value and opportunity

Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH !!!

1. Introduction
2. “Catalyst”: Lowball bid from Majority shareholder
3. Delisting in Denmark – what I found so far
4. Majority Shareholder Thornico
5. What is Thornico’s ultimate goal ?
6. Scenario Analysis, Risks & Summary

1. Introduction

Broeder. Hartmann (not to mistake with Paul Hartmann AG) is a company I looked at during my All Danish Shares series in last July. I think it would be fair to call it a “hidden champion”. Their business model is focused almost 100% on egg packaging which as such is already something I like a lot. Their main product looks like this (only the box, not the content):

Or this:

Extremely sexy product, isn’t it ? In reality, they also seem to offer paper based apple packaging in Brazil and India, but egg cartons are their main product.

In Mid 2022, when I looked at them first,  the company was still struggling. This is what I wrote then:

From the fundamental side, things seem to look a lot better these days. In 2023, they have updated the guidance already 2 times as can be seen in this table from the half year report:

The share price has basically not reacted to this and is still ~-50% compared to the peak:

As of now, they trade at a 6,7x EV/EBIT (2023) which is quite cheap for a business that has decent margins and returns of capital and is globally diversified despite its small size. Here a quick overview on some indicators:

TIKR so far has not updated estimates for 2023, so in TIKR the stock looks more expensive for 2023 than the updated Guidance indicates..

Cash Flow has also recovered nicely. It is hard to predict this but looking at this chart from the 6M report, I would guess that currently they trade at at least 10% FCF/EV yield:

I am not sure if that level is sustainable. By the way, reporting is quite good for a small company.

2. “Catalyst”: Lowball bid from Majority shareholder:

The majority investor (Thornico Holdings, 69%)  just has launched an opportunistic low ball bid at DKK 300 and wants to delist and squeeze out minority shareholders. This has been preceded by another special board meeting, where Thornico exchanged a few of its board members in order to “align better with the Strategy” of Hartmann. A few weeks later, Hartmann’s CFO resigned and was replaced.

To give credit where it is due: I was alerted to this by a Twitter thread from a young (local ?) investor:

Although I would not see it as a “scandal”, it is clearly an opportunistic lowball bid. They justify the amount in the offer by stating that this is above the average as lined out in the company communication:

3) Delisting in Denmark – what I found so far

According to several sources, a Delisting in Denmark  needs to be approved by 90% of all shareholders. This seems to have been implemented only in 2020, before it was easier to delist (only ⅔ vote required).

It seems to be that the Stock exchange (not the regulator) is allowed to decide if an offer is reasonable or not. However, according to the original document, they would not judge the valuation, just if it is totally unreasonable or not:

With their current 69%, there seems to be little chance that they will get even close to the 90% required. A lot of investors might be anchored on the higher prices from 2-3 years ago and might (rightfully) consider this as a lowball bid.

The special shareholder meeting is scheduled October 16th. If 90% of the shareholders accept and the stock exchange does not reject the offer, sharholder will have 4 weeks to sell the shares to Thornico at 300 DKK.

4) Majority Shareholder Thornico

The main shareholder, Thornico is a holding company owned by Father (Thor) and son (Nicholas) Stadil. Here is a picture of these 2 Gentlemen:

The Group is active in Food, packaging, Sports equipment and real estate. Within packaging, there are two other companies, one in China and one in Malaysia.

However, the most relevant Group company that relates to Hartmann is Sanovo, a company that offers every imaginable technology around egg production, including packing machines. I could imagine that combining Hartmann and Sanovo could make a lot of sense. Interestingly, Hartmann bought a packaging company from Sanovo called Sanovo Greenpack in 2014.

In recent years, there seemed to have some troubles in the empire, especially in the now discontinued shipping segment where they had to suffer a bankruptcy.

