2024 has been a difficult year for small and mid-cap companies or 'mid-caps'. These companies have had a mixed performance in the stock market in recent months and, according to Berenberg, the outlook is not particularly optimisticespecially in the case of listed companies in Germany. The German firm highlights that more than two hundred 'mid-caps' were given at the Germany Equity Forum in Frankfurt in the last week. The atmosphere at the conclave was, in general, «pessimistic» due to the poor results of small caps and, above all, doubts about the future of Germany. In this sense, the latest data indicate that the first economy in the eurozone could chain two years of economic contractionwhile The estimates for 2025 are also not particularly rosy.
Despite everything, Berenberg emphasizes that many companies were «hopeful» that early elections «can contribute to improving business confidence and reactivating investments.»
CRISIS IN GERMANY
As we say, the German economy is not going through a good time. This week, industrial production data delivered a negative surprise, falling 1% versus the expected 1.2% increase, after falling 2% in September. «This means that the industrial economy is still in recession»highlighted the Ministry of Economy in a statement. Likewise, although the services sector had held up well until recently, offsetting some of the industrial weakness, the latest readings of the PMI index have also shown a deterioration in this sector. Stefan Hofrichter, director of Global Economy and Strategy at Allianz Global Investors, believes that the German country needs a «structural reorientation» of its economy after too many years depending on low energy prices, especially Russian gas that became drastically more expensive after the outbreak of the Ukrainian war. «However, the current situation has changed: Russia is no longer a secure source of energy, China is facing economic difficulties and has become a competitor in several industrial sectors, especially automobiles, and defense spending requires a considerable increase. All this affects growth prospects«, explains Hofrichter. In turn, Political instability does not seem to help stabilize the situation either. in Germany. The country will celebrate early elections next February 23 after the collapse of the government coalition. The polls point to a victory for the Christian Democratic Union (CDU) together with its Bavarian brother, the Christian Social Union (CSU). However, parliamentary arithmetic could yield a result similar to that of Francewhere Michel Barnier's Government has fallen after failing to form a stable majority. Affiliated with the traditional right-wing party, The Republicans, Barnier was rejected from the first moment by the left-wing New Popular Front, winner of the legislative elections. Macron's appointment of Barnier was interpreted as an attempt to appease the National Rally, Marine Le Pen's far-right party, which conditioned its support for the proposed measures. However, the attempt to approve the Budgets for 2025 using article 49.3 of the Constitution was the beginning of the end. Returning to Germany, the right-wing coalition between the CDU and the CSU will almost certainly have the support of the Social Democratic Party (SPD) of the current chancellor Olaf Scholz or with that of The Greens. However, the inclusion of any of these formations could complicate the agreement with the liberals of the FDPparty to which the dismissed Finance Minister belongs Christian Lindner and protagonist of the greatest tensions in the so-called 'traffic light coalition'. In turn, the inclusion of the left-wing populists of Sahra Wagenknecht (BSW) It seems like a chimera and, if that were not enough, the shadow of the far-right party Alternative for Germany (AfD) It just keeps growing: According to the latest polls, it could be the second force and obtain up to a fifth of the votes.
OPPORTUNITIES IN THE 'MID-CAPS'
Despite the dark clouds hanging over the German economy, Berenberg is confident in the prospects of some of the country's small caps for its potential to «deliver secular growth trends». One of these values is Adessoone of Germany's leading IT services companies. Berenberg highlights that the results for the quarter showed a recovery in profitability, with an increase in EBITDA of 37%, above sales, driven by a normalization of workforce utilization. This, after recording «strong» revenue growth despite its profitability problems in the first half. «Management confirmed its EBITDA forecasts for the financial year 2024, with a target of €80-110 million, while many of its peers had to issue warnings. The record order book should support the start of 2025. Therefore, We expect Adesso to continue growing its sales and EBITDA by double digits in 2025. At 7 times estimated enterprise value/EBITDA (EV/EBITDA) for 2025, The stock is trading at a double-digit discount to its peers.despite above-average growth,» they explain. Consequently, the company receives a recommendation of 'buys' and a target price of 144 euros.
It is also 'purchase' Frequentisan Austrian company specialized in communication and control systems for critical safety sectors, such as aviation, rail transport and emergency services. These analysts value the company listed 33 euros due to the «optimistic prospects for continued margin expansion.»
«After successfully reshaping the Public Safety and Transportation segment to achieve a 12.5% EBIT margin, the transformation of the Air Traffic Management segment is underway, aiming to be completed within three years. This is expected change drives gradual margin improvements at group level in the short term and supports a long-term EBIT margin target of around 10%,» they point out. Similarly, Berenberg also recommends 'buy' Friedrich Vorwerkwhose shares value at 34 eurosalso due to its optimistic perspectives. Specifically, Berenberg highlights the portfolio of 1,200 million euros of the company specialized in energy infrastructures, which «guarantees attractive visibility, especially with the lower risk A-Nord project, which provides margin stability in the coming quarters.» «We expect the SuedLink and SuedOstLink projects to provide us with significant new orders in the first half of 2025,» these experts add. Likewise, the German firm highlights the good prospects of Redcare Pharmacy ('purchase', 190 euros) after registering until September 130% year-over-year growth in prescription drug revenue. For its part, SUSS Microtec ('purchase', 75 euros) is another of his favorite stocks due to the recovery in demand for logic chips and investments by TSMC. In this context, SUSS MicroTec signed a lease contract for a new plant in Taiwan, operational in the second half of 2025, which will add 100 million euros in capacity. «Caution remains in the automotive and IT equipment sectors. Both production line manufacturer Aumann and automotive engineering services provider Bertrandt continue to suffer delays in investment and model launches. IT equipment distributors Bechtle and CANCOM remain affected by the slow pace of German public sector budget spending ahead of the February elections CANCOM does not believe the market has bottomed out yet, as uncertainty remains for small and medium-sized businesses. high,» concludes Berenberg.