I all the time needed to have a fast take a look at A&O and was lastly motivated once more studying about it a number of occasions in my Twitter timeline. In my All Danish Shares sequence, A&O didn’t make the reduce as a result of I had already Photo voltaic within the portfolio, however nonetheless I need to take a look at them as this typically yields some insights into the opposite firm.

Each firms are headquartered in Denmark and in precept distribute provides for craftsmen/installers.  

From what I perceive, Photo voltaic Group is targeted a bit extra on electrical gear, A&O has a broader assortment however centered on renovation and transforming. A&O Johanson has a small B2C phase that makes up ~12% of gross sales however much less in earnings, as margins in B2C are smaller.

A&O is lively in Denmark, Sweden and Norway, nonetheless 90% of gross sales appear to be in Denmark. A&O has a twin share construction, with “tremendous voting” shares owned by the household and CEO giving copntrol to the household. Additionally Photo voltaic Group has a twin share class construction, with nearly all of the votes owned by the heirs of the unique founder (4th era).

Photo voltaic  is lively additionally in Denmark, Sweden and Norway, but in addition has a sizeable enterprise within the Netherlands and Poland. Denmark is round ⅓ of gross sales and 45% of earnings for Photo voltaic. Other than craftsmen(installers, 33% of their gross sales go to industrial purchasers and a small “commerce” phase. Curiously, the craftsmen/installer phase is the bottom margin phase.

In 2023 they acquired a warmth pump enterprise (giant pumps for commerce), so they’re branching out to a sure extent into manufacturing. That’s clearly a threat however SFS as an example exhibits that an organization can do each efficiently.

Numbers, numbers, numbers

Listed below are a variety of KPIs that I discovered attention-grabbing to match with some colour coding hooked up:

Each firms look very low cost on 2022 numbers and have first rate return on capital which is sort of vital for distributors.

One factor that stands out is that Photo voltaic has been incomes a lot larger margins lately than some years earlier than. In my understanding the explanation for that is that as much as 2017, Photo voltaic was principally a turn-around case they usually introduced in a brand new CEO to make things better.Going by means of the annual experiences since then, there’s a clear effort (and success) in focusing the enterprise and making it progressively extra worthwhile yearly.

The primary distinction between Photo voltaic and A&O is that Photo voltaic appears to hold extra stock, whereas A&O has much more fastened property. Photo voltaic is extra capital environment friendly (even with out the goodwill) and subsequently decrease margins however translate into larger ROCEs and ROEs regardless of barely decrease leverage.

Each firms are struggling a bit bit this 12 months, apparently Photo voltaic Group greater than A&O after depreciation. Nevertheless, when Money move, issues look totally different: Photo voltaic has managed to return to constructive Working cashflow whereas A&O had nonetheless adverse working CF. I’m not positive why and this might flip rapidly however it’s one thing to observe.

Photo voltaic has been writing off Goodwill fairly aggressively within the first 6M, nonetheless there is no such thing as a detailed rationalization. A&O doesn’t present amortization individually within the 6M numbers.

Inventory Efficiency (incl. Dividends):

These are the Complete return charts from NAsdaq Nordic, sadly I discovered no strategy to present them in a single chart. Over 10 years, A&O has clearly outperformed Photo voltaic. 

I suppose the primary cause is that Photo voltaic made a loss in 2014 and no earnings each in 2017 and 2019. A&O clearly has the extra constant monitor file.

Capital allocation clever, each firms appear to prioritize dividends earlier than share purchase backs.

Abstract:

General, I believe each are excellent firms. A&O has an excellent Denmark centered technique whereas Photo voltaic has a extra complicated enterprise mannequin with totally different buyer teams and jurisdictions. Nevertheless, this may also enable them to seek out extra progress alternatives.

A&O has a greater long run monitor file, nonetheless Photo voltaic’s trajectory because the CEO change in 2017 is sort of encouraging and the turn-around appears to have been confirmed.

For each firms, buyers most definitely suppose that they’ve massively “over earned” in 2021 and 2022, in any other case the one digit P/Es for these very nice distribution companies with excellent returns on capital make no sense. They may clearly see some headwinds if building slows down however in my understanding, each firms have restricted publicity to new constructing building.

I’ll subsequently follow Photo voltaic in the intervening time, however will monitor A&O as nicely. This appears to be additionally an inexpensive however good high quality enterprise “underneath the radar” of many buyers and may do each nicely over the subsequent 3-5 years regardless of important brief time period headwinds.