Investments into European infrastructure have never been more crucial and one of the most valuable fields are definitely European railways. With the shift towards renewable energy transport, and especially investments into cargo and mass passenger transit already happening, there are only a handful of big players in the field of rolling stock production in Europe.
This is extremely important taking into consideration Chinese CRRC, which is holding onto the first position for years now and is already breaking into the European market with its somewhat cheap products being sold to less wealthy countries in the continent’s east.
Hence, Obermatt CEO Dr. Hermann J. Stern especially loves the Swiss trains producer: Stadler Rail. Not only is Switzerland Europe’s “train nation”, but its train manufacturer is about to become Europe’s largest and is already one of the largest competitors to the Chinese when it comes to regional, urban trains and trams. That’s why Stern recommends looking at Stadler in more detail.
PRO: The following three points speak for a buy:
- Stadler has seen a big increase in train orders coming from all over the world, but also a rise in production capacities: they have hit several record orders in 2021 and 2022 with some countries basing their entire train fleets on Stadler’s new products and even including night train cars which are looking at a bright future. This speaks highly of the company’s products.
- Stern believes that Europe should stick to the proven quality of its rolling stock and infrastructure, especially when it comes to safety in mass transit and not buy Chinese products which may not always be there to maintain their products in the market.
- We also approve of Stadler’s smart business decisions like the one to shift production out of Belarus, even before Russia’s war in Ukraine has started.
CONTRA: The following three points argue against it:
- With its Obermatt Value Rank being 45, its price is in the middle compared to the European competition in similar industries. However, the Growth Rank for Stadler is only 21. This is due to a high stock price which corrected downwards and low profits recently. However, the Sales Growth rank is rather high at 74, which confirms our positive outlook for the company.
- The company is, after all, exposed to controversies. To name one, its close ties with companies linked with Hungarian Viktor Orbán’s regime and involvement with rebuilding of the Chinese co-financed railway between Hungary and Serbia, the latter also not being a poster child in terms of democratic legitimation.
- Stadler is using a lot of debt. Their Obermatt Leverage Rank is only 6 which means that their debt leverage is higher than 94% of comparable companies. This is probably also a hint of a high confidence level at Stadler that the future is bright.
In Stern’s opinion, the pro points clearly outweigh the cons and this is why he added Stadler Rail to the Obermatt Swiss Value Wikifolio. After all, most of us believe that the European infrastructure should be kept in the hands of European companies.