GEA: Maintain Our EUR 43 Fair Value on Analyst Transfer; Shares Appeal Despite Soft Orders in 2023

GEA Group G1A is a leading supplier of highly engineered capital equipment and solutions to the food processing and pharmaceutical manufacturing industries. GEA’s reputation for innovation and safety positions the company to win equipment orders—particularly from customers who are sensitive to reputational risk from incidences of food contamination and those who wish to differentiate their product offerings.

To grow organically, GEA’s strategy focuses on product innovation, including digitalization, and growth in the scope of its offering to position GEA to benefit from secular growth in new food categories. To this end, GEA is increasing its research and development spending, earmarking 3% of sales for this purpose over the 202226 period, up from about 2% of revenues during the prior decade. Its R&D program is focused on addressing trends to enhance environmental sustainability, new food categories, and growing its digital capabilities, while also increasing the modularization of its equipment offerings to improve manufacturing and selling efficiencies.

GEA provides complete processing line solutions to new food categories—which include plant- and cell-based proteins—to capitalize upon the significant growth in new food consumption over the coming decade. In doing so, GEA converts food science and process engineering know-how into complete, turnkey processing line solutions that enable customer capability in alternative protein processing. We also expect GEA to benefit from a growing global population and consequent increase in demand for traditional food categories, which include dairy, traditional animal-based proteins, and starchy carbohydrates.

GEA’s product innovation efforts also focus squarely on improved resource efficiency. GEA’s equipment, processes, and components help to reduce carbon emissions, plastic usage, and food and water waste during food production. Future improvements in its equipment and plant engineering efficiency will likely stimulate orders for upgrades, especially among companies concerned about sustainability gains.