GTES - I Am A Buyer Of Gates Industrial Because Of Potential Synergies And Future FCF Generation

• Gates Industrial is a manufacturer of transmission and fluid power solutions.
• I also appreciate quite a bit the fact that Gates Industrial reports a lot of recurrent revenue. The company’s most relevant business comes from replacement channels.
• I assumed 6%-8% sales growth from 2022 to 2028. It means that we would reach $4 billion by 2024, and 2028 sales would equal $5 billion.
• I would also expect certain internationalization efforts. In my opinion, with know-how acquired in North America, management will most likely be able to report sales growth in Europe, Asia, and South America.
• I obtained FCF of $0.776-$1.36 billion. The net present value with a WACC of 7% would be equal to $5.37 billion. The current market capitalization is equal to $4-$5 billion, so I would say that the company does look undervalued.

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