Investment Case: Varta


VARTA AG is a leading manufacturer of retail and OEM microbatteries for hearing aids and miniature high power industrial and consumer entertainment applications, such as wireless headsets. Also, it offers residential and commercial energy storage systems and engineered power packs for portable electric devices. It was founded in 1904 in Berlin, Germany. The company’s name stands for Vertrieb, Aufladung, Reparatur Transportabler Akkumulatoren. If you speak a bit of German, it will occur to you that this company has been in the business of batteries for a very long time. We like businesses that stick to their knitting and have built a leading position in a niche.

VARTA was split up in 2002, with automotive batteries sold to Johnson Controls and Consumer Batteries to Spectrum Brands. In June 2019, VARTA AG bought back the Consumer Batteries activities when they came up for sale.

VARTA entered the stock market on 19 October 2017 at a price of Eur 17.50 (precisely 30 years after the 1987 stock market crash).

David Simons

Founder and Portfolio Manager

What makes the company different

VARTA is the largest player in microbatteries for hearing aids. This market has become an oligopoly, with VARTA having the upper hand from a technology perspective thanks to a relentless focus on innovation via in-house R&D. Technology is moving forward at a rapid clip. This is driven by an increasing number of hearing aids features, such as Bluetooth functionality to connect with smartphones and further miniaturization. Small players don’t have the R&D budget to get an edge. Battery technology improvements are patented, requiring competitors to find ways around VARTA's patents to offer the same technology. We like this business for its recurring revenues given that batteries need to be replaced every week. During economic downturns, VARTA has proven to be resilient. New applications for microbatteries are materialising and provide VARTA with a unique opportunity to grow. The emergence of rechargeable hearing aids further solidifies VARTA's position as it is even more dominant in this segment.

Why did Varta come to the stock market?

The reason for VARTA doing its Initial Public Offering is somewhat unusual. A company is normally in need of new equity to invest for growth, or an existing owner is looking to exit. VARTA's 100% owner was Montana Tech Components, an industrial conglomerate focused on key technologies in aerospace components, metal tech and industrial components. Montana Tech is controlled by Mr. Michael Tojner, a German/Austrian entrepreneur turned billionaire. He has significant expansion plans for its businesses and is using debt for its capital expenditure requirements. The expansion plans of VARTA could not be financed with more debt. This would lead to too much financial leverage in his conglomerate. Montana therefore decided to tap public equity markets to finance VARTA’s capex requirements. As a consequence of its IPO, VARTA started its ‘public life’ with a large net cash position. Montana did not sell any VARTA shares. It still owns 64% of the equity. We consider this a vote of confidence.  It shows that Mr. Tojner believes he rather has 64% of a large, well-financed business than 100% of a smaller, financially leveraged business that clients see as a continuity risk.

A clear leader

VARTA has consistently increased its market share in the healthcare space, now nearing 60%, versus less than 10% in 2003. It supplies four of the top five hearing aid manufacturers and provides 90% of batteries to three of those five. The perceived quality of a hearing aid is materially impacted by its reliability, so longevity of battery power is an important factor. The large majority of hearing aid batteries are currently ‘replaceable’ as opposed to rechargeable. This is because it provides reliability to the user in terms of longevity – the user won’t run out of power halfway during the day. Also, it provides the retailers an opportunity to have frequent contact with its customers, many of whom are elderly and prefer a specialist to replace the batteries every week.

At some point, rechargeable batteries will substitute replaceable batteries in hearing aids. VARTA has an even higher market share in rechargeable microbatteries, so this is actually a positive development.

Growth opportunity

The growth opportunity in hearing aids remains large, driven by an ageing society and an increased adoption of tiny, almost invisible hearing aids. We anticipate steady growth for this segment.  A larger growth opportunity lies in the wearables market. Batteries for smart watches, wireless headsets, etc are required to be smaller and increasingly powerful at the same time. This is a technological challenge. VARTA is working with all leading electronics manufacturers and is winning the design-ins for almost all premium wearables.

If Apple were to switch to smaller and more powerful coin-shaped batteries for its next-generation Airpods, this would be a major growth boost for VARTA. In its smaller Power and Energy segment, we expect solid profitability as it has been entering mass-market segments such as power tools for home and garden.


A key element in the analysis of SilverCross is quality of management. Especially with a company that has not traded in the public market for a long time, it is more difficult to assess track record and softer but essential elements such as integrity. Given this, we have looked at tenure. The CEO, Mr. Schein, has been with VARTA since 1991 and served as CEO since 2008, one year after Montana acquired VARTA. He has overseen the growth of the company. Several other senior executives have long histories with the company as well. This provides us comfort the business is in capable hands.


One of the quality criteria SilverCross appreciates is a company’s resilience. Resilience can be defined in multiple ways, such as a strong balance sheet or recurring revenues. In VARTA's case, the majority of revenues is recurring, as batteries for hearing aids are a must-buy for users. It operates in an oligopolistic and strongly growing market. We believe that the addressable market for its coin-shaped rechargeable batteries is underestimated by investors. Its balance sheet has remained strong despite large investment programs to answer the sharply growing demand. Taken together, we anticipate that the company will be able to weather an economic downturn.

Sustainable Business Practice

As part of our due diligence, we integrate environmental, social and governance factors. We consider it important that the companies we are a shareholder in are part of the solution to, or at least not detract from, the environmental and social challenges our societies face. We like this to be inherent in the business model, rather than an ‘overlay’.

Initially, we always check if a company’s activities are labelled as ‘controversial.’ This would be the case if the company is active in tobacco, alcohol, nuclear energy or other ethically questionable activities. VARTA does not engage in controversial activities.

In our analysis on the environment, we believe VARTA has significant potential to benefit from growing demand for clean technologies. With regards to toxic emissions, waste, electricity and water use, VARTA does not yet disclose enough information. We have engaged with VARTA management about setting ambitious, measurable improvement targets and the need for improved disclosure.

Overall, we see a relatively typical situation for a small-cap company that has not been listed on the stock market for a long time yet. As it has no ‘ESG marketing department’ like large companies do, its priorities are primarily entrepreneurial instead of focused on external communications. We expect this to improve.

What is the investment case?

VARTA is accelerating its expansion, especially in rechargeable coin-shaped batteries for wearables. It is increasing production massively. We anticipate rising profit margins and rising ROIC, which is already above 20%. A company generating 20%+ ROIC with an opportunity to reinvest its cash flow at high ROIC has historically proven to be a highly attractive compounder. While the stock price has tripled since its listing on the German stock market, investors are still likely to be surprised positively about the overall growth opportunity in the years ahead. Our analysis shows there are years of strong growth ahead. If our analysis turns out to be correct, the share price will follow the earnings growth higher.

How to invest

Participations in the Fund are qualified for sale in the Netherlands. SilverCross Global Small-Cap Fund does not pro-actively sell participations to investors residing outside of the Netherlands.

The minimum initial investment amount is Eur 100,000. Any subsequent investments must exceed Eur 25,000.

Before making any decision to invest in SilverCross Global Small-Cap Fund, we strongly recommend reading the Prospectus.

SilverCross Global Small-Cap Fund may be distributed through IBS Asset Management BV or through a licensed EU / EVA financial institution. Investors wishing to invest through their own advisor can do so by providing them the following ISIN code: NL0010832242.

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Please note that your subscription will be processed the first Transaction date following the receipt of the investment amount, which is weekly on Wednesdays, or the first business day thereafter if the Dutch stock market is closed. The Investment Manager has the discretion to determine additional Transaction dates at any time.



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