HORNBACH: a good DIY retailer at a fair price, not a bargain

HORNBACH is one of the best-run DIY retailers in Europe. It is gaining market share in a flat market, has the highest sales per square meter in its German sector and owns about 62% of its retail space. But the share price is not the bargain it first appears to be. Net debt is lowest right after the summer season, so valuing the company on that figure flatters it, and the usual free cash flow number leaves out about €100 million a year of lease payments. Measured like for like, the stock trades about in line with its own history.

At €83.70 on October 1, 2026, the shares trade 8.1% below my triangulated Base value of €91.04, which means 8.8% upside. The Bear value of €70.12 is 16.2% below the price. The required margin of safety of 30% puts the maximum buy price at €63.73. For existing holders this is a hold. For new money it is a watchlist name.

Route: SF-11 Retail and consumer, large-format DIY retailer with owned real estate and a small builders' merchant. Economic classification: Standard Company (4/12). Primary method: EV to normalized EBITDA, with lease liabilities in net debt. Secondary method: normalized earnings per share at the company's own historical P/E. Tertiary check: price to book. Values are present fair-value estimates, not 12-month price targets.

What HORNBACH is

HORNBACH Holding AG & Co. KGaA runs 177 stores (174 DIY stores with garden centers and three specialist stores) in nine European countries, with a tenth, Serbia, planned for late 2027, and 39 builders' merchant outlets in south-west Germany and France. The DIY subgroup, HORNBACH Baumarkt, is about 94% of sales. A real estate subgroup owns and develops store properties and rents them mostly to the group itself. Online sales are 13.5% of DIY sales.

The company is a KGaA, a partnership limited by shares. It is managed by its general partner, HORNBACH Management AG, which is owned by the Hornbach family trust (Hornbach Familien-Treuhandgesellschaft), and minority shareholders cannot appoint or remove management. There is one class of shares. On November 1, 2026 Erich Harsch becomes CEO of the general partner, succeeding Albrecht Hornbach, and Jan and Nils Hornbach join the board.

The latest half year

Management confirmed the full-year guidance: sales at or slightly above last year's €6,434 million and adjusted EBIT at about last year's €264.7 million (a range of -5% to +5%). That is worth reading closely. The first half already earned €285.6 million, so the guidance implies a second half that is worse than last year's small loss of €7.5 million: between -€34 million and -€8 million. Second quarter sales were helped by an exceptionally hot summer (air conditioners, shading, irrigation) and 1.6 more business days than a year earlier. The company also expects higher logistics, wage and IT costs and extra pre-opening costs for six former Hellweg stores, which it plans to take over on December 1, 2026, subject to approval by the Federal Cartel Office.

HORNBACH is clearly beating its market. German DIY stores sold 0.4% less in the first half of the 2026 calendar year (like-for-like +0.3%), while HORNBACH's German like-for-like sales rose 2.2% over the same months, and its GfK market share rose to 15.9% from 15.5%. It also gained share in the Netherlands, Austria, Switzerland and Czechia.

Why the usual free cash flow flatters the cash

Free cash flow looks strong at HORNBACH: the company reports €194.9 million for the half year after capex and dividends. Two things make that number misleading as a measure of owner earnings.

First, lease principal is not in operating cash flow. Under IFRS 16, rent is split into interest (inside operating cash flow) and repayment of the lease liability (inside financing). HORNBACH repaid €56.4 million of lease liabilities in the half year, about €110 million a year, and none of it appears in the free cash flow figure. An analyst made the same point on the September 2025 half-year call: including leasing, the half-year figure would have been about €70 million, not €130 million.

Second, working capital swings with the seasons. The first half released €177.8 million of inventory after the spring season, and operating cash flow also absorbed the €149.4 million repayment of a reverse factoring program, which rebuilds each winter. Annualizing a half year is not valid for this business.

After lease principal, five-year average owner earnings are about €84 million, a 6.3% yield on today's market value of €1.34 billion, against 14.1% before lease principal. Hard metric: owner earnings after required reinvestment and lease payments. Headline metric: company free cash flow. The conversion of EBITDA into owner earnings is only about 17%. That is why I do not value HORNBACH on cash flow multiples and use earnings and EBITDA instead.

Cash, debt and shares

At August 31, 2026, financial debt was €777.5 million, lease liabilities €978.6 million and cash €582.5 million. Net financial debt including leases of €1,173.6 million is 2.3x EBITDA, and €195.1 million without leases. S&P rates the group BB+ with a stable outlook and Scope rates it BBB- stable. In the half year HORNBACH raised €395 million of new loans (promissory notes of €300 million and a KfW loan of €85 million) and repaid a €250 million bond early on July 27, so part of the cash is pre-funding. The ECB raised its base rate in June and September 2026 to 2.5%.

