an attractive long-term forecast. An annual turnover of 2.1 billion euros and a pre-tax sales margin of 10% are expected. The catch: the goal is to be achieved only in 2025.
The long-term forecast on paper becomes even weaker when forecasted annual sales are factored in. Sto closed the last financial year with a turnover of 1.59 billion euros and expects around 1.79 billion euros for 2022. The forecast was confirmed in the half-yearly report for the first nine months. A decent 12.6% year-over-year gain. With the strong growth, however, the distance to the long-term goal narrows significantly. Converted, Sto promises the stock market an average sales growth of 5 to 6% over the next three years if the long-term target of 2.1 billion euros is met. And that’s a pretty modest goal.
Demand in the construction sector decreases
The construction sector supplier is likely to be impacted by the downturn in Europe and the US in the coming year. Mortgage interest rates in euros and US dollars have risen sharply this year. Sometimes, more than 7% per annum was required for a long-term US dollar mortgage. The sharp increase in financial charges automatically guarantees selection on the real estate market. The following applies: the higher the rise in mortgage interest rates, the fewer construction projects are still profitable on paper. The private sector is particularly affected by this consideration. As is known, the public sector has other financing possibilities.
In any case, the demand for building materials will decrease in the coming year. Sto can still grow this year, but is already starting to show the first signs of operational weakness. Only sales were announced in the interim report, but it was indicated that profitability had weakened significantly in the third quarter. The Management Board speaks of a contraction in the operating result after the gross margin fell from 52.5 to 50.0%. Sto specifically blames the increase in acquisition costs for the decline in margins.
A specific recommendation for this analysis is reserved for readers of the Zürcher Finanzbrief. With a free trial membership, you can test the Zürcher Finanzbrief and its recommendations extensively.
11.19.2022 – Mikey Fritz
The original article was published on NTG24
