A first look at French stocks – part 1 (including my Top 10 French small caps)

So far, I have been reviewing 4 French stocks in more detail:

Vivendi SA
Esso S.A.F. (part 1, part 2)
April SA
Tonnelerie Francois Freres

From those four stocks, only Tonnelerie made it into the portfolio as a “Hidden Champion”.

France, as the second largest EUR economy has a lot of listed companies.

Bloomberg shows 847 listed companies based in France, a little less than Germany with 1110 companies, but more than Italy (304), Spain (201) and Portugal (67) combined !!!

Total market Cap for French companies is 1.09 bn (European “billion” or Amercian Trillion), slightly higher than the 1.02 bn/tn currently shown for Germany. Not surprisingly, France has more “big” companies with market caps above 5 bn EUR (45) vs Germany (35).

If we look at what I would call the “Small cap sweet spot”, 25-200 mn EUR market cap, we get 242 French companies against 498 companies in Germany.

General observations about French stocks:

I am definitely not an expert in French stocks and the French investment scene, but I would summarize my experiences up to now as follows:

– French companies, especially small caps are usually less leveraged and run more conservatively than their Italien or Spanish peers

– there is hardly any blogging or internet scene for French stocks. I know only of boursorama.com and the quality of posts there is usually quite low

liquidity for French small caps is sometimes extremely limited. I guess this has to do with a preferential treatment of 5%+ psoitions under French tax rules. So many small caps have a large majority owner and several long term 5% stakes. Some stocks trade only twice a day at very small amounts.

“shareholder value” seems to be still a kind of “dirty word”. One usually doesn’t see a lot of share buy backs etc. French companies either reinvest or keep a lot of cash on the balance sheet. M&A activity (take overs ect.) is also relatively limited. Don’t expect super efficient use of capital either.

– many of the smaller companies only report in French, which (thanks to Google translate ) is not a big problem anymore but might turn off some potential Anglo Saxon investors. Sometimes it is hard to find news, even on company web pages.

– disclosure in French reports is often relatively limited

So I would say that especially the smaller French stocks look really “neglected”, both by international and local investors.

For instance if I search for stocks with P/B less than 1 and a “single digit” P/E, I find 131 French companies against only 101 German companies. If I include a required minimum Dividend yield of 1.75%, I only get 32 German companies, but 84 French companies. So based on very simple metrics, there seems to be a bigger selection of “cheap” French companies than German companies.

Also when we look at the indices, France looks comparatively cheaper than Germany. Current P/E for the CAC 40 is 10.1 with a dividend yield of 5.3% against a P/E of 13.1 and dividend yield of 3.7% for the German DAX.

Interestingly, French small cap indeces are relatively expensive. The CAC Mid 600 Index for example tardes at an 12x forward P/E which is almost the same as the German MDAX.

However, in order not to make it too exciting, I will reveal my current “TOP 10 watchlist” of potentially interestign French stocks which there are:

1. Poujoulat (FR0000066441)
Chimney manufacturer, consistent profit growth, single digit P/E

2. Installux (FR0000066441)
Specialist for aluminium products, very profitable. Extremely cheap on an EV basis because of large cash position

3. Gevelot (FR0000033888)
Ridiculously cheap auto parts company. Very good post at Oddball

4. Samse SA (FR0000060071)
Cheap regional DIY chain

5. Piscines Desjoyaux (FR0000061608)
Swimming pool manufacturer, cheap, Royce has built up a 7.6% position in 2011

6. Trigano (FR0005691656)
Recreational vehicles, caravans

7. Groupe Guillin (FR0000051831)
Plastic packaging

8. Thermador (FR0000061111)
Plumbing supply wholesale

9. Precia SA (FR0000060832)
Industrial scales

10. GEA SA (FR0000053035)
Highwy toll collection equipement

All those companies are plain vanilla “old economy stocks” who score incredibly well on my “boring but sexy” screen which combines ROE, volatility of ROE, growth, and solidity of balance sheets relative to price over 10 years..

Other interesting small caps which I haven’t researched deeply but might be interesting are:

Tessi (good post at valueinvesting france)
Chargeurs (another Seth Klarmann / Baupost position)
Mr. Bricolage
Vet’affaires
Manutan
Toupargel
Tipiak
Maisons France

I will try to write a post for each of the “Top 10” companies in the coming weeks. However I would really appreciate if readers who have other interesting French stocks on their radar to shoot me a comment etc. or if you have researched companies on the list.

It would also be great to know if there are other interesting blogs and resources for French small caps like valueinvestingfrance.

For the portfolio I am actually thinking of taking a “basket” approach as it would take ages to build up a position in any of those stocks. Sow this would mean for instance 5x 1% positions as a “French basket”.

