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Company Overview

Lion Rock Group Limited is a Hong Kong–based printing and publishing platform listed on the Main Board of the Hong Kong Stock Exchange. The company has developed into a globally integrated book production platform generating more than €280 million in annual revenue. It originated from 1010 Printing, founded in 2005 and separately listed in 2011 before the group was renamed Lion Rock Group. The name draws inspiration from Hong Kong’s Lion Rock, a symbol of the city’s core values, resilience, hard work, perseverance, and solidarity in the face of adversity.

The Group is led by founder and Chairman Lau Chuk Kin (CK Lau), a self-made entrepreneur with more than three decades of industry experience. Prior to founding Lion Rock, he built a reputation for disciplined capital allocation during his tenure at Recruit Holdings, where shareholders reportedly achieved a compound annual return of approximately 23 % over thirteen years. His emphasis on conservative balance sheet management, disciplined acquisitions and long-term value creation has shaped Lion Rock’s strategic development.

Since 2012 the Group has pursued a selective acquisition strategy to expand its geographic footprint, strengthen vertical integration and increase production capacity. Key transactions include the acquisitions of Asia Pacific Offset in 2012, Opus Group Limited in 2014, Singapore-based COS in 2016, and an investment in the illustrated publisher The Quarto Group beginning in 2017, with Lion Rock increasing its stake to over 49% by April 2022. Additional acquisitions include Papercraft in Malaysia and the UK book printer Clays Ltd in 2020, and Griffin Press in 2022. The Opus Group business was later stabilised and separated through the listing of Left Field Printing Group. These transactions were generally executed at disciplined valuations and materially expanded the Group’s international presence.

Note: Left Field Printing Group currently trades at 7× earnings and 2.10× EV/EBITDA, offering an 8.6% dividend yield and a free cash flow yield of over 28%. Lion Rock Group holds approximately 62%, while Lau indirectly controls additional stakes through ER2 Holdings Limited and Lion Rock, resulting in a combined holding of around 70%.

The company has also undertaken limited treasury investments as part of its capital management strategy, including the purchase of a US$10 million credit-linked note in August 2024. While immaterial relative to operating activities, such investments illustrate management’s opportunistic yet conservative approach to capital deployment.

Today Lion Rock operates a vertically integrated global book production platform spanning several stages of the publishing value chain. Operationally, activities fall into four areas, which are consolidated into two reporting segments: Printing and Publishing.

• Print Manufacturing. The Group operates large-scale printing facilities in Mainland China, Malaysia, Singapore, the United Kingdom and Australia. Its flagship 1010 Printing plant in China covers approximately 600,000 square feet. Production focuses on higher-value illustrated formats including cookbooks, art books, children’s titles and educational materials, which are less susceptible to digital substitution. Major clients include Penguin Random House and Simon & Schuster. Around 50% of revenue is generated from the United States and roughly 30% from Australia.

  

• Print Management. Through Asia Pacific Offset and Regent Publishing Services, the Group provides sourcing, procurement, logistics coordination and quality control services for publishers. This intermediary function consolidates production volumes, manages complex printing schedules and supports utilisation across the Group’s manufacturing base.

  

• Creative Publishing. Lion Rock’s majority investment in The Quarto Group provides exposure to the publishing segment, particularly illustrated titles across arts, crafts, gardening, cookbooks and children’s books. The integration enhances margins and provides insight into end-market demand and publishing trends.

  

• Print Consultancy. Through Libermata, the Group offers publishing workflow solutions and procurement optimisation services, leveraging its supplier network to reduce sourcing costs for publishers.

  

Lion Rock’s vertically integrated structure supports procurement scale, cost management and operational flexibility across jurisdictions. Proprietary ERP systems streamline coordination between customers, suppliers and production facilities, while the Group maintains stringent environmental, social and governance standards.

Although the global printing industry faces gradual structural pressure, Lion Rock’s focus on illustrated and educational formats, segments less exposed to digital substitution, provides relative resilience. The Group has also mitigated geopolitical risk, including potential U.S. tariff exposure on Mainland China production, by expanding manufacturing capacity in Malaysia.

Overall, Lion Rock combines disciplined capital allocation, geographic diversification and vertical integration, positioning the company as a resilient global platform within a specialised niche of the publishing value chain.

Market Commentary

The global book printing market is mature and generally stable, with limited structural growth but relatively predictable demand. While certain categories, such as mass-market fiction, have experienced long-term pressure from digital formats, illustrated and educational books remain resilient. Cookbooks, art and photography books, children’s titles and textbooks continue to favour print due to their visual quality, durability and tactile appeal. These higher-value segments form the core focus of Lion, helping to support margin stability despite broader industry headwinds.

The publishing supply chain is highly international. Major end-markets, including the United States, the United Kingdom and Australia, depend significantly on Asian manufacturing capacity because of cost competitiveness, scale and technical expertise in colour printing and complex binding. However, geopolitical considerations, including US tariffs on certain Mainland China imports, have increased the importance of production diversification. Even though book tariffs remain relatively low, publishers and printers are increasingly prioritising flexibility by expanding capacity in alternative locations such as Malaysia to reduce concentration risk.

Recent years have also highlighted the importance of logistics and operational coordination. Pandemic-related factory shutdowns and freight cost volatility demonstrated how sensitive margins can be to shipping disruptions. As a result, publishers increasingly favour larger, integrated partners capable of managing sourcing, production scheduling and freight consolidation across multiple regions. Vertically integrated models that combine print manufacturing, print management and publishing capabilities are therefore strategically advantageous.

Overall, the sector offers steady, recurring revenue streams rather than rapid expansion. Growth tends to come from market share gains, operational efficiency and disciplined acquisitions rather than underlying demand acceleration. In this environment, scale, cost control, geographic diversification and strong long-term relationships with international publishers are key competitive advantages.

Business Model

Lion Rock Group Limited operates a vertically integrated model that generates revenue across three main streams. Its core business is printing, producing books and illustrated publications for international publishers, educational institutions, and media companies. Revenue from this segment is recognised when products are delivered and accepted, and it benefits from the Group’s scale in procurement, efficient production processes, and geographically diversified facilities across Asia, Europe, and Australia.

The second revenue stream comes from print management and procurement services provided through subsidiaries such as Libermata and Asia Pacific Offset. These units act as intermediaries between publishers and printers, coordinating sourcing, supplier selection, production scheduling, logistics, and quality control. By consolidating orders and directing volumes to its own facilities, Lion Rock generates service fees while maintaining strong client relationships.

The third stream is publishing, primarily through its controlling stake in The Quarto Group. This business produces illustrated non-fiction titles and generates income from book sales, publishing rights, and royalties. Publishing provides strategic value by giving the Group insights into market trends and end-consumer preferences. Additional minor income comes from the sale of by-products such as recycled paper. By combining manufacturing, services, and content ownership, Lion Rock captures value across the full publishing supply chain while maintaining operational flexibility and scale advantages.

Shareholding Structure

Lion Rock Group benefits from a shareholder structure that reflects strong alignment between management and investors. Founder and Chairman Lau Chuk Kin maintains a substantial personal stake, directly owning 13% of the company, demonstrating significant “skin in the game.” In addition, he serves as the principal shareholder and director of ER2 Holding Limited, which controls entities including City Apex Limited, Lion Rock Group, and Left Field Printing Group. Through City Apex, Lau indirectly controls an additional 35% of Lion Rock, resulting in a total effective ownership of 48% and ensuring strong alignment with long-term shareholder interests.

The shareholder register also includes reputable institutional and legacy investors. JCBNext Berhad, a Malaysia‑based investment holding company with stakes in digital and online marketing businesses and other quoted securities, owns roughly 7% of Lion, adding a reputable institutional holder to the register. The late David Webb, a highly respected advocate for transparency and shareholder rights, held a 10% stake, which is expected to pass to his family, likely maintaining the investment in line with his legacy. Former CFO Mei Lan Lam, who retired in August 2025 after joining the company in 2015, retains a 2% stake and was widely regarded for her steady and reliable stewardship during her tenure.

Risks

• Trade volatility: Tariffs on Chinese-made books, particularly from US-China trade tensions, could increase costs or shift demand to alternative production sites.

• Currency fluctuations: Movements in the Renminbi, Pound Sterling, Euro, and other currencies can impact costs, revenues, and margins across its global operations.

• Digitalisation: The ongoing shift toward e-books and electronic media may reduce demand for physical printed materials over time.

• Technological developments: Advances in printing technology, including digital presses and specialised inks, require adaptation to shorter print runs and faster fulfilment cycles.

• Input cost volatility: Fluctuations in paper, ink, and energy prices can affect margins, as these costs are not always fully passed on to customers. In 2017, Lion Rock faced a 20% spike in paper costs, which led 1010 Printing to report a 10% revenue decline. Management avoided aggressive price competition, and some clients cancelled projects as rising input costs made certain titles uneconomical, highlighting the business’s sensitivity to commodity prices.

• Logistics and supply chain disruptions: Freight delays, port congestion, and global shipping constraints can increase costs and affect delivery schedules.

• Market consolidation: Mergers and acquisitions in the publishing industry can reduce the number of clients and shift bargaining power toward larger publishers.

Key Numbers

Lion Rock is a global book printing company led by a seasoned capital allocator, demonstrating consistent financial performance over the past 16 years. Revenue has grown at a CAGR of 14.6%, while EBITDA expanded at 21.3%, maintaining margins between 7% and 18%. Effective cost management has supported a net income CAGR of 19.7%, with an average net margin of 9%.

The company derives the majority of its revenue from the United States and Australia, exposing it to trade-related and geopolitical risks. U.S. tariffs on Chinese imports vary by product category: most general books are subject to a 7.5% Section 301 tariff, while calendars, planners, and certain other categories may face tariffs exceeding 30%. Exemptions apply for children’s picture books, board books, and religious materials. To mitigate exposure, Lion Rock has established production facilities in Malaysia (Papercraft) to serve U.S. demand, while operations in Australia (Left Field) and Singapore (COS) diversify the supply chain, manage labor cost pressures, and reduce reliance on China. Although paper costs in China remain 30–40% lower than in Western markets, providing a margin advantage, this gap could narrow if European energy and production costs decline.

Lion Rock operates through two primary segments: Printing and Publishing. The Printing segment, which generates over 70% of total revenue, has achieved an 11.5% CAGR over 16 years. This segment benefits from a mature, efficient operational model, with automated processes, internalised workflows, and strategic capacity expansion that help control costs and support revenue growth. Management has characterised current conditions as favourable, driven by stable demand, incremental digital integration, and targeted expansion across Asia and Europe. The Publishing segment, which contributes the remainder of revenue, primarily involves distribution agreements and content licensing. Publishing is lower-margin due to higher development and marketing costs, a weaker market environment, and an ongoing reorganisation that temporarily compresses profitability. Despite lower margins, publishing provides strategic diversification, content ownership, and control over key intellectual property, complementing the more stable and profitable printing business.

Financially, the company maintains a net cash position, with over HKD 180 million at the end of 2024, reflecting a net debt-to-EBITDA ratio of -0.4x. Holding this level of cash, while indicative of financial strength, may raise concerns among some investors due to minimal interest earned on large cash reserves and limited acquisition activity. Its asset-light operational model, with limited reliance on heavy machinery compared with traditional printers, supports operational flexibility, scalability, and strong liquidity. Capital expenditures are fully internally funded, reducing dependence on external financing. The company has recently refrained from acquisitions, as potential targets either exceed acceptable valuations or fail to meet short-term profitability thresholds. Debt associated with unrealised acquisitions has been gradually reduced, lowering financial costs and leverage from 17.2% to 14.5%, while preserving optionality through standby credit facilities. This disciplined approach emphasises balance sheet strength, net profitability, and financial resilience, positioning the company to pursue opportunistic, value-accretive investments.

Lion Rock remunerates shareholders mainly through regular interim and special dividends, which form the core of its payout policy. The company has maintained a consistent record of dividend payments even during challenging periods, with total dividends reaching HK$0.145 per share in 2024, paid through two interim and two special dividends. Dividend decisions are based on factors such as financial performance, liquidity, working capital requirements, debt obligations, and future expansion plans. In addition to cash dividends, the Group has occasionally returned value through alternative methods, such as the 2020 distribution in specie of shares in Left Field Printing Group Limited. Share repurchases are rare at the parent company level but may occur within subsidiaries for strategic purposes, for example the 2024 buyback by The Quarto Group linked to its voluntary delisting. As of December 2024, the Group held approximately HK$408 million in distributable reserves, indicating solid capacity to sustain future shareholder returns.

Valuation

Please note that the following valuation reflects the base-case scenario only, with downside risks modelled separately. Investors should conduct their own valuation analysis based on individual assumptions and projections. The valuation of Lion Rock is derived from a combination of methodologies, including a Discounted Cash Flow (DCF) model with a 6-year explicit forecast period and a relative valuation approach using EV/EBITDA and P/E multiples. This assessment forms part of a broader valuation framework incorporating additional scenarios and alternative methodologies to provide a more comprehensive estimate of intrinsic value. Accordingly, independent due diligence is recommended before drawing any investment conclusions.

The DCF model assumes the company can sustain an EBIT margin of 7%, reflecting a conservative assumption positioned at the lower end of the company’s historical range of profitability within a mature industry. A terminal growth rate of 0% is applied, consistent with the long-term outlook for the global printing sector, which is characterised by a flat to decreasing structural trend, albeit at a gradual pace. The weighted average cost of capital (WACC) of 14.3% incorporates the risk-free rate, equity risk premium, size premium, country-specific risk adjustments, and an additional stress premium reflecting current macroeconomic conditions. The discount rate also captures elevated geopolitical and trade risks, particularly potential U.S. tariff exposure, given that approximately 50% of Group revenue is generated in the United States. Based on these assumptions, the DCF analysis yields a fair value of HK$4.12 per share, implying upside potential in excess of 200% relative to the current market price.

Under the relative valuation framework, applying an EV/EBITDA multiple of 5.0x results in an implied equity value of HK$3.66 per share, while a P/E multiple of 10.0x implies a valuation of HK$3.83 per share.

Assigning equal weighting of 50% to the DCF and 50% to the multiples-based valuation produces a blended fair value of HK$3.93 per share. To account for potential optimism embedded in the underlying assumptions, a 10% margin of error is applied, resulting in a more conservative valuation. Even after this adjustment, the shares indicate an upside potential of approximately 164% relative to current trading levels.

Conclusion

Lion Rock Group, led by founder Chuk Kin Lau, is a vertically integrated book printing and publishing platform with a track record of disciplined growth, operational efficiency, and strategic acquisitions. Despite operating in a mature industry, the company benefits from scale, geographic diversification, vertical integration, and a focus on resilient illustrated and educational book segments. Key risks include potential U.S. tariff exposure, input cost volatility, currency fluctuations, and broader industry headwinds. Strong cash generation, a net cash position, and substantial founder ownership align management with long-term shareholder value. Current market valuation appears to understate the company’s intrinsic worth, suggesting meaningful upside potential as its strategic execution and operational strengths continue to be recognised.

Personal note: The company demonstrates strong management; however, current tariff-related tensions represent a significant risk. With rising energy costs driven by the conflict in the Middle East, the outlook remains uncertain. The company will continue to be monitored closely.

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Disclaimer: All information provided herein by smallvalue is for informational purposes only and does not constitute investment advice or an offer or solicitation to buy or sell an interest in any security. Smallvalue may change its views about or its investment positions in any of the securities mentioned in this document at any time, for any reason or no reason.

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Company Overview

Founded in Hong Kong in 1980 by Ng Wing Hong (Ben), Baguio Green Group began as a small cleaning service addressing the city’s growing demand for professional environmental hygiene, financed entirely with founder capital. On 7 May 1982, Baguio Cleaning was formally incorporated with an authorised share capital of HK$200,000, shared among Ben Ng, Ng Wing Chuen, and Ng Wing-sun. Operations initially focused on street and commercial cleaning services around 1996. Driven by Ben Ng’s vision to create a full-spectrum environmental services platform, the Group strategically expanded with the establishment of Baguio Landscaping in 1995, Baguio Pest in 2005, and Baguio Waste in 2008. Strategic acquisitions, including Tak Tai in 1997, a government-approved landscaping supplier, and the leasing of plant nurseries, further strengthened capabilities and diversified the client base. Ng Wing-sun, Ben Ng’s brother and co-founder, played a key role during these formative years before departing in 2010 to pursue other business ventures.

