Trilogiq SA (ISIN FR0010397901) – Another of those hidden French champions ?

DISCLAIMER: The author might own the stock already before the release of this post. The stock discussed is very illiquid. Please do your own research. This is not a recommendation to buy or sell or anything.

As many readers might have figured out, I am currently looking a lot at French stocks. I already had mentioned in my August review that I am building up a stake in a company which I didn’t disclose back then. Well: here is the company: Trilogiq SA.

If one looks at Bloomberg, the description is quite short and meaningless:

Trilogiq SA manufactures a wide range of flow racks.

However, looking at the Corporate Website is much more revealing:

Trilogiq is manufacturing a modular system of flexible components which supports the material handling at an assembly line. The underlying philosophy is based on the Japanese “Kaizen”. More on that later.

The company went public in late 2006 at a price of EUR 28.59 per share, a level the share hasn’t seen since as the stock chart clearly shows:

Valuation:

Traditional value metrics look OK, but not super cheap (at 18,15 EUR) :

Market Cap: 68 mn EUR
P/B 1.46
P/E 12.0
P/S 1.1
Div. yield 0%
EV/EBITDA 6.0
Debt: Net cash of ~5 EUR per share

So why do I think the company is interesting ? Well, if we look into the last annual report, they seem to do something right:

Net Margin 8.6%
ROE of 12.2% BUT: ROIC (ex cash) is 20%

ROE was higher in previous years, but adjusted for Cash, ROICs are relatively constant at 20%.

EPS DIV ROE ROIC
29.12.2006 0.87 #N/A N/A 25.6% 25.7%
31.12.2007 1.48 #N/A N/A 29.0% #WERT!
31.12.2008 1.45 #N/A N/A 22.1% 19.7%
31.12.2009 1.64 0.50 20.7% 19.9%
31.12.2010 1.75 0.50 18.3% 18.7%
30.12.2011 1.50 0.50 12.6% 23.7%
31.12.2012 1.68 0.00 12.4% 20.7%

So this now gets interesting: We get a company with a (cash adjusted) PE of 8 and an ROIC over the last 7 years of around 20% and the company is growing. This is very good and hard to find these days. On top of that, the company is growing quite nicely and : only around 15% of the business is in France, 85% is “Export”.

So in current times, this definitely is a good reason to investigate the company further.

Business model:

In such a case as Trilogiq, where I do not know the company really well, I usually try to figure out what they are doing in more detail in the next step. Here, fortunately, we can still find the (French) IPO prospectus on Trilogiq’s web site

General Remark: IPO prospectuses are always a very good source for information about the business model, competitors etc. So if one can get hold of it and it is not too old and outdated, this is usually the single best source for such information. Much better than annual reports, because the risks are usually disclosed quite extensively.

The founder of the company worked as an engineer at Renault and had the task to study Japanese car manufacturing. He then started out on his own, producing equipment to improve manufacturing efficiency for Renault and Peugeot.

The basic “philosophy” is to have a lean flexible production process which avoids unnecessary material, handling steps, heavy machinery, large quantities etc. Among others, it is advised to transport small amounts only within the assembly lines, avoid unnecessary distances etc etc.

Now comes the interesting part: Trilogiq itself does not only provide the tools, but is offering the full consulting service as well. So a company calls Trilogiq and they start with simulating the production process on a computer (CAD) and then optimize it using their various tools. They will then go on site and then implement the stuff including full project management etc.

So in essence, Trilogiq rather seems to be a specialised consulting company with a physical product than your typical car parts supplier. This in my opinion also could explain the rather high margins which are quite unusual in the automobile industry.

A few videos which explain the principles:

(company movie)

Some product presentations

In order explore this thesis a little bit more, let’s look at two ratios:

– What amount of raw material etc in relation to sales does Trilogiq show against other companies ?
– What amount of sales do they generate per employee ?

Lets look at some companies, I have chosen 2 car parts companies + 3 of my portfolio companies as comparison:

material cost/Sales Sales per Employee (K EUR)
 
Trilogiq 43% 350
     
PWO 55% 33
Sogefi 56% 15
 
Poujoulat 59% 73
Installux 48% 198
Thermador 60% 389
     
G. Perrier 26% 90
 
Accenture   295
IGE 22% 284

The result is quite interesting. PWO and Sogefi are 2 “typical” car parts manufacturers. Material cost is more than 50% of sales, sales per employee are relatively small, so implicitly this is rather pretty “low tech” work.

