Kion Struggling To Manage Supply Chain and Inflationary Challenges; Lowering Fair Value Estimate

We are lowering our fair value estimate for narrow-moat Kion Group to EUR 50 from EUR 62 per share after the company issued a profit warning including an expected free cash flow loss of EUR 700 million to EUR 950 million for the full year. This includes cancellations from two customers for warehouse automation equipment. The company is drawing down on financing facilities to fund the loss, which it believes should turn positive with order execution, currently delayed by supply chain shortages. While we accept that cyclical factors and supply chain issues are at play, we also think margin management remains a weak spot for the company. We previously reduced our long-term margin forecast due to our concerns over cost management. In this forecast adjustment, we mainly factored in greater near-term working capital needs and slower revenue growth this year and next year in the face of macroeconomic headwinds.