MBG GR

Please note, since the presentation of this idea, MBG reported Q1’24 earnings. The presenter remains optimistic post-earnings. She understands Q1 was weaker, but notes that the business was impacted by model change-overs in the top-end cars, which impacted mix and created supply chain issues as a supplier for the turbochargers (Hasenclever) had declared bankruptcy in the fall. Management reiterated full-year targets and expects DD% margins in Q2, while the launch of newer top-end cars will be a tailwind for the back of the year. The company also reiterated its buyback plans, and expects to return €4.7B in the next 11 months (6.5% of the market cap). In addition the company declared their annual dividend of €5.30, and the stock goes ex-dividend next week.

Publicly traded companies mentioned herein: Daimler Truck Holding AG (DTG GR), Mercedes-Benz Group AG (MBG GR)

Highlights

The presenter is long shares of Mercedes-Benz Group AG (MBG GR), believing the SOTP equates to a true value much greater than the current €75 share price. MBG has four main sources of value: the core automotive business (cars, vans, & mobility), the FinCo business, industrial net cash stockpiled over the years, and a 30% stake in the publicly traded Daimler Truck Holding AG (DTG GR). From her analysis, the combined value of the FinCo business (€12B), the industrial net cash (€32B), and the DTG stake (€11B) leaves a valuation of just ~€20B for the automotive business based on the current market cap, which seems too low given it generated €19.1B of operating income and €11B of FCF last year. Assuming a teen% annual return through FCF distributions, consistent with management’s commentary around capital allocation, she expects a total return of 130% through 2025.