If we look at my Portfolio companies, only Thermador has a similar per employee sales number but this is normal as it is primarily a trading and logistics company. Poujoulat for instance needs more material than Trilogiq as well as Installux and even Installux only manages 2/3 of Trilogiq’s sales per employee.

Just for fun, i also listed software company IGE + Xao and Accenture. Interestingly those companies generate similar sales per employee volume.

While this is clearly no scientific proof, I think it is however fair to say that Trilogiq is not your typical “manufacturer” but rather something different. It is no trading company either so I think my thesis that it is a kind of consulting company with a physical product might not be unrealistic.

Another interesting aspect shown on page 33 of the IPO prospectus is the aspect that they do create significant recurring revenues out of their products. According to this, they have a 4 year cycle. If they sell an amount of 100 in the first year, they will expect 20 maintenance revenue in year 2 and 3 and then (if renewed) another 40 in year 4.

Competitors:
They only consider 2 companies as direct competitors: Fastube in the US and Yakazi from Japan, both privately owned. As Trilogiq is currently expanding quickly in the US it seems like Fastube is maybe not the strongest competitor. They don’t seem to be active in Asia, maybe too much respect versus the Japanese “master” like STarbucks and Italy ? Of course, the “traditional way” is a competitor too.

Why is the stock cheap ?

– One reason is clearly the non-existent financial communication. Minimalistic reports in French only, only a few small research houses cover the stock (5 according to Bloomberg, only 2 in 2013). Interestingly, in 2007 and 2008 they still made some additional press releases about large new orders, but from 2009 on they only released their reports and nothing else
– they only paid a dividend once (50 cent in 2009). Since then they are accumulating cash.
– data for the company for instance in Bloomberg is not very accurate, 2011 and 2012 numbers are not updated. TheyWon’t show up in many screeners
– it is a French company and sentiment is still bad for France
– they are viewed as an “average” car parts producer

Now it gets interesting: Shareholders

No reliable data in Bloomberg. According to them, French value fund Amiral Gestion owns 2.13%.

According to this research report however, the founder still owns 77%, but Amiral Gestion owns 13%. Leaving a tiny free float of 10%. Amiral in my opinion is one of the better European Value companies and maybe the best in France.

Shareholder activism:

AMIRAL, actually has increased its stake to 13,55%. On the general assembly a few days ago they went kind of activist and demanded a special dividend of 3.75 EUR per share.

As the owner most likely seems to have been present at the AGM, I guess this was voted down, but nevertheless it clearly shows the strategy Amiral is running here. They are in for the long run and will press for some form of payout, be it dividend or share buy back.

In my opinion this is also an interesting kind of “insurance” against any unfriendly behaviour from the CEO and majority owner, as Amiral is not a small fund. With their 13% stake (which is more 56% of the free float) Amiral is automatically committed for the long-term as it will be extremely hard to get out of this stake via the rather illiquid market.

I found this interview with the founder and CEO (in French), where he explains the company and mentions that taking the company private would be worth a consideration….

There is a quite active discussion (in French) on Boursorama about Trilogiq and someone is even claiming that the special dividend was approved, however I am not sure that this is the case.

France / Portfolio concentration

As some readers might recall, I sold my Bouygues stocks when I bought Thermador because I thought that my exposure to France is big enough. With Trilogiq, I don’t have this problem. trilogiq has only 15% of its sales in France and is currently expanding rapidly outside France, especially in the US. So I don’t see an issue here.

Interestingly, french sales haven’t improved much over the past years, the growth came almost exclusively from outside France.

Summary:

In my opinion, Trilogiq is a very interesting company and might even be a true “Hidden champion”. For me it looks more like a consulting company with a physical product than a manufacturer which helps to explain the good margins and 20% ROICs.

There are clear reasons why the company is cheap compared to the quality of the business, especially the negligence of shareholders so far. However, with Amiral having built up a 13% stake, this could improve.

Nevertheless it shares many characteristics I like in a stock:

– founder/owner majority owned
– relatively illiquid and negelected from investors/analysts
– business model not too easy to understand
– negative headline news for home country

In my opinion, the company is worth much more than its current price. Conservatively I think if this would be a German or UK company, People would pay 15x earning plus the cash which would be 25 EUR +5 EUR or 30 EUR per share.

Trilogiq is therefore a clear “buy”. For the portfolio I assume that I was able to build up a position of 20000 shares at 18,27 EUR per share which is roughly 50% of the trading volume since July 1st and represents a 2.3% allocation of the portfolio.

