Equity X-Ray: In-Depth Research #23

Aebi Schmidt: A Clear Case Of Post-Merger Mispricing

Introduction

I feel the market is misunderstanding the transitional shift in the Aebi Schmidt Group (AEBI). After its reverse merger with The Shyft Group, the market is stuck on the ghost of the old company and has yet to shift its view to a new global industrial leader, with a competitive business model, not to mention a remarkable valuation inconsistency. I feel investors are diluting their view on the company's strong, and non-discretionary revenue drivers, and historically powerful free-cash-flow-generative business model, because they view the merger as so complicated. Quite frankly, in my review, I believe the business model is simple, and the long-term growth prospects are fair, and because of my purposely conservative valuation model, I also feel that there is significant mispricing.

I am officially covering the stock with a Buy rating and a price target of $18.00, which implies a 50% upside from the current share price around $12.00.

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Company Background

To fully comprehend Aebi Schmidt Group's investment case, we must first grasp the unique history and strategic rationale that shaped the company into the global industrial powerhouse it is today.

The story begins in two separate towns in Europe. In 1883, Johann Aebi commenced a workshop in Burgdorf, Switzerland, that became synonymous with greatness in mastering alpine agriculture. Aebi's brilliance was in engineering machinery that could safely and easily operate on steep, challenging slopes of land that were otherwise impossible to traverse. This inherent practicality developed an orientation of specialized, high-traction vehicles for challenging surfaces that became the foundation of the Aebi brand. For over a century, the Aebi brand has existed as the market-proven solution for municipalities and farmers with challenges of steep or mountainous terrain—a natural choice based on engineering capabilities in a highly specialized market.

Simultaneously, in 1920, Alfred Schmidt commenced the construction of his company in St. Blasien, Germany. Schmidt's company expressed a different, but complementary approach. Schmidt concentrated on the more complicated problem of keeping infrastructure moving and pioneered the invention of snow-clearing machines and machines for gritting roads.