Nordson Corporation $NDSN
Nordson is a company that is dedicated to a very conservative business such as industrial dispensing, this is a very conservative sector with high margins where industrial orders are made for food dispensers or personal products.
It requires a high level of engineering to be able to make an order that meets the needs of a customer, they are a kind of machinery where the customer gets control of production.
This machinery has as I said high levels of engineering to be built and distributed to customers, and that is why the company has high operating margins because once you have the design that meets customer needs is much cheaper to produce and be competitive.
But this business model is not very scalable and is not as profitable as it was a few years ago, which is why the company decided to make strategic acquisitions to continue growing.
Source: Informe anual 2018
The growth of the traditional business was very low and the company decided to make strategic acquisitions to continue growing and generate better EBITDA margins.
Source: Virtual investor day 2021
In the future, the company expects to reduce its traditional business by 15% of sales and move to more profitable and higher-growth businesses.
Source: Virtual investor day 2021
Source: Virtual investor day 2021
Of this traditional NDSN business, the company has only experienced 1% growth in 5 years.
New "future" market
Source: Virtual investor day 2021
On the other hand, this non-traditional business for NDSN in 5 years had a growth of 10%, technologies such as 5G or data are fundamental for this type of business, and the automotive sector is also fundamental for this new strategy of the company.
Source: Virtual investor day 2021
Source: Virtual investor day 2021
The growth of these markets and future prospects are very promising for NDSN.
These markets are medical and electronic with 40% and 49% of sales and indeed are markets with great prospects for future growth.
2015-2020 ¿WAS A SUCCESS, AND 2020-2025 CONTINUES TO BE A SUCCESS?
Source: Virtual investor day 2021
The growth in sales and EBITDA between 2015, and 2020 was 5% and 7% respectively, but how could this happen or what is the reason for this growth and profitability, the answer is the company's acquisitions, but and how does the company acquire; the answer to this question is summarized in this slide.
Source: Virtual investor day 2021
The acquisition strategy is very simple, the company to be acquired must have future growth prospects and generate certain margins.
Source: Virtual investor day 2021
Source: Virtual investor day 2021
A very important aspect is capital utilization and from 2016 to 2020 the company reduced its debt to focus in later years on growth and share buybacks and dividend payments.
Assuming the company's strategy performs very well and generates $3B in sales and an EBITDA of 30% about $900M, and considering that the historical valuation of the EBITDA multiple is 16x WE CAN SAY THAT BY 2025 the company could be worth $14B ($900M PER 16X EBITDA) AND considering that the company's current share price is $11.7B this leaves us with a 30% margin of safety.
in the past the company has had very good growth with its growth strategy, I believe that in the future it will continue to be the same because of its acquisition philosophy.