1. The company
Groupe Plastivaloire (XPAR:PVL, Financial)
As of Dec. 17, 2018:
No. of shares: 22.13 million
Free float: 39.7 %
Share price: EUR 8.03
Market cap: EUR 178 million
Groupe Plastivaloire’s share price has seen a 55% decline over the course of 2018, and the price level as of December 2018 seems widely undervalued. Two major factors have caused this sharp drop: the uncertainty regarding both the acquisition of the family-owned company TransNav in the U.S. and the negative expectations around the automotive industry’s new anti-pollution standards. The share price has the potential to double over the next 12 months.
1.1 History
Plastivaloire is a family-owned company specialized in the design, production and sale of complex plastic parts for convenience goods. The company processes new or spent plastics resins into intermediate or final industrial plastic products for the automotive and consumer goods industries.
The group has grown consistently over time: In 1963, Charles Findeling established a small plastic injection-moulding company in Langeais, France. Patrick Findeling joins the group in 1971, becomes Managing Director of the company in 1975 and starts in 1983 the external growth strategy with the takeover of a competitor’s factory in Chinon, France. Since then, Plastivaloire has constructed and taken over 26 new production sites and research centers, including 13 abroad, introduced early on technology and robots in mass production and currently employs 5,500 people. Plastivaloire innovated by using thermoplastic, ceramic and magnesium injection moulding and other new composite materials and by having a high quality finishing goods according to clients’ wishes with 3D hot stamping, special paints and techno-chrome. The stock started to be floated following an IPO in 1991.
1.2 Activity (brands and business model)
In terms of activity, Plastivaloire is an important supplier of the car industry (73%), the consumer goods industry (16%), automotive tools (10%) and tooling industry products for general public (1%). The strength of the company is the adaptability to clients’ needs in terms of products and location of production and innovation. The innovation areas include functional materials, high-gloss finishing, metal finishing, three-dimension decors and weight reduction.
Plastivaloire Group ranks among the very top European manufacturers of complex plastic parts used in retail consumer products. It designs and manufactures these plastic parts and handles their mass production. Present within motor vehicle and industry sectors, the group has 30 production sites in France, Germany, Poland, Spain, Romania, Turkey, Tunisia, England, Portugal and Slovakia. The acquisition of TransNav marks Plastivaloire Group’s entry into the U.S. market as TransNav has two production facilities, one in Kentucky and another in Michigan. The group is also accelerating its expansion in Mexico, with operations in Puebla that are strategic in terms of their location, like the San Luis Potosi facility created by the group in June 2016.
1.3 Strategy
Groupe Plastivaloire pursues a growth strategy centered around a 2025 revenue target of EUR 1 billion. The group has grown its revenue at a rate of 11.7% on average over the past 10 years and projects a 4-5% average yearly growth in the years to come, mainly organically and possibly through external acquisitions.
Additionally, the Group strives to reduce its dependence on French vehicles via accelerated development and market expansion towards premium vehicles, with a focus on technical and high value-added products. Developing a presence outside of Europe (Mexico, U.S.) to support the local production of main customers is therefore made a priority.
The acquisition of TransNav puts Plastivaloire Group a step ahead of its roadmap, taking pro forma revenue to nearly EUR 750 million – initially the target for 2020 – and marking a major milestone in achieving its 2025 revenue target of EUR 1 billion.
Prior to TransNav, Groupe Plastivaloire has performed a number of successful acquisitions:
- Acquisition of a 33% share of BAP Holding in 2015.
- Acquisition of 100% of the capital of Bursa-based Turkish plastics company Otosima via its subsidiary, BAP GmbH in 2015.
- Acquisition of 100% of the capital of German plastics processor, Karl Hess, in 2014.
- Acquisition of a majority stake in Bourbon Group in 2010.
- Acquisition of the business assets of Key Plastics Europe in 2009.
2. Management
The key management positions are held by the members of the Findeling family:
Patrick Findeling is the chairman and CEO.
Vanessa, John and Eliot Findeling are chief operating officers and members of the board.
In addition, Marie-France Findeling, Viviane Findeling, Christian Chollet, Jeannie Constant and Bernadette Belleville are the other members of the board.
2.1 Compensation
The CEO and the three COOs received a variable compensation for their 2016-2017 activities, respectively 69, 22, 5 and 4 kEUR. This corresponds respectively to 11%, 24%, 6% and 7% of their fixed annual incomes. The company is a family-owned business (more than 56%) which has operated under a similar structure for more than 50 years.
2.2 Company’s ownership
The equity ownership has been a stable ownership. The following shareholders are holding more than 1% of the shares:
Patrick Findeling (Chairman and CEO): 35.7% (Findeling family)
Eliot Findeling (COO): 4.8% (Findeling family)
John Findeling (COO): 4.4% (Findeling family)
Vanessa Findeling (COO): 4.3% (Findeling family)
Gisele Findeling (not board member): 4.0% (Findeling family)
Viviane Findeling (board member): 2.6% (Findeling family)
Findeling family controls more than 56% of the capital, the rest being the float.