Under Ben Ng’s leadership as Chairman and Executive Director, Baguio evolved from a local cleaning company into a diversified, technology-driven environmental solutions provider. His approach emphasises disciplined, investment-led growth, operational reliability, sustainability, and innovation. Today, Baguio is a trusted partner to the Hong Kong SAR Government, public utilities, commercial enterprises, universities, amusement parks, and the airport, delivering scalable, eco-friendly solutions across multiple sectors.

The Group’s executive management blends founder-led continuity with professional expertise. Phyllis Ng (Ng Yuk Kwan), Ben Ng’s sister, serves as Chief Executive Officer and Executive Director, overseeing strategy, operations, and organisational development. Ida Leung, Chief Operating Officer and Executive Director, manages operational delivery across all service segments.

Listed on the Main Board of the Hong Kong Stock Exchange since 2014, Baguio now operates a one-stop integrated environmental services platform organised into four core segments:

• Cleaning & Hygiene: Professional cleaning across streets, public spaces, commercial and industrial buildings, schools, shopping malls, and transport facilities. Specialised services include high-level cleaning, confined space maintenance, marble restoration, and antimicrobial coating applications. The segment leverages advanced equipment and trained personnel to maintain hygiene, efficiency, and safety. In 2025, Baguio expanded its services to the marine environment, providing comprehensive marine cleansing in Victoria Harbour and surrounding waters. This includes fleet deployment and intensified cleaning operations before and after major events such as fireworks displays, dragon boat races, and cross-harbour swims, ensuring clean and safe waters while extending the company’s land-based expertise to Hong Kong’s marine ecosystem.

  

• Landscaping: Baguio Landscaping delivers landscape construction, maintenance, and greening projects for public and private clients, including plant nurseries and horticultural expertise. Services emphasise sustainable green space development aligned with government and corporate environmental standards.

  

• Pest Management: Provides environmentally responsible pest prevention and control using integrated pest management (IPM) practices, combining monitoring, preventive strategies, and safe chemical applications to protect public health while minimising environmental impact.

  

• Waste Management & Recycling: Covers municipal, commercial, industrial, construction, animal, food, chemical, and clinical waste. Services include collection, transportation, confidential waste destruction, waste audits, and event management. Advanced recycling and resource recovery facilities, including a food-grade plastics recycling plant, waste paper and glass recycling plants, and composting operations, support circular economy objectives. Technology adoption, including AI, IoT, and big data, enhances sorting, tracks recycling efficiency, and engages communities through initiatives such as the iRecycle mobile app.

  

By combining operational scale, technological innovation, and a diversified service portfolio, Baguio Green meets Hong Kong’s growing demand for sustainable environmental solutions. Its integrated platform, supported by advanced infrastructure and smart technologies, positions the Group to drive efficiency, enhance resource recovery, and contribute to the city’s transition toward a circular, low-carbon economy.

Market Commentary

Hong Kong’s environmental services sector is evolving through policy-driven, incremental enhancements despite the city’s high population density and limited developable land. With approximately 40–50% of land designated as country parks and nature reserves, and a total green space of around 47%, the city has a strong natural baseline for urban greening. Government initiatives, including the Greening Master Plan, skyrise greening programs, and the 10-year biodiversity strategy, promote integration of greenery into urban planning through tree planting, green roofs, vertical greening, and improved park management. Ambitious targets to increase public open space per capita to 2.5–3.5 m² by 2030 are expected to drive demand for professional greening, landscape maintenance, and climate-adaptive urban infrastructure, while urban canopy coverage and connectivity remain constrained by development pressures.

The cleaning, hygiene, pest management, and waste management sectors provide stable, recurring revenues underpinned by strict public health regulations, high-density living, and a subtropical climate, with post-COVID hygiene standards further reinforcing structural demand. Waste management and recycling are gaining strategic importance as Hong Kong advances toward its Zero Landfill 2035 target, with municipal solid waste recycling at 34% in 2024 and construction waste recovery above 90%. The government’s Northern Metropolis development, covering roughly one-third of Hong Kong’s land in the New Territories North, represents a long-term growth driver, integrating housing, technology, logistics, and environmental conservation. The project emphasises integration of conservation and development, with planning principles that aim to balance urbanisation with protection of rural landscapes and ecologically important areas, including wetlands, country parks, and potential eco-tourism nodes, alongside proposals for conservation parks and green corridors that support ecosystem services. This expansion offers opportunities for greening, waste and recycling solutions, and ecosystem management, while highlighting the need for climate-resilient and regulatory-compliant services.

Hong Kong’s marine environment faces significant pressures from urban development, heavy maritime traffic, and pollution from sewage, agricultural runoff, and microplastics, leading to habitat degradation, biodiversity loss, and algal blooms. Victoria Harbour, the city’s central waterway, is particularly impacted due to dense shipping, recreational use, and frequent large-scale events such as fireworks displays, dragon boat races, and cross-harbour swims, which intensify waste accumulation and water quality risks. Other vulnerable areas include nearby waters at Central, Sheung Wan, Causeway Bay, Tsim Sha Tsui, Yau Ma Tei, Shau Kei Wan, Kwun Tong, Sai Kung, Tolo Harbour (Tai Po), as well as typhoon shelters including Causeway Bay, Shau Kei Wan, Kwun Tong, To Kwa Wan, New Yau Ma Tei, Sam Ka Tsuen, Shuen Wan, Yim Tin Tsai, and Sai Kung Town. To mitigate these threats, the government has implemented interdepartmental marine refuse management, enhanced shoreline cleanups, coastal patrols, water quality monitoring, and public education campaigns, aiming to safeguard water quality and maintain ecological and recreational value across Hong Kong’s key marine zones.

Business Model

Baguio Green Group Ltd operates as a defensive, integrated environmental services provider in Hong Kong, delivering cleaning, waste management, recycling, landscaping, and pest control services under long-term contracts with government agencies, statutory bodies, and large private enterprises. Its revenue model is highly recurring and contract-driven, providing strong cash flow visibility and resilience through economic cycles. The company complements this stable base with technology-enabled solutions, including IoT smart recycling systems, solar-powered compactors, and circular economy initiatives, which enhance operational efficiency and ESG alignment without materially increasing risk. By combining a diversified service portfolio with a durable, government-backed revenue base, Baguio Green Group is well-positioned to benefit from structural trends in urban environmental management and sustainability policy.

Shareholding Structure

Wing Hong Ng, the founder of the company, is the largest shareholder, holding 67.29% of the company, with his sister, Yuk Kwan Ng, as the second-largest shareholder at 6.44%. Together, the Ng family controls 73.73% of the company. David Webb, who passed away recently, may he rest in peace, and who was widely recognized as a brilliant and highly influential activist investor, a champion of transparency and investor rights whose investigations and sharp commentaries unsettled the financial elite, held 5.99% of the company. This stake is expected to pass to his family, and, given David Webb’s legacy, it is believed that they will continue to maintain it.

Before proceeding, I would like to provide a paragraph about who David Webb was, a reference point for many of us:

David Webb was a prominent figure in Hong Kong’s financial markets, known for his activism and commitment to transparency. Born in Britain, he moved to Hong Kong in 1991, retiring from banking to focus on market reforms and shareholder advocacy. Webb built his fortune through small- and mid-cap stocks, achieving approximately 20% annual returns since 1995, and founded Webb-site, a platform for exposing corporate misconduct. He played a pivotal role in uncovering the 2017 Enigma Network scandal and contributed to reforms at HKEX. A longtime champion of corporate transparency, tax reform, and investor rights, Webb once said, “I was more interested in leaving some mark on the system than just dying rich.” His efforts have left a lasting impact on Hong Kong markets, ensuring his legacy endures. Rest in peace, David.

Risks

• Client concentration: reliance on a limited number of key clients, mainly Hong Kong government departments, with active diversification into private and new markets.

• Investments and acquisitions: expansion initiatives, including potential acquisitions, may not deliver expected returns or face integration challenges.

• Labour costs and workforce shortages: vulnerability to wage increases and difficulties in hiring and retaining skilled staff, historically impacting gross margins.

• Fleet management: accidents or inadequate maintenance of the vehicle fleet could disrupt operations and generate liabilities.

• Intense competition in cleaning, landscaping, and pest control may erode margins; differentiation relies on green technology and integrated services.

• Extreme weather events, such as typhoons, can threaten employee safety and increase operational costs.

• Regulatory changes affecting recycling operations may impact profitability due to shifts in government policies or delays.

• Interest rate fluctuations affect costs due to variable-rate loans.

• Credit risk from non-government clients, monitored continuously.

• FX exposure, primarily from RMB-related operations in mainland China.

Key Numbers

Baguio Green is a family-owned company and one of Hong Kong’s largest integrated environmental services groups, serving as a market leader in urban cleaning and a leading provider of recycling and waste management solutions for public-sector clients. Backed by a substantial portfolio of long-term contracts, the company continues to secure both government and private engagements, demonstrating growth potential within its current markets and beyond. Over the past decade, Baguio Green has delivered a consistent and robust track record, achieving a 13-year revenue CAGR of 11.7% and EBITDA CAGR of 12.9%.

The Group’s operations are divided into four main segments

The Cleaning segment, the Group’s core business, accounts for approximately 80% of total revenue and has achieved a 13.4% CAGR from 2011 to 2024. Margin expansion has been driven by disciplined cost management, operational scale, and the successful acquisition of new government contracts. In October 2025, the Group further reinforced its market position by securing a three-year, HK$150 million marine cleaning contract covering Hong Kong’s eastern waters, including Victoria Harbour and Sai Kung. The segment continues to enhance operational efficiency and advance ESG outcomes through technology adoption and strategic integration with downstream recycling and upcycling initiatives.

The Recycling & Waste Management segment, representing around 11% of revenue, has been the fastest-growing business, achieving a 28.1% CAGR over the same period. Growth is supported by policy tailwinds, including the “Zero Waste 2035” strategy and extended producer responsibility schemes for plastic packaging. Baguio Green plans to evolve this segment further, moving beyond conventional recycling into higher value-added upcycling, transforming recovered materials into premium products, and expanding door-to-door household recycling through the iRecycle platform to increase participation and community engagement.

Landscaping continues to exhibit steady margin expansion but low revenue growth, with a 2.23% CAGR over the same period, supported by rising demand linked to the Northern Metropolis development, which is expected to be a key medium- to long-term growth driver. The segment also presents opportunities to integrate circular economy practices through the use of recycled and upcycled materials. The Pest Management segment remains highly competitive and contributes minimally to overall Group performance, though it benefits indirectly from cross-selling opportunities and Baguio Green’s broader sustainability-focused service offerings.

Revenue Visibility & Contract Backlog

Revenue visibility through Baguio Green Group’s contract backlog is a key driver of its financial stability, ensuring steady cash flow and mitigating operational uncertainty. As of June 30, 2025, the total value of unexpired contracts amounted to HK$3,099.4 million, with the cleaning division comprising the largest share at HK$2,334.0 million. This was recently reinforced by a HK$150 million, three-year marine waste cleaning contract that commenced in October 2025. Waste management and recycling account for HK$471.0 million, supported by the expansion of the “GREEN@COMMUNITY” network and new Environmental Protection Department contracts totalling HK$43 million. Landscaping contributes HK$245.4 million through high-margin projects such as Kai Tak Sports Park and Tung Chung New Town extensions, while pest control maintains a stable HK$49.0 million. Revenue recognition is well-defined, with HK$1,043.9 million expected in the remainder of 2025, HK$1,354.2 million in 2026, and HK$701.3 million secured beyond 2027.

The backlog is underpinned by a historically strong tender success rate of 35.6–37%, a concentration in public-sector clients that minimises default risk, and growth opportunities from major infrastructure developments such as the Northern Metropolis. Compared to the HK$3,887.5 million backlog at December 2024, the current level reflects normal contract cycle transitions, particularly in landscaping, and reinforces Baguio Green’s competitive advantage: the scale and expertise required to manage large government contracts create substantial barriers to entry for new competitors.

Recent Challenges

In 2019, Baguio Green faced significant operational challenges. Widespread social unrest in Hong Kong disrupted urban cleaning operations and forced a temporary suspension of recycling activities, including glass collection and processing. At the same time, mass demonstrations reduced outdoor consumer activity, lowering waste collection volumes. The tightening labour market increased direct wage costs, compressing gross margins, while delays in landscaping projects further impacted segment profitability. Elevated interest rates and higher average borrowings also increased financial costs. As a result, the company reported a net loss of HK$11 million for the year.

In 2020, Baguio Green confronted the dual challenges of the COVID-19 pandemic and sector-specific pressures. Hong Kong experienced four waves of infections, resulting in a record GDP contraction of 6.1%. As a major employer of frontline personnel, the company implemented stringent infection control measures, which, together with an initial shortage of personal protective equipment (PPE), significantly increased operational costs. The recycling and waste management segment was particularly impacted: temporary closures of bars, restaurants, and nightclubs halted glass collection, while international regulatory changes, including China’s ban on plastic waste imports and amendments to the Basel Convention, disrupted plastic waste exports. Legislative delays, such as the slow implementation of the Municipal Solid Waste Charging Scheme, further constrained citywide sustainability initiatives.

At the segment level, the urban cleaning division’s revenue declined 30.5% due to the expiration of several large-scale service contracts, while landscaping experienced weakened demand and intensified competition, further pressuring profitability. Overall, group revenues fell 19% year-on-year, and total headcount declined from 7,457 in 2019 to 5,255 in 2020. Despite these challenges, Baguio Green returned to profitability, largely supported by government measures totalling approximately HK$84.9 million, including the Employment Support Scheme. Without these subsidies, financial results would have reflected the full operational impact of the year’s disruptions.

Financial Position

The Group has steadily strengthened its financial position, closing 2024 with a net cash balance and further increasing liquidity to HK$192.5 million in the first half of 2025. By contrast, 2019 represented a peak in leverage, with a Net Debt/EBITDA ratio of 10.79×, as the company relied on significant bank borrowings to sustain operations and investments amid narrowing margins and rising costs. Under the leadership of Ng Wing Hong (Ben), Baguio Green has substantially improved its financial health while maintaining disciplined growth. The company is now leveraging this strong financial foundation to pursue long-term expansion, consolidating its market leadership in Hong Kong while exploring new services, including marine cleaning and international operations, and selectively pursuing growth through mergers and acquisitions. With robust cash reserves and ample financial flexibility, the Group is well-positioned to bid for large-scale contracts and expand operational capacity, reinforcing its status as a regional leader in integrated environmental services and green technology. We expect the Group to remain debt-free in the coming years.

Valuation

Please note that the following valuation reflects only the base-case scenario, while downside risks have been modelled separately. Investors are encouraged to conduct their own valuation analysis based on their individual assumptions and projections. The valuation of Baguio is primarily based on a Discounted Cash Flow (DCF) model with a five-year explicit forecast period, complemented by a relative valuation approach using EV/EBITDA and P/E multiples. This summary forms part of a broader and more comprehensive valuation framework that incorporates additional scenarios and alternative methodologies to provide a more robust assessment of the company’s intrinsic value. Accordingly, investors should perform their own due diligence before drawing any investment conclusions.

A DCF model is deemed appropriate given the company’s improved earnings visibility since 2023 and the nature of its business model, which is characterised by long-term contracts and stable demand for essential services. These features materially reduce forecasting risk and, consequently, the margin of error relative to other sectors and companies. For the purpose of this valuation, an EBIT margin of 2.5% is assumed, which is conservative compared to both the industry average and the company’s historical margin of 3%. A terminal growth rate (g) of 0.5% and a discount rate (WACC) of 12.5% are applied. The terminal growth rate is deliberately conservative, particularly in light of the company’s long-term track record of double-digit growth. The WACC is calculated by weighting the risk-free rate and incorporating an additional stress premium to reflect the company’s size, the current market environment, and country-specific risks. Based on these assumptions, the DCF analysis yields a fair value of HK$4.12 per share, implying an upside potential of over 232% relative to current market prices.

For the relative valuation, an EV/EBITDA multiple of 7.0x is applied, which is significantly below the sector average and median of 12.5x and 11.7x, respectively. This results in an implied valuation of HK$3.11 per share. Using the P/E approach, a multiple of 13.0x—also below the sector average and median—is applied, leading to a valuation of HK$2.76 per share.

By combining both methodologies using a 60% weighting for the DCF and 40% for the multiples-based valuation, a blended fair value of HK$3.64 per share is obtained. As a standard practice to mitigate potential optimism in the underlying assumptions, a 10% margin of safety is applied to ensure a more conservative outlook. Even after this adjustment, the stock continues to offer an upside potential of approximately 165% relative to current price levels.

