Monday, December 2, 2013

Analysis of Fielmann

A German glasses store chain

Company: Fielmann (unfortunately their homepage is only in German)

Business: A German glasses (reading glasses, sun glasses, swimming/diving glasses etc. etc.) store chain that besides from designing and market their own glasses they also sell the brand glasses in their stores. Each store has more then 2,000 different glasses on display and every second glasses sold in Germany is from Fielmann.

Active: Only in the German speaking part of Europe so Germany (577 stores), Switzerland (33 stores) and Austria (33 stores).

P/E: 27.9

contrarian values of P/E, P/B, ROE as well as dividend

I want to start off by saying that from feeling this company was lacking in vision. They want to build 150 more stores in Germany so that they have one store per 100,000 inhabitants so I guess that when the German population start to decrease (today around 82 million in year 2050 statistics approximate it to be around 57 million inhabitants then they will also need to start closing down stores). I hope that I am wrong but I do not know... I am uncertain if they would do well if a strong competitor would step in on the German market.

The P/E for Fielmann is wacky off with 27.9 and the P/B is even worse with a ratio of 6.2 which leads to a very clear no, no from Graham. They do however have a very nice earnings to sales since it is up at 11% and the ROE is excellent with 22%. The book to debt is also great with a ratio of 3.1 which makes it look more like an American or Eastern European company that have a tough time to borrow money cheap. In the last five years they have had a yearly growth of 4.2% which is good considering the European inflation the last five years. This then leads to a motivated P/E of 13 to 17 which means that Fielmann is highly overvalued by the market today. They pay a good dividend of 3.2% which however represents almost 90% of their earnings which seems to be pretty normal for them. Instead of putting money into expansion and quicker growth they almost hand out everything to their shareholders.

Conclusion: To me and Graham this company is a no go. P/E and P/B are looking very bad. I also did not like the lack of vision which is then also shown yet again with the amount of dividend that they hand out year after year. The E/S and the ROE is however excellent! This type of company is making a profit out of the aging population but sooner or later that will reach a new status quo and then the growth should start to flatten out. Still... they might then find new ways, new approached and new concepts so I do not want to be too hard on them. Either way... today they look expensive and I have no interest to invest in them.

If this analysis is outdated then you can request a new one.


Frank Fisher said...

umm... although I agree with you in regards to the fact that the company is potentially overvalued, here are some remarks:

1. the company holds a 50% market share in terms of units sold (thus selling >5 Mio. glasses in Germany alone) and is the price market leader in Europe's biggest markets so I would wonder who that potentially "strong competitor" that you are referring to could be? Google Specsavers and Fielmann's feud in the Netherlands before you are suggesting them.

2. Fielmann does not have a rough time borrowing, rather it has hundreds of millions in retained earnings...

3. yes this money could be plowed back into a quicker expansion and this is what several analysts have argued. yet again by not expanding to aggressively the company has realized increases year by year again which is not too bad a thing either, is it?

Fredrik von Oberhausen said...

Hi Frank Fisher,

Thanks for your comment!

To me a strong competitor has nothing to do with being bigger on the market today.
It comes from attracting and getting the customers in a new way. Design and 3D-print your own glasses as an example. Maybe people will become more and more unafraid to order glasses online etc. I do not know.

I fully agree with you that Fielmann is doing very well today and it is also reflected in the valuation of the shares (according to my analysis slightly overvalued) and I am sure that they will do well for years to come and like I say in the end of the conclusion they might even find new ways if a competitor arrives to continue to build strong walls around them.

What I mean with lacking vision is that I have the feeling that many German companies have had few outside competitors and in the 90s after the wall fell received a nice new market for them to grow into which meant they could continue their national expansion without being forced to create clear expansion plans for how to break into other countries.

As an example I would like to bring up Metro with Saturn and Mediamarkt and how they are, in my opinion, being squeezed by the arrival of Amazon and generally online shopping. They have had stalling revenue for 5 years now and are forced to close down stores in for instance Sweden because they could not handle the competition there and are making huge losses.

Metro is of course not Fielmann and maybe I am completely wrong in having such thoughts and making correlations that does not exist but what is the moat of Fielmann? Can a company selling consumer products afford not to push online sales today? In my opinion you cannot...

2025 said...

Hi Contrarian,
What do you think about Fielmann at the moment?
After recent pull back in the stock price, valuation doesn't look too bad. And the fundamentals for a dividend and value investor are there. After your analysis company has also expanded internationally.

Greetings to England from white Finland

Fredrik von Oberhausen said...

Hi Antti!

We had snow for a day here in England but it is of course already gone. :(

They seem to have gone from crazy expensive to very expensive. I can directly say that their move to step into the hearing aid market in Germany will very likely be successful. Today there are small companies sitting all over the place offering the hearing aid equipment for outrageous prices. If they will continue down that road of equipment for elderly and ageing people then I think they are truly on to something.

They also seem to have enough cash and their debt is not crazy high to support the international expansion that they have started on.

I have always complained on them being to expensive and yet they have only continued higher and higher as have their earnings.

I fear expensive companies less these days... and yet I will not buy Fielmann but I understand if one would.