Net debt follows the seasons. The business builds inventory in the winter and sells it in spring and summer, so debt is highest at the end of February and lowest at the end of August.

The company's own historical valuation figures are measured at February year-ends, when debt is at its seasonal peak. Comparing them with a current figure taken at the seasonal low produces a discount that is mostly an artifact. I use the average of the two dates, and show both ends in the robustness tests. Minority interests of €88.1 million are deducted at book value. Reverse factoring liabilities of €149.4 million (February) are debt-like and are not in the company's net debt, which I test below.

The share count is 16.0 million. At February 28, 2026, 15,998,982 shares were outstanding. In July the company began buying up to 65,000 own shares for the employee share program (60,000 bought by August 31 at an average of about €83), to be reissued at the end of 2026, so I do not treat them as a reduction. The dividend of €2.40 absorbs €38.4 million a year. The company reports no dilutive instruments in its earnings per share.

Primary valuation: EV to normalized EBITDA

The primary Base value is €92.10. Normalized EBITDA is the five-year average of €565, €505, €474, €490 and €486 million, which is €504 million. Last-twelve-months EBITDA is €505.6 million (€486 million for 2025/26, plus €402.8 million, minus €383.2 million), so the two agree, and the company's guidance points to about €498 million for the current year. At 5.6x, the enterprise value is €2,822 million, less €1,260.8 million of average net debt and €88.1 million of minorities, or €1,473.6 million of equity over 16.0 million shares.

The 5.6x multiple is an assumption, set slightly above the 5.4x median of the years I could rebuild. I could not build it from a peer table, because I found no peer data on the same lease basis and period. HORNBACH's own history is the only anchor, so I test 5.2x to 6.0x below.

Secondary valuation: normalized earnings

The secondary method is earnings per share, which is fully charged for lease depreciation and interest. Five-year average earnings per share are €9.52 (€12.48, €9.83, €7.83, €8.80 and €8.66). The company's year-end P/E ratios over the same five years were 9.4, 8.0, 8.8, 9.0 and 9.9, with a median of 9.0x. That gives €85.68 per share. Last-twelve-months earnings are €8.85 (€8.66 plus €10.93 minus €10.74).

The earnings are linked to the EBITDA scenarios: at €470 million of EBITDA and about €230 million of depreciation, earnings per share fall to about €8.00, and at €530 million they rise to about €10.70. The first draft's secondary method, 7.7x operating cash flow minus investments, gave €91.05. I dropped it, because that cash flow ignores lease principal, as explained above.

The tertiary check is price to book. Equity attributable to shareholders is €2,189.1 million, or €136.82 per share. Year-end price to book was 1.15, 0.71, 0.60, 0.65 and 0.67 (median 0.67). At 0.70x the value is €95.77, and the check gets 15% weight, because book value is not the same as property market value and HORNBACH earns about 5.5% on its capital.

Historical cross-check and growth diagnostic

Put like for like, HORNBACH is not trading at a discount to its own history. The first draft compared a current 5.1x, measured at the seasonal low in debt, with a historical median measured at year-ends, and concluded the stock was cheap. I rebuilt year-end multiples for 2023/24 (about 5.0x, with minorities approximated), 2024/25 (5.4x) and 2025/26 (5.8x). I could not rebuild 2021/22 and 2022/23 from free sources.

The growth valuation cross-check (SM-19) is a diagnostic only. The first draft quotes adjusted earnings per share of about €9.20 for 2026/27 with growth of about 1.8% (a June consensus that predates the half-year results; estimated, and I could not reproduce it). That is a forward P/E of 9.1x and a forward PEG of about 5.1, on one consistent adjusted basis. A PEG that high says there is no growth to pay for, and it supports nothing. The free cash flow growth ratio is not meaningful, because owner earnings per share have not grown. Growth durability: normalizing. Cyclical distortion: medium, because the first half was lifted by the weather and the calendar, so the Base does not annualize it. Flag: no synchronized peer table. SM-19 does not set fair value.

Valuation triangulation

The primary and secondary methods diverge by 7.2%, well below the framework's 20% warning line. EV to EBITDA gets the most weight because it is the sector method and its input matches recent results. The three methods are all calibrated on HORNBACH's own five-year history, which includes one boom year, so their agreement is weaker evidence than it looks. The Bear and Bull values use all three methods.

What is the market already pricing in?

