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Chandan Dubey
Chandan Dubey
Articles (150) 

FFP SA: Invest Alongside the Peugeot Family

April 27, 2012 | About:

I like majority-owned family companies. There are several reasons why you would want to invest in them. Foremost is the fact that you do not have to worry about the honesty of the management. You know the board will do the right thing for the shareholders. Or at least the best thing they can think of in a particular situation. There will not be significant overpayment in terms of compensation, there probably will be a dividend and the company will be run in a very responsible fashion. Obviously there are exceptions and this is no reason to close your eyes and not do your due diligence before jumping in.

There are some drawbacks too. The company might fire a good manager on a short-term performance basis or someone who does not get along very well with the family heads even though he is a good manager. But I feel that the good far outweighs the bad. The family who owns the business and holds the majority of the shares find themselves on the same side of the table as the common shareholders. Given that they have a very noticeable presence on the board of directors, the supervisions of the company which is generally a joke in most others, works quite seriously.

In the comment sections of my recent pitch on PSA Peugeot, one of the comments mentioned Societe FFP SA (EPA:FFP) and I am most grateful for it.

FFP is a holding company which was founded in 1929 and is controlled by heirs of the Peugeot family. Its main asset (35% of the asset) is a 22.8% stake in PSA Peugeot Citroen.

If we look at the investment portfolio of the company, we see that it has assets worth of €61.8 per share and it sells for less than €30 per share (Apr 27, 2012). This is a 50% discount on the net assets on the book.

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Dividend

As I said earlier, the company pays a dividend. It is not stable but the yield is very respectable at 3.3%. PSA did not pay any dividend this year and it has affected the performance of the company.

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Balance sheet

The company has a very good balance sheet. Net debt is €302 million and the equity is nearly 13 times the debt.

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Investment analysis

Let us look at some of the investment returns that FFP has managed to pull off and decide if the management is capable enough to serve as a steward of our capital.

Linedata Services SA

FFP invested €15 million in Linedata in June 2004 and then bought another block of shares worth €7 million in March 2005. On March 30, 2012 Linedata announced that is will buyback nearly 25.7% of its share capital and FFP has expressed to sell all its stake (nearly 12.9% of the shares outstanding) for €21.68 million. This is a small loss and given the investment horizon of eight years, it was a terrible investment.

DKSH Holdings

FFP invested €85.4 million in DKSH and when the company went public in April 2012 on the Swiss Stock Exchange (SIX) it sold nearly third of its stake for a cool €91.6 million. FFP still holds nearly 6.5% of the company and with DKSH currently trading at SFr 50 this is worth €170 million.

Zodiac Aerospace

FFP invested €152 million for a 5.8% stake. This was done during 2006 to 2007 and is now worth €216 million.

SEB

A 5% stake in SEB was bought in 2004 for €80 million. In 2008, FFP invested another €12 million. In 2010, FFP sold a small percent (0.76%) of the holding in SEB for €21 million, recording a €9 million gain on the purchase price. The leftover stake is now worth €147 million.

There are other holdings in the portfolio and you can see each of their descriptions on the webpage here. Although the investment returns have not been phenomenal, the company has netted in some very good returns. This can be a good holding if the share price continues falling. The 50% discount from the net asset value in itself gives a very large margin of safety.

About the author:

Chandan Dubey
I invest because I want to be free by the time I reach 40 years of age i.e., 2025. My investment style is to find a small number of bets with large margins of safety. I pay a lot of attention to management and their incentive. Ideally, I like to buy owner operator businesses. I am fortunate to have a strong inclination towards studying. I aid my financial understanding by extensive reading in psychology, economic, social sciences etc.

Rating: 4.2/5 (12 votes)

Comments

caque
Caque - 5 years ago    Report SPAM
Hello

Thanks for your article, I agree that margin of safety is very large.

At current prices, you get carmaker Peugeot PSA for free and a diversified portfolio of interesting holdings.

On my side, I've tried to dig a little deeper in the portfolio of FFP. See my article here:

http://valueinvestingfrance.blogspot.fr/2012/06/ffp-english-version.html

Comments welcomed

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