Portfolio transactions: MIKO BV, Emak SpA

MIKO

MIKO issued a short Q3 trading update 3 days ago, which in my opinion is very very good. I did already buy more MIko before and have now upgraded into a full 5% position.

This is an excerpt from the release:

Turnhout, 28 October 2013 – Miko NV, the coffee service and plastic packaging specialist listed on the NYSE Euronext Brussels, has announced that during the third quarter of 2013 its turnover was 12.8 % higher than during the same period last year. The combined turnover for the first nine months of 2013 increased by 6.7 % compared with the first nine months of 2012.

The growth in turnover is due, firstly, to increased sales in the plastic segment and, secondly, to the acquisitions in the coffee segment that marked the first half of the year (Kaffekompaniet in Sweden and ABC Mokka in Denmark).

In terms of results, there were encouraging increases in both these segments.

According to Mr Frans Van Tilborg, CEO and Managing Director of the Miko Group: “Within the coffee service sector, we have seen a slight drop in sales in most domestic markets, Germany being a positive exception. Although the economic crisis is far from over, the situation has been helped by a number of acquisitions and by reductions in the price of raw materials. In addition, the plastics division is still performing well, with impressive sales growth at each of our plants in Belgium, Poland and Germany. We are optimistic for the rest of 2013.”

This represents a huge acceleration against the first 6 months.

It is a kind of strange feeling to buy at an all-time-high, but on the other hand I try to avoid any kind of anchoring with regard to past stock prices in my decisions. Fundamentally, I think MIKO is a really good deal at this price level.

EMAK Spa

On the other hand, I sold half of my EMAK Spa position. EMAK is/was a “special situation” investment I made during the brutal capital increae in 2011. Now, the price jumped to a level where I think the risk/return relationship is not as good any more. There was no fundemenatl news, so I assume that part of this price jump is the due to the momentm of PIIGS small caps in the last few weeks.

Compared to MIKO for instance, which is growing nicely, EMAK seems to be now rather overpriced, even assuming a further recovery in the “PIIGS”.

As I am always selling too early, I sold only half of the position now 😉 I will decrease my FTSEMIB hedge accordingly, as now the Italy exposure is down to only around 12.5% of the portfolio.

6 comments

  • News about Miko

    Miko NV:Enters into 50 pct partnership with Innoware, Indonesian company based in Jakarta.Innoware is plastics-processing company operating in the same target market as Miko Pac, with a staff of 277 people and turnover of 4.5 mln euros.Innoware Packaging department produces plastic tubs for food industry, mainly for ice cream, while Promo department focuses on manufacturing plastic promotional products such as soap containers or mugs.

  • Hi.

    I would like to ask you one question about Miko.

    According to my calculations total net cash generated by operations by Miko over last 9 years (2004/2012) is 95 million euro. 80 million euro over same period where invested in business development or maintenance (M&A, capex, intangible assets etc.) and 9.5 million paid out in dividends. Amount of capital employed by operations has increased from about 40 millions in 2004 to about 80 at the end of 2012.

    Cash generated by operations is growing slower than amount of capital employed. To me it looks that their growth doesn’t add too much value for owners? This is reflected in share price growth from 2004 to 2012 which is 4.5% CAGR including net dividends received. May be it is just a strategy to gain some kind of scale necessary for this business to earn higher returns in the future?

    What are your thoughts on Miko ability to increase amount of cash generated by operations with out substantial increase in the amount of capital employed? In other words how big is the probability that they will start to generate more true free cash for benefit of owners?

    Thanks.

    • did you read my initial Miko post ? If yes, then you might recall that they are price takers and suffered both, via high coffee and oil prices. So they doubled their sales over that period, but suffered at the end of the day because of much higher input prices.

      Miko is not a moat company, it is an above average company at a below average price operating in a niche..

      In my opinion, they are managed for the long run. if you manage for the long run, you don’t care that much about smoothly increasing ROCEs. It is a traditional business which still has to invest. Cashflows would look better for instance if the wuld lease the coffee machines which they provide for their clients.

      With normalized input prices, I still think they can achieve 10-15% ROE. If you compound this for some more years, this will give you some interesting results.

      So personally I am happy if they are reinvesting as long as the earn above 10% ROE which they are doing.

      • Sure, I read trough all your posts regarding Miko. What do you mean by “normalized input prices”? Long-term average?

        • if you look at the initial post, you can see the developement of the coffee prices. The level s now back at the level between 2004-2009. Clearly, Miko will have to lower prices as well, but I think this will be very positive for Coffee margins.

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