Overstone UCITS Global Smaller Companies Fund on Drägerwerk AG & Co. KGaA
Thesis
Drägerwerk makes medical and safety equipment for regulated and reliability-critical markets. Sustained R&D investment near 10% of sales supports a durable competitive position and long-term revenue growth. First-half sales grew 8%, operating profit tripled and margin guidance rose to 6-8%, which the fund still regards as below the company's potential. The managers exchanged preference shares for ordinary shares after the latter began trading at a roughly 30% discount, obtaining similar economic exposure at book value and approximately ten times earnings.
“We are effectively keeping the same economic exposure at a meaningfully lower price.”
Key risks
- Margin improvements may not continue beyond the current 6-8% guidance.
- The valuation discount between ordinary and preference shares may persist.
- The business must sustain substantial R&D to remain competitive.