WMF AG – Hidden Champion part 3 – Potential catalyst and Private Company Valuation
–> from a pure Asset perspective, the Stock seems currently fairly valued
–> from an EPV perspective, one could assume an upside of 25-43% if one assumes constant cash flows going forward based on 2010 results
So overall, the upside is there but certainly not “super exciting”, so why bother ? Maybe the reasons are to be found in what i would call more the “qualitative” angle ?
One of the aspects I try to improve on in stock analysis is everything besides the pure “numbers”. I already linked to a very interesting presentation from Jim Chanos about value traps.
The opposite of a Value trap would be a “Catalyst” where an undervaluation gets resolved through some sort of corporate action.
In the case of WMF, I think there are some reasons why there could be a short to medium catalyst to unlock value even for a minority investor.
As mentioned before, the Private Equity Investor Capvis owns 51% of the voting shares. The WMF position is part of the Capvis II Fund.
If we look into the details of the Capvis II fund, we see the following information:
2004 – 2014
2004 – 2008
EUR 340 Mio.
Schweizerische und internationale Investoren
So this means that the fund will be finally paid out to investors in 2014, until then Capvis will have to realise the investments including the WMF stake.
I think this is also one of the reasons why WMF has now decided to seperate the Coffee Maker division in its financial statements.
From a private equity perspective, Capvis could maximise the value of its investment through different measure:
1. A “dividend recap” like Permira did with Hugo Boss, This would mean thath WMF pays a big divdend financed by leverage. In my opinion, an aggressive P/E investor could realise a 15-20 EUR dividend through this methos
2. Additionally, Capvis could try to sell or spin-off the Coffee maker division in order to realise the “hidden” value.
3. Or simply sell the company to a straegic investor or another PE investor
From a theoretical point of view, this situation might justify the “Private Company valuation approach” pioneered by Mario Gabelli.
If there is really a high likelyhood of a take over, one might look at what multiples comparable takeovers took place in the past. So I quickly searched for all take overs in the last 3 years in Western Europe which are labeled under “Consumer cyclicals”.
The search resulted in 18 takeovers with published EV/EBITDA multiples:
|Announce Date||Target Name||Target EV To Trailg 12M EBITDA|
|03.12.2008||Austrian Airlines AG||4.00|
|19.02.2008||Ducati Motor Holding SpA||4.98|
|06.05.2011||Rank Group PLC||5.63|
|27.05.2011||La Rinascente SpA||6.45|
|09.05.2011||Gruppo Coin SpA||6.66|
|16.05.2008||Ballingslov International AB||7.93|
|11.01.2010||Dufry South America Ltd||8.01|
|25.04.2008||Tourism Investment Corp Ltd||8.30|
|16.12.2009||FGX International Holdings Ltd||9.50|
|01.07.2010||Genting UK PLC||13.80|
|11.12.2007||Gant Co AB||14.73|
|28.10.2010||BMP Sunstone Corp||20.73|
So even if we cannot compare WMF 1:1 to any of those companies in the list, typical EV/EBITDA multiples seem to be more in the 7-9 times EV/EBITDA region for brand name consumer companies.
WMF currently trades at ~4.4 times trailing 12 Month EV/EBITDA. If we adjust for pensions (i.e. add them to EV), than we would end up at 5X EV/EBITDA at current prices.
Our list of comparable transactions would then indicate a Private Market Valuation of ~42-54 EUR, a theoretical upside of ~45% to 86%.
In the quoted link to GamCo, Gabelli says the following:
We select stocks that have the potential to provide a 50% return over two years. Our sell decision is made for us when the securities are selling in the public market at or near our estimate of their private market value or if the catalyst we expected to happen fails to materialize.
So WMF might qualify as a “Gabelli” investment if the EV/EBITDA multiples are somehow representative.
Summary: Under the classic Asset Replacement Value and EPV analysis, WMF didn’t look to exciting. However taking into account the not unlikely event of the exit of Capvis as “Catalyst”, WMF could offer an interesting exposure to a “Gabelli style” stock. I will therfore keep the position in anticipation of a “catalyst event” until 2014 and continue to monitor comparabel transactions.