Conclusion

Baguio Green Group is a founder-led enterprise that has demonstrated consistent improvement in its financial health over time. It operates within a critical and increasingly strategic sector, and despite its presence in an unattractive industry, the company exhibits strong long-term fundamentals. The management team is clearly committed to the company’s future, including its expansion beyond current markets. The company’s current market undervaluation appears driven by several factors: a small market capitalisation of under €60 million, operation in a sector with limited investor appeal, listing in a jurisdiction historically scrutinised for transparency and investor protections, and relatively low liquidity, which may constrain broader market interest. These structural characteristics, however, enhance Baguio Green Group’s investment appeal, particularly given the substantial equity stake held by its founders, signalling robust alignment with long-term shareholder value. Overall, the company is well-positioned for sustainable performance, and it is only a matter of time before the market fully recognises its intrinsic value.

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Company Overview

Haw Par traces its origins to the late 19th century, when Aw Chu Kin founded the Eng Aun Tong apothecary in Rangoon. His sons, Aw Boon Haw and Aw Boon Par, developed the Tiger Balm formulation and transformed the brand into a pan-Asian success. By 1926, manufacturing had expanded to Singapore, and the brothers established a diversified business portfolio spanning pharmaceuticals, publishing, and the iconic Haw Par Villa. Following their deaths, the company was publicly listed in 1969 as Haw Par Brothers International. However, its early public years were turbulent. Control by British investment firm Slater Walker led to asset stripping and financial instability, weakening the company to the point of requiring government intervention.

In 1975, Wee Cho Yaw joined Haw Par’s board during the state-led restructuring effort and became chairman in 1978, initiating a period of stabilization and disciplined rebuilding. He divested loss-making operations, refocused on core businesses, and strengthened the company’s balance sheet. Under his leadership, Haw Par evolved into a financially robust group anchored by Tiger Balm, a profitable leisure segment—including Underwater World Pattaya—and significant property and investment holdings. Notably, Haw Par holds substantial stakes in United Overseas Bank (UOB) and UOL Group. UOB is a leading Singapore-based bank providing a wide range of financial services, including personal and corporate banking, wealth management, and investment solutions. UOL Group is a Singaporean property and hospitality conglomerate engaged in real estate development, property investment, and hotel operations.

Wee Cho Yaw, who passed away at the age of 95, was celebrated not only for his stewardship of Haw Par but also for his transformative role in Singapore’s banking and real estate sectors. In banking, he expanded UOB through a series of strategic acquisitions, including Chung Khiaw Bank (1971), Lee Wah Bank (1973), Far Eastern Bank (1984), Westmont Bank and Radanasin Bank (1999), and the landmark acquisition of Overseas Union Bank (2001), positioning UOB as one of Singapore’s “big three” banks. His banking interests also extended to UOB Kay Hian, one of Singapore’s largest stockbroking firms. In real estate, Wee strategically developed UOL as a platform for acquiring and managing prime properties, hotels, and resorts, including Parkroyal, Pan Pacific Hotels and Resorts, and the Singapore Land Group. He successfully defended these holdings against challenges from institutional investors and state-linked entities, reflecting his ability to navigate complex corporate and regulatory environments.

At Haw Par, Wee preserved the legacy of Tiger Balm while enhancing the company’s asset portfolio, which includes properties in Singapore and Malaysia alongside substantial stakes in UOB and UOL shares. Succession planning was a hallmark of his leadership; he gradually transitioned to an advisory role, empowering his children to manage key operations. This careful planning ensured continuity and safeguarded the family’s legacy across banking, real estate, and Haw Par, cementing Wee Cho Yaw’s reputation as a pivotal figure who bridged Singapore’s pioneering business generation with its contemporary corporate landscape.

Singapore Market

Singapore’s equity market offers a compelling investment proposition, grounded in decades of structural transformation, strong macroeconomic fundamentals, and institutional stability. Since independence in 1965, nominal GDP per capita has risen from approximately USD 500 to USD 90,674, placing Singapore among the world’s highest-income economies. Early growth was driven by export-led industrialisation and the attraction of multinational corporations, supported by a robust governance framework that fostered investor confidence. As cost advantages diminished, the economy transitioned successfully toward services—particularly finance, business services, and information and communication services—which now account for the majority of incremental growth. In 2025, economic expansion is projected at around 4%, supported by resilient manufacturing activity, firm external demand, and Singapore’s strategic positioning in advanced manufacturing and AI-related semiconductor supply chains. Inflation remains subdued at approximately 0.7%, providing a supportive backdrop for corporate earnings and real returns.

Macroeconomic resilience is reinforced by disciplined and well-coordinated policymaking. The Monetary Authority of Singapore (MAS) manages monetary and macroprudential policy through its exchange-rate-based framework, maintaining price stability while safeguarding financial system resilience across sectors such as banking and property. Strong official foreign reserves and prudent fiscal management provide meaningful buffers against external shocks and longer-term structural challenges. While Singapore’s open economy remains sensitive to global trade dynamics and demand fluctuations—particularly in pharmaceuticals, electronics, and semiconductors—the policy framework has consistently enabled rapid adjustment, supporting economic stability and investor confidence. In this environment, expectations of stable monetary policy have also encouraged higher equity participation among domestic investors.

From an equity market perspective, liquidity and participation have improved materially. Average daily turnover on the Singapore Exchange reached S$1.53 billion in Q3 2025, the highest level since early 2021, driven by increased engagement from both institutional and retail investors. IPO activity has strengthened, with more than S$2 billion raised year-to-date, while trading activity has broadened beyond traditional large-cap financials into small- and mid-cap stocks. Structural reforms are further reinforcing this momentum. The S$5 billion Equity Market Development Programme (EQDP) and the recently launched “Value Unlock” initiative aim to deepen capital markets, improve shareholder returns, and enhance investor engagement, drawing parallels with governance reforms in Japan and South Korea. Key measures include a Nasdaq–SGX dual listing bridge that expands access to capital pools in North America and Asia, expanded research coverage, and targeted liquidity support for small- and mid-cap stocks. Together, these initiatives are expected to broaden the investable universe, improve capital allocation, and support valuation re-rating toward developed Asian peers, offering investors an attractive combination of income, diversification, and long-term capital appreciation.

Business Model

Haw Par Corporation operates a focused and diversified business model structured around three strategic pillars: Healthcare, Investments and Properties, and Leisure. The company systematically divested non-core and speculative businesses, enhancing governance and streamlining operations, with the closure of Underwater World Singapore in 2016 marking the completion of this restructuring phase. The Healthcare segment, centred on the globally recognised Tiger Balm brand, produces topical analgesics—including ointments, gels, sprays, patches, and aromatherapy products—formulated from essential oils and plant-derived ingredients. This division generates predictable cash flows and strong brand equity across Asia, the Americas, Europe, and the Middle East, with manufacturing operations in China, Malaysia, Singapore, Thailand, Taiwan, India and Japan. The Investments and Properties pillar provides financial stability and long-term value through dividend-generating strategic investments and rental income from commercial and industrial real estate, complementing the operational business. The Leisure segment, including the ongoing operation of Underwater World Pattaya, contributes to revenue diversification and supports the group’s tourism and experiential offerings. Collectively, Haw Par’s business model combines high-margin consumer healthcare operations with diversified, income-generating assets, delivering resilient financial performance and positioning the group for sustainable, long-term growth.

Shareholding Structure

This is precisely the type of company we favour: one characterised by substantial skin in the game and strong family governance. Haw Par’s largest shareholder is the Wee family’s investment vehicle, which holds over 28% of the group. UOB maintains a significant stake of approximately 9.8% in Haw Par, with Wee Ee Cheong, son of Wee, serving as Deputy Chairman and Chief Executive Officer of the bank. United Overseas Insurance holds nearly a 2% stake in Haw Par, with Wee Ee Cheong also serving as its Chairman and Board Director. Collectively, these roles underscore the family’s considerable influence within the company, reflecting a meaningful alignment of interests.

Haw Par Details

Haw Par Corporation is a stable, steadily growing company rather than a hyper-growth business. Over the past decade, it has achieved revenue growth of nearly 5% per year and EBITDA growth of around 3.5%, maintaining a stable EBITDA margin since 2000 (~31%). Debt-free and holding a substantial cash reserve, the company faces shareholder interest in how this capital will be deployed, whether through acquisitions or larger returns. Any potential acquisition within the healthcare segment must meet rigorous criteria for strategic alignment with Tiger Balm, financial attractiveness, and operational synergy, while maintaining the brand’s high-quality standards, making M&A opportunities exceptionally rare. Following the passing of Wee Cho Yaw in 2024, leadership transitioned to his son, Wee Ee Lim. Despite this generational change, the company’s conservative philosophy—focused on long-term stewardship and disciplined risk management—suggests its strategy and operations are likely to remain largely unchanged in the near term.

Tiger Balm, iconic brand

Tiger Balm, Haw Par Corporation’s flagship product, is a globally recognised topical pain-relief brand with origins dating back to the 1870s. Its strong brand reputation and trusted efficacy have driven significant growth, with sales increasing from S$153 million in 2015 to S$226 million in 2024 and projected to reach S$250 million in 2025, representing a compound annual growth rate (CAGR) of ~4.2%. Operating profit grew from S$48 million to S$63 million over the same period, with projections of S$70 million in 2025. After experiencing a decline during the COVID-19 pandemic, the company has returned to pre-pandemic growth levels, supported by macro trends such as ageing populations, increased sports participation, and rising demand for natural topical remedies.

Tiger Balm actively engages in sponsorships and partnerships that promote an active, healthy lifestyle and strengthen its connection with consumers. The brand supports sports clubs and athletes, including Club Bruges, Koen Naert, and Jannes Vercaemst, as well as recreational organisations such as KV Kortrijk and Orscamp Tennis and Padel Club. These initiatives encourage physical activity while aligning with Tiger Balm’s mission of enhancing daily life through natural solutions. The brand has also established regional partnerships with prominent organisations, notably a multi-year collaboration with FC Bayern Munich across key Southeast Asian and Chinese markets, leveraging the club’s global reach to enhance brand visibility and consumer engagement.

Demand for Tiger Balm in tourism-dependent markets, such as Asia-Pacific leisure hubs, was temporarily affected by COVID-19 restrictions. In contrast, core markets in the U.S. and Europe remained resilient, with sales maintained or growing as pharmacies and parapharmacies continued operations. In Singapore, an increase in dengue cases further drove sales of mosquito repellents. Manufacturing facilities implemented strict safety measures to ensure operational continuity, while distributor and retailer partnerships accelerated e-commerce growth.

Tiger Balm offers a diverse range of topical formulations for muscle, joint, and headache relief, all based on natural active ingredients such as menthol, camphor, and clove oil. Key global bestsellers include Tiger Balm White 19g, a versatile cooling formulation widely used for headaches, muscle tension, and insect bites; Tiger Balm Red 20g, the classic warming variant, popular for relieving muscular stiffness; Tiger Balm Neck & Shoulder Rub 50g, targeted relief for upper-body tension, especially among office workers and frequent computer users; Tiger Balm Fluid 90ml, roll-on application favoured by athletes and active individuals for larger muscle areas; and Tiger Balm Ultra Pain Relieving Ointment 50g, a higher-strength formulation for intense relief following sports, physical labour, or chronic discomfort. Across global markets, the traditional White and Red ointments remain the brand’s most iconic and consistently purchased products, forming the backbone of the portfolio. Their reliability, portability, and multi-purpose functionality make them staples for students, athletes, office workers, travellers, older adults, and households worldwide.

As a curious note: for about a year — not consecutively, six months in Spain, then after a break of over a year, another six months in Malta — I worked at Decathlon, and Tiger Balm White and Red were top sellers. We would receive stock, place it on the shelves, and it flew off the shelves. Demand was so strong that the store eventually started selling it in packs of three. I was always surprised by how many customers came in asking specifically for Tiger Balm and nothing else.

Let’s not forget that the company has stakes in UOB and UOL—so what’s going on with them, and what exactly do they do?

Haw Par also holds significant positions in United Overseas Bank Limited (UOB) and UOL Group Limited (UOL). Founded in 1935, UOB is a leading Singaporean multinational bank with a strong presence across Southeast Asia, Greater China, and globally, providing personal, business, wealth management, and investment banking services. The bank operates in China, Indonesia, Malaysia, Thailand, and Vietnam, and through specialized subsidiaries such as UOB Asset Management, UOB Venture Management, and United Overseas Insurance. Led by CEO Wee Ee Cheong, UOB maintains a dominant and stable position in the region, with a 2024 return on equity of 13.3% and a dividend yield of 5.3%. Key financial metrics include a net interest margin of ~1.91% (Q3 2025), a return on assets of 1.16%, a loans-to-deposits ratio of 83.2%, and an efficiency ratio of ~42.5%, reflecting solid profitability and operational efficiency. The estimated loan-to-assets ratio is 63–65%, with a return on average risk-weighted assets of 2.27% in 2024.

UOL, led by CEO Liam Wee Sin, son of the late Wee Cho Yaw, is a Singapore-listed property and hospitality group with total assets of approximately S$23 billion. Its diversified portfolio spans development and investment properties, hotels, and serviced suites across Asia, Oceania, Europe, North America, and Africa. UOL operates Pan Pacific Hotels Group Limited, which manages three recognised brands: Pan Pacific, Parkroyal Collection, and Parkroyal. Its Singapore-listed property subsidiary, Singapore Land Group Limited, owns extensive prime commercial assets and hotels. From 1999 to 2024, UOL achieved a CAGR of 9.4% in total revenue and 7.4% in EBITDA, maintaining an average EBITDA margin of 33.7%.

Some numbers

To keep this section concise, I summarise the group’s calculations based on both DCF and STOP approaches. The company’s flagship product, Tiger Balm, recognised worldwide as its “crown jewel,” is not the primary driver of its valuation, as the stakes in UOB and UOL account for approximately 61% of the total estimated value. A DCF applied to the group as a whole results in a total valuation of roughly S$4.1 billion, based on a highly conservative long-term growth rate of 0.5% and a WACC near 7.5%, implying an upside of about 25% from current levels. The sum-of-the-parts approach produces a comparable valuation, translating to an estimated total value of S$4.9 billion, also under conservative assumptions, as the bank stakes are marked to market and the real estate business is valued below its market price. The company is currently trading at low multiples, and even with conservative assumptions, there is clear upside potential.

Conclusion

Haw Par Corporation is a diversified company with strategic exposure to healthcare, leisure, property, and significant stakes in United Overseas Bank (UOB) and UOL Group. Its flagship brand, Tiger Balm, provides stable cash flows and global recognition, while the bank and property holdings contribute the majority of the company’s intrinsic value. With disciplined, family-led management and strong governance, Haw Par combines resilience with long-term growth potential. Conservative valuations of its key assets suggest upside, and substantial family ownership ensures significant skin in the game, making it an appealing choice for long-term investors.

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Disclaimer: This is a personal analysis and does not constitute any buying or selling recommendations. Each investor should make their own due diligence.

Company Overview

Ringmetall SE is a discreet yet solid German microenterprise with a strong and sustainable competitive position in the industrial sector. Specializing in industrial packaging solutions, the company is headquartered in Munich. Founded in 1997 under the name H.P.I. Holding AG, Ringmetall initially operated as an investment company, acquiring, founding, and selling numerous businesses from 1998 onwards. In 2007, the company went public on the open market of the German Stock Exchange and transitioned to the Frankfurt Stock Exchange’s Entry Standard in 2012.

Today, Ringmetall focuses exclusively on its core industrial packaging business, organised into two divisions: Industrial Packaging Rings, represented by the Berger Group with over 60 years of history, and Industrial Packaging Liners, established in 2018 and now a major player in drum liners. In 2023, the company sold HSM GmbH & Co. KG, its Industrial Handling division, to fully concentrate on its core operations. Ringmetall’s growth is primarily driven by strategic acquisitions, with an international presence in Germany, the United Kingdom, Spain, Italy, Turkey, the Netherlands, Poland, Finland, China, and the United States. The group consists of 25 independently operating companies, centrally managed by Ringmetall, which oversees international expansion and core corporate functions such as finance, investor relations, and business development.

The company and its management team stand out not only for their ability to consolidate the sector through acquisitions but also for operational efficiency. Despite facing declining volumes, lower capacity utilisation, and falling steel prices over much of the past two years, the company has consistently avoided negative operational leverage. Ringmetall’s approach combines operational efficiency, sustainable growth, and alignment with shareholder interests, with a management team fully focused on creating long-term value.

