STEF S.A. (ISIN FR0000064271) – An “Ice Cold” Quality Compounder at a “bonkers bargain” price
Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH !!!
As always with my more detailed writeups, I will focus on the general sections in the post and attach the full pdf for anyone interested in the details. And of course the Bonus Sound Track.
- Elevator pitch:
STEF SA is a pretty unique listed French company that runs a “temperature controlled” agrifood supply chain and logistics business across 8 European countries. Majority owned by its Directors and Employees (~72%) the company has compounded book value, earnings and dividends by 12% p.a. over the past 22 years with little or no impact from any of the big crises (GFC, Euro, Covid, Ukraine) that hit Europe in the meantime.
This business trades at an incredible low 8x trailing P/E which in my opinion, considering the track record, their growth opportunities and the “essential infrastructure” character is a “bonkers bargain”.
Some shorter term headwinds exist (interest rates, French politics, agrifood inflation), but in the mid- to long term the set.up for very decent shareholder return is excellent, with very limited fundamental downside,
- Introduction:
I have looked superficially at STEF from time to time but for some reason, I never went deeper but kept it on my watch list. Only recently, when I scored my watchlist more systematically, STEF came out as pretty attractive. In addition, the current political tensions in France motivated me to dig deeper.
- The Company & The business
3.1. What Problem does STEF solve ?
STEF is active in “temperature controlled” storage and transport of food from the manufacturers to either wholesalers, retailers or restaurants. Many food items are perishable and the warmer the environment, the faster these items will go bad. In many cases, going bad can effect severe health problems for the ultimate end customer. STEF, with its triukcs and especially warehouses helps to keep food cool and fresh without incurring too high costs for this service.
3.2. The Company.
STEF SA is a French company, Paris headquartered with a market cap of 1,4 bn EUR that is active in “temperature controlled” transport and storage of food. They are active in 8 European countries, the largest market is their home market France.
The company is more than 100 years old, however until 1987, the company was owned by SNCF, the Government train operator. It was then privatized and finally listed in 1998 on the stock market.
11. Pro’s and Con’s:
As always, at this stage a quick summary over the Pro’s and Con’s for STEF;
Pro’s:
- Employees own 18%, total insider ownership 73%
- Essential logistic/infrastructure
- not very cyclical
- Very good long term track record
- sale of loss making maritime business in 2023 (at a profit)
- Good reporting (no adjustments, organic vs. inorganic etc.)
- market leader in Europe, competition fragmented, Network effects
- Strategic refocusing (sale of shipping in 2023, Health logistics in 2024)
- Potential Inflection point for international business
- interesting adjacent businesses as growth opportunities
- Decent management alignment
- Decent capital allocation / Capital management
Cons:
- capital intensive (real estate)
- debt /higher interest cost
- no hard catalyst
- always relatively low P/E
- weak French core business due to food inflation in 2023
- political environment France
12. Conclusion and Game Plan
Overall, STEF looks like the Archetype of company that I am looking for: Boring, under the radar, great track record, decent business, decent management and a very decent valuation.
Of course, investing into European small caps at the moment is not a lot of fun. On the other hand, this is also the reason why you can buy into such quality compounders at “bonker bargain” prices.
The game plan here is relatively easy: Sit back and watch them execute.
As SETF hits so many of my requirements, I decided to allocate 5% of the portfolio into STEF at a share price of around 116,50 EUR per share.
Why 5% ? Because I really think that the combination of business quality, track record and valuation is quite unique and very attractive. Compared to Eurokai and EVS, the Upside seems comparable, but the downside in my opinion is even better covered by the defensive business model.
In order to partially finance this position, I sold my remaining Biontech position (~1% of the portfolio).
Bonus track:
I think this song fits very nice to STEF’s core business:
value and opportunity 
What do you think of STEF´s working capital management? Their current ratio stood at 0.71 at the end of FY23. I am not a logistics expert. Do you think this is healthy/sufficient? I think the value is rather low, even within the industry (DSV, Kuehne & Nagel,…) I also like the underlying business, but I am a little scared due to the high level of floating debt and leasing liabilities. Furthermore I have noticed that Mr. Vettard has been selling shares recently (around 380k).
Thanks for the interesting write-up! I have some questions.
How likely do you think the 10% growth per year is, considering analysts‘ expectations of around 3% topline growth in 2025 and 2026 (MSD to HSD EPS growth however).
I believe analyst don’t factor in M&A so do you expect most of the growth to come from M&A then?
In recent years most investments went into internal growth and not external growth so do you expect this to shift towards more M&A? A few days ago they announced an additional acquisition in the benelux, which makes it the 3th in the last year or so. So to mee it seems that this could be the case.
Have they talked about and defined their growth strategy for France vs International? For example, Is France more a greenfield approach where they pursue internal growth opportunities (ie building out infrastructure themselves)? Whereas their international growth strategy for example is more of a brownfield / buy&build approach where they buy out competitors? If this is the case we could expect a shift towards more m&a and external growth as the French market becomes more saturated.
