French stocks part 2: Installux SA (FR0000060451) – Boring is the new sexy

Installux is a small French Company which according to Bloomberg:

manufactures and distributes aluminum and steel components used in carpentry, locksmithing and building. The Company also refurbishes office buildings and factories.

Traditional valuation numbers show that the stock is relatively cheap and conservatively financed:

Market Cap 44 mn EUR
P/B 0.81
P/S 0.4
P/E 7.8 (Trailing 2011)
Div. Yield 5.5%

So far so gut, however, EV/EBITDA is at a sensational 2x EV/EBITDA

This is due to the fact that the company has around 46 EUR per share in net liquidity. Unfortunately, the 2011 report is not yet available, but some preliminary figures can already be accessed for instance here.

If we adjust the P/E for cash we would get a corresponding lower PE of around 5.2 for 2011.

A company with a valuation at 2 x EV/EBITDA and a P/E of 5 needs to have some kind of serious problem. However if you look at Installux, it is hard to find problems. Let’s look at historical numbers:

EPS NI Margin ROE ROIC
1999 10.2 5.5% 16.7% 15.9%
2000 13.4 6.2% 19.1% 18.7%
2001 14.1 6.3% 18.4% 15.5%
2002 10.4 4.6% 12.7% 13.0%
2003 12.4 4.7% 13.8% 14.9%
2004 17.5 5.6% 17.7% 15.5%
2005 18.5 6.6% 16.6% 15.0%
2006 19.8 6.4% 15.4% 14.6%
2007 18.8 5.6% 13.3% 13.2%
2008 17.9 5.4% 11.9% 11.8%
2009 15.1 4.7% 9.5% 10.2%
2010 21.8 6.4% 12.6% 19.6%
2011 17.9 4.9% #DIV/0!

What we can see here is a generally growing profit (with some minor hiccups), an unspectacular but very stable Net margin between 4.7% and 6.4% and Mid teen ROEs and ROICs.

The business is highly cash generative. Despite the growth achieved, over the last 13 years, on average 12-13 EUR free cashflow per share have been generated. Around half of that has been paid out as dividends, the other half has accumulated on the balance sheet (in 1999 Installux still had a tiny amount of net debt).

Also the balance sheet is cleaner as clean, no goodwill, no pension liabilities and no operating leases as far as I could see.

So let’s stop here and summarize:
We have a consistently growing and profitable business with very low volatility, attractive ROE and ROIC and a valuation of 2x EV/EBITDA and 5x P/E adjusted for cash (7.8 unadjusted) which produces a large amount of free cashflow despite growing nicely over the years.

Let’s have a quick look at the business:

Installux is processing aluminium, i.e. shaping and forming and coloring it to be used in shops, for windows etc. Interestingly, despite the fluctuation in aluminium prices, they seem to be able to pass on price changes relatively quickly.

Their clients are mostly “corporates” like building contractors etc., they run a small retail segment which however doesn’t seem to be very profitable at the moment (Roche Habitat).

A Net margin of 4-6% is Ok, but does not indicate a big moat. The relatively high returns on equity and invested capital seem to be the result of a relatively low fixed asset base required to run the business.

So the business seems to be nothing special, but produces double digit returns on invested capital which is quite good and is not really cyclical.

In the last 13 years, Installux roughly doubled its sales and profits, so one could not say that this is a shrinking or dying business either.

Management

The current CEO Christian Canty seems to be in charge since 1987 and has bought the company according to the company history website in 1991. They made small acquisitions along the way but nothing spectacular. He is 65 years old and might not continue forever. However his son, Christophe age 38 seems to be already working in the company as a director.

He holds 50% plus some shares and has been buying smaller amounts of shares for instance in 2010 (1500 shares according to the annual report).

I haven’t found a disclosure how much he pays himself, but with a total of +12 mn salaries for all 450 employees, there is not a lot of space for a large CEO salary. Additionally they don’t issue any options or new shares to directors.

It is interesting to read Canty’s “press communication” which seems to be issued in irregular intervals. Another one can be found here.

It becomes clear how cautious he approaches exports and how hands-on he comments on the loss of his smallest division, Roch Habitats. One gets the impression that the “boss” is in control of things.

I also didn’t find any hint that any improper transactions etc. have been made between the CEO as majority owner and the company.

So why is the stock so cheap ?

Some possible reasons are:

– no investor relations at all, on their homepage you neither find a share price nor a link to the annual reports or quarterly news. This is the first time that I see a company homepage of a listed stock which basically denies the existence of its share….

– no trading volume. On a “good” day, 100 shares are being traded. prices jump around a lot between auctions.

