Siemens
- In which year did the Company first invest? 2022
- % Holding: 1.8%
- Where is its head office? Munich, Germany
- What is its web address? siemens.com
Business Fundamentals
One of the world's largest electronics and industrial engineering companies, Siemens makes everything from healthcare and building technologies to factory automation and power distribution equipment.
What’s Changing?
Quite simply the world needs energy efficiency and automation solutions. Studies show that implementing digital strategies could reduce manufacturing costs by >25%, labour costs by >30%, and energy use by c24% while increasing productivity by over 25%. Payback periods before the current energy crisis were less than 5yrs and now they are getting even shorter. With inflation now ubiquitous and arguably sticking around, even if at lower rates, the imperative to drive efficiency across both new and existing industrial processes has rarely been as strong. Siemens has shifted its portfolio strategy, giving its divisions more freedom while retaining the group's synergies. After a prolonged period of higher investments and structural change, there is an increased focus on simplification, execution and improving growth, margins, returns and cash. A fourth consecutive year of double-digit free cash flow margin should reinforce the point that the portfolio appears to have changed for the better.
Valuation & Investment
Insight Siemens trades at the higher end of its relative discount to peers and in a challenging economic environment, it is aiming for organic earnings growth at the group level of between 6-9%. Consensus remains unconvinced of this, with expectations at the bottom of that range yet Siemens has a significant order backlog of €45bn for delivery in 2023. This represents around six months' cover which could buffer the business against any economic downturn. In recent trading, management has also cited strong visibility and demand in short-cycle businesses like Digital Industries and Smart Infrastructure. We expect the global transition to a more automated, digitalised and energy efficient world to continue as reshoring remains a key focus within capital markets. Siemens is well placed to benefit from this. The continued simplification of the conglomerate structure and reduction of the Siemens energy stake will give the management team the resources to derive more value for shareholders moving forward.
ESG
Siemens’ environmental and social credentials have improved post the spin-out of Siemens Energy which has lowered its exposure to fossil fuels and that exposure will decrease further over time as it seeks to reduce the Siemens Energy stake. The remaining business is an attractive thematic opportunity, providing exposure to decarbonisation, energy efficiency and sustainable transport. Recent engagement has focused on changes to the board where three non-executive directors have recently stepped down. Martina Merz, the CEO of German industrial Thyssenkrupp, Dr Regina Dugan, the CEO of Wellcome Leap and Keryn James have joined the board and appear to be a good fit in terms of competence, experience, and diversity.