Company Acquisitions

Sorry, Ringmetall may operate in a sector that is not particularly glamorous, but the company has consistently demonstrated a strong ability to acquire and integrate smaller businesses into its group at highly attractive valuations. It has also shown discipline in divesting at the right time, as evidenced by the sale of its subsidiary HSM GmbH & Co. KG at the peak of the market cycle. Since 1998, Ringmetall has completed more than 20 acquisitions in this niche sector, allowing it to consolidate its position and establish itself as a market leader.

1998

• Acquisition of August Berger Metallwarenfabrik GmbH & Co. KG, Germany.

• Acquisition of Zimmer & Kreim GmbH & Co. KG, Germany.

2012

• Acquisition of S.G.T. S.r.L, leading manufacturer of retaining rings in Italy.

• Acquisition of CEMSAN MPI Limited Sirketi (majority stake), Turkey.

2013

• Acquisition of the Italian company Rieke Italia S.r.l.

• Acquisition of HSM GmbH & Co. KG (formerly HSM Sauermann GmbH & Co. KG), metallurgy specialist, Germany.

Note: Foundation of Berger Italia S.r.l., Italy.

2015

• Acquisition of Berger US (formerly Self Industries Inc.), leading manufacturer of retaining rings in the USA.

• Acquisition of Metallwarenfabrik Berger GmbH, Germany.

• Purchase of the remaining 40% of CEMSAN MPI Limited Sirketi, Turkey.

2016

• Acquisition of an additional 29% of S.G.T. S.r.L., Italy.

• Acquisition of the retaining ring production of a major US customer.

2017

• Acquisition of Latza GmbH, Germany.

• Acquisition of HongRen Packaging Equipment, China.

Note: Foundation of Berger Hong Kong Limited, China.

2018

• Acquisition of Nittel Halle GmbH, Germany.

2019

• Acquisition of Tesseraux Spezialverpackungen GmbH, Germany.

• Purchase of an additional 30% of Nittel B.V., Netherlands.

• Acquisition of Sorini Ring Manufacturing Inc., USA.

2021

• Acquisition of HOSTO Stolz GmbH & Co. KG, Germany.

2022

• Acquisition of Rhein-Plast GmbH, Germany, specialized in low-germ, low-particle pharmaceutical packaging.

2023

• Acquisition of operations of IDF GmbH & Co. KG, Germany.

• Acquisition of Liner Factory GmbH & Co. KG, Germany.

• Entry into the US industrial packaging lining market through the acquisition of Protective Lining Inc., New York, USA.

2024

• Acquisition of Peak Packaging Poland Sp. z o.o., Poland.

• Acquisition of FIB Beer Systems BV, Netherlands.

2025

• Investment in the innovative packaging start-up Evopack.

• Acquisition of Hutek Oy, Finland.

Business Model

Ringmetall designs, produces, and markets highly specialised industrial packaging solutions, focusing on closure systems and liners for steel, plastic, and fibre drums and pails, as well as beverage packaging solutions such as beer tank liners and bag-in-box systems. The company offers over 2,500 types of tightening rings and 4,000 types of liners, tailored to the specific needs of customers in sectors including chemicals, pharmaceuticals, food, and beverages. Closure systems make up the majority of revenue, followed by liners, and the company serves some of the world’s largest brands—among others, Heineken, Bayer, Pfizer, ExxonMobil, Novartis, and BASF—who rely on Ringmetall across all countries and industries.

The company’s value proposition lies in its ability to meet the highest technical standards for safety, quality, and customisation, securing its leading position in critical global market niches. To strengthen revenue stability and support long-term growth, Ringmetall is diversifying into sectors less dependent on the chemical industry, while driving innovation and pursuing strategic acquisitions to expand its portfolio and market presence.

Shareholders Structure

Ringmetall is not a typical family-owned business, yet Christoph Petri and Konstantin Winterstein, both members of the management board, collectively hold nearly 60% of the company’s shares. Throughout 2025, CEO Christoph Petri, through his investment vehicle Petri Industriebeteiligungen GmbH, acquired additional shares in the company, totalling approximately 169,769 shares for a combined value of €598,126.81. These purchases were made in several tranches at prices ranging from €3.09 to €3.65 per share, representing a weighted average price of €3.52 per share. It is worth noting that Petri had also acquired shares on the open market in previous years. These transactions strengthen Petri’s ownership position and demonstrate his clear commitment to Ringmetall SE’s future, as well as his confidence in the company’s long-term potential.

The shareholder base also includes investment funds. Among the top five, three notable examples are Value-Holdings AG, a long-term “value” investor that focuses on a small number of carefully selected companies with solid businesses, competent management teams, and fair valuations. As part of this group, Value-Holdings Deutschland Fund recently increased its position and now holds 1.670%, bringing the total stake of the Value-Holdings Group in Ringmetall to 2.178%. Paladin Origins Fund, a German investment fund focused on small European companies, holds nearly 4% of its portfolio in Ringmetall. Salutaris Capital Management AG, which invests in mid-sized German companies that are leaders in specific niches, prioritizing undervalued businesses with strong fundamentals and maintaining a highly concentrated portfolio to ensure the long-term potential of each investment. All of these funds maintain concentrated portfolios, reflecting a rigorous selection process and a high conviction in each investment.

Risks

• Geopolitical conflicts (Russia/Ukraine, Middle East) and exposure in Turkey: Potential for recession, inflation, and rising energy costs, which could impact production and affect the company’s customers. In Turkey, political instability, diplomatic tensions, Turkish lira volatility, and economic weakness pose additional risks.

• Global recession: Although the overall situation remains solid, macroeconomic shifts or crises could negatively affect the company’s performance.

• Dependence on raw materials: Price fluctuations or supply disruptions may impact costs and profit margins.

• Supply chain and logistics: Risks include international transport disruptions, customs delays, or trade restrictions.

• Environmental regulations: New rules on emissions, recycling, and sustainability may require additional investments.

• Foreign exchange (FX): Exposure to currencies such as the US dollar and Turkish lira could affect financial results.

Moat

• Global scale and market consolidation: Ringmetall has acquired and integrated over 20 companies, achieving a dominant position in the global drum clamping ring market, where it holds a market share of approximately 70%. In its other business line, Industrial Packaging Liners, the company also maintains a significant position in the global market. This scale enables Ringmetall to leverage production and distribution efficiencies, making it difficult for smaller local competitors to match its coverage, operational efficiency, or negotiating power with international customers.

• High switching costs and certification barriers: Clamping rings are critical components of industrial drums and are subject to international (UN) certifications. Switching suppliers requires retesting, recertification, and logistical adjustments, which discourages clients from seeking alternatives and ensures long-term, stable commercial relationships. Competitors are typically small regional players with revenues of only a few million euros. Ringmetall’s global presence provides a substantial competitive advantage.

• Global logistics capabilities and just-in-time delivery: While the products themselves are low-cost, transportation is expensive and requires precise delivery timing. Ringmetall’s global network allows it to meet the just-in-time delivery expectations of international customers, a service that regional competitors cannot efficiently provide, increasing customer dependence on the company.

• Raw material cost pass-through: Approximately 50–60% of the cost of a clamping ring is steel. Ringmetall protects its margins through contractual clauses that pass fluctuations in raw material prices to customers, mitigating raw material inflation risk and maintaining profitability even during periods of high steel price volatility.

Key numbers

Ringmetall has successfully acquired and divested numerous companies while focusing on two globally significant niches. Over the past 21 years, the company has achieved a compound annual growth rate (CAGR) of 7.5% in revenue and 9% in EBITDA, maintaining a relatively stable EBITDA margin of around 9% during this period. Gross margins have ranged between 39.7% and 53.5%, peaking in 2024. It is worth noting the trend of production relocation in the chemical industry away from Germany and Europe. This shift has reduced capacity utilization and operational efficiency at Ringmetall’s European sites. While business is subsequently absorbed by Ringmetall’s subsidiaries in the Americas and Asia, in the short term, this trend is likely to negatively impact the group’s margins. However, I anticipate a recovery over the medium to long term.

During the global financial crisis of 2008–2009, Ringmetall experienced sales declines of 3.4% and 25.5%, respectively, as demand dropped sharply in key sectors such as automotive, construction, and chemicals. EBITDA margins fell from 5.3% to 3.2% in 2009, reflecting the impact of lower volumes and operational pressures. During the COVID-19 pandemic in 2020, the group demonstrated remarkable resilience. Revenues declined slightly by 2.2% from €120.6 million in 2019 to €118.0 million, primarily due to a 7% drop in steel prices and a modest pandemic-related organic impact (-2.0%), offset by acquisition-driven growth (+6.8%) and market diversification. The company was able to maintain operations because it was deemed systemically relevant (an essential business). EBITDA increased by 21.4%, raising the margin from 8.3% to 10.4%, thanks to strict cost management, material cost optimisation, reduction of other operating expenses, and strategic personnel adjustments. Overall, Ringmetall managed to limit the impact on revenues while strengthening profitability during the health crisis.

More recently, 2023 proved to be a challenging year, with sales declining 15.0% from €213.5 million in 2022 to €181.6 million, primarily due to a weakened economic environment, reduced demand in key industries such as chemicals and pharmaceuticals, a significant drop in steel prices, and the divestment of HSM, which led to the closure of the Industrial Handling division. EBITDA margin fell to 10.6% from 13.1% in 2022, partly driven by a one-off deconsolidation effect of €4.6 million related to the HSM sale, while the company strategically chose to maintain its core workforce despite lower capacity utilization. In 2024, revenue continued to decline moderately (-3.7% to €174.9 million) due to moderate client demand and falling raw material prices, though strategic acquisitions completed during the year supported EBITDA and helped restore the margin to 13.6%. These fluctuations reflect the combined impact of macroeconomic conditions, raw material price volatility, and management’s proactive adjustments, including cost control, workforce retention, and targeted acquisitions. Overall, Ringmetall successfully limited the impact on revenues while strengthening profitability, demonstrating resilience and adaptability in the face of challenging market conditions.

Raw materials represent Ringmetall’s largest cost, primarily steel and thermoplastics like polyethylene used in liners and industrial packaging. Approximately 50% of the cost of a clamping ring comes from steel. However, the company mitigates raw material inflation risk through contractual clauses that pass steel price fluctuations to customers, protecting gross margins. Other production inputs, including energy and auxiliary materials, are efficiently managed to maintain competitiveness and profitability.

The group maintains a solid financial position. In 2024, debt increased significantly as part of Ringmetall’s strategic expansion through targeted acquisitions and investments. Key transactions included the acquisition of Peak Packaging in Poland (€26.8 million, of which €24.1 million was paid upfront and €2.7 million structured as a vendor loan due in 2026) and FIB Beer Systems in the Netherlands (€1.34 million), which generated a one-off positive effect of €1.3 million due to favourable purchase terms. Additional investments encompassed property and facilities in Italy (Berger Italia) and preparatory acquisitions, such as Hutek Oy in Finland and a minority stake in Evopack GmbH in Germany, positioning the group for future growth and operational synergies. To fund these initiatives, Ringmetall expanded its syndicated credit facilities and utilized additional bank financing, resulting in non-current financial liabilities increasing by 152.1% and current financial liabilities by 14.6%, with net debt rising from €23.3 million to €50.5 million. This deliberate increase in leverage was intended to secure the necessary resources for international expansion and the consolidation of the Liner division, while maintaining flexibility to pursue strategic opportunities. I expect debt to return closer to 1.5x EBITDA in the medium term as these investments begin to generate incremental cash flow.

Ringmetall maintains positive working capital, essential given its operating cycle, where payments are made in advance and receivables are collected later. Working capital is primarily financed by the company’s strong and consistent operating cash flow, described by management as “extremely strong in terms of cash flow.” The cash conversion cycle increased from 61 days in 2017 to 100 days in 2024, mainly due to higher inventory and receivables following strategic acquisitions. Despite the longer cycle, the company manages working capital efficiently, using operating cash flow for daily operations and relying on long-term debt only for strategic investments and acquisitions.

Ringmetall is not oriented toward dividend-seeking investors. The company has strong capacity for continued growth and market share expansion, with a clear focus on both organic and inorganic growth. The Executive Board has indicated that available liquidity will be used for acquisitions to continue expanding inorganically, suggesting that, despite authorization for share buybacks, it is unlikely to be used in the short term. Specifically, the Executive Board of Ringmetall SE was authorised by the Annual General Meeting on June 25, 2024, to acquire up to 10% of the current share capital. This authorisation, effective from June 26, 2024, until May 31, 2029, reinforces the company’s financial flexibility, although growth remains the priority.

Valuation

Please note that the following valuation reflects only the base case scenario, while downside risks have been modelled separately. Investors are encouraged to conduct their own valuation based on individual assumptions and projections. For the valuation of Ringmetall, I employ a Discounted Cash Flow (DCF) model with a five-year projection horizon, complemented by a multiples-based approach using both EV/EBITDA and P/E ratios. This summary forms part of a broader and more comprehensive valuation that incorporates additional scenarios and alternative methodologies to provide a more robust assessment of the company’s intrinsic value. Investors should therefore perform their own due diligence before drawing any investment conclusions.

In the DCF model, projected through 2029, I assume an EBIT margin of 8% (below the company’s historical average), a terminal growth rate (g) of 0.5%, and a discount rate (WACC) of 9.26%. The terminal growth rate is conservative considering the company’s operating environment. The WACC is calculated by weighting the risk-free rate across the countries in which the company operates, with an additional 100 bps stress factor applied, given the current market outlook and heightened uncertainty. Based on these parameters, we derive a fair value of €8.76 per share, implying an upside potential of over 180% relative to current market levels.

For the multiples-based valuation, I apply an EV/EBITDA multiple of 11x, which is below the peer group’s capitalisation-weighted average of 13.4x, resulting in a valuation of €7.60 per share. Using the P/E multiple, I apply 14.2x, also below the sector’s weighted average, yielding a valuation of €7.70 per share.

By combining both approaches with an equal weighting (50% DCF / 50% multiples), we obtain a blended valuation of €8.20 per share. To account for potential optimism in our assumptions, we apply a 10% margin of conservatism, ensuring a more prudent perspective. Even under this adjusted scenario, the stock still exhibits an upside potential of approximately 173% from current price levels.

Conclusion

Ringmetall operates within an attractive market niche and is led by a top-tier management team. Petri began his career at a consulting and investment firm specializing in mid-sized companies, while Winterstein held various positions at the BMW Group between 1997 and 2014. Both hold a majority stake in the company, reinforcing their alignment with shareholder interests.

The company demonstrates strong financial performance, a successful acquisition strategy, and clear competitive advantages. Although its small size and limited liquidity may pose certain challenges, these factors can also represent an opportunity for long-term investors. The shareholder structure and management’s commitment underpin confidence in Ringmetall’s ability to sustain value creation over time, making it an attractive option for investors seeking a diversified investment with potential for steady appreciation.

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Disclaimer: This is a personal analysis and does not constitute any buying or selling recommendations. Each investor should make their own due diligence.

Brief Summary: Caltagirone S.p.A. is a major Italian family-controlled holding company active in cement, construction, real estate, media, and minority stakes in finance. Founded in 1892 and led by Francesco Gaetano Caltagirone since 1984, its key asset Cementir is a global leader in white cement, operating in 18 countries. The group has a strong financial position, steady growth, and a diversified portfolio. Currently, it trades at a normalized P/E ratio of 6.3x, reflecting a significant discount despite solid fundamentals and long-term family control, making it an attractive investment with notable upside potential.

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Company Overview

Founded in Rome in 1892 as a cement manufacturer, Caltagirone has grown into one of Italy’s leading conglomerates, with diversified operations across infrastructure, cement, real estate, media, and strategic investments, including minority stakes in financial institutions. The group’s transformation accelerated in 1984 when Francesco Gaetano Caltagirone took control, driving international expansion and sector diversification. Key milestones include the acquisition of Cementir in 1992, which established the group as a global leader in white cement through targeted international acquisitions, and the creation of Caltagirone Editore in the mid-1990s, marking its entry into the media sector with historic newspapers like Il Messaggero.

In recent years, the Caltagirone Group has focused on streamlining its portfolio and governance to enhance strategic agility, including the delisting of Vianini Lavori and restructuring under Domus Italia. Today, the group operates through a lean, integrated structure that balances its industrial heritage with forward-looking management. Listed on the Milan Stock Exchange, it combines professional leadership with family continuity, maintaining a long-term vision centred on innovation, value creation, sustainable growth, and strategic investments.