Thornico has bought its first stake in 2011 according to the annual report and back then offered to buy all shares at DKK 95:

In 2012 then, Thornico increased its stake to 68,5% after purchasing the shares from the other two big shareholders:

In 2013, Thonrico slightly increased their stake to 68,6%, but since then the stake has remained constant, although according to TIKR they have increased their stake to 69% (Half year report still says 68,6%).

According to an article, D/S Norden paid ~60 mn USD to Thonrico for the shipping activities, meaning that they might have some cash lying around to fund an increase in the Hartmann stake.

Christian Stadil interestingly has his own personal website where he presents himself as a mixture of visionary, artist and martial arts expert. He also seems to have created a Champagne label that should be drunk straight from the bottle.

Overall, they seem to be quite shrewed capital allocators.They bought the initial stake in B. Hartmann at a very interesting point in time at around 100 DKK/Share and have recovered most of this already by dividend payments. I don’t think that they are evil guys, but they also don’t seem to throw around money either.

5. What is Thornico’s ultimate goal ?

1. If they really want to delist, they must know that 300 is too low as there is no premium. So in order to get more shares they must make a higher bid
2. Maybe they want to scare investors and just want to increase their shares for cheap
3. Maybe it was a very opportunistic move and they won’t pursue it further if it fails

My current impression is that they really want to get rid of minorities, especially because they started with a board reshuffle. Hartmann is also their only listed holding, so I guess they prefer to have everything private. In addition, I think they might want to link Hartmann closer to their other “egg related” activities as I guess that customers do overlap a lot.

My guess is that they are maybe afraid that the stock gets too expensive if the turnaround is confirmed and Hartmann would show a great FY 2023 result. 300 DKK per share might be the lowest price they can bid as a starter, otherwise the stock exchange might directly call this unreasonable. Shrewd as they are, maybe they thought: I have to increase the bid anyway, so let’s start with the lowest possible number to anchor people on this.

If that is true, I guess they will need to come up with an offer that is clearly higher than the current 300 DkK at a later point in time.

6. Scenario Analysis & Summary:

So in principle we have 3 base scenarios:

1. Offer gets accepted at 300 DKK by more than 90%, Stock gets delisted.
2. Most shareholders do not accept and life goes on as before
3. Thornico increases its offer to get above 90% and then delists subsequently

Personally, I think 1) is very unlikely. 2) is clearly more likely. For 3) one could assume different prices at different probabilities. 

This is my first attempt at modeling the case based on a share price of 310 DKK for a time of 6 months:

For a lapse of the offer, I assumed that the share price goes down to the lowest price YTD 2023 which was 269 DKK, which I think is conservative.

Summarized over my assumed scenarios, the expected return is ~18,3%. Of course, any or all of my assumptions could be completely wrong, but I do think that this is interesting as a special situation.

Personally, I do think the downside is quite limited as the stock really looks cheap and attractive stand-alone, but one never knows. In theory, Hartmann would even be a good investment if they don’t increase the bid, but for now I only see it as a Special situation with a time horizon of 6-12 months.

There are clearly risks, as always. The worst case scenario would be that the free float gets smaller, let’s say to 20% and subsequently, the economic situation again gets bad for one reason or the other. In such a scenario, there could be clearly a downside to the stock which I try to capture in the “offer lapses” scenario. Maybe the probability is higher than 20%, but who knows ?

I therefore allocated ~2,5% of the portfolio into this Special situation. I have funded this via further sales of Schaffner.

The game plan is to revisit the case at least after 6 and 12 months unless something happen like a higher bid or so.

Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH !!!

P.S.: I would be very grateful for more information about Danish regulation with regard to delisting

P.S.2: Although it does not relate directly to Hartmann, a post about egg packaging must contain this Video snippet from German goal keeper legend Oli “The Titan” Kahn:

Oliver Kahn best moment: Eier wir brauchen Eier!

P.S. 3: I also looked at the Hafen Hamburg Situation. However I Like this one much better.