Amadeus FiRe Stock Analysis & Deep Dive

A misunderstood growing company with an EV/FCF of just 7.1

Aug 02, 2023

Intro

While screening for interesting investment opportunities I came across Amadeus FiRe and its surprisingly cheap multiple of an EV/FCF of 7.1. As a logical conclusion I had to dig deeper to learn more about the company.

The Company

Amadeus FiRe is a Frankfurt, Germany based company which was created through the merger of Amadeus and FiRe in 2003 and has about 4000 employees. Of these 4000 employees 2600 are placed at customers. The company benefits strongly from the “Fachkräftemangel” (shortage of skilled labor) which is a word in everyday German news. The company focuses on commercial/business and IT specialists. Amadeus FiRe is working exclusively in Germany and has 22 locations while working with more than 10.000 customers.

The Industry

The trend in Germany is clear: The lack of skilled labor is ever increasing and companies are willing to spend money on these rare specialists. Amadeus FiRe is also a main benefiter of the retraining and education program from the German government to retrain unemployed people in order to give them new employment opportunities.

The Business

Amadeus FiRe is specialized in 4 categories: Temporary Employment (44% of the revenue), professional development (31%), recruitment (18%) and interim and project management (7%). In the case of interim and project management, Amadeus FiRe works as a broker between independent, self-employed people and the companies.

Through the different business segments Amadeus FiRe has the goal to hire employees, turn these employees into students for their own educational training and later on rely on them as customers for their hiring solution.

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Professional development

In the segment professional development, Amadeus FiRe offers solutions for private customers, companies and state supported education through its various brands. Interestingly the demand from state supported education contrasts the demand of companies: In times of crisis, companies save and therefore have less demand, while the government has a larger pool of unemployed people who are getting trained. The gross margin for professional development is between 60 and 65% and therefore the highest margin segment of the company.

Temporary Employment

The high demand for skilled labor makes up for the fear of a recession and companies are still in desperate search. On top of that, Amadeus FiRe offers great flexibility for the customer of placing temporary workers. This enables the customer to increase their capacity without hiring these people and considering the strong German employment law having them on the payroll in the long run.

Increased costs in terms of salaries for temporary work placements are being passed on to the customer and have therefore no effect on the profitability of Amadeus FiRe. What has a large effect is the number of sick days, since Amadeus FiRe can’t bill these to the customer. The number of sick days in 2022 was extraordinary high and cost the company €4.9m compared to the relatively low number of sick days in 2021. Despite the high number of sick days, Amadeus FiRe still reported a margin of 33% in the segment temporary work placement.

In terms of employee satisfaction AmadeusFiRe scores very high on the platform Kununu. A score of 4.5 is very high, especially considering that AmadeusFiRe is placing the employees quite often at their clients.

The Management

The company is fully aware that it cannot reinvest all the generated cash flow and therefore is paying handsome dividends. The plan is to pay out 67% of the profit, which will give investors a very handsome payout.
CEO Robert von Wülfing holds 2400 shares worth €260k.

In December 2019 AmadeusFiRe purchased the education company Comcave for €200m. With a gross profit of €51.2m in 2021 and €41.3m in 2022 and an EBITA of 15.4 in 2021 and 5m in 2022 the purchase has not paid of yet. As of today the 200m purchase price seems very expensive given the underlying fundamentals of the business. With the rebound of the education segment after a weak 2022 there is hope, that Comcave will show higher profits.

GFN was purchased in September 2020 for €6m. In 2021 GFN had a gross profit of €13.5m and in 2022 14.2m. The EBITA was -0.6m in 2021 and -0.2m in 2022. In the first half of 2023 the turnaround was achieved and GFN posted an EBITA of 2.1m with a strong increase in revenue. This purchase looks better with every year.

I like that the management plays to its strengths and has as of today no plans to expand business outside of Germany. Dominate your niche and only then attack adjacent fields

Risks

The main risk is that Amadeus FiRe is misunderstood by the market. As soon as there are some dark clouds on the economic horizon, the stock price gets hit. Time will prove, that Amadeus FiRe is still profitable and therefore the stock should follow its earnings over time. Interestingly a higher unemployment quote and economic troubles might even be beneficial for Amadeus FiRe:

Companies who are trying to save money will hire some open positions only temporarily until the project is done
More unemployment leads to more money spend from the government on professional education, which is a major segment for Amedeus FiRe.
A higher unemployment quote makes it easier for Amadeus FiRe to hire candidates for the temporary work placement segment

In the professional education segment Amadeus FiRe is dependent on governmental spending. The German administration contributed 78% of all revenues in the professional education sector. As shown in 2022 when the Bundesagentur für Arbeit (Federal Employment Agency) lowered its spending it had a big impact on the revenues in the professional education sector of Amadeus FiRe.

The Fundamentals

The long-term revenue growth from Amadeus FiRe is outstanding

More importantly however: Also the net income and the free cash flow show the same growth trajectory:

The start to the first half of 2023 was strong with revenues increasing 8% YoY. The main driver was the strong increase in education with +25%. EBITA increased by 10%. Free cash flow increased by 28% compared to HY2022.

Temporary work placements had a weak start with revenues declining by 4%. The management sees the main reason in the shortage of suitable candidates.

In the education segment, GFN is performing well and will be showing a profit for the first time since the purchase.

Amadeus FiRe pays 2/3 of the earnings in dividends. For FY2022 this led to a dividend of 4.50€ or a dividend yield of 4.2% for the current year. Next years dividend is expected to be 5€ or a yield of 4.6% based on the current price.

Valuation

Amadeus FiRe has 25m in long-term debt. Amadeus FiRe’s cash balance tends to increases in the second half of the year and falls in May due to the high dividend payout. As it is common in Germany, Amadeus FiRe pays the dividend in just one installment compared to most American companies which pay quarterly dividends.

Amadeus FiRe is currently trading at an EV/FCF of just 7.1. With the forecasted growth for the next years, that ratio will continue to fall. The P/E stands at 15.1. Historically the P/E of Amadeus FiRe was between 20 and 35 while the P/FCF was between 15 and 20. You can see that purely based on a multiple expansion to the historical mean, the stock can easily double.

Summary

Amadeus FiRe is a very capital light business with a strong record, trading at an EV/FCF of only 7.1.
Based on historical valuations the stock can easily double and you are getting a very handsome dividend as well. The forward dividend yield is at 4.6%