With manufacturing appearing to have already entered a recession, particularly outside the U.S., we have, of late, been uncovering a number of pricing opportunities in niche manufacturers around the globe, of which Trelleborg (OSTO:TRELB, Financial) is one. This mid-size Swedish manufacturer is a leader in the production of polymer (rubber & plastics) solutions that seal, dampen and protect applications. Its Sealing Solutions segment, which accounts for over half of operating profit, is considered one of the best in the Nordic region. The cost to produce a seal is low in relation to the value that it protects, so Trelleborg has had pricing power that has allowed for above-average organic growth, high margins, and high returns on invested capital. Employing a sum of the parts valuation using conservative M&A comps, we believe Trelleborg at purchase was trading at a substantial discount to its underlying intrinsic value. While growth appears to be slowing near term, which could put its stock price under additional pressure, the company has generated growing EBIT, year over year, for 24 straight quarters. They have paid an increasing dividend since 2010 and the current yield is approximately 3.6%.
From Tweedy Browne (Trades, Portfolio)'s third-quarter 2019 commentary.
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