Thursday 11 September 2014

Analysis of Picanol 2014

Picanol, a Belgian weaving machine producer & chemical company investor

Company: Picanol Group

ISIN: BE0003807246 | WKN: 546695

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 also hold a 27.52% investment in the chemical company Tessenderlo, which I am almost certain will become a successful investment in the future. They have two divisions: 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, Asia, US, Mexico, Brazil and Indonesia.

P/E: 6.7

Here you can find the previous analysis of Picanol.

Contrarian values of P/E, P/B, ROE as well as dividend for Picanol

The P/E for Picanol is excellent with 6.7 but it also comes from an excellent year in 2013 so a little caution is advised. The P/B is ok but not more with 1.7. In total this still gives a very clear buy from Graham! The earnings to sales are excellent with 13% and the ROE is superb with almost 25%! The book to debt is also excellent with a ratio of 2.2.
In the last seven years they have had a very nice revenue growth rate of 4.5% per year which then gives us a motivated P/E of 15 to 18 which means that Picanol is highly undervalued on the market today.
They pay no dividends which I do not really like but with the high ROE then maybe one can accept that they make better investments than what I do myself.

Conclusion: Graham says yes and so do I even though the dividends annoy me a little. The P/E, P/B and ROE is simply superb! I took a look at the first half year report and the figures are however going down a bit so the earnings will not be as excellent in this year as they were in 2013.

Picanol remains on the Stock of Interest list but due to some decreased revenue growth they dropped a couple of positions.

If this analysis is outdated then you can request a new one.  


Garry said...

It's a cyclical business, so revenues go up and down. But the investment in Tessenderlo is showing profitable, so in the future it can balance out the cyclical movements. I'am a fan ;-)

Fredrik von Oberhausen said...

Hi Garry!

I do not doubt that Tessenderlo will become an excellent investment in the future and already this first half year we see what you mention. 5 million from Tessenderlo while Picanol had a slightly worse result compared to H1 in 2013 and only brought home around 25 million.

What concerns me as a potential shareholder is that Luc Tack now owns 88.4% of the company. Before he owned around 77% and Patrik Steverlynck had around 11%. How has Luc Tack traditionally gained full control of his companies? Squeezed out the small shareholders or treated them ok and bought them out at a fair value?

Generally I am worried when so many shares of the company belongs to one person. But that might just be silly of me. What is your guys opinion about a big shareholder. Personally I want them to own less than 50%. I know that they will still fully control the company and I find that ok but they might also risk loosing it which I hope will keep them on their toes a little.

Garry said...

Yeah, lack of freefloat is according to me, the biggest reason why this company is currently valued at single digit P/E.

Tack gained control with a private placement of shares, diluting everyone else. It's was a time when things went very bad at Picanol, share price was already very low. Shareholders who stepped in at the same time had a very nice returns.

That said,I don't think he will sell a part of his stake in nearby future. It has his advantages (skin in game) and disadvantages. But I don't think is abusing his position. (Tack doesn't have a salary in Picanol!)

I even think a similair scenario is coming up at Tessenderlo. They are considering a capital increase there and I think he will do it again with private placement, so he can gain more control via Picanol. (he has just 30% now)

He isn't paying dividends, but he's a great capital allocator, which will add more return to shareholders on long term. Remeber,he bought Tessenderlo again when things went bad, at relative low price. I hoping on a similar turnaround story as with Picanol. Not every business unit there is good, but I see possibilities for nice returns on long term.