Sebastien Lemonnier is a European Equity Fund Manager at Tocqueville Finance, a Paris-based value house with €1.8 billion in assets under management. The company has followed a value investing philosophy since its foundation in 1991.
Investment idea is Ekornes-Norway
€ 565m market cap, €/NOK 7.78
Ekrone is a home furnishing manufacturer, a stock we have owned for 10 years.
The company focuses on chairs and sofas. The company has been innovating for over 40 years, adapting to the latest style, and making more comfortable furniture.
Some of the innovation comes from investing in high tech sewing machines, which can enhance the skills of the staff and speed up production.
59% of revenue is from the company’s “stressless” chairs and 28% from Sofas
Most of the revenue comes from the Nordic countries and Europe.
The trend can move in the wrong direction, so the stress of this brand is in comfortable furniture. The company is very efficient (for example €230k-sales per employee) and has higher margins than competitors.
Ergonomic furniture
“Stressless” brand
All production takes place in Norway
The company has 2,500 partner outlets
Over the past 10 years:
· Average annual turnover growth is 6-7%
· 19.2% av. EBIT margin, never falling below 17%
· Net profit margin > 12%
· Annual ROCE > 25%
These numbers are all very high for a highly competitive industry.
I have found the easy business to understand, usually make the best investments
Moat?
Brand building, loyal partners (most profitable per sqm, exclusivity / most effective display, commitment to share marketing costs), strong corporate culture exists (disciplined management, high staff loyalty, and a bonus scheme (> 1 month salary)) and there is an emphasis on comfort. Five to ten years ago, the company produced furniture which was not very comfortable. But they have innovated and built a strong brand name with comfortable chairs today.
Efficient production: Most are automated, that is why the company has 75% gross margins compared to 50% for gross margins for competitors.
The company has good marketing, with efficient costs.
When there is a crisis like now, Ekornes is able to gain market share from their marketing.
The strong corporate culture is very important. The management is disciplined; they are boring and do not give overly optimistic forecasts.
Ekornes is growing its distribution network.
The company is growing their product portfolio, such as new chairs for home offices.
They are looking into emerging markets, but growing through organic growth.
The company is very strictly disciplined and won’t invest in a country unless they can build enough partners. They also will only invest in countries with political risk.
Even during the crisis gross margins were 75% in 2008, and FCF was higher now than 07. EBIT, FCF and other metrics have all increased dramatically since 2007.
For the next few years capex should be low.
FCF 2011E 9.3X 2012E- 10.0X using very conservative estimates.
EV/EBITDA 2011E 7.6X and 2012E is 7.0X.
Dividend yield 2011E-6.6% 2012E-7.4%
Nok is currently trading at 122. Using historic EV/EBIT of 8.9x the stock should be trading at 153; using 10x EV/EBIT stock would trade at 170.
This is a unique company in a highly competitive industry.
The company is diversifying in terms of revenue base, and therefore currency risk is not as big of a risk.
Disclosure: None
http://www.valuewalk.com/
Investment idea is Ekornes-Norway
€ 565m market cap, €/NOK 7.78
Ekrone is a home furnishing manufacturer, a stock we have owned for 10 years.
The company focuses on chairs and sofas. The company has been innovating for over 40 years, adapting to the latest style, and making more comfortable furniture.
Some of the innovation comes from investing in high tech sewing machines, which can enhance the skills of the staff and speed up production.
59% of revenue is from the company’s “stressless” chairs and 28% from Sofas
Most of the revenue comes from the Nordic countries and Europe.
The trend can move in the wrong direction, so the stress of this brand is in comfortable furniture. The company is very efficient (for example €230k-sales per employee) and has higher margins than competitors.
Ergonomic furniture
“Stressless” brand
All production takes place in Norway
The company has 2,500 partner outlets
Over the past 10 years:
· Average annual turnover growth is 6-7%
· 19.2% av. EBIT margin, never falling below 17%
· Net profit margin > 12%
· Annual ROCE > 25%
These numbers are all very high for a highly competitive industry.
I have found the easy business to understand, usually make the best investments
Moat?
Brand building, loyal partners (most profitable per sqm, exclusivity / most effective display, commitment to share marketing costs), strong corporate culture exists (disciplined management, high staff loyalty, and a bonus scheme (> 1 month salary)) and there is an emphasis on comfort. Five to ten years ago, the company produced furniture which was not very comfortable. But they have innovated and built a strong brand name with comfortable chairs today.
Efficient production: Most are automated, that is why the company has 75% gross margins compared to 50% for gross margins for competitors.
The company has good marketing, with efficient costs.
When there is a crisis like now, Ekornes is able to gain market share from their marketing.
The strong corporate culture is very important. The management is disciplined; they are boring and do not give overly optimistic forecasts.
Ekornes is growing its distribution network.
The company is growing their product portfolio, such as new chairs for home offices.
They are looking into emerging markets, but growing through organic growth.
The company is very strictly disciplined and won’t invest in a country unless they can build enough partners. They also will only invest in countries with political risk.
Even during the crisis gross margins were 75% in 2008, and FCF was higher now than 07. EBIT, FCF and other metrics have all increased dramatically since 2007.
For the next few years capex should be low.
FCF 2011E 9.3X 2012E- 10.0X using very conservative estimates.
EV/EBITDA 2011E 7.6X and 2012E is 7.0X.
Dividend yield 2011E-6.6% 2012E-7.4%
Nok is currently trading at 122. Using historic EV/EBIT of 8.9x the stock should be trading at 153; using 10x EV/EBIT stock would trade at 170.
This is a unique company in a highly competitive industry.
The company is diversifying in terms of revenue base, and therefore currency risk is not as big of a risk.
Disclosure: None
http://www.valuewalk.com/
