Want A Water Company? Try Uponor (OTCMKTS:UPNRF)

Water companies or companies which in some way work with distributing, cleaning or providing water-related services are usually some of the more overvalued companies on the market. I try to keep a look on both European and American ones, and while Europe doesn’t see the same sort of “model” when it comes to water companies, there are still companies that somehow work with water.

Uponor (OTCPK:UPNRF) (OTC:UPNRY) is one such company. I own it, and I thought I’d show you what it is.

Uponor – What does the company do?

When I started investing and adopted the concept of “owning what society needs,” I immediately thought of Uponor. Why? Because every day when walking, you can see things like this on most Swedish streets you’re on.

(Photo Source)

So while knowing nothing about the company years ago, I quickly read up on what it is when I invested. In 1918, a Finnish carpenter started a workshop in a town called Lahti. This workshop grew into the largest furniture supplier in all of the Nordics, and started manufacturing sewer pipes in 1948. The company began making the first plastic pipes and fittings in 1965, and the Wirsbo factory in Sweden started manufacturing the world’s first, innovative PEX-pipe system for heating and plumbing applications.

The company has been in the US and international market since 1986 when a factory was opened in Apple Valley, Minnesota, and began diversifying more into Europe in 1988.

The company invented the first multi-layer composite pipe (MLCP), which is still patented by the company, in 1990, and came out with the first MLCP press-fittings in 1993. Continued strong demand in the US caused Uponor to open up another manufacturing site in Hutchinson in 2017, and the company recently celebrated its 90th anniversary.

To show you what Uponor does today, a simple fact sheet will do the trick.

(Source: Investor presentation 2020)

The company delivers water delivery/plumbing and heating/cooling solutions for both the commercial and the consumer market. The company is also active in municipal water delivery, as well on state level, delivering key infrastructure solutions for state-wide or city-wide water solutions. Sales, as we can see above, are primarily found in the plumbing/water segment. There are plenty of examples to look over insofar as what the company has done lately, and what the company might be asked to do.

(Source: Investor presentation 2020)

Some more figures in terms of sales, employees and geographical diversification can be found in the company’s annual figures.

(Source: Annual report 2020)

As we can see, despite being a Finnish company, the company’s sales are appealingly diversified with a focus on the US. Unlike the above segments, the company’s reportable segments are split as follows:

  • Building Solutions – Europe, with a self-explanatory European focus for the entire company offering.
  • Building Solutions, North America – again, self-explanatory.
  • Uponor Infra – The infrastructure segment, catering to larger state or municipal projects.

Important to mention is that Uponor has actually exited the North American infrastructure business as of 2018 – so the above segment represents all non-American infrastructure. However, this Uponor Infra was not primarily found in the USA, but in Canada, which saw the largest sales drop due to the divestment.

So, in short, Uponor is a Finnish company that offers solutions for water/plumbing and indoor climate. It does this in many areas, including temperature control, Plumbing & heat interface units, energy transfer systems, heat distribution, water monitoring, sewer, plumbing & storm solutions, district energy, and project services and pressure pipe systems, as well as related products. Researching, developing, manufacturing and selling these is how Uponor makes its money.

Let’s see how good they are at doing that.

Uponor – how has the company been doing?

Uponor has been managing well for the past 5-10 years.

(Source: CEO Financial Review 2020)

Particular sales growth has been seen in the USA (even removing Uponor Infra) and Eastern Europe. In the company’s legacy geographies, such as Scandinavia, the company hovers around the same sales levels, with difficulties capturing future market share, as Uponor is already something of a market leader.

(Source: CEO Financial Review 2020)

Despite the headwinds in 2019, both operating profit and sales were up significantly in the US during 2019. Overall Infrastructure segment profitability is growing significantly, even if sales are down YoY due to divestment.

(Source: CEO Financial Review 2020)

The company also, on a sequential basis, continues to improve overall cash flow.

As you might expect from a Scandinavian company, Uponor’s payout ranges towards the high end of the spectrum and stands at a 74% LTM EPS. Over the past 5 years, we can see the beginnings of an attempt to start a stable dividend history, something the company seems intent on doing as it has neither cut nor lowered the dividend due to the coronavirus issue. Unlike most, Uponor also does a bi-annual payout.

(Source: CEO Financial Review 2020)

The company views its legacy markets as slowing down, with a focus on maintaining market share and not slowing down further than necessary. Most company markets are considered stable, with growth expectations coming from southern Europe and NA in particular.

(Source: Company Financial Review 2020)

The company has performed well enough as an investment, though we can see that for a number of years Uponor actually underperformed the market. For the past 3-4 years, things have been better, however.

