We hosted INDUS CFO and IR at our annual Paris conference. With the tungsten situation under control, the company should re-focus on its M&A strategy. At the same time Infrastructure and Engineering should continue to see operational improvements. In detail:
Tungsten carbide special situation. Mind you, the price of tungsten carbide had risen significantly since early 2025 following Chinese export controls, introduced as a countermeasure to the US tariffs. BETEK has managed the resulting price increases successfully, driving a significant uplift in Materials Solutions' profitability (windfall profits). The segment reported an adj. EBITA margin of 22.4% in H1 26, up 14.3pp and the segments' adj. EBITA jumped to € 84.5m compared to € 23.1m in H1 25. This was mainly driven by pricing but also to some extent also by higher volumes.
Looking ahead, uncertainty around the development of tungsten carbide spot prices remains. Management views prices to have peaked for now. While the material remains in high demand for defence purposes and we consider a rapid price decline in FY27e rather unlikely. Yet, sharply falling prices could expose the company to margin risk (current inventory based on currently high prices). A gradual decline should be manageable and lead to normalizing margins, in our view. Importantly, BETEK has proven itself a reliable supplier for its customers and hence looks well positioned to retain its raised market shares.
Favorable growth backdrop for Engineering and Infrastructure. With German and European GDP growth accelerating, the business climate improving and positive German construction output development visible (Trading Economics), the baseline for economic development has been slowly improving in recent months. This combined with order intake growth in H1 26 and solid orderbooks in both segments (Engineering book-to-bill-ratio at 1.22x and Infrastructure book-to-bill-ratio at 1.14x at H1 26) supports our expectation of continued strong growth in H2 26.
Further M&A activity anticipated. Management confirmed our view of at least one more acquisition in FY26e. This should involve either bolt-on acquisitions to its existing technology clusters or something sizeable enough to open up a new technology cluster. To recap, INDUS already added two companies to its Engineering segment in H1. Due to the uncertainty around Working Capital requirements in BETEK and the holding's financial backing committed, the deal flow was temporarily decelerated. With the situation under control, we view the strategic focus returning to acquisitions.
Down to HOLD, PT unchanged at € 41. Following a share price rally of c. 60% since July, INDUS now trades in line with our price target, which is based on FY27e FCF yield. The downgrade is purely valuation-driven, and our conviction in the investment case remains intact. Further upside would require developments beyond our current estimates, namely (1) an acceleration of M&A activity, (2) margin gains from internal optimization, (3) a further sharp rise in tungsten prices and (4) a stronger-than-expected improvement in the macroeconomic environment.
ISIN: DE0006200108