Sulzer: Where has the “Vekselberg malus” disappeared to?
Published: Thursday, Jun 13th 2024, 12:10
Volver a Live Feed
Despite solid company figures, Sulzer shares led a wallflower existence for years. In stock market circles, reference was therefore repeatedly made to the "Vekselberg malus". Since the end of October, however, the shares have risen massively, by around 70 percent.
The name Sulzer does not stand for a "penny stock" susceptible to fluctuations for speculators, but for one of the most traditional Swiss industrial companies with a history of over 190 years. And a jump in the share price of over 70 percent within just a few months - the share has been trading at the old all-time high of fall 2007 since the beginning of the week - is more than unusual for such a company.
Especially as the "Vekselberg penalty" weighed on the shares until recently. Since the Russian investor Viktor Vekselberg was sanctioned by the US authorities in 2018, his stake of just under 50 percent has been a stumbling block for interested investors in Sulzer.
Since the politically motivated sanctions, Vekselberg can no longer freely dispose of any proceeds from his investments in Switzerland. However, the sale of shares is also out of the question for him because banks that do not want to fall foul of the US regulators are not allowed to participate in such a deal.
Where is the "Vekselberg malus"?
The associated uncertainties were always cited in financial circles as one of the reasons for the sometimes blatant undervaluation of Sulzer shares compared to competitors. Has Sulzer's operating performance improved so much under the leadership of Suzanne Thoma, who has been Executive Chairwoman since fall 2022? Or has the "Vekselberg malus" suddenly vanished into thin air?
Sulzer experts answer the second question with a clear "no". "This malus cannot simply disappear," Christian Arnold, Head of Equity Research at the Zurich branch of US broker Stifel, told AWP. But there are reasons for the rise in the share price.
"It is indeed the case that many key operating figures have reached a ten-year high," explains Arnold. This was insufficiently reflected in the valuation and still is. He describes the Vekselberg investment as a "frozen situation". On the one hand, however, it does not affect Sulzer's operating activities, and on the other hand, investors are less and less bothered by it the longer it goes on.
According to Arben Hasanaj from Bank Vontobel, "the malus is still there if you look at the valuation, but it has become smaller". The analyst refers to the valuation of the British competitor Flowserve. The discount on the Sulzer share compared to Flowserve was over 40 percent for a long time, but is currently just under 20 percent.
Hasanaj also sees the Vekselberg issue as having "receded somewhat into the background after it became acute again with the outbreak of the war in Ukraine. People have resigned themselves to the status quo and there is still no sign of a negative effect on the operating business."
Management performance and new course are recognized
He also shares Arnold's opinion that Sulzer's operational performance is responsible for the smaller malus, as well as management's new course, which was outlined in more detail at a Sulzer investor day earlier this week.
At Sulzer itself, CFO Thomas Zickler commented on the issue: "The Sulzer share has risen, especially following the very good figures for the 2023 financial year presented in February," he said in response to a written request.
The fact that the share performed significantly better than the market as a whole was mainly due to the figures, which were not yet so strongly expected in market circles for the 2023 financial year. Sulzer was supported by a strong tailwind from the managed markets. However, he also attributes the share's high to the prospect of a further increase in profitability presented at the Investor Day.
Zickler agrees with the analysts that the "Vekselberg malus" has not disappeared, but has become smaller. He also mentions Flowserve, but also the share price of Burckhardt Compression, for example. As is well known, the manufacturer of reciprocating compressors was spun off from Sulzer many years ago.
Rumors about a possible solution to the "Vekselberg problem"
There was also speculation in market circles that a possibility for a reduction of Vekselberg's stake in Sulzer was possibly being worked on behind the scenes and that this could boost the share price. The CFO did not want to comment on such rumors.
However, he explained that Vekselberg would need special authorization from the US authorities if he actually wanted to sell the shares. Furthermore, no bank that is connected to SWIFT (a global telecommunications network for secure transactions within banks) would process such a transaction. However, as Vekselberg would not benefit from a sale, such a deal is very unlikely as long as the US sanctions remain in place.
Eugen Perger, financial analyst at Research Partners, would also be surprised if this issue were to be resolved soon. "The rumors about Vekselberg's involvement have alternated, but there has never been anything concrete until now," says Perger. However, should this knot be untied, he also sees further upside potential for Sulzer.
Conclusion: Despite the share price increase of more than 70 percent since the end of October, analysts do not yet consider Sulzer's valuation to be exhausted. Investors' confidence has been boosted once again by the surprisingly high ambition regarding the operating profit margin as part of the "Sulzer 2028" strategy. The uncertainties surrounding Viktor Vekselberg's stake have not completely disappeared, but at least for the moment hardly anyone seems to be bothered by them.
©Keystone/SDA
Spanish 
English 
German 
French 
Arabic