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Holmes Osborne, CFA
Holmes Osborne, CFA
Articles (212)  | Author's Website |

Tweedy Browne Hits a Home Run With Coltene Holding

Swiss dental products manufacturer has had a great run

September 13, 2017 | About:

Tweedy Browne (Trades, Portfolio) has hit a home run with its holdings of Switzerland-based Coltene Holding AG (CLHLF). Coltene manufactures almost everything a dentist or oral surgeon could possibly need. Profit margins and profitability metrics have been outstanding.

The company has 4.22 million shares, the stock trades for 97.95 Swiss francs ($101.59) and the market cap is 413 million Swiss francs. Earnings per share are 3.83 Swiss francs and the price-earnings (P/E) ratio is 25.6. The dividend is 2.70 Swiss francs and the dividend yield is 2.76%. It takes $1.04 to buy one Swiss franc.

According to the Financial Times, gross margins are 73.02%, net margins are 9.88% and operating margins are 14.64%. Return on equity is 15.86% and return on investment is 13.51%. Great profitability and great margins.

Sales have been flat. Revenues were 162 million Swiss francs in 2014 and 161 million Swiss francs in 2016. Free cash flow was 17.26 million Swiss francs last year and it is usually around that number. The free cash flow yield would be 4.18%. The balance sheet shows 10 million Swiss francs in cash and 36 million Swiss francs in receivables. The liability side shows 5 million Swiss francs in payables and 8 million Swiss francs in short-term debt. That is an awesome balance sheet. Earnings per share and free cash flow per share have almost doubled over the past five years.

Coltene manufactures about everything you could possibly think of that has to do with teeth: instruments, moldings, dentures, bondings, gels, masks, bibs, waxes, files and dozens of other items. Sales break down to: 21.5% endodontics, 24.3% restoration, 20.5% prosthetics, 12.8% treatment auxiliaries, 8.7% rotary instruments, 6.3% inflection controls and 5.9% other. Around 41.2% of sales come from Europe, the Middle East and Africa, 35.2% from North America, 9.9% from Latin America and 13.7% from Asia.

What tech folks will find interesting is management is touting Coltene’s focus on digitalization. The emergence of blockchain and artificial intelligence will greatly improve collaboration in the dental process. It makes sense with all of the X-rays and many other things dentists use. The goal is to make dental treatments simpler, safer and cheaper.

Coltene has factories in the U.S., Switzerland, Brazil and Germany. Management has an eye on profitability but notes competition is tough, hence flat sales.

I found the stock by looking at Tweedy Browne’s holdings. The firm holds over 5% of Centene and has done quite well on the stock. The stock could have legs with a net cash position and its huge free cash flow, though it has been on a run this year. The great thing about Coltene is it is barely followed in the U.S. 

Twenty-five percent of shares are held by a family named Huber through a holding company called Huwa Finanz. Another holding company called Rätikon Privatstiftung owns almost 12%. Tweedy Browne holds 6.88%. You can see Coltene is very closely held.

Five years ago, the stock was in the 30 Swiss franc range and is now close to 100 Swiss francs. Last year, it was down to 60 Swiss francs. It is probably too late to buy, but Centene is a good company to follow. The billions of people around the world growing older every day will need increased dental care.

Disclosure: We do not own shares.

About the author:

Holmes Osborne, CFA
Holmes Osborne is principal of Osborne Global Investors.

Visit Holmes Osborne, CFA's Website

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