Knorr Bremse: Who knew making brakes was this lucrative? Rerating with self help story and upside from German infra plan

The best business in rail and one of the highest quality industrial companies, internal catalysts, beneficiary from German infra super cycle and 3-5 year visibility

Welcome to the 5th investment case and 5th resilience idea on Crack the Market (and the most comprehensive Knorr Bremse investment case you will find online)! Discover why this star industrial company is making a comeback after several painful years, and is still trading below its IPO price 6.5 years ago.

Twice a week, I will release deep dives into stocks and sectors that fit into the three themes that I see winning in this age of tariffs and deglobalization: resilience, sovereignty & reshoring, China. I will then deep dive into the opportunities in the AI data center value chain.

Take advantage of this once in a generation opportunity to build long term wealth by investing in great stocks that will deliver returns for your portfolio for years to come.

You can already read my first 6 deep dives, all of which I see as winners in this new world of tariffs and deglobalization:

• ASML (reshoring & China idea): The most innovative company in the world will 2.5x its EPS by 2030.

• LKQ (resilience idea): The most defensive business in the auto industry is a tariff winner and could become a compounder.

• Atlas Copco (resilience & reshoring idea): The best industrials business in the world is on sale, extremely resilient and will benefit from US reshoring.

• Badger Meter (resilience idea): The perfect business in the perfect end market, water meters are the definition of resilience.

• Knorr Bremse (resilience idea): Who knew making brakes was this lucrative? Rerating with self help story and upside from German infra plan.

• Flex (reshoring idea): The electronics manufacturing giant building Nvidia’s servers and enabling reshoring is becoming a better business.

After reading this article, you will understand what this company does, why it used to be and remains one of the best industrial businesses in the world, why it is positioned as one of the best plays on the German infrastructure plan.

This company is one of the rare capital goods companies with a self help story, exceptional visibility on the majority of its business (critical products and lots of aftermarket) making it a great play in an uncertain macro environment, with high and consistent margins (above 15% EBIT for 15 years) and ROCE (>20%) and cash generation and is one of the biggest beneficiaries of the German and global infrastructure investments. Knorr is trading well below its fair value (11.5x vs 14x EV/EBIT) given the macro environment and weaker truck demand and offers a very high quality business, led by a management team delivering on their objectives, visibility and margin expansion from internal efforts (operational leverage and portfolio optimization).

In this article I go through:

1. Knorr Bremse’s business and summarise what makes it such a defensive play.

2. How this best in class industrial company lost some of its greatness but has recently made a comeback by focusing on what made it so strong and profitable.

3. How the management situation has finally been stabilized with a new management and chairman delivering on a strong plan.

4. Why this company is due for a rerating given its margin expansion, increased focus and visible and profitable growth in an uncertain environment.

Knorr Bremse Investment Case