Thyssenkrupp

Thyssenkrupp is a legendary German industrial engineering and steel corporation. With roots stretching back over 200 years, the company in its modern form was created by the 1999 merger of two of Germany's oldest industrial giants, Thyssen AG and Friedrich Krupp AG. Think of it as an industrial octopus, with tentacles reaching into everything from high-tech steel production and raw material distribution to automotive components, naval submarines, and industrial plant construction. For decades, it was a symbol of Germany's post-war economic miracle, the Wirtschaftswunder. However, for investors, Thyssenkrupp has become a long-running case study in corporate restructuring, the challenges of managing a sprawling Conglomerate, and the immense difficulty of turning around a capital-intensive, cyclical business. It's a company that has both created and destroyed immense wealth, making it a fascinating, if often frustrating, subject for analysis.

For a Value Investing practitioner, Thyssenkrupp is a classic, albeit complex, puzzle. It often trades at what appears to be a steep discount to the value of its individual businesses, but unlocking that value has proven to be a Herculean task for management. The story of Thyssenkrupp is one of legacy, bloat, and a monumental effort to pivot toward a more profitable future.

Thyssenkrupp's core identity is tied to steel, a notoriously tough business. It's a Cyclical Stock whose fortunes are deeply intertwined with the health of the global economy. When construction and manufacturing are booming, demand for steel is high, and profits can soar. When a recession hits, demand evaporates, and steel mills can bleed cash. This boom-and-bust nature makes earnings unpredictable and requires investors to have a strong stomach and a long-term perspective. Beyond its core steel operations, the company is a collection of diverse and often unrelated businesses. This structure has historically led to a Conglomerate Discount, where the market values the company at less than the sum of its individual parts. Investors often struggle to understand the synergy between, say, building submarines and distributing raw materials. The main business segments have included:

• Materials Services: One of the world's leading materials distributors and service providers.
• Industrial Components: Produces high-tech components like bearings and forged parts for various industries.
• Automotive Technology: Develops and manufactures components and systems for the automotive industry.
• Steel Europe: The heart of its legacy operations, a major producer of high-quality flat steel.
• Marine Systems: A world-leading builder of non-nuclear submarines and naval surface ships.

Analyzing Thyssenkrupp requires digging deep into its structure, its liabilities, and its turnaround story.

For much of the 21st century, Thyssenkrupp has been in a state of perpetual restructuring. The company's most dramatic and defining move was the 2020 sale of its crown jewel, the highly profitable Elevator Technology division, for over €17 billion. This was a game-changer. It brought in a massive cash infusion that was desperately needed to slash the company's colossal Debt and address its even more daunting Pension Liabilities, which were a major weight on its Balance Sheet. This sale validated the argument of many activists and value investors that the true value of the company was hidden within its conglomerate structure.

Because of its diverse nature, one of the most common ways to analyze Thyssenkrupp is through a Sum-of-the-Parts (SOTP) Valuation. This involves:

1. Valuing each business segment (Steel, Marine Systems, etc.) as if it were a standalone company.
2. Adding up these individual values.
3. Subtracting the corporate net debt and other liabilities.
4. Comparing the final number to the company's current Market Capitalization.

If the SOTP value is significantly higher than the market value, it could suggest the stock is undervalued. The elevator sale was a powerful real-world example of this principle in action.

Looking ahead, the key challenges and opportunities lie in the green transition. Decarbonizing steel production is a monumental task that will require billions in Capital Expenditures (CapEx). However, if successful, it could give Thyssenkrupp a competitive advantage in a world increasingly focused on sustainability. Furthermore, the company is exploring spinoffs of other promising divisions, such as its hydrogen business (Uhde Chlorine Engineers, now called Nucera), to unlock further value. For investors, the Thyssenkrupp story is far from over. It remains a deep-value play on a successful industrial transformation, but the risks associated with its cyclicality and execution remain substantial.