Thursday, 19 December 2013

Analysis of Picanol Group

A weaver machine producing company from Belgium

Company: Picanol Group

Business: A Belgium based company that are developing, producing and selling weaving machines as well as other high-tech industrial products, services and systems. They have a couple of daughter companies but they divide themselves into two divisions according to their annual report: Weaving Machines (production of weaver machines based on air or rapier technology, with the sales comes service, spare parts etc.) and Industries (with Proferro: cast iron for weaving and agricultural machines, PSIControl Mechatronics: develop and manufacture various controllers, and finally Melotte using Direct Digital Manufacturing (DDM) and Near-to-Net-Shape Manufacturing (NNSM) technologies)

Active: They are active in Europe, India and Asia (many customers there!), and in the US, Mexico, Brazil and Indonesia.

P/E: 7.8

Comment: As soon as I read weaving company I just got some bad flashback feelings about Warren Buffett and Berkshire Hathaway which was one of his big failed investments the difference here is that the Picanol Group builds the machines for it and do not weave as such which Berkshire did...

This company was analysed due to a request from Garry that can be found here. I got a little annoyed with what I saw so I ended up making two analysis scenarios. The first one is the classic five year one from 2008 to 2012 and the second one is sixe years running from 2007 to 2012. I did this because of a massive revenue decrease in 2008 AND because the revenue the same in 2011 as it was in 2012 which made me feel as if that was simply their "max" revenue which they had once again return to from back in 2007 when removing the dip in 2008. I have not included anything about their new 27.5% share holding in Tessenderlo Chemie (that has around 2 billion in revenue and today make losses) so their 27% is equal to their own revenue in Pinacol Group...


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

The P/E is excellent for Picanol Group with 7.8 but the P/B is too high for my liking with 2.0. Still according to Graham it becomes a very clear buy on this one. They have excellent earnings to sales with 12% and the ROE is extra ordinary with over 25%. The book to debt ratio of 1.7 is also great! In the last five years they have had a yearly growth of 10.3% which is excellent and it gives us therefore a motivated P/E of 26 to 29 which means that the market today is strongly undervaluing this company. They pay no dividends.

2007 one:

contrarian values of P/E, P/B, ROE as well as dividend
So changing it to 2007 instead gives us still great P/E, still bad P/B, still good E/S with an excellent ROE and book to debt. The yearly growth does however only becomes a yearly growth of 1.9% which is not impressive and it then also gives that the motivated P/E is around 9 to 12 which means that Picanol Group is only slightly undervalued by the market today.

Conclusion: Graham says that it is a buy but I am less certain. I must admit that I love many values here such as P/E, ROE and book to debt (which might look less good after their investment) but to me the company look as if it has stagnated in growth with nothing much happening with the revenue development from what I could see in 2007, 2011 and 2012. Which can be the reason for their change of game plan still I would therefore have preferred to receive some kind of dividend from this type of company to decide to invest in it even if that would have decreased the ROE slightly. I also do not see what they want with the turnaround Tessenderlo because it does not really fit with their other portfolio of companies and either the management in Picanol Group has been hit by hubris and wants to build an imperium or they have made a really good deal and have decided to become an investment company just like Berkshire Hathaway... I don't know and therefore I am also worried to invest and will not do it.

I will however add them according to the classical analysis to my Stock of Interest list with the next update because I want to see what will happen with them in the future. Thanks for the suggestion Garry!

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


Garry said...

Tnx for the analysis.

A few comments: From 2008 there is a new main shareholder & CEO, and as you can see, it shows in the results.

Yesterday actually, the CEO of Picanol has become the CEO of Tessenderlo. So whatever he is doing, he's going for it.

Melotte is actually a 3D-printing company. (dental products,...). So via Picanol you have a chaep access to 3D-printing tech.

I agree it's not very clear what he wants with Tessenderlo. (acquisition was paid in cash so no impact on debt). But he has cut dividends in Tessenderlo, to reduce debt, and he is cutting costs. My hope is of course that he can manage the same turn around in Tessenderlo as he did in Picanol.

By the way: Berkshire was originally a textile company, not a builder of weaving machines ;-)

Fredrik von Oberhausen said...

Your welcome Garry!

I am sure he is going for it but that does not mean he will succeed and I have lately had my own interesting experience with Asian Bamboo that also decided to jump into a new fields...

Owning stocks in a company that start to change direction is dangerous because there is no telling how it will go and you become part of the speculation that the management is going for. I would even say that I find it more dangerous than stepping into an IPO. At least in the IPO you know what YOU decide to step into instead of getting forced into it as a small shareholder.

If one has an investment strategy that is based on following great managers and one knows this guy then maybe... but I have no clue about him. It does sound as if you do.

There is one guy that I have decided that the next company he goes to, and if it is a public company then I will invest in it: Bo Inge Andersson that are now running the Gaz Group in Russia, but that is the only person I try to keep track of in terms of management.