At the centre of this long-term vision is Francesco Gaetano Caltagirone, one of Italy’s most influential businessmen. Born in Rome in 1943, he has led the group’s transformation with a deep understanding of both market dynamics and institutional responsibility. In addition to his leadership within the group, he serves as Vice Chairman and is the third-largest shareholder of Assicurazioni Generali. He also holds significant equity positions in Suez Environnement, Acea, and Mediobanca—where he is one of the largest private shareholders, with a stake close to 10%. Over the course of his career, he has been honoured with the Order of Merit for Labour in recognition of his contributions to Italian industry.

The Caltagirone family plays an active role in the group’s operations. His children—Francesco, Alessandro, and Azzurra—hold senior executive roles across the business, ensuring a stable and well-prepared succession. Their involvement reflects the group’s long-standing commitment to continuity, innovation, and responsible growth. With a heritage built on resilience and a strategy geared toward the future, the Caltagirone Group continues to shape key sectors of the Italian and international economy.

Main companies of Caltagirone

Cementir Holding (47%): Controlled by the Caltagirone family, which holds a total direct and indirect stake of 72.26%. Cementir was acquired in 1992 by Francesco Gaetano Caltagirone through a competitive auction organised by the state-owned IRI group, marking one of Italy’s first major industrial privatisations. Subsequently, under the leadership of Francesco Caltagirone Jr. from 1996, the company underwent significant restructuring and global expansion. Today, it operates as a multinational group present in 18 countries with more than 70 sites. Cementir is a global leader in white cement production and exports, with an annual capacity of 3.3 million tons across six plants on four continents. The company also provides integrated building solutions including grey cement, lime, aggregates, concrete, and high-value-added products. Cementir holds key market positions as the sole cement producer in Denmark, ranks third in Belgium, is a major player in Turkey, and leads the concrete market in Scandinavia. It is listed on the Milan Stock Exchange and remains under majority control of the Caltagirone family.

Caltagirone Editore S.p.A. (60.764%). Founded in 1999 by Francesco Gaetano Caltagirone, Caltagirone Editore S.p.A. is one of Italy’s leading publishing groups and has been listed on the Milan Stock Exchange since 2000. The company owns and manages several of the country’s most prominent and widely read regional newspapers, including Il Messaggero (Rome), Il Mattino (Naples), Il Gazzettino (Venice), Corriere Adriatico (Marche), Nuovo Quotidiano di Puglia (Apulia), and the free daily Leggo. It also operates through subsidiaries such as Piemme S.p.A., which manages advertising, and CED Digital & Servizi S.r.l., which focuses on digital and technological solutions. Its organisational structure effectively integrates editorial, commercial, and digital operations, consolidating its leadership in Italy’s media landscape. With a strong national presence and loyal readership, the group is a major force in the Italian press. The Caltagirone family maintains a majority stake, ensuring strategic alignment with the group’s founding values.

Vianini S.p.A. Vianini Lavori, and Vianini Industria are two historic Italian companies that became part of the Caltagirone Group in 1984, when Francesco Gaetano Caltagirone acquired control of the Vianini group. Founded in the 1920s, Vianini Lavori specialises in major infrastructure projects both in Italy and abroad. It has been involved in landmark projects such as Rome’s Metro Line C, the Rome–Naples high-speed railway, and numerous dams, tunnels, aqueducts, and ports worldwide. In 2015, it was delisted from the Milan Stock Exchange to facilitate the group’s strategic reorganisation. Vianini Industria, originally established in 1980 and focused on reinforced concrete products, reoriented its strategy in 2016 following the acquisition of Domus Italia. It subsequently became Vianini S.p.A., shifting its focus to the real estate sector. Today, both companies continue to operate as key pillars within the Caltagirone Group, each playing a specialised role in infrastructure and property development.

Domus Italia S.p.A. Based in Rome, Domus Italia S.p.A. joined the Caltagirone Group in 2016 following its acquisition by Vianini Industria S.p.A., which later adopted the name Vianini S.p.A. to reflect its new focus on real estate. Domus Italia specialises in the management, leasing, sale, and maintenance of residential properties. It currently oversees around 1,400 housing units in Rome, offering comprehensive services to both owners and tenants. While operating under Vianini’s umbrella, Domus Italia maintains a distinct identity within the group, focusing on residential property management. This strategic focus strengthens the Caltagirone Group’s diversification efforts in complementary sectors.

Financial Entities' Stake: Assicurazioni Generali, with a 1.4% stake, is one of the leading European insurance groups, renowned for its financial strength and extensive experience in the insurance sector, providing stability and confidence to the company. Mediobanca, holding 1%, is a prominent Italian investment bank specialising in corporate banking and financial advisory, playing a key role in facilitating capital access and supporting strategic growth.

Note: The rest of the stake shown on Generali’s website (6.90%, which has recently increased) or the one listed on Mediobanca’s (7.391%, also recently increased) does not belong to Caltagirone S.p.A. These holdings are registered under Francesco's name and are therefore not counted when assessing the holding company’s total stake.

Business Model

Caltagirone S.p.A. operates as a diversified holding company with a business model focused on strategic ownership, governance, and financial oversight of a portfolio of leading companies across key sectors of the Italian and global economy. The group’s long-term strategy emphasises value creation through stable investments in strategic industries, supported by a strong industrial and institutional vision.

Shareholding Structure

Francesco Gaetano Caltagirone is the principal shareholder of the holding, with a combined direct and indirect stake exceeding 50% of the group's share capital. Another major shareholder is FGC S.p.A.—the family investment vehicle controlled by Alessandro and Azzurra Caltagirone, his children—which holds a 33.3% stake. Together, the Caltagirone family exercises control over approximately 87.6% of the company, ensuring absolute majority ownership and long-term strategic continuity.

Additional family members, such as Saverio Caltagirone, also maintain significant holdings—he owns 1.665%—underscoring the family’s deep commitment and personal stake (“skin in the game”) in the group’s success.

Among institutional investors, Cobas Asset Management stands out prominently. Additionally, smaller funds such as the Palm Harbour Global Value Fund, managed by Peter Smith, have identified Caltagirone as a core holding, demonstrating strong confidence in the group’s fundamentals and long-term prospects. We can also find Cinvest Nogal Capital FI, managed by Rodrigo Cobos.

Risks

• Credit: Managed through creditworthiness assessments of clients and internal exposure limits, with no significant concentration in any single customer.

• Environmental: The cement industry is one of the largest CO₂ emitters, and it may be subject to regulatory risk.

• Liquidity: Considered low, thanks to the group's own available financial resources and constant monitoring of cash flows.

• FX: International exposure is partially hedged through currency hedging contracts to mitigate potential impacts.

• Interest rate: Exposure to variable-rate debt is partially mitigated through Interest Rate Swap agreements.

• Fair value risk of equity investments: Constant monitoring of market prices and active investment/divestment strategies are in place to optimize returns and diversify risk.

• Fair value risk of real estate investments: Properties are periodically appraised by independent experts, with ongoing market monitoring—primarily in Italy and Turkey.

• Commodity price: Managed through forward contracts, supplier diversification, and the use of derivative instruments to hedge price fluctuations.

• Succession: While the founder’s children and other family members have been actively involved in the group for many years, there remains some uncertainty regarding future leadership in the absence of Francesco Gaetano Caltagirone. Nevertheless, as a well-established family-owned group with extensive experience, the family is considered well-prepared to ensure continued effective management.

Key Numbers

Caltagirone S.p.A. is the holding company of one of Italy’s most prominent business families, led by Francesco Gaetano Caltagirone, and has demonstrated a solid and consistent track record over recent decades. Over the past 25 years, the group has achieved a compound annual growth rate (CAGR) of 7.38% in revenues and 6.28% in EBITDA, maintaining a steady EBITDA margin of 16%. Operating income has grown at an annual rate of 9.51%.

During the global financial crisis of 2008–2012, the group experienced a significant margin contraction due to a sharp decline in demand in key sectors such as construction and cement. Additionally, a steep drop in advertising investment severely impacted the media division, while impairments related to investments in Banca Monte dei Paschi di Siena negatively affected results. These challenges were compounded by increased operating costs and expenses associated with restructuring processes (closures, layoffs), which substantially reduced the group’s profitability. Since then, Caltagirone has successfully recovered margins and clearly improved its operational efficiency.

The group maintains a very solid financial structure, in line with Francesco Caltagirone’s conservative philosophy, which prioritises prudence in the use of family capital. The combination of low debt, consistent generation of operating cash flow, and a diversified investment portfolio provides financial stability and flexibility to pursue new investments.

Between 2016 and 2018, the group made significant acquisitions, including Cementir Sacci for €125 million, Betontir, and 100% of Domus Italia for €90 million, payable in two instalments. These companies, some of which were struggling after the economic crisis—such as Cementir Sacci, which had suffered demand declines and profitability issues—were acquired at attractive prices with the goal of revitalising them. Domus Italia, emerging from a challenging real estate market, was part of a strategy to consolidate and reorganise assets in sectors impacted by the downturn but with recovery potential. These transactions, partially financed with debt, reflect a strategy of expansion and consolidation in key sectors like construction and real estate, which explained the increase in the group’s indebtedness during that period. Currently, the group generates a high free cash flow, with a free cash flow yield exceeding 50%, further reinforcing its financial strength.

When discussing Caltagirone, it is essential to highlight Cementir S.p.A., its most significant asset. Cementir is a global leader in white cement production and holds strategic positions in countries such as Denmark, the United States, Egypt, Malaysia, China, and Australia. It is also the sole producer of grey cement and ready-mix concrete in Denmark, with a strong presence in Norway, Sweden, Belgium, and Turkey. Thanks to a growth strategy based on investments and acquisitions, Cementir has established itself as a multinational group operating in 18 countries, with a total capacity exceeding 13 million tons of white and grey cement. Annually, it sells approximately 10 million tons of aggregates and 5 million cubic meters of ready-mix concrete. In 2017, Cementir exited the highly competitive Italian market to focus on regions with higher margins and better growth prospects.

White cement, a specialized product significantly more expensive than grey cement, represents a global niche where Cementir holds nearly a 20% market share. Although it leads the market, its shares trade at a substantial discount compared to competitors. With zero debt and a strong market position, the company offers a cash flow yield close to 15%.

Over the past 24 years, Cementir has maintained a compound annual growth rate (CAGR) of 10.1% in revenues and 7.9% in EBITDA, with stable operating margins. Since 2022, the company has maintained a net cash position—meaning no financial debt—reflecting notable financial strength.

The cement market is projected to grow at a compound annual growth rate (CAGR) of 5-6% through 2028. However, in recent years, the sector has faced significant challenges due to rising energy costs and other raw materials. In this context, specialized companies like Cementir, known for their high operational efficiency, have managed to partially pass these cost increases onto selling prices.

During 2022 and 2023, sales volume measured in metric tons showed a slight contraction; however, prices followed an upward trend, allowing the company to maintain—and even improve—its profitability despite the inflationary environment.

We are looking at an industry with structurally solid prospects. Cement remains the most widely used synthetic material in history, thanks to irreplaceable structural qualities such as durability, availability, and low cost, which are essential for building construction and infrastructure. Although the macroeconomic environment remains uncertain, a recovery in the construction sector is expected, particularly in the residential segment, driven by supply shortages and structurally high demand, which will continue to benefit companies like Cementir. Additionally, despite the perception of the sector as one with undifferentiated products, Cementir holds significant competitive advantages. Entry barriers are high due to capital costs as well as regulatory and environmental restrictions that make opening new quarries difficult.

Overall, Cementir is an atypical case within a traditionally cyclical sector: a company that, thanks to its geographic diversification, leadership in the white cement niche, and proven financial discipline, projects a notably defensive profile.

Caltagirone Editore, despite operating in a structurally declining sector—affected by sustained reductions in print newspaper circulation and the migration of advertising investment towards digital channels—maintains a relevant position within the Italian media landscape. The company publishes six of the country’s main newspapers, including Il Messaggero, Il Mattino, Il Gazzettino, Corriere Adriatico, Nuovo Quotidiano di Puglia, and the free daily Leggo.

In addition, it manages the advertising agency Piemme and the digital division CEDS Digital & Servizi, which specializes in technological solutions for both owned media and external clients. Through its various platforms, it reaches an audience of over 1.7 million daily readers and 3.9 million unique users, reflecting its relative weight within the sector.

Nevertheless, the group continues to face significant structural challenges. The ongoing erosion of traditional advertising revenue and growing competition from new digital media have put pressure on its business model. Although Caltagirone Editore has made efforts to adapt to the digital environment, the decline of the print media market considerably limits its long-term value creation capacity.

As shown in the accompanying chart, despite maintaining a competitive position “within what remains” of the sector, revenues continue their downward trend. From a valuation perspective, this division contributes a marginal weight within the overall Caltagirone group.

Domus and Vianini are expected to gain increasing importance within the holding and, in a few years, will represent a larger portion than Caltagirone Editore, given that the latter segment is in decline. The continued growth of Domus and Vianini is natural within the group, and we believe these divisions can add significant value to the holding.

Valuation

To keep this analysis concise, we will present a summary that values the holding company using a sum-of-the-parts approach and also apply a discounted cash flow (DCF) analysis to the entire group, considering a five-year time horizon.

It is important to note that this is a simplified summary based on more detailed work. That work includes additional models and separate valuations, such as a specific DCF for Cementir, among others. These approaches provide a broader and more robust understanding of the holding with different valuation scenarios. Readers are encouraged to conduct their own analysis, as this document represents only a high-level overview based on a base case.

1. Sum-of-the-parts valuation.

To simplify the analysis, this valuation primarily relies on relative multiples. While Cementir and Editore have also been valued using a DCF approach, those results are not included here, as this is only a summary of a broader analysis that considers multiple scenarios. Therefore, the valuation presented should be regarded as indicative rather than definitive.

Caltagirone Holding comprises several segments: the cement division, real estate and construction, the editorial business (Editore), as well as small equity stakes in Generali and Mediobanca.

For the cement division, I assume the company could trade at the sector median—slightly below its main peers—using a 7x EBITDA multiple. Cementir is the key player in this segment and benefits from the competitive advantages previously discussed. Currently, it trades at a discount of approximately 50–55%, implying that, through Caltagirone Holding, investors gain exposure to this business at a significantly reduced valuation.

In contrast, the editorial segment has minimal impact on the group's overall valuation. Given its ongoing decline and limited relevance, I have conservatively applied a 0x EBITDA multiple.

For Vianini and Domus, I apply 9x and 8x EBITDA multiples, respectively—slightly below the industry average to reflect a cautious stance and to account for the relatively overheated conditions in the real estate sector.

By applying these sector multiples to each business line, adjusting the aggregate enterprise value for net debt and minority interests, and incorporating a standard 20% holding discount—given that investment holdings typically trade at a discount—I arrive at an estimated equity value of €20.50 per share. This suggests an upside potential of over 180%.

2. Discounted cash flow (DCF)

The DCF analysis values the entire group with a time horizon extending through 2029. Key assumptions include an EBITDA margin of 18%, an EBIT margin of 12.3%, a terminal growth rate of 0.5%, and a weighted average cost of capital (WACC) of 12.90%. The terminal growth rate is conservatively set at 0.5%, as both the cement and real estate sectors are closely linked to GDP growth. In developed economies, long-term growth adjusted for inflation typically does not exceed 1% to 1.5%, and it is important to account for structural and regulatory risks.

The WACC includes an additional stress factor, representing a cautious adjustment to account for potential risks and macroeconomic volatility. This extra margin is designed to capture downside scenarios and ensure a conservative valuation. After discounting future cash flows using this stressed WACC, I apply an additional 20% discount to reflect the holding company structure, consistent with the typical market discount applied to such entities.

Based on these assumptions, the resulting valuation is €22.50 per share, implying an upside potential of over 200% compared to the current market price. This method is broadly consistent with my valuation based on the sum-of-the-parts approach.

Final valuation

By weighting the different valuation methods—giving greater importance to the sum-of-the-parts approach due to the ability to compare with similar competitors in each segment—I arrive at a target price of €21.30 per share. However, to mitigate optimistic bias and cover unforeseen events such as forecast errors or macroeconomic shocks, we apply a 10% margin of safety, resulting in an adjusted per-share value of €19.17.

Conclusion

Caltagirone is a diversified holding company with strategic exposure to sectors such as cement, construction, real estate, and minority financial stakes. Although it operates in a market with limited international visibility, the group benefits from clear competitive advantages and committed management, offering solid long-term growth potential. Its key assets, particularly Cementir, currently trade at a significant discount to their intrinsic value, presenting an attractive investment opportunity.