At €83.70, market value is €1,339 million and enterprise value €2,688 million on average net debt. At the Base multiple of 5.6x, that price implies normalized EBITDA of about €480 million, or 4.8% below my €504 million. On year-end net debt it is about €496 million. So the market is not pricing in a decline: it assumes EBITDA holds close to its five-year average. For upside, an investor needs HORNBACH to keep EBITDA near €500 million through a second half that guidance says will be weaker, to integrate the Hellweg stores without a drop in returns, and to keep debt from rising while capex is up 13.5%.

Bear, base and bull scenarios

Bear: weak consumer demand and renovation spending, gross margin squeezed by logistics and wage costs, expansion costs without sales, and EBITDA around the 2023/24 low. Base: low single-digit sales growth, EBITDA near its five-year average, no rise in debt. Bull: stronger like-for-like growth, successful new stores, a stable gross margin and a re-rating toward the top of its own range. Because the business is cyclical, the Bear cuts EBITDA and the multiple only modestly, since a cyclical trough usually raises, not lowers, the multiple, and cutting both would count one risk twice.

The probability-weighted value, at 25%, 50% and 25%, is €91.27, which confirms the Base.

Sensitivity: primary value per share

How the buy price is set

Confidence B starts at a 30% margin of safety, the middle of the framework's range, because the score of 18 is at the low end of the grade. Five points are added for the cyclicality of housing and consumer spending and the high fixed costs of a store network, and five points are subtracted for the strong balance sheet: a 45.8% equity ratio, just €195 million of net debt before leases and about 62% of retail space owned. That leaves 30%. A 30% discount to the €91.04 Base gives a maximum buy price of €63.73. A deeper 40% discount gives €54.63, so the buy zone is €54.63 to €63.73. The current price is 31% above the top of that zone.

Dividend

The dividend is €2.40 a share, a yield of 2.87%, and has been at least equal to the previous year's since the 1987 IPO, 39 years in a row. It has been flat at €2.40 for five years. The payout is 27.7% of earnings, against a policy target of about 30%. It costs €38.4 million a year, which five-year owner earnings after lease payments cover about 2.2 times. HORNBACH is not an income stock: the yield is below 3% and growth has been flat, so the dividend framework is not applied.

Reasons to own HBH

• Market share gains in a flat market. Like-for-like sales rose 4.0% in the half year while German DIY sector sales fell, and share rose in five markets.
• Asset backing. About 62% of retail space is owned, the equity ratio is 45.8% and the price is 0.61x book value.
• Low conventional leverage. Net debt before leases is €195 million, 0.4x EBITDA, and the group is BB+ rated and stable.
• Strong store economics. Sales per square meter of €2,903 lead the German DIY sector, and online sales (13.5%) grow faster than stores.
• A reliable dividend. 39 years without a reduction, at a payout below 30%.

What could go wrong?

• Cash conversion. After lease payments, owner earnings are about €84 million a year. If capex stays at €220 million or above while EBITDA stays flat, per-share cash will not grow. This is the main thesis breaker.
• Cyclical demand. DIY is discretionary. European consumer confidence is weak, and the Iran war and the closure of the Strait of Hormuz have raised energy, freight and commodity costs.
• Expansion risk. Six Hellweg stores (subject to Federal Cartel Office approval), Serbia and new stores add capex and pre-opening costs, while contingent liabilities rose to €161.6 million from €47.3 million in February, mostly rent-related.
• Interest costs. The ECB has raised its rate twice since June, the half-year interest expense rose 26% and the group is rated BB+ by S&P.
• Governance and succession. The family-controlled KGaA structure leaves minority holders without influence over management, the CEO changes on November 1, and the stock trades only about 15,000 shares a day.

Management execution

Management delivered results within guidance in 2024/25 and 2025/26, kept the dividend, and confirmed the 2026/27 guidance despite a strong first half. Financing discipline is good: the €250 million bond was replaced early with new promissory notes and a KfW loan. Against that, capex is rising faster than earnings, adjusted EBIT in 2025/26 was 1.8% lower on 3.8% higher sales, and the returns on the new stores are still to be shown. Management credibility scores 15/20, good.

Stock Analyza scorecard

Economic return is low because return on invested capital is about 5.5% (adjusted EBIT of €264.7 million after tax over €3.5 billion of equity and net debt including leases), below my estimate of the cost of capital, about 7%. Property ownership lowers measured returns but does not create returns.

The valuation score is 49/100: discount to Base 17/40, protection against the Bear 6/20, agreement between methods 12/15, historical valuation 5/10 (in line with history), market implied expectations 6/10, data and model penalty 3/5.

