Hornbach: Is the 10% drop justified? + Planned Purchases Doubler Portfolio
Update Q3 2024
Short description
The German company Hornbach Holding is the parent organization of the DIY retail chain Hornbach Baumarkt. Founded in 1877, Hornbach remains a family-owned business, now led by the fifth generation of the Hornbach family.
Hornbach Baumarkt
Hornbach Baumarkt operates 171 large-scale DIY megastores with garden centers across several countries, including Germany, Austria, the Czech Republic, Luxembourg, the Netherlands, Romania, Slovakia, Sweden, and Switzerland.
Hornbach Baustoff Union
A wholly-owned subsidiary of the holding, Hornbach Baustoff Union serves local contractors and professionals through 39 locations in southwest Germany—primarily between Stuttgart, Frankfurt, and Luxembourg—and two additional locations just across the border in France. This division emphasizes strong relationships with local suppliers, partners, and customers, operating in a highly localized and competitive market.
In this professional market, competition is fierce, with aggressive pricing and sales strategies. DIY retailers are increasingly targeting professional clients, which is also part of Hornbach Baumarkt's strategy. However, the focus in this segment is on different materials, often emphasizing bulk goods.
Hornbach Immobilien
Hornbach Immobilien, another wholly-owned subsidiary, focuses on developing and managing high-quality retail properties. While this may sound expansive, the primary purpose of this division is to manage a significant portion of Hornbach's own stores. Hornbach owns about 61% of its stores, and 97.7% of Hornbach Immobilien’s rental income comes from within the group. Hornbach Baumarkt also generates a small amount of rental income, but it is not significant in the broader picture.
Revenue Breakdown
Hornbach Baumarkt: Accounts for 94% of total revenue.
Hornbach Baustoff Union: Contributes 6% of total revenue.
Hornbach Immobilien: Primarily an intra-group operation with minimal impact on external revenue.
Hornbach’s diversified approach helps ensure operational stability, but the overwhelming contribution from Baumarkt underscores its core focus on the DIY retail market.
Why we selected Hornbach
Hornbach Holding is a well-managed family business with slow, stable growth that consistently seems to outperform most of its competitors. This is evident from its increasing market share, although it's difficult to pinpoint exactly which factors contribute to this success.
The company still has growth potential, taking a conservative approach by focusing on organic growth rather than acquisitions, which often carry higher risks.
Hornbach's properties are estimated to be worth approximately €880 million more than their recorded book value. At the same time, the stock price trades about 40% below this already understated book value. Despite this, the stock dropped 10% following the release of the results.
It’s worth investigating whether this decline is justified or if it presents an excellent opportunity to invest.