Bechtle

NATO's IT supplier

When it comes to IT and digitalization, Germany is pretty poorly positioned. A lot of things were simply slept through or played down over the last few years. Today many countries have left us behind, and Germany is lagging way behind on this topic. I hope the coronavirus crisis shook up the right people here and made it clear once again how enormously important a modern network infrastructure is. We dividend investors can also participate in the ever-advancing digitalization. That's why today I'm introducing the Swabian IT systems house Bechtle, which supplies small and mid-sized businesses, large corporations, and even NATO with all kinds of IT devices and services.

Speaking of IT: I mentioned in my article from March 8, 2020 that I'd be taking a computer break this year. For that reason, no articles will appear here over the next 2 weeks. Things will continue as usual on June 14.

The history and business model of Bechtle AG

Gerhard Schick was born on May 5, 1940. After school, he completed an apprenticeship as an industrial clerk at the upholstery supplier Laauser GmbH & Co. KG in Spiegelberg. Later he became head of accounting at Witte & Sutor, which specialized in innovative hand lamps. But Schick didn't stay there for long either. From 1967 he worked as second managing director at Wilhelm Bott GmbH & Co. KG in Gaildorf. Founded in 1930, the company made turned and precision parts for the auto industry in its early years. After World War II, it made various household items out of aircraft scrap, like pots, potato ricers, or ladles, and even cement bricks that were used for reconstruction. Bott once also supplied bricks to the Metropol cinemas in Heilbronn, which then had to file for bankruptcy. The company took part in the auction and ultimately won the bid. So when Schick joined the company in 1967, he mainly had to take care of 2 things: a tool management program for Bott and an inventory management system for the movie theaters' candy sales. He knew that the index cards common back then had slowly outlived their usefulness, so he sought help from the technical advisory service of the Heilbronn University of Applied Sciences. The student Ralf Klenk, together with his professor Klaus von Jan, developed a functional computer program. The three quickly came up with the idea of marketing this program, and the seed for a company of their own was planted.

But what's the best name for your own company? It quickly became clear that their own last names were unsuitable. And a novel, modern made-up name wouldn't fit either. They wanted a friendly-sounding family name that would ideally appear near the top of the company register. And it had to sound Swabian - after all, the 3 founders were Swabians too. Schick simply grabbed the cinemas' employee list and went through it from the top. He found what he was looking for under "B". Since the law in 1983 didn't allow it any other way, the 3 founders went to the notary together with the name-giver, Hans-Joachim Bechtle. Shortly after that appointment, Bechtle received his agreed fee of 1000 DM and thus left the brand-new Bechtle GmbH again. In the early days, they tried to sell various software solutions to small businesses. However, these were too complicated and often too expensive as well. To finally establish themselves as an all-round IT partner, they started building a hardware component trading business alongside the software business. This business area quickly became the revenue driver and made sure Bechtle could keep growing and expanding.

Today, Bechtle is the largest German IT systems house, with more than 75 locations in Germany, Austria, and Switzerland. On top of that, another 24 trading companies from 14 European countries belong to the company. Bechtle acts exclusively as a B2B partner (business-to-business) and still divides its business into the segments "IT System House & Managed Services" and "IT E-Commerce". The former covers the entire IT value chain, from strategy consulting through delivery of components and software solutions to project planning/execution and even staff training. In the e-commerce segment, Bechtle runs its pure trading activities with more than 50,000 different hardware and software products.

How will Bechtle's business develop in the future?

One thing that has always been important to the 3 founders is clearly defined, ambitious, but achievable goals and visions. Ralf Klenk and Gerhard Schick set out the first vision in 1988. It called for 100 million marks in revenue and an IPO in 2000. 10 years later came Vision 2010 - with it, they wanted to reach 5,000 employees and €2 billion in revenue. Then came Vision 2020, with 10,000 employees and revenue of €5 billion. Having visions is great - but actually making them happen is outstanding. You really have to give Bechtle's management credit for this determination. Now the next one, Vision 2030, has been published. Besides market leadership, they also want to reach revenue of €10 billion and an EBT margin of 5%. The way I see Bechtle, they'll give it everything to make this lofty goal a reality by 2030.

Digitalization continues to advance by leaps and bounds. There's no doubt that in the future, digital helpers will be in use in almost every industry. That obviously enables much higher efficiency, but on the other hand it requires the corresponding know-how. And that's exactly where Bechtle comes in. They help with all questions and problems around IT and can also directly deliver tailor-made hardware & software solutions. If needed, Bechtle trains its customers' staff to get them familiar with the new technology. So Bechtle's future prospects look very good.

And how is Bechtle holding up in the coronavirus crisis?

CEO Thomas Olemotz said on a conference call that customers had recently made a lot of workplace-related investments in order to stay operational. Long-term projects and investments that had been planned together with Bechtle, on the other hand, were put on hold. In addition, there can be supply bottlenecks again and again. Bechtle will definitely suffer from the economic effects of corona in the short term as well. In the long term, though, I see very high potential here, especially because many companies have now understood how enormously important IT is for our future.

And what about the dividend?

Since its IPO in 2000, Bechtle has paid an annual dividend to its shareholders in exemplary fashion. On top of that, the dividend has been raised every year since then, and at a pretty decent pace. On average over the past 10 years, Bechtle has increased its payout by almost 14 percent per year. Given that, I'm happy to accept a currently lower dividend yield of 0.7 percent. The IT group is also very exemplary when it comes to its payout ratio - just 28.8 percent is paid out. So there's enough money left in the company to keep growing and continuously improving.

Conclusion

The Swabian IT specialist Bechtle has become an indispensable part of the business world. It has established itself as a strong all-round contact for businesses and public institutions. As digitalization continues, Bechtle will be able to earn more money too and keep its shareholders happy for a long time.