Confidence score

What I would watch from here

The next review points are the Q3 statement on December 22, 2026, the Hellweg takeover (December 1, subject to approval) and the trading statement on March 23, 2027. Net debt readings should be compared with the same season of the prior year, not with the last quarter.

The three most important thesis breakers

1. Last-twelve-months EBITDA below about €460 million, without a clear path back.
2. Net debt before leases above €500 million while owner earnings weaken.
3. Falling market share together with falling gross margin and like-for-like sales.

Adversarial review

I recomputed every figure from the half-year report and the annual report. The first draft's company data were right: sales, EBITDA, adjusted EBIT, net debt, equity, shares, five-year EBITDA, operating cash flow and investments, the dividend and the price of €83.70 (the Xetra close at 17:35 CEST; the broker quote of €83.30 to €84.20 later that evening is an off-exchange indication). The draft's arithmetic reproduced exactly, including all nine cells of its sensitivity table. The valuation inputs did not hold up in four places.

What changed and why. First, net debt follows the seasons, and the draft took the low point while its historical multiples came from year-ends. That turned "5.1x versus 5.47x" into an apparent discount; on one basis the shares trade at 5.3x to 5.5x, in line with history, so I removed "valuation below history" from the reasons to own. Second, the draft's owner earnings (operating cash flow minus investments) leave out about €105 million a year of lease principal. The draft also said the dividend was covered 4.9 times, but after lease payments it is 2.2 times. Third, the scores moved against the evidence: economic return of 9/20 for a business earning about 5.5% on capital against a cost of about 7%, cash flow quality of 11/15 when only 17% of EBITDA becomes owner earnings, a moat of 16/20 ("exceptional") when operating margins are 4%, and a leverage dashboard measured at the seasonal low (2.3x, where the year-end reading was 2.8x). Fourth, Valuation Score 67 had no breakdown; Confidence loses a point each for data quality and valuation robustness, because there is no peer table and all three methods lean on one company's history, and the margin of safety follows the grade. The draft also had no check on reverse factoring liabilities or on the guidance for the second half. The verdict is unchanged.

The strongest counter-argument is that HORNBACH is simply undervalued: it gains market share in a flat market, its stores and land are worth more than their book value, and the price is 0.61x book. If the €2.0 billion of property is worth even 15% more than its carrying amount, the Base is too low. The answer is that no property valuation is disclosed, and that the capital earns about 5.5%, below its cost, so the discount to book is a fair description of earning power rather than a mispricing. The Bull of €112.86 covers this case.

Single changes keep the Base between €87.78 and €94.31, and the maximum buy price stays between €61.44 and €66.02, below €83.70 every time. Stacking all generous or all cautious inputs gives €97.72 or €72.99. At the cautious end the price would be 15% above the Base, so the verdict depends on avoiding the worst case, which is why confidence is B and not A. Most corrections lowered the value, so I also checked the other direction: the draft's net debt and the draft's secondary both raise the Base, but only to €94.31 and €92.39, and neither changes the verdict. The publication gate status is PASS_WITH_WARNING.

Final verdict: hold at €83.70, watchlist for new money

HORNBACH is a good company: it gains share, owns much of its land, has low debt before leases and has paid a dividend every year since 1987. But at €83.70 the price is within about 8% of what I think the business is worth, not far enough below it to give a margin of safety, and the apparent cheapness against history does not survive a like-for-like comparison.

Verdict: HOLD at €83.70, WATCHLIST for new money. Triangulated Base value €91.04, upside 8.8%, Confidence B (18/25). Required margin of safety 30%, maximum buy price €63.73.

For an existing holder, the market share gains, the asset backing and the dividend support holding. New money waits for €63.73 or below with the thesis intact, or for proof that owner earnings after lease payments are rising.

The main thesis breaker is owner earnings that fail to recover while expansion capex and leverage rise.

Sources

Primary sources include HORNBACH's half-year financial report for the six months to August 31, 2026, the half-year press release of September 29, 2026, the 2025/26 annual report (five-year key figures) and the investor relations share page (year-end share figures and analyst consensus as of June 26, 2026). The market price and exchange quotes come from aktiencheck. Lease principal (about €105 million a year), average net debt, the 2028 earnings inputs of the scenarios and the year-end EV to EBITDA multiples for 2023/24 are my own calculations or estimates, labeled as such.

The reference market price is €83.70, the October 1, 2026 Xetra close at 17:35 CEST. Balance sheet figures are as of August 31, 2026, shares as of February 28, 2026 adjusted for the employee share program.