23 comments

  • I’m wondering why the company didn’t deliver the growth that was expected.
    I know that the value of the company is closed to 110M€+, undervalued no doubt.
    Just looking for why others know that I don’t!

    Thx

    F

  • Hi
    Is your portfolio simulated or real money?
    Regarding Trilogiq, did you have a look at the listing prospectus?
    Valued at 112MEUR
    CA 2013E 90,9MEUR
    NI 2013E 18,0 MEUR
    FCF 2013E 16,2 MEUR

    FCF generation is not strong enough, the company could surely be better managed…
    WC is growing faster than Sales and NI.
    When looking at the forcasted growth in the prospectus, we are quite far from it now.
    Sleeping on cash is really the worse thing to do IMO, its really indering the company performance, same reasoning regarding debt, they should finance part of their investments with it, they could access cheap debt given their profile.
    Management behaviour is very conservative, not to say fearful/scared, when listing the company, they had 1MEUR of VMP, which was fully invested in monetary funds, we can fairly assume that they kept doing so… In today’s environment this is a debatable idea/choice.

    Also, as you mentionned ROE is constantly decreasing what can’t support the idea of buying “buffett” type of stock.

    Therefore, I’m not really sure what valuation investor put on ALTRI, probably not DCF, unless they see today’s situation as a hickup, and expect strong growth for coming years.
    But profitability is getting worse and worse each year.

    The catalyst here could be:
    – Amiral gestion acting as a raider
    – increase in profitability and sales thx to new “factories” (7MEUR investment)
    – Share buyback up to 30EUR/share

    For me the 1st catalyst and the 3rd would be the one to bet on. Insiders are probably valuing the company at around 115MEUR.

    This is a quick review, I don’t have as much info on ALTRI as you do.

    Thx for your post,

    F

    • thanks for the comment.

      The blog portfolio is virtual.

      Yes, I have read the IPO prospectus. I think the “disappointing” grwoth is one of the reasons why the stock is relatively cheap as well as the “cash hoarding”.

      The larger inventory levels in my opinion have to do wth the international expansion. If you expand into the US, you have to build up inventory first in order to be able to fullfil orders on short notice. Shipping needs time and increases inventory.

      The decreasing profitability is clearly an issue but is also the explanation for the relatively low valuation. You can’t buy a stock with 20% ROIC, increasing margins and increasing sales at a P/E of 8-9 (ex cash.Those companies are trading at a P/E of 15-20.

      ROE: Clearly,ROEgoes down if you hoard cash, although I focus more on ROIC. I do actually like companies which are conservative because they usuallytrade cheaper compared to leveraged companies.

      mmi

  • Something must be wrong with the ratios of PWO and Sogefi, otherwise there would really be a serious case for the leftist thrive for minimum wages 😉

  • cktest :

    I think it is quite frequent that share prices spike shortly after some blogger has recommended a share. In your case, I don’t see any problem about this because you have clearly stated before that you have bought the stock yourself (and therefore have an interest in a rising price).
    As anyone can attest who has been in the business for some time, these increases in share price are normally rather short-lived. A sustainable increase has to come from elsewhere than from the activities of a few small shareholders (even though with 20.000 shares, you would own 0.5% of the company).

    Don’t forget: the 20000 are “virtual” share…

  • http://www.onvista.de/aktien/TRILOGIQ-S-A-EO-1-50-Aktie-FR0010397901 as it can be seen that your presentation pushed some of your readers to buy in ALTRI! Maximum respect!;-)

    • well, this is one of the reasons why I am thinking of not releasing posts about such illiquid stocks anymore. I don’t want to push shareprices. I rather hope for interesting comments and discussions as it happened here. I have to think about how I handle this in the future.

      • There are two sides to this. On the one hand your post might induce people to buy that stock who wouldn’t have otherwise, on the other hand there might be people out there thinking about buying or increasing their position beforehand and take your post as a kind of seal of approval. Either way, I can’t see that by posting (especially with all your disclaimers) you do anything unethical.

        If the stock price rises and it does only because of your post and no substance behind, the 19 EUR now being paid will be reduced shortly by avid sellers.

        I follow quite a few blogs and see these spikes/hikes in illiquid shares quite often recently. I’m wondering whether people, uncomfortable with the level the markets trade at look for niches to put their money in.

      • I think it is quite frequent that share prices spike shortly after some blogger has recommended a share. In your case, I don’t see any problem about this because you have clearly stated before that you have bought the stock yourself (and therefore have an interest in a rising price).
        As anyone can attest who has been in the business for some time, these increases in share price are normally rather short-lived. A sustainable increase has to come from elsewhere than from the activities of a few small shareholders (even though with 20.000 shares, you would own 0.5% of the company).