– small free float: The CEO Christian Canty owns 50% of the shares and three 5% packages of French institutions are disclosed in the 2010 annual report. No international shareholders as far as I could see.

– even on Bloomberg, you cannot find links to recent news, reports etc. Also the historical numbers are screwed up. In their historical earnings database they show a profit per share of 175 EUR in 2004 per share instead of 17,50 EUR.

– Installux generates more than 95% of sales in France. if France goes into deep recession, it will be hard to compensate for Installux

Valuation

With a stock like Installux, one can take a rather simple approach. As we have seen, the business is cash generative. So if we assume that they just continue to produce around 5.5 mn profit a year and discount this with 10%, we would get a valuation of 55 mn EUR. Plus the 14 mn cash on hand would make a conservative “no growth” valuation of around 230 EUR per share.

Of course we do not have something like a “catalyst” here, on the other hand at least based on historical volatility, a 10% discount rate might even be too high.

Another way to look at this would be: At the moment one can buy Installux at ~80% of book value. The earn 15% on Assets ex cash so one is buying at close to 20% effective ROE (ex cash) which is really really good !!!!

Share price

The stock price looks pretty boring:

Nevertheless, Installux has easily outperformed the CAC 40 even before dividends.
So let’s stop here and summarize:

+ Installux is a very conservatively financed company with a profitable growing business which doesn’t need a lot of assets to run

+ current valuation seems very cheap and neither takes into account the cash on hand nor the relatively high ROCEs and low volatility

+ a very conservative valuation approach would imply at least 50% upside in a no growth scenario

+ if Installux would continue growing at approx. historical growth rates, the stock should be much more expensive.

– however no catalyst in sight other than a slowly growing dividend which might help in the long run. So this is for the patient investor.

For the portfolio will start to accumulate shares at my usual rules (max 25% of daily volume).

Appendix: Others sources from the web for Installux:

– relatively good blog post 2 years ago on a French value blog which doesn’t seem to be active any more. He concludes that the stock is very solid and extremely cheap.

– from time to time there are posts in the boursorama forum. Th few people who discuss the stock seem to come to the same conclusion

– “Worlreginfo” seems to be the best source for Installux company filings

12 comments

  • mmi,

    Thank you for this analysis.

    This seems to include the payment to Canty:

    rapport 2013
    57

    NOTE 28 – INFORMATIONS SUR LES PARTIES LIÉES

    28.1 – Avantages accordés aux Administrateurs et aux membres du Comité de Direction

    2013 2012
    Avantages à court terme :
    – Rémunérations (salaire, intéressement, participation) 1 174 1 264
    – Charges sociales 446 446

    Milud

  • first, thanks for your blog and you are very serious homework.

    installux looks interesting but how do to you explain the growing need in working capital. Are they changing their business model, aren’t they ? they used to be conceptors and distributors of verandas, now they are producers. the capex is still important and the working capital is growing.
    the 2011 free cash flow is definitely negative, as previously underlined by Caque40.

    best regards,

    • hi Ali,

      yes, free cashflowin 2011 was negative and receivablesare growing.However they managed to have a godd positive free cashflow in H1 2012. I guess this has to do with the overall weaker economy in France.

  • Ja mmi…pflichte Dir mit der Chance absolut bei, darum habe ich ja zwei extrem hochrentierliche französische Bonds von namhaften Unternehmen…man muss halt mit dem Finger am Abzug bleiben und beobachten ob es sich zu der Chance (wie Du sagst) entwickelt oder das ganze System zerbröselt. Ob es für die Länder sinnvoll ist oder nicht…populistische Strömungen und Entscheidungen sind oft irrational. Erster reality check wird die Griechenwahl…ein bischen wird mir bei den rechts und links kräftig wachsenden Parteien schon bange…lets see and watch careful!

  • brandneu von heute morgen…weil es meine These zur Disintegration in Europa untermauert kopier ich es mal rein…Ich denke die Vorgänge in Italien und Spanien sind bereits ernste Alarmzeichen für ein Ende des Euros in seiner jetzigen Form. Ob Kerneuro oder nationale Währungen..wir werden sehen. Wenn meine Kommentare zu off-topic sind…bin nicht böse wenn sie gelöscht werden.

    Ausländische Investoren stoßen spanische Staatanleihen ab

    MADRID (dpa-AFX) – Die enormen Geldspritzen der Europäischen Zentralbank (EZB) haben zu einer massiven Umverteilung spanischer Staatsanleihen geführt. Wie aktuelle Daten zeigen, sind ausländische Investoren in großem Stil auf dem Rückmarsch. Auf der Käuferseite stehen vor allem heimische Institute. Experten fürchten, dass sich die nationalen Finanzmärkte in der Eurozone zunehmend voneinander isolieren. Auch die EZB sieht die Integration im Währungsraum deutlich zurückgeworfen.