The company does have some debt, and the net debt/EBITDA ratio stands at 1.52X for 2019 – not that worrying for a Scandinavian company of this caliber. The company doesn’t employ S&P ratings – it’s too small – but it does employ the rating agency Dun & Bradstreet Finland Oy, which ranks all Finnish companies. Uponor, in this rating, sports an AAA grade credit rating, which requires:

The AAA rating criteria include, for example, substantially above-the-average key figures and a favourable payment track record.

(Source: Uponor)

No, this can’t be compared to S&P, Fitch or Moody’s – but it’s nonetheless indicative of quality in relation to other Finnish companies, which bears mentioning as we move into the company’s valuation portion.

In short, the company has been doing well over the past few years. Impact from coronavirus should be at the very most, short term, given that most infrastructure projects in the company’s active regions have either fully continued or only marginally been limited until late March of 2020. The company did withdraw its 2020 guidance due to COVID-19 – but most companies did. If COVID-19 lockdown continues, things could get worse.

However, as I am writing this article, Denmark, Norway, Finland, Germany, Poland, Spain, and others have started lifting restrictions. Sweden never had any formal restrictions, and the US has made a plan for reopening the nation.

In short, I see things returning, if not to normal, at least to where Uponor can continue working within 1-2 months.

Let’s look at risks.

Uponor – What are the risks?

A few risks do exist even with a company active in water delivery.

  • Raw material costs for a company producing plastic pipes are subject to volatility and change, as well as subject to delivery problems in times like these.
  • Some cyclicality for a company that has significant exposure to construction cyclicality. When construction goes down, so could Uponor. The company does have some hedging as it sells consumer products as well, but it’s important to recognize this part of the company’s risk profile.
  • Global operations expose the company to various types of FX risk, as well as some small amount of geopolitical risk from Russia and parts of Eastern Europe.

Uponor – What’s the valuation?

Uponor is currently trading at around 12 times earnings, coming to around ~€9/share. This is significantly below average multiples over the last years, where the company has traded closer to 17-25 times earnings since 2023. Today’s share price also means that the company is trading at a record-low 0.57X Sales, which really isn’t something we’ve seen at least since the recession.

(Source: Börsdata)

Despite divesting NA infra, the company has maintained an impressive EPS track record since 2012/2013, and I doubt the coronavirus effects will be as significant as some seem to be expecting. Given Uponor’s credit and overall debt, the company could handle even a year or two of headwinds before needing any real help or being in trouble.

The company has been extremely consistent since the last recession in growing shareholder value in BV/Share.

(Source: Börsdata, Uponor, BV/share)

So what we can see here is that given historical data and looking at current valuation and multiples, I find it clear that the company is currently being traded at significantly below its usual valuation. While unwilling to ascribe a sort of premium to this company, I consider a 15X P/E to be at least something of fair value for a company growing like this. This gives us a target price of €10.65/share, which would indicate an upside of at least 20% based on the current share price. If we start involving premiums, this upside could easily go to 30-50% based on where this company is typically valued.

There’s a degree of uncertainty baked into the company here, given the opaque earnings we’re seeing due to the coronavirus issue at least during 2020. This means that we really don’t know where we could see the short-term fair value P/E at least for FY20, at least not until Uponor decides to give us more material guidance.

However, the company currently yields 6%. This is well above its average of 3-4%, and in part, I believe, pays us a nice risk premium for what we’re doing when investing in Uponor.


I believe that valuing Uponor at a conservative 15 times earnings when the company typically trades closer to 18-20, gives us enough “protection” for further downside when considering the defensive nature of Uponor’s overall business. The company is in the business of water delivery, and holds a large number of municipal and state contracts, besides being one of the region’s largest suppliers of materials for water, plumbing, heat, and cooling.

This appealing business mix caused me to double down on my small Uponor position last week, turning it into a more sizeable allocation – and I’m looking to buy more during my standard weekly buys as well.

If you want to own a business that’s active in the delivery of water and has this sort of broad appeal in the field, I believe that at current valuations, Uponor could certainly be a good fit for your portfolio. 20% upside, a bi-annual, confirmed yield of 6% on today’s share price coupled with these characteristics make this a “Buy” for me at this time.

Thank you for reading.


Due to company-specific undervaluation, I see an at least 20% long-term upside to Uponor and rate it a “Buy.”

Disclosure: I am/we are long UPNRF, UPNRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: While this article may sound like financial advice, please observe that the author is not a CFA or in any way licensed to give financial advice. It may be structured as such, but it is not financial advice. Investors are required and expected to do their own due diligence and research prior to any investment.

I own the European/Scandinavian tickers (not the ADRs) of all European/Scandinavian companies listed in my articles.

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