DISCLAIMER: The author privately owns already some of the discussed shares

17 comments

  • Hallo MMI,
    ich glaube die Jungs von Bestinver stöbern auch gerade im französischen Markt im Bereich Small Cap herum.
    Haben Ihre Anteile an folgenden Firmen erhöht/Position gestartet :

    1.MGI Coutier (Autombilzulieferer, KGV 3,58, kein research, starker Wachstum in Nord-Amerika)

    2. VM Materiaux (Baumaterial, vgl. mit Hornbach, eigene Beton-Herstellung, KGV 6,12, DIV: 5,61%)

    hier der link:
    http://bourse.lefigaro.fr/indices-actions/actu-conseils/vm-materiaux-bestinver-depasse-les-5-des-droits-de-vote-209901

    http://bourse.lefigaro.fr/indices-actions/actu-conseils/mgi-coutier-bestinver-passe-au-dessus-des-10-210380

  • MMI, the link to the Gevelot posting refers to a posting about Tessi, the same as below.
    Relating to Lacroix: One always should compare it to the competitor Signaux Girod, especially with respect to the price-sales-ratio. In the past 20 years, it was always a good idea to invest in the stock with the lower ps. Over the long term, they performed similarly.
    What happened to Thermador? Did they have a stock split 2 for 1? comdirect shows a fall from 120 to 60 Euro this week. I could not find anything, but it seems so, because Euronext displays a smooth chart around 60 Euro.

  • Perfect timing on this post, I loved the data on French small caps being neglected and ignored. I’ve recently researched two Gevelot (which you mentioned) and Precia. After seeing those two I realized the French small caps probably have a lot to offer. No door busting bargains, but solid companies selling at reasonable or cheap valuations.

    As for sites valueinvestingfrance is great, and I will browse blog.daubasses.com, but like the above commenter said you need to pay for their research. They also post on a lot of US stocks that I’m already aware of, so not a ton of value in turning up new ideas.

    I’m really looking forward to your upcoming posts on these companies. I’m probably going to look at a few myself. I’m very curious as to your take on Poujoulat, I have looked at them, and didn’t recall anything really sticking out, not terribly cheap or anything. I need to look again.

    Another name to toss into the list Nexeya, I believe they’re actually close if not a net-net. I’ve just done a cursory look at this point.

    Nate

    • nate,

      thanks for the comment. I have already read your (very good) post about Precia and hope to comment about it soon.

      mmi

      • Thanks for the comment and the competitor name. There really aren’t many people writing about a lot of these small European companies.

        I love that for most companies I come across I can search your site and usually find something. Good posts on Esso, you saved me a lot of time researching. I love your blog as well, keep up the great work!

        Nate

  • Linedata, Cegid, Nexity, GFI, Lectra, Eramet, Rexel…

  • Hi;

    You can look at Plastique du Val de Loire or Exacompta also.

  • hi wexboy,

    great, looking forward for some French specialties from your side !!!!

    MMI

  • Thanks MMI, For some reason, I’ve been reading more about French stocks here & there recently. Starting to feel inspired to research more!

  • Another good value website in French is http://blog.daubasses.com/ but you need to pay to receive the latest research (which I dont…)
    If you want to play buyouts with very good valye, I think Elixens and Sical are interesting (VERY illiquid), famillies buys back and own almost the 95% required so everybody is waiting…
    In the one you mentioned, I also own Groupe Guillin who is subjected to price of raw material but just on the acquisition of the UK branck I think they made the investment at the right time when the pound was low.
    GEA is a very good and simple company but I would wait for the price to drop a bit, not enough margin right now. Same for Securidev (I would buy around 25).
    There is a complex one: SPIR communication, I do not really know the press and internet business but there are many small parts to value. Another one I want to look at is Nexeya

  • Hello! I own a few of these companies. Before I make some comments, do you know the equivalent of “boursorama” for German equities (both for discussion and to see the order book for free…). The below is only my personal view, for what it’s worth:
    – Poujoulat: I sold it at 152 recently. I have no clue if this is a good move or not. It grows, the industry is not sexy, good management..The only thing that bothered me is that they reinvest a lot in the new “wood” business, whose profitability will not reach the one of the chimneys division. Also the construction market is slowing down in Fr. Otherwise, great business, economies of scales, no potential competition from China since the products cannot travel far…I may come back once I know more about the profit from wood
    – Precia: to me it is a dream (not capital intensive, not sexy, a nice part of the turnover is recurring from services, successful build-up strategy…)
    – Installux is attractive at the current price. Lots of investment in Spain but management is very profitability conscious.

    A few weird names that can be intersting: Groupe JAJ (about to sell some real estate for more than the market cap, risk is that we do not know what the cash will become), Systran (most likely the money from the European commission will stay…), salvepar offers a great discount to NAV, Lacroix is suffering from the exposure to IT and public spending but I think is attractively priced, you can play the convergence of Burelle (owns 55% of POM+other small things)and Plastic Omnium…

    Keep in touch

    • Hi Raphael,

      thank you for your comment. This was exactly what i was looking for …

      I am not sure if they are “equivalent” to Boursorama, but for German stocks you can try

      wallstreet-online.de,
      wertpapier-forum.de
      Werthaltiginvestieren.de (registration required)
      antizyklischinvestieren.de/board/
      Bonds: http://forum.baadermarkets.de/

      Thanks for the “weird names”.

      mmi

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