As a historic business with relatively low liquidity and the typical valuation discount applied to holding companies, the market may require more time to fully recognize its value. Despite challenges stemming from its conglomerate structure and market volatility, this situation provides a margin of safety for long-term investors. The shareholder structure and management’s commitment reinforce confidence in the holding’s ability to sustain value creation over time, making it an appealing option for those seeking a diversified investment with long-term appreciation potential.

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Disclaimer: This is a personal analysis and does not constitute any buying or selling recommendations. Each investor should make their own due diligence.

Brief Summary: Azkoyen, a Spanish small-cap company with a market capitalization of approximately €178 million, is listed on the Madrid Stock Exchange and specializes in the manufacture of vending machines, payment systems, and automation solutions. Founded in 1945, Azkoyen went public on July 18, 1988, marking the beginning of its expansion into international markets. The company currently trades at a P/E ratio of 8x and an EV/EBITDA multiple of 6x, both lower than its competitors. Coinstar was acquired by Apollo on September 27, 2016, at 7x EV/EBITDA and 14x earnings, while Ingenico was acquired by Worldline in 2020 at around 15x EV/EBITDA.

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Company Overview

Azkoyen, founded in 1945 in Navarra by Martín Luis Troyas Osés, began its journey in the agricultural machinery sector and, in 1956, entered the vending industry with the development of its first dispensing machine. During the 1960s and 1970s, it expanded its product range with innovative coin selection systems and vending machines for tobacco, sweets, and beverages. In 1970, the company underwent a key transformation by becoming a public limited company, attracting new investors and professionalizing its management, marking its evolution from a family business to the Azkoyen Group. In the following years, it strengthened its growth by developing advanced electronic solutions for vending and transportation. In the 1980s, it began its international expansion and, in 1988, debuted on the Madrid Stock Exchange. Today, the Azkoyen Group is a leading multinational technology company in payment solutions, access control, and vending, with a presence in over 60 countries and a workforce exceeding 1,000 employees. It specializes in the design, manufacturing, and commercialization of advanced technological solutions for the vending and HORECA/OCS markets, payment systems, and security. Since its foundation in 1945, the company has been distinguished by its commitment to technology, research, and the development of new products.

Azkoyen Group - portfolio of brands:

1. Coffee & Vending Systems

• Azkoyen: The original brand of the group, known for its proprietary technology in professional coffee machines and vending solutions. Azkoyen offers expert advice through an extensive international network.

• Coffetek: A leading UK brand in beverage-dispensing machines, renowned for its innovative and user-friendly designs. Azkoyen acquired Coffetek in 2008, expanding its reach in the UK market.

• Ascaso: Specializes in artisanal espresso machines, offering superior quality and personalized coffee solutions. Acquired in 2022, Ascaso further strengthened Azkoyen's position as a global leader in coffee equipment.

2. Payment Technologies

• Azkoyen Payment Tech: A European leader in cashless and cash payment systems, offering tailored solutions for key sectors like banking, retail, and transportation.

• Coges: Specializes in cash management and telemetry solutions, providing innovative systems that streamline payment processes, particularly in the retail sector. Azkoyen acquired Coges in 2005, enhancing its payment technologies portfolio.

• Cashlogy by Azkoyen: Provides automated payment solutions for point-of-sale transactions, improving operational efficiency and customer experience. Azkoyen launched Cashlogy in 2012.

• Vendon: Focuses on IoT, telemetry, and digital payment solutions, specializing in monitoring coffee and vending machines. Vendon was acquired by Azkoyen in 2022, strengthening the company's connectivity solutions for vending operations.

3. Time & Security

• Primion: Offers integrated solutions for access control, time registration, visitor management, and security, enhancing safety and efficiency in industries such as healthcare, airports, and public buildings. Azkoyen acquired 91% of Primion in 2008, expanding its time and security solutions, and later on bought the rest of the company.

• Opertis: Manufactures electronic locking systems and advanced security solutions for sectors like hospitality, public administration, and commercial buildings. Azkoyen acquired Opertis in 2016, further bolstering its security offerings.

Business Model

Azkoyen operates as a vertically integrated technology provider, specializing in three core segments: Coffee & Vending Systems, Payment Technologies, and Time & Security. Its business model revolves around designing, manufacturing, and distributing high-tech solutions, including vending machines, cash management systems (e.g., Cashlogy), and biometric access controls. Serving businesses across hospitality, retail, corporate, and public sectors, Azkoyen capitalizes on the increasing demand for automation, convenience, and security.

With a global footprint spanning over 95 countries and 85% of revenue generated internationally, Azkoyen benefits from economies of scale through its 10 production plants and extensive distribution network. The company’s revenue model combines one-time hardware sales with recurring income streams, ensuring a balance between upfront capital expenditure and steady cash flow. While product sales drive initial revenue, ongoing earnings stem from maintenance contracts, spare parts, and software-based services, such as IoT-enabled remote monitoring and cashless payment integrations.

Azkoyen’s competitive edge lies in innovation and scalability, reinforced by an annual R&D investment exceeding €17 million and a strong patent portfolio (59+ patents). Proprietary technologies like MIA brewing for premium coffee extraction and Distance Selection for touch-free vending differentiate its offerings. However, potential risks include high R&D costs, economic downturns affecting business spending, and supply chain complexities due to its global manufacturing footprint. Despite these challenges, its diversified segments and strategic focus on digital transformation position Azkoyen for sustained growth amid rising automation and security trends.

Operational entities of the company:

Executive Team

Azkoyen has long been recognized for its exceptional leadership, a standard that continued under CEO Darío Vicario Ramírez, who served for just a year and a half before resigning at the end of 2024. Having taken on the role in 2022, Vicario brought with him extensive experience at the company since 2018, ensuring a smooth transition and the continuation of the strategic expansion launched by his predecessor, Eduardo Unzu, in 2010. The executive leadership has decided not to appoint a successor, opting instead to restructure the group.

Azkoyen’s Board of Directors is characterized by a balanced composition of proprietary, independent, and executive directors, fostering effective governance. This structure ensures an optimal balance between the independence of non-executive directors and the strategic influence of the major shareholders. Key board members include, for example, Carolina Maseveu, who holds an 11.45% stake in the company, and Diego Fontán, her husband, who serves as a proprietary director and owns 150,000 shares, representing 0.61% of the company. This diverse and strategically structured board enhances Azkoyen's competitive position in the global market, driving sustainable growth.

The compensation structure at Azkoyen is strategically aligned with the company’s overall performance, ensuring that executive incentives are tied to the long-term success of the organization. Juan José Suárez Alecha, the Chairman, receives the highest compensation, exceeding €200,000 annually, which represents less than 1% of the revenue for 2024. Both Darío Vicario, the Ex-CEO, and Esther Málaga García, the Independent Director, earn salaries exceeding €100,000, reflecting their strategic contributions to the company’s growth, while other board members receive compensation below this threshold. The executive team's variable compensation is linked to several key factors, including financial performance, achievement of strategic goals, individual performance, and market conditions. Financially, the structure takes into account targets related to profitability, revenue growth, and stock performance, particularly relevant for publicly traded companies. Furthermore, the achievement of long-term strategic objectives, such as market expansion or product innovation, directly influences bonus calculations. The evaluation of individual executive performance—focused on leadership, decision-making, and the results of key projects—is also a critical element. Short-term bonuses are tied to immediate financial results, while long-term incentives are based on sustainable value creation and successful completion of significant strategic projects. Lastly, external factors such as market conditions, industry competitiveness, and the accomplishment of sustainability and corporate social responsibility (CSR) goals play a pivotal role in determining variable compensation.

Shareholders

Azkoyen benefits from a stable, family-driven shareholder structure consisting of several families and investment funds. This structure reinforces the company’s resilience and continuity. Many of the company’s shareholders also hold positions within the management team, aligning their interests with the company’s success and fostering a culture of shared responsibility for growth. Notably, La Previsión Mallorquina de Seguros, a company focused on stability and low-risk investments, is involved, reflecting a strong belief in Azkoyen’s long-term prospects. Additionally, Muza, a seasoned investment company with a track record dating back to 1999, invests with a value-driven approach, emphasizing knowledge, prudence, and patience. Overall, the shareholder structure is robust and well-balanced, contributing to Azkoyen’s ongoing success and stability.

Note: I don’t believe we will see a takeover bid (OPA). If there had been intentions to launch a public acquisition offer, they would have had the opportunity to do so at much lower prices. The current position of the shareholders is purely financial.

Risks

• Forex: Fluctuations in exchange rates and currency mismatches between the base currency (EUR) and the local currencies in the markets where Azkoyen operates may impact financial results. This risk is relatively low, as the majority of the company’s revenues are in euros.

• Economic recession: An economic downturn, particularly in Europe, Germany, and Spain—its primary markets—could hinder investment activity and negatively affect the company’s performance.

• Operational: Managing 10 production plants and a global supply chain introduces risks related to logistics, component shortages and cost inflation.

• Inventory control: Accumulating inventory can be a potential issue; not selling products could negatively affect the company’s financial performance.

• Mergers and Acquisitions (M&A): A poorly executed acquisition could significantly affect the company's performance. Overpaying for assets or acquiring companies that do not add value to the group could undermine long-term profitability and strategic goals.

• Stock liquidity: As a smaller-cap company with limited analyst coverage, Azkoyen's stock may experience volatility. If the market undervalues its innovation pipeline, it could remain overlooked by investors.

Competitive advantage

The group does not present a clearly defined competitive advantage over other market players. However, financial data suggests otherwise, as companies possessing a defensive moat ("moat") tend to be more profitable than those without one.

One of the primary indicators for assessing this advantage is the Return on Invested Capital (ROIC), which I consider a key metric in this analysis. Azkoyen has demonstrated consistent growth in this area, and it is projected to maintain a ROIC above 12% in the long term. Similarly, the company has maintained an average EBITDA margin of 15.2% from 2013 to 2024, surpassing the market average. Additionally, Azkoyen benefits from vertical integration, allowing it to control its entire production chain and achieve greater operational efficiency. Furthermore, by handling the maintenance of its machines, the company retains a high percentage of its customers, further strengthening its competitive position.

Another notable factor is Azkoyen’s historical track record. The company’s deep market knowledge and the strong commercial foundation it has built over time provide it with a significant advantage in terms of experience and customer relationships.

Key numbers

Azkoyen is one of the leading players in Europe across the segments in which it operates. From 2013 to 2024, the company achieved a compound annual growth rate (CAGR) of 5.05% in revenue, while operating income grew by nearly 10% per year, maintaining stable margins close to 11%. The company’s gross margin has fluctuated between 45% and 55%, and its operating margin has ranged from 7.5% to 13.5%, reflecting its high operational efficiency. In 2020, a year marked by the pandemic, Azkoyen saw a 21.6% decline in sales, which was understandable given the sectors in which it operates. However, it managed to maintain a stable gross margin through cost reductions despite a slight dip in the EBITDA margin. In the face of adversity, the company leveraged its strong financial position and reduced its debt by 72.5% (0.2x EBITDA). In 2022, another year marked by global economic uncertainty due to the Russia- Ukraine war, Azkoyen seized the opportunity to acquire two companies, although inflationary pressures and the global crisis’ cost overruns slightly reduced its margins. By 2024, the company achieved a record net profit of €18.8 million, a 7.2% increase over 2023, with its gross margin surpassing 50% again. Furthermore, it generated Free Cash Flow to the Firm (FCFF) of €33 million, with expectations of continued growth in the coming years.

Azkoyen has a well-balanced revenue structure, with no single segment significantly outperforming the others, reducing the company's reliance on any one area of its business. In the past, the Time & Security division represented a larger share, accounting for nearly 44.5% of the company’s sales in 2013. However, this proportion has gradually decreased over time. Overall, based on my projections, all segments are expected to continue growing steadily, with each maintaining a relatively consistent contribution to the company’s revenue, without any particular segment standing out significantly above the others.

The company maintains a positive working capital, which is critical given its operational cycle, where payments are made upfront and collections occur at a later stage. Azkoyen finances this working capital through short-term credit facilities. However, this does not pose a risk to the company, as it has a robust financial structure: in 2024, it reduced its net debt by 66.3% and currently holds a net debt/EBITDA ratio of just 0.3x, indicating a low level of financial leverage.

Azkoyen’s operational requirements vary across its segments. In the Coffee & Vending Systems and Time & Security divisions, inventory levels of equipment and spare parts are higher. Conversely, in the Payment Technologies segment, the company typically experiences longer receivable cycles. As reflected in the following table, inventory has increased, with the most notable growth occurring between 2022 and 2023. This was driven by the company’s proactive strategy to secure products and services for its customers in anticipation of potential supply chain disruptions, as well as preparing for an anticipated increase in sales. The cash conversion cycle remains appropriate and in line with industry norms, although further improvement towards a cycle closer to 100 days would be desirable.

Azkoyen's capital allocation strategy is centered on several key priorities:

Research and development: A substantial portion of the company’s capital is directed towards R&D, focusing on the development of advanced vending machines, payment systems, and IoT solutions. This commitment to innovation ensures that Azkoyen remains competitive and responsive to evolving market demands.

Organic growth and efficiency: Capital is reinvested in manufacturing, maintenance, and expanding in markets, ensuring long-term growth and operational efficiency.

Shareholder returns: Azkoyen offers a dividend yield of approximately 5%, underpinned by strong profits and cash flow, as reflected in a payout ratio of 50% and a cash payout ratio of 26.2%. While the company is capable of sustaining dividends, its dividend history has shown volatility, including suspensions in 2020 and significant reductions in 2022-2023. As such, investors seeking stable dividend income may find Azkoyen less attractive.

Debt management: Azkoyen adopts a conservative approach to debt, maintaining strong control over its financial leverage.

Acquisitions and investments: The company has historically pursued strategic acquisitions to enhance its technological capabilities and market position. This approach aligns with Azkoyen’s broader strategy of expanding automation and technology solutions.

Valuation

To assess Azkoyen’s value, two main approaches have been employed in this summary analysis:

• A Discounted Cash Flow (DCF) model projected over a five-year horizon.

• A relative valuation based on EV/EBITDA multiples, applied through a sum-of-the-parts breakdown of Azkoyen’s business segments.

While this summary focuses on the two primary valuation methods for the sake of simplicity and clarity, the full analysis incorporates additional models and a range of scenario-based evaluations—including downside and alternative cases—offering a more comprehensive and robust perspective on potential valuation outcomes. Readers are encouraged to conduct their own analysis, as this represents only a high-level summary of the base-case valuation.

1. Discounted Cash Flow (DCF) Valuation

The DCF model projects performance through 2029, assuming an EBIT margin of 12.7%, a terminal growth rate of 1.5%, and a WACC of 8.47%. The discount rate reflects the weighted average risk-free rates of the countries in which Azkoyen operates, with a 20-basis-point stress factor incorporated.

Under these assumptions, the DCF yields a valuation of €11.60 per share, implying an upside potential of over 40% compared to the current market price of €8.

2. Relative Valuation (EV/EBITDA - Sum-of-the-Parts)

In the relative valuation approach, each of Azkoyen’s business segments is evaluated individually by comparing it to the most relevant peer group in its respective industry. This method assumes that each business line could be independently valued in line with industry norms.

• In the Vending Machines division, Azkoyen trades at an EV/EBITDA multiple of 4.83x, significantly below the sector median of 8.75x, indicating the market may be undervaluing its core operations despite stable cash flows and margin expansion potential.

• In Payment Solutions, the company is valued at 10.48x, slightly below the sector average of 12.00x. Although this segment benefits from growing demand for cashless technologies, the discount may reflect market concerns about competitive pressures or slower adoption in certain regions.

• The Time & Security segment shows an EV/EBITDA of 14.89x, which is only marginally below the peer group average of 15.50x, suggesting this segment is more fairly valued, likely due to stronger visibility of earnings and higher barriers to entry.

By applying these sector multiples to Azkoyen’s expected EBITDA for each business line, and then adjusting the aggregate enterprise value for net debt and minority interests, we derive an estimated equity valuation of €13.90 per share, implying an upside potential of over 70%.

This sum-of-the-parts analysis highlights a substantial valuation gap across all divisions, particularly in vending, which may provide significant re-rating potential if operational performance improves or if investor sentiment shifts.

Final Valuation

Given the absence of directly comparable listed peers and the integrated nature of Azkoyen’s business model, greater weight is given to the DCF method (80%) compared to the multiples-based valuation (20%). This results in a blended target price of €12.00 per share. Applying a 10% margin of safety to account for potential forecasting errors or macroeconomic shocks, the adjusted fair value is €10.85 per share.