If M&A becomes increasingly important and this becomes more of a roll-up story, how does it impact the investment case? Will return on investments be equally strong on M&A compared to internal growth? Does it make the case more risky? Can they get acquired business to the same (or better) margin levels? …
Would love to hear your views on my thoughts, thanks
Not sure if you did read the full write-up, but I have a section where I discuss this. In general they can grow internationally, but also in France. They also can grow in the “additional services” field. Especially M&A is really hard to predict.
What I like is that they have several “platforms” thorough which they can grow.
However, I think it would be a big mistake to assume that they grow 10% every single year. Some years they will grow less, some years more. But to me, there is reason to believ thath 10% is not an extrem unrealistic assumption.
I did read the full article… and I am aware of the three platforms you laid out…
I was just hoping to get some more more colour, especially on the m&a side. In the article you did not elaborate on your expectations (or those of management) on the split between investments in internal growth vs invetments in m&a going forward, so I think it’s fair to ask… But I get it is hard to predict M&A but it could be that management has laid out a strategy on how they want to grow (I’m new to the company and have not looked for it myself)
Ok. I have not seen any kind of “target M&A” allocation from STEF. IMO that wouldn’t make sense in that business.
STEF has a lot of subsidiaries — I mean, a LOT — it’s a 8-page list (note 33 of the anual report). Any idea why they would need 1 to 5 companies incorporated per each French city?
That would be a question to a French specialist. Maybe Local tax ?
“Unfortunately there are no really good comparable companies to see how similar companies
are valued.”
Maybe I can help you out. For sure you know MUTARES, the german PE group. They bought FRIGOSCANDIA in 2021, which was active in “temperature controlled” logistics in Scandinavia (mainly) and should be a good proxy.
Part of the turn-around was to sell their french activities and to buy/integrate a norwegian competitor.
At the end of 2023, they sold FRIGOSCANDIA to DACHSER and the sale was just completed in Q1/2024. If
I remember it correctly, FRIGOSCANDIA had revenues around 300 Mio. Euro in 2023. You can for sure dig deeper to find the price payed or the multiples at closing and compare it to STEF.
https://www.boerse-frankfurt.de/nachrichten/EQS-Adhoc-Mutares-SE—Co-KGaA-Mutares-hat-einen-Vertrag-zum-Verkauf-von-Frigoscandia-unterzeichnet-deutsch-64c73ee1-2b96-4cab-82e9-fb04f82f2dd0
Best regards!
I like the company and I have been following it over many years. For me the main issue is that they do not generate much free cash flow. It is difficult to be precise, but the impression is that they NEED to keep CAPEX high to keep their competitive advantage and the business going, not to mention constant M&A. If that is true, and it has been true for the last decade or more, then they are doing well, but perhaps they do deserve a low multiple IMO.
I am not sure if you have actually read the the article. Yes, the CAPEX, especially in the form of the cold storage warehouses is part of the moat. It is a capital intensive business, which requires “hard” investments to grow. The question here is if they generate value with these investments or not. My thesis is that based on ROCE and ROE they managed to do so for a long time. Of course this type of business is not for everyone, especially if you only see the world through (short term) Free Cash flow.
If this was a business operating on American soil they’d have an insane valuation. Truckers in Europa are hard to find nowadays.
Hi there, thanks for your write-up. I had a look at all of the French stocks earlier in 2024. After reading your post, I just checked my Excel sheet, because I remembered not marking it yellow or green (I do use a traffic-light system, with red meaning I am not going to look any further at it). Indeed, it got a “red” back then. When I look at STEF now, I really see your point. I would say I was to hard of a grader. And in my real life, outside of investing, my company is a customer to those companies (not STEF, but similar companies in Germany). I do think I understand their business model, which is not complicated. What I don’t like about STEF, and that’s what keeps me from investing, at least for now, is the very low return a tangible assets. They spend a lot on CAPEX, and they don’t get an acceptable return, in my opinion. Free Cashflow is weak. They compensate this somewhat by using a lot of leverage, but I don’t have the best investing experiences with low return on tangible assets businesses. Well, their stock performance has been good…Your decision might be right, but nothing for me. Please feel free to correct in any form. Best regards
How do you expect them to finance their fleet? Seems completely normal to have that much debt if they can make so much profit because of it.
This is because you do not know them very well.
They buy assets and do not lease them : they found out this was cheaper over the long run.
They own the fleet but also the other physical assets. For instance, they have their own power plants because they saw their electricity bill triple in 2022.
They are #1 in France with 60+ market share and have expanded in Iberia and Benelux. With their selective acquisitions, they form a “net” so they cover the countries and the needs of customers. They start with cold goods haulage, then logistics…
In Belgium they are #1 and they just closed a deal in NL to make them #1 (except frozen food).
In the UK, they just partnered with Nagel. They will make 0 money from this but they do this to have a foot in the door. Then they will buy complementary assets and they will become #1 within 10 years in a market as big as France.
With the sale of the ferries, their gearing is at the lowest ever.