3 Company’s operating performance
3.1 Operating performance
Plastivaloire exhibits a sound track record
Plastivaloire reported a revenue of EUR 156.5 million for the fourth quarter ending on Sept. 30, 2018, which is stable (+0.1%) from the same period of 2017. Over the year, revenue increased by around 5% on an annual basis to EUR 658.9 million, in line with the company’s target and slightly better than analysts’ expectations.
According to a company statement, the high average price of commodities and energy has weighed on the company’s performance and had an adverse impact on its profit. The slowdown in growth is also partly explained by a less favorable economic environment in the automotive industry (Motor Vehicle division revenue fell 3.7% over the period), which primarily stems from the implementation of new anti-pollution standards that have disrupted Europe’s key markets. However, the Group’s sector diversification strategy mitigated this trend, with the Industry division posting a very strong increase of 19.4% in fourth-quarter revenue, representing EUR 30.3 million.
Mexico’s contribution in 2017-2018 remained negligible due to the delay in the start of production of two vehicles for the U.S. market. The acquisition of U.S.-based plastics company TransNav, which has been operating in Mexico for several years now, will accelerate the group’s expansion in this high-growth potential region.
3.2 Financial situation
Leaders of the company have an aggressive strategic view based on growth:
Long-term debt is reasonably low (EUR 84 million) and has consistently gone down in the last three years (debt-equity at ca. 64% as of March 31, 2018). The latest acquisition is not accounted for yet.
The company has long-term prospects:
In short, Plastivaloire innovates and adjust its products to its clients’ wishes. The company also tended to open new productions sites close to the main clients' locations to match needs and minimize transaction costs. Strategically, the company diversifies into new business lines to increase its resilience to the cycle.
The company is stable and understandable:
The group’ s book value has doubled since 2008 in a linear fashion
The group pursues an expansion strategy to build a strong and dominant European presence, coupled to a geographical diversification and expansion. Its sustainable competitive advantage (also known as "moat") is the strategic setup of its plants, close to main customers
The company’s shares can be acquired at an attractive price:
The margin of safety is very good vs. earnings-based and FCF-based DCF valuations.
Low historical price-earnings (4.09).
Low historical price-book (0.75)
3.3 Market valuation of the company
The share price stood at EUR 19 at the start of 2018 and literally collapsed over the following 12 months. As a result, the price/earning ratio declined sharply from 10 to the current level of 4, which looks reasonably cheap, well below its median of 9.65.
Similarly the price-book ratio appears very cheap and is now at 0.75 (close to a three-year low), down from the highs of 2017 (2.5).
Despite a reduced net income in 2017-2018, revenue has grown by 5%, beating all previous fiscal years. The company has revised its Ebitda margin target down from 12% to 10.5% for 2018-2019, but reaffirmed its ambition to achieve EUR 1 billion in revenue by 2025.
Driven by steady profit, equity stood at EUR 279.5 million at Sept. 30, 2018. Cash flow linked to operations amounted to EUR 28.7 million, offset by a EUR 32 million increase in working capital during the period, due in particular to delays in contractual payments on tooling and studies.
Gross investments (including finance leases) remained high, around EUR 44.5 million. Dividends of EUR 8.6 million were paid during the period. Net debt at the end of the period consequently stood at EUR 123.1 million, giving a net gearing of 44%. The net debt-Ebitda ratio remained low at 1.7. Following the financing of the acquisition of TransNav in November (valued at six times its 2018 Ebitda, around USD 18 million), it increased to approximately 2.5, giving a leverage effect that is fully compliant with banking standards.
4. Risks
The first risk one can identify is the possibility of a failed integration of U.S.-based TransNav and prolonged issues at its Mexican facility. It is true that expanding operations to a new continent is never an easy task and that it is a something completely new to Plastivaloire. However, the group has a strong track record of successful integrations in many European countries so far.
The second risk relates to the evolving regulatory environment and tightening measures with regards to emissions in the automotive industry, which the market seems to have weighed as very negative for Plastivaloire.
There may well be indeed several factors affecting volumes and equipment levels ordered by its customers, related to the world economy, to possible new government measures and the success of competing manufacturers in their markets. Nevertheless, the group actively continues to respond to these risks by:
- Diversifying its customer portfolio out of historic French generalist builders, to Asian and American generalist builders.
- Diversifying its customer portfolio out of general-purpose builders to regional range towards global premium manufacturers, which shall compensate for regional cycles.
Diversification of the customer portfolio is already quite material: In 2017, the first five customers of the group accounted for only 49.1% of sales of products. However, given the economic context of the automobile sector, it is not excluded that some of its clients may find themselves in a difficult financial situation.
Disclosure: The author owns shares of Groupe Plastivaloire at the time of writing.