Conclusion

Azkoyen is a true gem among Spanish companies, operating in a sector with strong long-term prospects. Currently, the company trades at significantly lower multiples compared to other players in the industry. While its country of origin may not attract significant attention in the investment landscape, Azkoyen presents solid future prospects. The management team is of the highest caliber and is committed to creating value for both the company and its shareholders.

The undervaluation of Azkoyen can be attributed to several factors: it is a small-cap company operating in a sector with limited appeal, it is listed in a country with low visibility in international markets, and it has low liquidity. However, in my view, these characteristics make Azkoyen an attractive investment, particularly because of its shareholder structure, which demonstrates a strong alignment with the company’s long-term goals. The family ownership underscores a deep financial commitment to the business, further strengthening its investment appeal.

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Disclaimer: This is a personal analysis and does not constitute any buying or selling recommendations. Each investor should make their own due diligence.

Brief Summary: Toya, a Polish small-cap company with a market capitalization of approximately PLN 540 million, is listed on the Warsaw Stock Exchange. Founded in 1990 by Jan Szmidt, it specializes in importing and distributing hand tools, power tools, and household appliances. It went public in 2011 at PLN 2.8 per share. Since its initial public financial statements in 2008, Toya has achieved a compound annual growth rate (CAGR) of 9.46% in sales and 10.40% in net profits, consistently delivering double-digit returns on invested capital. Currently, the company is trading at a P/E ratio of 7x.

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Company Overview

Founded in 1990 by Jan Szmidt, just one year after the fall of communism in Poland, Toya has been under Szmidt's leadership as Vice Chairman of the Supervisory Board since 2011. He owns nearly 40% of the company’s shares. Today, Toya is an importer and distributor, operating five distribution centers, specializing in hand tools, power tools, and everyday household appliances, all manufactured based on its own designs. The company focuses on two main segments: domestic and professional. While Toya designs its products, it outsources production to China (a common practice in the sector) and transports the products by sea. Currently, Toya offers around 13,000 products, releasing approximately 800 new items each year to expand its product range. The company sells its products in over 120 countries worldwide under six different brands, each targeting a specific market niche.

Brand portfolio:

1. YATO: Toya's flagship brand, YATO is known for its professional-grade tools designed for automotive repairs, construction, and gardening. Offering a range of battery, electric, pneumatic, combustion, and manual tools, YATO provides exceptional value with high-quality materials and versatile solutions, making it a trusted choice among both professionals and DIY enthusiasts.

2. VOREL: VOREL delivers a wide array of hand and pneumatic tools for workshops, construction sites, and home use, offering excellent quality at competitive prices. The brand’s product range caters to electricians, locksmiths, maintenance technicians, plumbers, and hobbyists, with additional solutions for organizations in both home and workshop environments.

3. STHOR: Targeting discerning DIY enthusiasts, STHOR offers reliable and stylish electric tools for construction, renovation, and finishing tasks. The brand also provides tool kits, accessories, and equipment designed for garage and home workshop use, focusing on both performance and aesthetics.

4. LUND: LUND offers multifunctional household appliances that combine modern design with practical features. These user-friendly products enhance everyday activities such as cooking and cleaning, seamlessly blending into any home environment.

5. FLO: Specializing in tools for garden care, FLO provides both manual and electric tools designed for maintaining gardens, terraces, and balconies. The brand’s range ensures efficient and effortless upkeep of green spaces.

6. FALA: FALA presents a stylish selection of kitchen and bathroom faucets, shower panels, and linear drains. Its modern designs, paired with refined details, create elegant and cohesive aesthetics, complemented by a range of accessories to complete the look.

Toya's current organizational structure is as follows:

In the past, Toya had a subsidiary called Toya Golf & Country Club, which was involved in the sale of leisure, sports products, and real estate. However, this subsidiary was liquidated. On June 19, 2013, Toya Golf & Country Club Sp. z o.o. was removed from the judicial register following its liquidation. Additionally, it is worth noting that YATO Tools Jiaxing is Toya's most recent subsidiary, established in 2019 and located in Baibu Town, China.

Business Model

Toya’s business model is both clear and effective: the company designs its products in China, following industry standards, before importing and distributing the finished goods globally. Toya operates in two main market segments: professional-grade tools and tools for the "Do It Yourself" (DIY) market. These products cater to a wide array of industries, including automotive, construction, plumbing, electrical systems, HoReCa (Hotels, Restaurants, and Catering), bathroom, kitchen, gardening, security, and healthcare. This broad market reach enables Toya to generate diverse revenue streams.

Operational entities of the company:

Toya operates through four key business segments: local sales in Poland, Romania, and China; wholesale distribution; online retail; and international exports. The company provides a comprehensive product range for both professionals and DIY users, ensuring competitive pricing and broad accessibility. With a diversified and strategically managed supplier network, Toya maintains strong negotiating leverage and operational independence. Its subsidiaries, YATO Tools (Shanghai) and YATO Tools (Jiaxing), strengthen its presence in Asia. Additionally, the company’s adaptive sourcing strategy allows for flexibility in response to market changes.

Shareholders

• Jan Szmidt: Holds 37.69% of the shares and an equal percentage of the voting rights, with a total of 28,284,304 shares.

• Romuald Szatagan: Owns 12.86% of the shares and voting rights, amounting to 9,652,290 shares.

• Generali OFE: Holds 6.66% of the shares and voting rights, with a total of 5,001,147 shares.

Romuald Szatagan, one of Toya's co-founders alongside Jan Szmidt, no longer participates actively in the company’s day-to-day operations. Generali OFE is a Polish pension fund. The remaining shares are held by additional funds, mostly retail investors. This shareholder structure is optimal, as the majority shareholder has a position on the Supervisory Board, enabling direct control over the three main board members. Furthermore, the second co-founder holds a significant stake, reflecting confidence in the company's future. Finally, the pension fund, which typically seeks to avoid high risks, also demonstrates its interest in maintaining stability.

Risks

• Low free float: The majority of shares are held by management, posing a delisting risk, though unlikely.

• Forex: Exchange rate fluctuations and currency mismatches between the base currency (PLN) and the local currencies where Toya operates may affect financial results.

• WC dependence: Toya requires substantial working capital to operate, and inefficient inventory management could negatively impact its results. However, the company effectively manages these aspects, minimizing potential risks, making this less of a concern.

• Revenue exposure to conflict zones: 11% of revenue comes from conflict areas (Russia, Belarus, Ukraine), but this risk is low due to Toya's distribution model.

• Competitive industry: Toya operates in a highly competitive market with easily replicable products.

• Liquidity issues: The 2018 fraud allegations involving GetBack and Altus had a negative impact on liquidity. A similar event could occur again, potentially affecting Toya's market price and investor confidence.

• Online sales performance: Failure to drive online sales could limit retail growth.

Competitive advantage.

Toya delivers high-quality products at a lower price than its competitors, securing a strong position in the industry. Customer feedback—gathered from reviews and direct user interactions—is overwhelmingly positive. The company's strategic locations in Poland and Shanghai enhance its distribution network and market reach. Additionally, Toya gains a competitive edge by operating in regions with lower labour costs than its rivals in higher-cost areas, resulting in greater cost efficiency and a more favorable cost structure.

Competitors.

TOYA operates in the mechanical hand tools industry, a market valued at approximately USD 37 billion, with an expected annualized growth of over 4/5% until 2030. The sector is highly fragmented, comprising numerous players, both large and small. While publicly traded companies in this industry—especially smaller ones comparable to TOYA—are rare, we can find bigger players like Makita Corp, Techtronic Industries Co, Snap-On Inc., and Stanley Black & Decker.

TOYA stands out with a 14% annualized sales growth over the past five years (through 2023). Its profit margins are higher than its peers, primarily due to lower labour costs, as its operations are concentrated in Poland and China, whereas competitors employ staff in higher-wage countries. Additionally, TOYA benefits from an efficient logistics system, with strategically located distribution centres that minimize costs. TOYA's financial returns are notably strong compared to its main competitors, with only Snap-On Inc.—a much larger company and not 100% comparable in terms of business model and the products and services offered—able to match its performance. Given TOYA’s operational efficiency and cost advantages, I anticipate that these returns will be sustained or even increase over the long term.

Key numbers.

Toya is one of Poland’s leading companies, with an international presence and a solid track record of growth. Between 2016 and 2023, its revenue grew at a compound annual rate of 13.06%, while operating income increased by nearly 10% annually, maintaining stable margins. The company's gross margin ranged between 32% and 37%, while its operating margin remained between 10% and 14%, reflecting its high operational efficiency. The slight margin decline in recent years is primarily due to cost pressures, particularly from utilities (electricity, gas) and transportation expenses. In 2023, Toya reported sales of 732 million PLN, marking a 4% decline compared to 2022. This decrease was mainly driven by lower export volumes, particularly due to reduced sales to its Romanian subsidiary, as supply chain management has been shifted directly to China. However, its flagship brand, Yato, saw only a 2% drop in sales, whereas the rest of its brands experienced a 9% decline. Yato, which has historically maintained double-digit growth, is expected to continue this trajectory.

Despite market challenges, Toya has achieved organic growth, with only one acquisition in 2014 (100% of shares in the Chinese company YATO Tools). The company has avoided relying on acquisitions, aggressive pricing strategies, or significant marketing spending. This approach aligns with the nature of its industry, which doesn’t require substantial R&D investments, resulting in highly predictable growth and profitability.

Notably, even during the COVID-19 pandemic and the Russia-Ukraine conflict, Toya did not experience a decline in sales, demonstrating its resilience. Additionally, the company generated over 100 million PLN in free cash flow (FCF) in 2023, a figure that is expected to continue increasing.

The majority of Toya’s revenue comes from wholesale sales, which accounted for 49% of total sales in 2023, consistently ranging between 46% and 49%—the dominant sales channel in the industry, as seen across all major companies. Exports continue to grow as the brand expands into more countries, further strengthening its international presence. Additionally, e-commerce sales, which began rising during the COVID-19 pandemic, are steadily increasing, gradually absorbing a larger share of traditional retail sales. Looking ahead, I expect this channel to play an even more significant role in the company’s profitability and believe it should be further developed to maximize its potential.

The company maintains a positive working capital, which is essential given its operating cycle, where payments are made upfront and collections occur later. This working capital is primarily financed through short-term loans. While this financing model might raise concerns if the company had a high level of debt, that is not the case with Toya. The company enjoys a solid financial position, with a net debt to EBITDA ratio of just 0.4x (LTM), indicating low leverage. In fact, in 2023, this ratio was negative, as the company closed the year with net cash, reflecting its strong liquidity and ability to generate internal resources. Over the years, Toya has improved its efficiency, reducing its cash conversion cycle from 338 days in 2018 to 216 days in 2023, driven by better management of receivables and inventory.

It is worth noting that the company does not distribute stable dividends, as its strategy is not focused on dividend payments. Toya has significant growth potential, with a clear focus on reinvesting in new product development and expanding its market reach. Additionally, the company has repurchased its own shares, reducing the total number of shares from 78.5 million in 2016 to 75 million today. Recently, Jan Szmidt, Deputy Chairman of Toya's Supervisory Board, proposed allocating PLN 100 million in reserve capital for the repurchase of Toya shares. The buyback program will cover up to 12.5 million shares, with a purchase price ranging from PLN 6 to PLN 18 per share.

Valuation

For the valuation of Toya, we will use both a Discounted Cash Flow (DCF) model, projected over four years, and a multiples-based valuation using the EV/EBITDA ratio. Given the lack of directly comparable companies to Toya, we will assign an 80/20 weighting in favour of the DCF approach. Note that this analysis only presents the base-case scenario; downside risks also exist, and those have been modelled separately. Therefore, you should conduct your own valuation based on your projections. Keep in mind that this is merely a summary of a more extensive underlying analysis.

In the DCF model, projected through 2027, we assume an EBIT margin of 12% (below the company's historical average), a growth rate (g) of 1%, and a discount rate (WACC) of 9.23%. The WACC is calculated by weighting the risk-free rate across the countries where the company operates, with an additional stress factor of 20bps, resulting in a rate of 5.38%. Based on these parameters, we arrive at a valuation of 19.71 PLN per share, implying an upside potential of over 150% from current price levels.

For the EV/EBITDA multiple-based valuation, we assume the company should trade at 12x EBITDA, a conservative multiple below the sector median of 13.4x. This results in a valuation of 19.92 PLN per share, closely aligning with the DCF outcome.

By combining both approaches—giving greater weight to the DCF due to the lack of direct peers—we apply an 80% weight to the DCF and 20% to the EV/EBITDA multiple, leading to a final valuation of 20 PLN per share. However, to account for potential over-optimism, we apply a 10% margin of error, ensuring a more conservative perspective. Even under this adjusted scenario, the stock still presents an upside potential of over 150% from current levels.

Conclusion

Toya is currently trading at a significantly low valuation compared to the market average. Despite operating in a relatively unattractive sector and a financially stable country, the company has strong long-term prospects. Its management team is dedicated to creating value for both the company and its shareholders. The company’s undervaluation can be attributed to several factors: it is a small-cap company in a less attractive sector, listed in a country not widely represented in global markets, and has low liquidity, which may limit investor interest. However, these characteristics make Toya an appealing investment, especially due to the significant ownership stake held by its founders, demonstrating a strong alignment with long-term goals.

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Disclaimer: This is a personal analysis and does not constitute any buying or selling recommendations. Each investor should make their own due diligence.

Brief Summary: Olvi Oyj, based in Iisalmi, Finland, is a leading international beverage company with a history dating back to 1878. Initially founded by William Gideon Åberg, the company has expanded significantly over the years, operating in Finland, the Baltic Sea region, and Belarus. Olvi's diverse product portfolio includes beer, soft drinks, and non-alcoholic beverages, with a growing focus on healthier alternatives. The company has a strong international presence, exporting to 70 countries and employing over 2,000 people. In 2023, Olvi reported revenues of €630.6 million and is listed on the Helsinki Stock Exchange.

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Company overview and history

Olvi Group is a prominent international beverage company with operations spanning six countries and a heritage dating back to 1878. Founded by master brewer William Gideon Åberg and his wife, Onni, in Iisalmi, Finland, the company aimed to provide Finns with milder alcoholic beverages as an alternative to combat alcoholism. Today, Olvi is the only independent Finnish brewery among the 78 operating at its inception.

The company's international expansion began in 1996 with a minority acquisition of Tartu Ölletehas (now A. Le Coq) in Estonia, followed by majority stakes in Cēsu Alus (Latvia) in 1999 and Ragutis (Lithuania, now Volfas Engelman) in 2000. Subsequent acquisitions included Lidskoe Pivo (Belarus) in 2008, Finnish importer Servaali and The Helsinki Distilling Company in 2018, and Piebalgas Brewery (Latvia) and A/S Bryggeriet Vestfyen (Denmark) in 2021.

Operating across three primary segments—Finland, the Baltic Sea region, and Belarus—Olvi’s portfolio includes beer, soft drinks, and mineral waters, with a growing emphasis on non-alcoholic beverages. In 2023, the company exported to 70 countries, supported by 2,376 employees and a commitment to innovation and sustainability.

Business model

Olvi Oyj generates revenue through the production, distribution, and sale of a diverse range of beverages, including alcoholic drinks such as beer and non-alcoholic products like soft drinks, mineral water, and flavoured options. Headquartered in Finland, the company holds a good market share position, with a growth strategy that emphasises both domestic market dominance and international expansion.

Operating under a vertically integrated business model, Olvi manages in-house production while sourcing raw materials externally. The company owns and operates breweries and distilleries, positioning itself strategically in key markets and ensuring efficient supply chain operations. This diverse manufacturing footprint supports Olvi's wide geographic reach and local market adaptation.

Olvi’s portfolio is broad in price point, with products spanning almost all price segments, particularly in Finland. This diversity allows the company to navigate varying market environments effectively. In 2023, Olvi emphasized product optimization, leading to an improved sales mix and positioning the company for better resilience and profitability.

A key growth driver for Olvi has been its aggressive acquisition strategy. The company has expanded significantly through the purchase of local breweries and beverage brands, such as A. Le Coq in Estonia, Volfas Engelman in Lithuania, and Lidskoe Pivo in Belarus. These acquisitions not only broaden Olvi's product portfolio but also enhance its distribution capabilities and facilitate entry into new regional markets, reinforcing its competitive edge across Europe.

Olvi distributes its products through an extensive network of wholesalers, retailers, and direct-to-consumer channels, ensuring broad market access. With a focus on operational efficiency and product quality, the company guarantees timely deliveries. Strategic retail partnerships and direct consumer engagement further enhance its global footprint.