  • Hi mmi,

    Very interesting, as always. Like many manager controlled businesses in France, Trilogiq has too much cash on it’s balance sheet (see GEA for a more extreme example: 94M of market cap, 52M of net cash…). It is a very simple reason: the stupid wealth tax.

    If you are the manager of the business, your owneship in the business is not subject to wealth tax, and that includes the cash in the business. If you pay a dividend, not only do you pay income tax on it, but you also will pay forever up to 1.5% in wealth tax, in a context where a risk free investment after tax and after inflation will give you a negative return. So unless he personnaly needs the cash to buy a house or something, I will bet that it will stay in the business. I would do the same!

    Stupid tax code drives stupid business decisions, unfortunately. I wish Mr. Courtin would move to Switzerland….

  • Hello MMI
    I’m also a shareholder of ALTRI, but my position is microscopic compared to yours ! 20000 shares, holy cow !

    I bought because of the valuation, but I must confess I don’t really understand their competitive advantage, if any.
    I bought some more when the letter that Amiral Gestion and Shareholder Value Management AG wrote to Trilogiq was published.

    A few points :
    1. In my understanding, the 3bis resolution just means that the shareholders delegate/give the power to the board to decide an exceptional dividend. That’s all. The dividend is not fixed yet. In any case, for this year, the “regular” dividend is 0.

    2. One (relatively minor) negative point I found is in the “Conventions réglementées” = disclosure of conventions between the company and its CEO (the’re on the company website).
    If I’m not mistaken, Trilogiq will pay the CEO a hefty fee for patents that the CEO invented.
    Moreover, a patent was already paid ~1 m€ in 2006 and the same patent is again paid this year by Altri foreign subsidiaries.
    I don’t like that, not very transparent I think.

    Best regards

    • Hi caque,

      thank you very much for interesting comments.

      Re dividend:That makes sense. I would have been surprised that they just say yes and pay..
      Patent: This is clearly a weak point.This lowers my score for management quite a it

      btw, the 20000 shares is for my “virtual” portfolio. My “real” portfolio is smaller…..

  • Auguste Tournillon

    The special dividend was approved at the general assembly of 06/09/2013:

    In french resolution 3bis “Délégation au Conseil d’Administration aux
    fins de verser un dividende exceptionnelle”

  • Correct, Shareholder Value and Frank Fischer are behind the Fonds.

  • Absolutissimo Fund – Value Focus Fund lists the company as a TOP5 Holding. So your thesis is supported by some German value investors as well.

  • Danke, wieder einmal eine interessante Firma und eine interessante Analyse.

    Nicht zuletzt für lehrreiche Einschübe wie diesen “General Remark: IPO prospectuses are always a very good source for information about the business model, competitors etc. So if one can get hold of it and it is not too old and outdated, this is usually the single best source for such information. Much better than annual reports, because the risks are usually disclosed quite extensively.” schätze ich dein Blog.

    Aber zum Unternehen an sich: Beim Anschauen des Videos hatte ich den Eindruck, dass wir es hier weniger mit einem klassischen Automobilzulieferer als vielmehr mit einem Fabrikausstatter zu tun haben, eher vergleichbar vielen Anlagenbauern.
    Während ich das Automobilgeschäft als relativ zyklisch bezeichnen würde (Umsatz sinkt in schlechten Zeiten), halte ich diese Fabrikausstatter für extrem zyklisch (Umsatz kann in ganz schlechten Zeiten fast bis auf Null schrumpfen). Und ich halte es für möglich, dass sich die Welt gerade ganz oben im Wirtschaftszyklus befindet. Im Gegensatz zu Frankreich und Südeuropa, die gerade im Zyklustal sitzen. Daher leuchten hier bei 85% Auslandsanteil bei mir einige Warnlampen. Das könnte sowohl den günstigen Preis rechtfertigen als auch die Cashakkumulation für schlechtere Zeiten.
    Auch die im Video angedeutete Beratungstätigkeit hätte ich jetzt eher als verkaufsfördernden Service bezeichnet – nicht schlecht, aber auch nicht unbedingt so herausragend. Kann aber gut sein, dass ich mich irre.
    Daraus resultierende Frage: Hast du dir die Geschäftsentwicklung der letzten Jahre/Jahrzehnte mal auf ihre Zyklusabhängigkeit hin angeschaut?

