Daily Brief Industrials: Uchi Technologies, DL E&C Co Ltd, Uponor OYJ, Severfield PLC and more

• Uchi Technologies (UCHI MK), a manufacturer of controllers for coffee machines, has a 23-year track record of operating margins of over 40% and ROCEs of over 20%.  
• Trading at 11.9x trailing PE, with a dividend yield of 9%, and 15% of the market cap in cash, the company has been serially paying dividends (payout > 70%). 
• In its 2022 annual report, for the first time in its history, the company mentioned it has exciting growth plans that will be revealed over the year. 

• In this insight, we provide gap trade opportunities among 30 small cap Korean preferred stocks with market cap of less than 100 billion won and more than 20 billion won.
• Among these 30 companies, there are some in interesting gap trade opportunities, especially among those with relatively high dividend yields (more than 5%).
• We have ranked these 30 stocks in terms of three criteria including market cap, pref/common share price ratio, and dividend yields. 

• White knight Georg Fischer AG (FI/N SW) announced a voluntary recommended public €28.85/share cash offer for Uponor OYJ (UNR1V FH), a 12% premium to Aliaxis’s offer, with c.37% irrevocable undertakings.
• Although Aliaxis could still block a squeeze-out, GF and Uponor could make its life difficult and are granting it an honourable exit with capital gains around €55 million.
• Spread is 0.52%/1.05% (gross/annualised, assuming settlement by mid-December). Although I believe the deal will close, it is probably not worth going long Uponor it on this spread level.

FY23 results highlight that we believe revenue quality remains materially underappreciated by the market (see our June update note), especially now the UK and EU are embarking on huge investment programmes to renew and upgrade infrastructure. In our view, the outlook in the UK, continental Europe, especially post recent M&A, and India is not fully reflected in the FY24e P/E rating of c 7.5x, which is comfortably below the long-term average of 10.0x. Our positive stance is supported by the company’s strong balance sheet, progressive dividend and yield over 5%.