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A cheap dutch stock - Crown van Gelder

January 09, 2011 | About:

In 1896 Pieter Smidt van Gelder set up a mill for newsprint in Velsen, on the then recently excavated North Sea Canal. Paper pulp came in by sea and was offloaded directly at the companies docks.

In december of 1981 the newspaper business sent CVG into bankruptcy. In january of 1983 the company emerged with significant assets. Since then it produces and sells specialty paper grades for transactional print, envelopes and other stationery, direct mail, books and manuals, packaging materials and tailor-made face and base paper customer solutions. The company employs about 300 people and operates two paper machines.

Crown Van Gelder N.V. is listed on NYSE Euronext/Amsterdam. All corporate info is available in English.



Investment thesis

The equity of CVG is available at a discount to its liquidation value.

The opportunity exists because

* Earnings are depressed due to rising pulp prices.

* The company is managed with many interests in mind; just one of which is the interest of shareholders.

* This is perceived to be a commodity business with no opportunity for differentiation.

Valuation of Assets and liabilities (numbers in EUR)

* Current assets (mostly inventory at cost and receivables) => 50m

* PP&E (two paper mills, a modern gas fired power plant and a harbour) => 65m

* Total liabilities => 30m

* A 50% stake in IFO BV. A growing logistics company that pays a 1m dividend.

1) Market cap is 30m so the fixed assets with a book value of 65m, are available for say.... 15m net. This is one of the cheapest publicly traded companies in the Netherlands.

2) A similar mill, just not so strategically placed, (Stora Enso; Berghuizer paper) was closed down in 2008. The land and the gas fired power plant were sold to (among others) Morgan Stanley for about 20m. http://www.propertyeu.info/newsletter/default.asp?pid=1&id=5382

3) In the last 5 years, CvG spent about 50m on its power plant and other facilities.

Earnings power

Basically, CvG imports paper pulp by sea, makes paper and ships the product all over western europe by barge. Costs are Pulp and natural gas. Barriers to entry are in transportation cost. You will not find a lot of paper in europe produced in China or the US. CVG is perfectly located for maximum profitability in this terrible business.

CVG managed about 5% net margin over the past decade (excluding 2009 and 2010). The huge losses in recent years were mainly write downs of the assets; CVG is not bleeding cash.

As we have seen, a lot of capacity was permanently taken out. CVG has done better than most and has a strong book.

3% net margin over a full cycle => 5m.


Management is compensated for ROIC. That is hard in this business, but it's a good thing for shareholders. I suspect this is one of the reasons they have been happy to mark down the assets.

Management frequently speaks about enviromental issues and their responsibility to the local community and they have a good record in this regard. The company is well managed, just not always in the best interest of shareholders.

Insider ownership ..... no.

The dividend policy is clear though. The company’s policy is to pay an average annual cash dividend of 60% of its net profit, while aiming to prevent major fluctuations in dividend payments. It now yields 7%.


CVG is a takeover target.


* Global Pulp prices continue to rise. This leaves CVG playing catch up raising prices for the paper.

* The dollar continues to rise against the euro. CVG pays for pulp with dollars and sells its product in euros..... this leaves the company playing ...

* The other 497382 risks I haven't thought of.

A reversal of these trends obviously leads to easy profits.

Any and all questions and comments welcome as usual.

For Geoff -No stock or country is too small.- Gannon. http://www.gannononinvesting.com/blog/international-value-investing-send-geoff-your-favorite-homeg.html

About the author:

I define intrinsic value as the price I would gladly pay to own the business outright. With current management in place. For most stocks, that value is 0. I can be reached at batbeer AT hotmail DOT com

Visit batbeer2's Website

Rating: 3.3/5 (6 votes)


Batbeer2 premium member - 7 years ago
I copy some additional facts/comments I got on the message board:

**** SNIP *****

- I think mgmt does a nice job, these guys are no empire builders and are not excessively compensated (CEO: 363K in 2009)

- Slightly better margins might come from the new products line which is fast growing and already covers 25% of production (I believe these products are coffee cans and other)

- Pension plans had to recognize a small....

***** SNIP *****

I can't read the rest of the text..... but IMO the company has a conservative approach to its pension fund.
Hester1 - 7 years ago    Report SPAM

Great find, thank you.
Power of Incentives
Power of Incentives - 7 years ago    Report SPAM

Nice post about this interesting company I'm waiting to see drop below 6,4 again.

I noticed on your website that you would like to hear about local value plays in the country where people live.

Here's one from my home country: exacompta clairefontaine, a France-based "manufacturer of paper products, stationery and office supplies" (says Google: www.google.com/finance?q=EPA%3AEXAC)

it is a net-net, a profitable one, dividend-paying on top of that. with strong brands too.

also interesting "hidden" assets in the books.

but the "paper-making" industry is far from drawing crowds... Apple's fault?...


Batbeer2 premium member - 7 years ago
I noticed on your website that you would like to hear about local value plays in the country where people live.

Thanks for your comment.

I consider it a compliment but you confuse me with Geoff Gannon. The website you refer to is probably Geoff's. I'll let him know you like Clairefontaine.
Batbeer2 premium member - 6 years ago
Crown van Gelder cuts the dividend; market cap drops down to EUR 25m. This is now entering NCAV territory..... you get a heap of fixed assets for free.

Batbeer2 premium member - 3 years ago

WOW management has agreed to a takeover bid of 25m. The inventory alone is worth more and the company has no debt to speak of.

Andlinger from Belgium is getting a paper mill and a electric powerplant near the city of Amsterdam for free. The 25MW powerplant is connected to the public grid and its GE LM2500 turbine alone is probably worth about 10m.

By my estimates, the fixed assets have a replacement value of more than $100m and a scrap value of at least $30m.

Management is selling the company at a meaningful discount to its scrap value. It's a ripoff!

This investment idea was a mistake. Management could not be trusted to maximise shareholder value. They've served other interests.

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