    Keine Konkurrenz? So wie ich es im Video verstand, würde ich sie als Konkurrenz zu Unternehmen wie ITEM (http://www.item24.de) ansehen, die mit Aluminiumprofilen Systembaukästen für unterschiedlichste Ausrüstungen anbieten, nicht zuletzt im industriellen Bereich. Kann aber auch sein, dass ich das Unternehmen spontan falsch verstand.

    • #roger,

      danke für den Kommentar. Klar, Trilogiq ist kein klassischer Zulieferer. “Fabrikaustatter” trifft es vermutlich eher, wobei eben der “gag” and er Sache ist, dass es sich hier nicht nur um Equipment sondern auch um eine andere Philosophie handelt.

      Zyklusabhängigkeit:

      Zumindest seit IPO gibt es keine übermässige erkennbare Zyklusabhängigkeit. Umsatz ist z.B. im Krisenjahr 2009 konstant geblieben, dann im nächsten Jahr gleich wieder 25% gestiegen. Interesanterweise verkaufen Sie gerade in Südeuropa sehr gut.

      Es könnte sein, das gerade in schlechten Zeiten Produktivitätsverbesserungen wichtiger werden. Mit dem Trilogiq Equipment spart man sich auch einiges an Capex ein, man braucht z.B. weniger große Gabelstapler etc.

      Diese ITEM24 scheinen in der Tat was ähnliches zu machen, allerdings ist das “lean production” segment (http://www.item24.de/anwendungen/lean-production.html) anscheinend nur ein Teil des Angebots und auch nicht so konsequent in der “kaizen” philosophie verwurzelt.

      Dass es keine Konkurrenz gibt habe ich auch nicht behauptet. Alle “konventionellen” Methoden zur Materialbereitstellung sind selbstverständlich auch Konkurenten.

      mmi

      • Danke, hätte ich so nicht erwartet.
        Noch eine Frage: Stetig steigende Umsätze bei fallenden Umsatzmargen und konstanten Gewinnen – kennst du die Ursache?
        Erleben wir hier eine Markteroberungsphase, bei der Umsatz vor Gewinn geht? Oder sind die Margen dauerhaft unter Druck geraten? Oder waren die Margen zum IPO künstlich geschönt, um viel Geld zu erlösen, und kehren jetzt zum langfristigen Mittel zurück? Oder hat das andere Ursachen?
        Du hast ja geschrieben, dass die Margen für die Branche ungewöhnlich hoch sind. Und bislang habe ich noch nicht die spezielle Rafinesse im Geschäftsmodell erkannt, die so hohe Margen rechtfertigt. (Kaizen ist in der Industrie heute nicht mehr soooo revolutionär, gerade im Automobilbereich.) Daher sehe ich per se ein Risiko, dass die Margen langfristig auf branchenübliche Größenordnungen zurückgehen.

        Apropos: “No reliable data in Bloomberg.”
        Das kostenlose “4-Traders” hat für Trilogiqes für Unternehmen dieser Größenordnung erstaunlich detaillierte Angaben: http://www.4-traders.com/TRILOGIQ-37409/financials/
        Vielleicht, weil es der englische Ableger einer französischen Seite ist: http://www.zonebourse.com/TRILOGIQ-37409/fondamentaux/
        Sofern die dortigen Zahlen stimmen, sind die Cashreserven in den letzten Jahren relativ stabil geblieben. Man benötigte das eingenommene Geld also zum organischen Wachstum. Spricht auf den ersten Blick nicht unbedingt für eine normale oder gar Sonderdividende.

        • #roger,

          m.E . könnten die rückläufigen Margen eine Folge der internationalen Expansion sein. Das kostet erstmal Geld, für Übersetzungen, mehrsprachiges Personal, höher Transportkosten etc. etc.. In Deutschland haben Sie gerade Anfang des Jahres eine neue Niederlassung in Landshut eröffnet, siehe hier: http://www.heinrich-walter.de/cms/welcome/heinrich-walter/news

          Die Tatsache dass die Cashreserve stabil bleibt spricht gerade FÜR eine Sonderdividende, da das Wachstum anscheinend aus dem laufenden Cashflow finanzeirt werden kann.

          Klar kann die Marge weiter fallen, dass weiss ich auch nicht. Aber ich finde das PReis/Leistungsverhältnis der Aktie recht gut. Wenn man das Firmen wie Duerr etc. vergleicht ist das schon günstig im vergleich zum Gebotenen.

          MMI

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