    Im März haben internationale Anleger spanische Staatspapiere für 20 Milliarden Euro abgestoßen und ihr Engagement damit um 9,3 Prozent reduziert, wie aus der jüngsten Statistik des Finanzministeriums hervorgeht. Im Gegenzug stockten die inländischen Banken ihre Bestände fast in gleicher Größenordnung auf.

    Die heimischen Geldinstitute halten inzwischen spanische Anleihen im Wert von rund 263 Milliarden Euro, wie Recherchen der Nachrichtenagentur Bloomberg zeigen. Im November 2011 waren es noch knapp 178 Milliarden Euro. Am italienischen Anleihemarkt zeichnet sich ein ähnlicher Trend ab.

    Treibende Kräfte hinter der starken Nachfrage von inländischen Investoren dürfte die Liquiditätsoffensive der EZB sein. Seit Dezember hat die Notenbank den europäischen Finanzsektor mit zwei riesigen Geldspritzen über insgesamt eine Billion Euro geflutet.

    Die Banken können das frische Zentralbankgeld, das sie von der EZB gegen Sicherheiten zum Mini-Zins von derzeit einem Prozent erhalten haben, drei Jahre lang verwenden. Sie investieren es offenbar zu einem guten Teil in höher verzinste Staatstitel. Dass internationale Institute von diesem lukrativen Angebot jedoch kaum Gebrauch machen und sich stattdessen aus den Krisenländern weiter zurückziehen, alarmiert Experten.

    “Wenn sich die Anleihen ausschließlich in der Hand nationaler Investoren befinden, wird der Anreiz, Unterstützung zu liefern, für die anderen Länder immer geringer”, sagte Stephane Monier, Experte der Investmentgesellschaft Lombard Odier. Im Grunde bereite man so den Boden für die Desintegration der Eurozone.

    Die EZB stellte in ihrem vergangene Woche veröffentlichten Jahresbericht zur Finanzmarktintegration im Euroraum ebenfalls fest, dass die grenzüberschreitenden Transaktionen zunehmend unter den Problemen im Währungsraum leiden. Insgesamt habe die Integration des Finanzsektors im Euroraum durch die Schuldenkrise einen ?deutlichen Rückschlag? erhalten./hbr

    • Hallo jm, wie in einem post vor ein paar tagen angemerkt bin ich hier gaenzlich anderer Meinung. Argentinien, ungarn und uk sind m.e. klare Beispiele, dass eine eigene waehrung alleine nichts bringt. Fuer mich koennte sich deshalb diese Euro Angst zu einer sehr sehr großen Investment Chance entwickeln. Mmi

  • I think currently there are several attractive stocks as well as bonds from France, Spain, Italy etc. One reason for this might be that the Eurozone is at risk. More and more countries (recently Netherlands) talk about the possibility to leave the Eurozone. In my opinion it is necessary to built up a European economic government with real budget rights. If this will not come within the next 2 years I personally see the Euro at high risk. For me, one currency with different economic governments is a contradiction which cannot work out in the longer run. What I want to say is that there is a certain possibility that you might get back Franc, Pesetas, Lire one day. At the moment I hold certain extremely attractive french bonds from well known international leading companies (yield far over 10%), however I watch the situation careful to be prepared for a quick exit.

  • Hello
    I’m currently a shareholder.
    I agree with your conclusions.
    A few remarks :

    2011 annual report is here (released today)
    http://www.worldreginfo.com/rd/wdoc.aspx?file=Installux/1/7BDA4AB6-4A3C-4710-9A18-D0DA01B8CD09/209643_Installux_rapport_financier_annuel_2011.pdf

    Note the negative FCF this year.

    I think that their main business is to manufacture aluminum verandas.
    They could be exposed to a slowdown in housing.
    If you read the conclusion of the latest letter from the CEO
    “Ces éléments nous confortent dans la capacité de notre Groupe à pouvoir traverser sans trop de dommages les moments difficiles qui malheureusement se profilent pour les prochaines années.”
    Loosely translated : “we’re confident we’ll weather without too much damage the difficult years that are coming”
    So the outlook is stability in the best case.
    Regards.

    • Hi caque, i would’ve bet that you own STAL. Thanks for the link. I think canty announced early that they add going to invest extra amounts in 2011. Outlook Shows that they are prepared. Of course there is significant downside risk, but valuation is really cheap.
      Mmi

  • Really interesting!
    As far as I see, the reports are available in French only. How do you handle this, do you use google translate or do you speek french?

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