Datalogic SpA – An Italian gem

I was scanning Italian stocks with the intention of finding a few interesting and little-known companies when I came across Datalogic SpA. I had heard this name in the past, but didn’t know much about the company business and, to be honest, never felt compelled to learn more about it.

I then decided to perform some in-depth research on all the Italian stocks on the basis of financial fundamentals. Datalogic stood out with a few others. Numbers do not lie. I decided to take a deeper look and discovered an interesting story from Emilia Romagna (the Italian region world famous for its motorsport tradition (see Ferrari and Moto GP riders), and great food (see prosciutto di Parma).

I learned there is the so called “packaging valley” near Bologna, where some of the world’s big players in the production of packaging machines for different industries (see IMA for example) are located. Datalogic was founded in 1972 to respond to the needs of this industry.

Datalogic profile

From a revenues and profitability standpoint, the most important of Datalogic’s three divisions is Automatic Data Capture (ADC). The main products of this division are:

  • hand-held barcode readers (like those you see at the grocery store);
  • versatile mobile computers (mainly used in retail stores);
  • fixed scanners (global leader).

As you can see from the pie chart above, “automation data capture” represents 69% of total revenues. Moreover, as the chart below illustrates, it is also the most profitable division by far.

The 2016 geographic sales distribution shows Datalogic’s international presence.

Only 9% of revenue is being generated within Italy. Europe represents the most important market, with about 52% of total revenues. This is due to logistics as their headquarters is in Italy. The company has stated its intention to grow in APAC (in China, in particular) and become a major player in the United States.

Its internationally-oriented philosophy is further evidenced by the fact it has employees in 30 countries and 10 research centers in Italy, the United States and China.

Financial summary

2016 was the best year in its history. In fact, Datalogic achieved its best performance in terms of revenues, EBIT and net income that year.

Revenue growth has been consistent in the last few years, with the exception of 2013. Moreover, it is possible to observe a constant improvement in margins.

Future prospects seems good. As a matter of fact, the company may benefit from two competitive advantages:

  • the high investment in R&D that has translated in a high number of patents, and the application every year for dozens patents;
  • from a revenue standpoint, the company benefits from established distribution networks in key countries.

Huge investments in R&D and its advanced distribution structure have created barriers to entry for potential competitors.

Datalogic’s stock price

The stock is listed on the Italian stock exchange and is a component of the STAR index that includes stocks with high requirements.

The stock price has recently hit its historical high. There are two external factors that likely contributed to this result:

  • the introduction of the “PIR fund” (similar to the UK individual saving plan) in Italy. The financial companies that manage these funds recently invested heavily in small- and mid-size Italian caps;
  • the election of the president of the United States. The new republican president is pro-business and promised a corporate tax cut. Stock investors reacted positively, pushing the U.S. indexes to their highest historical levels. Since the condition of U.S. indexes has a huge influence on the performance of the European stock markets, the last months have seen a growth in the Italian stock market indexes as well.

Conclusion

Datalogic is an Italian gem. Despite the difficult economic situation of Italy, the company manages to excel worldwide. The consistency of results over the years is proof of the solidity of the business and represents a good starting point for the future. In the last period the market expectations for several Italian mid-caps have increased, producing a growth of P/E. The question is: how long will this phase last? In conclusion, it is worthwhile to follow this stock because, if its future is similar to its past, Datalogic will surely be successful.

What do you think about Datalogic? Would you invest in it?

Let me know in the comments below.

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