In terms of product innovation, Olvi has focused on differentiation, particularly in the non-alcoholic beverage segment, in response to increasing consumer demand for healthier alternatives. Through tailored products, innovative packaging, and sustainable practices, Olvi not only meets local market preferences but also appeals to environmentally conscious consumers.

Revenue is primarily generated from the sale of beverages across both domestic and international markets. Olvi’s robust export business plays a crucial role in its turnover. Through strategic acquisitions, operational efficiency, product innovation, and regional market expansion, Olvi is well-positioned for long-term profitability and sustainable growth within the competitive beverage industry.

Industry context

The beverage markets in the Baltic region are experiencing robust growth, driven by shifting consumer preferences toward healthier, more sustainable options, as well as the increasing popularity of craft and non-alcoholic drinks. In Finland, while beer remains dominant, there is a notable shift toward non-alcoholic and low-alcohol alternatives, fuelled by wellness trends and a growing demand for eco-friendly products. Despite challenges posed by high taxes and stringent regulations, companies like Olvi have successfully adapted by diversifying their offerings, maintaining strong growth in this competitive market.

Similar trends are evident in Estonia and Latvia, where beer continues to lead, but low-alcohol and non-alcoholic beverages are gaining market share. Olvi’s subsidiaries, A. Le Coq in Estonia and Cesu Alus in Latvia, have expanded their portfolios including healthier options, while the craft beer segment continues to grow. Estonia’s more flexible regulatory environment fosters broader distribution, further supporting market expansion. In Latvia, despite high alcohol taxes, a favourable regulatory framework allows for growth, with both local and international brands capitalizing on the demand for craft and health-conscious products.

Lithuania’s market is increasingly driven by the demand for low-alcohol and sustainable products, especially among younger consumers. The country’s more flexible regulatory framework facilitates broader distribution, further accelerating sector growth. In Belarus, while beer and kvass remain the dominant beverages, there is a growing interest in premium, low-alcohol, and non-alcoholic options. Olvi’s subsidiary, Lidskoe Pivo, plays a key role in this market, benefiting from a cost-effective local production environment to support its growth and competitive positioning.

Overall, while beer remains the dominant category across these regions, the growing demand for non-alcoholic beverages—including soft drinks, energy drinks, flavoured waters, and large-format drinks—is reshaping the market landscape. With its diversified portfolio and strong regional presence, Olvi is well-positioned to capitalise on these emerging trends and drive sustainable growth in the years ahead.

Risks

The key risks that could affect Olvi Group’s revenue and profitability include:

• Geopolitical and Belarusian markets: Ongoing geopolitical tensions, including the war in Ukraine, have heightened uncertainty in areas such as raw material procurement, logistics, and energy costs. These challenges are further intensified by trade sanctions and shifting local regulations, particularly in markets like Belarus. In Belarus, Olvi faces additional risks such as currency devaluation, unpredictable legislative changes, and trade sanctions, all of which could disrupt operations and impact profitability. Furthermore, the political instability in Belarus adds to the complexity, creating potential difficulties in maintaining business operations and financial transactions with Western countries.

• Supply chain disruptions: The COVID-19 pandemic and the war in Ukraine have caused ongoing challenges in the availability and pricing of raw materials (e.g., barley malt, sugar) and packaging materials. Fluctuating energy costs and high logistics expenses further increase operational costs.

• Consumer behaviour changes: Rising inflation and reduced purchasing power in Europe are driving consumers to seek more affordable alternatives, potentially reducing overall consumption and impacting the sales of premium products. Additionally, as consumer trends evolve, there is a noticeable decline in alcohol consumption, with a growing demand for alternative beverage options. Olvi offers diverse products with a wide price range, keeping their risk low.

• Sustainability and regulatory risks: Olvi faces risks related to sustainability, particularly concerning human rights and environmental factors. Ongoing assessments and regulatory changes will require continuous adaptation to meet legal requirements and consumer expectations.

MOAT/Competitive advantages

Olvi's competitive advantages are rooted in its vertical integration, strong domestic presence, and deep regional expertise, enabling it to cater effectively to local demands with a dynamic, consumer-driven product portfolio. The company’s streamlined production processes and integrated distribution network ensure reliable delivery across key markets, while its experience in both retail and the HoReCa sectors bolsters its market position. Strategic partnerships and a robust international network drive ongoing innovation and growth, supported by a solid financial foundation, strong brand loyalty, and dominant local market shares, positioning Olvi for sustained long-term success.

Competitors

The beverage industry is marked by significant fragmentation, with a diverse array of competitors vying for market share. Key players include global giants such as Royal Unibrew, Carlsberg, and Anheuser-Busch InBev. Both the beer and soft drink segments are characterized by intense price competition and robust marketing efforts. Declining beer consumption in Europe has spurred companies to expand and diversify their product offerings. As consumer preferences evolve, the market landscape has become increasingly fragmented, complex, and sophisticated.

In this competitive environment, Royal Unibrew and Carlsberg emerge as the primary rivals to Olvi, both employing vertically integrated business models. However, these competitors are significantly larger and have a broader international reach. Among the market leaders, Royal Unibrew stands out as Olvi's main peer for comparison in this market. The company boasts a higher valuation, increased debt levels (with net debt of approximately $798 million compared to Olvi's net cash position of $30 million), and has issued new shares over the past two years, in contrast to Olvi's stable share count of 20.7 million.

From a valuation perspective, Olvi presents more attractive multiples than Royal Unibrew, suggesting the market may undervalue Olvi despite comparable business models. Olvi's Free Cash Flow (FCF) yield further underscores its financial strength, at an impressive 8.95% compared to Royal Unibrew’s 5.30%. This indicates Olvi’s superior cash generation relative to its market value, offering a compelling case for higher investor returns.

Within the broader industry, which trades at median multiples of P/E 19x, EV/EBITDA 14x, and EV/EBIT 16x, Olvi is the only company trading below these benchmarks. This discounted valuation offers a potential opportunity for superior investor returns relative to peers.

Olvi's financial metrics further differentiate it from competitors. The company exhibits stronger performance across key indicators such as Return on Equity (ROE), Return on Assets (ROA), Return on Capital Employed (ROCE), and Return on Invested Capital (ROIC), signalling robust operational efficiency and profitability. This positive trajectory is likely to persist and potentially accelerate over the long term.

Some key figures.

Over the past decade, Olvi has demonstrated impressive growth, achieving a 100% increase in sales, equating to a compound annual growth rate (CAGR) of 7%. In 2023, the company reported a turnover of €630.6 million, marking an 8% year-over-year increase. However, I project that growth will moderate in 2024, with projected sales of approximately €655 million. Olvi remains financially robust, with a free cash flow to the firm of €29 million, a low total debt of €7 million, and a negative net debt position of nearly €25 million as of December 31, 2023.

The company has consistently increased its sales and revenue, with the notable exception of 2022. During that year, Olvi achieved a 23.6% rise in sales and a 12% increase in volume (measured in million litres), but net income fell to €7.52 million, down from €48.4 million in 2021. This decline was primarily due to rising inflation, interest rate hikes, and increased investments, which compressed margins. The cost of sales increased by €94.5 million, or 35.1%, year-on-year, which is significantly higher than the increase in net sales. Additionally, logistics, sales, and marketing expenses grew. Despite this, Olvi is on track to regain its growth momentum, with net profit in 2024 projected to exceed €55 million, representing a 15% increase compared to 2021. This underscores the resilience of Olvi’s business model and its management's ability to navigate challenging market conditions.

Between late 2021 and mid-2022, Olvi’s share price dropped sharply by approximately 45%, primarily due to the escalating conflict between Russia and Ukraine, which had a direct impact on Olvi’s operations in Belarus. The company attempted to sell its 96.4% stake in Lidskoe Pivo, but the sale was blocked by geopolitical factors and sanctions that disrupted acquisition channels and financial transactions. While Lidskoe Pivo’s operations have been partially separated from Olvi Group and now function independently, it still adheres to Olvi’s core policies, maintaining Western operating standards across all markets. Despite these challenges, Lidskoe Pivo continues its growth trajectory. Should a sale of the stake occur, the proceeds would be noted in Olvi’s cash balance and reinvested into the company, supporting product development, facility improvements, and potentially expanding into new regions. Alternatively, if the Belarusian subsidiary remains within the group, it is poised to continue delivering strong returns. With Olvi shares currently trading at a discount, significant upside potential exists in either scenario.

Additionally, Olvi adheres to a dividend distribution policy, with a payout ratio exceeding 41%. While the company distributes a portion of its profits to shareholders, its primary focus remains on reinvesting to drive further growth, as it has significant capacity for expansion.

Operating in the relatively illiquid Finnish market, Olvi faces lower liquidity, which, in turn, can lead to more conservative valuations compared to more liquid markets. This presents opportunities for strategic acquisitions and offers lower volatility, supporting long-term value creation. Over time, the shares of high-performing companies typically become more liquid as investor interest grows. Olvi's illiquidity is a result of its size, sector, and listing in Finland.

It is also important to highlight that the European Food & Beverage sector remains an attractive investment case. Despite a substantial rise in profits—48% higher than previous levels—sector valuations have reverted to 2012 levels, with earnings nearing record highs. Over the past decade, the sector has experienced significant de-rating, with price-to-earnings (P/E) multiples decreasing from 22x in 2014 to an estimated 16x in 2025, presenting a more favourable valuation relative to performance.

Valuation

Olvi's valuation is based on a discounted cash flow (DCF) analysis extending to 2027, with careful consideration of the risks tied to its operations in Belarus. The valuation assumes that the Belarusian business does not contribute value, given the uncertainty surrounding the sale of Lidskoe Pivo, which I anticipate will eventually be completed, but likely at a discount to its intrinsic value. For this analysis, we have applied a weighted average cost of capital (WACC) of 6.89% and a terminal growth rate of 2%. We project an EBITDA margin of 14% over the next four years, slightly below historical averages, and have used a higher-than-usual risk-free rate of 3% to account for additional uncertainty. These assumptions yield a valuation of €37.70 per share.

Additionally, a multiple-based approach has been used to cross-check the DCF outcome. Using a P/E ratio of 13x, EV/EBIT of 11x, and EV/FCF of 16x, the resulting target price is €37.60 per share. By equally weighting both the DCF and multiple-based valuations, we arrive at a combined target price of €37.67, representing an upside potential of approximately 35% relative to the current share price of €28. Furthermore, Olvi offers an attractive dividend yield of 4.25% per annum.

* For a more realistic approach to valuation, a range is provided, with the target price fluctuating between €33.35 and €42.36. This range suggests significant upside potential from current price levels, reinforcing the investment opportunity’s attractiveness.

That said, while the valuation is relatively close to the current levels, I expect projections to rise in the future. The sale of the Belarusian subsidiary would further strengthen Olvi’s financial position by generating additional cash, improving its balance sheet, and supporting its expansion plans in Northern and Central Europe. It would also enable Olvi to continue expanding its portfolio of non-alcoholic products. Most importantly, the sale would significantly reduce the company’s risk profile, leading to a more favourable market perception and likely boosting investor confidence.

Conclusion

Olvi’s investment thesis is grounded in its solid financial position, characterized by positive net debt and a resilient balance sheet. This financial strength provides the company with the flexibility to allocate capital strategically, supporting its expansion efforts in the Nordics and Central Europe. In 2023, Olvi unveiled a comprehensive growth strategy, focusing on key initiatives: strengthening international partnerships to enhance its local offerings, entering new export markets through a targeted expansion plan, and promoting greater collaboration across its group operations. Furthermore, Olvi aims to refine its portfolio of group brands in select categories while pursuing strategic mergers and acquisitions to drive growth in both core and adjacent markets.

I remain confident in Olvi Oyj’s outlook, bolstered by its strong financial health, effective management, and well-executed growth strategy. Although risks such as geopolitical tensions in Belarus and potential regulatory hurdles may arise, Olvi’s resilient business model, operational efficiency, adaptability, and strong leadership provide a firm foundation for sustained growth. The company’s attractive valuation, trading at a discount relative to industry peers, coupled with robust cash flow, a disciplined dividend policy, and further growth opportunities through market penetration, product innovation, and operational enhancements, solidifies its appeal as a compelling investment.

Disclaimer: This is a personal analysis and does not constitute any buying or selling recommendations. Each investor should make their own due diligence.

Brief Summary: Orsero S.p.A., based in Milan, is a leading company specializing in the import and distribution of fresh fruit and vegetables throughout the European Mediterranean region. Founded 80 years ago by the Orsero family, the company has significantly expanded its operations, establishing a strong presence in Italy, France, Spain, Portugal, and Greece. It also operates a production facility in Mexico, Comercializadora de Frutas Acapulco, which focuses on growing avocados for the U.S. market. In 2023, Orsero reported revenues of €1,540.80 million and has been listed on the Euronext STAR segment in Milan since 2019.

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Company Background

With a market capitalization of €225.27 million, Orsero is a key player in the fresh produce market. The company originated from the GF Group, which faced substantial challenges from 2007 to 2013 due to management missteps, including an ill-fated airline acquisition. However, since 2014, the company has successfully refocused on its core business of fruit distribution, implementing significant management reforms and strategic restructuring.

In 2017, a pivotal moment in its corporate history, Orsero emerged from a reverse merger with Glenalta Food, facilitating its listing on the stock exchange without an IPO and gaining a €75 million capital injection. This strategic manoeuvre underscored Orsero's commitment to growth and financial stability.

Recent strategic Acquisitions

Orsero has adopted a proactive acquisition strategy to fortify its market position and diversify its portfolio. Recent transactions include strategic acquisitions and joint ventures that have significantly enhanced its market footprint.

2017: Acquired the remaining 50% stakes in three joint ventures: Hermanos Fernández López, Fruttital Firenze, and Galandi.

2023: Established a joint venture called I Frutti di Gil in partnership with Cerchia Holding, where Orsero holds 51% of the share capital. Additionally, Orsero owns 100% of CAPEXO and 80% of Blampin Groupe.

These acquisitions have bolstered Orsero’s operational capabilities and market reach, reinforcing its leadership in the Mediterranean fresh produce market.

Business Model

Orsero generates revenue primarily through the distribution of fresh fruit and vegetables, accounting for over 90% of its gross turnover. The company sources products from global suppliers, which are imported into Italy and other European markets for distribution to supermarkets and retailers. Orsero also sources from local suppliers and distributes products within their country of origin. The company's strengths lie in its comprehensive management of the supply chain and its expertise in logistics, handling, storage, transportation, and distribution, all of which ensure that products remain fresh and high-quality. Additionally, Orsero markets products under its own brands, which enhances profitability. Strategic acquisitions and geographical expansion further bolster its customer base and create additional revenue opportunities.

• Importation: Orsero specializes in importing fruit and vegetables from around the world for distribution across Europe. Its extensive network of suppliers and global markets guarantees a steady supply of fresh, high-quality products.

• Distribution and logistics: The company operates a comprehensive network of its own distribution centres and warehouses, including 25 warehouses, 21 ripening centres, and 4 fresh-cut product plants. This infrastructure enables optimal storage and transportation, maintaining quality throughout the supply chain. Orsero's distribution activities cover a wide range of fresh fruits and vegetables year-round, focusing on the Mediterranean regions of Europe (Italy, France, the Iberian Peninsula, and Greece) and Mexico, where it also engages in avocado production and export.

• Operation of retail outlets: Orsero owns and manages a variety of market stands across Europe, including 37 direct market stalls. This allows the company to sell directly to traditional market operators and enhance its retail presence.

• Value-Added and services: The company provides packaging, labelling, and product customisation services, adapting to the specific needs of each market, which adds value to its offering and allows it to differentiate itself from the competition.

Products Offered: A wide range of fruits (bananas, citrus fruits, apples, grapes, kiwis, mangos, avocados and berries) and vegetables (tomatoes, cucumbers, peppers, lettuces, carrots, courgettes). It also markets special products such as exotic fruits, root vegetables, and fresh herbs, as well as packaged and prepared products.

Risks

The key risks that could affect Orsero's revenue and profitability include:

• Climatic and weather risks, pests, and diseases: The fresh produce industry is highly vulnerable to adverse weather conditions, which can affect crop yield and quality. Crop diseases and pest infestations may also result in significant losses and increased costs. However, as a distributor rather than a producer, Orsero benefits from a large network of global suppliers to help mitigate these risks.

• Transport and logistics: Rising fuel costs, potential disruptions in shipping routes, and logistical delays present operational challenges that could impact efficiency and costs.

• Political instability in supplier countries: Orsero's suppliers are located in regions that may experience political instability, which can disrupt the supply chain and affect operations.

• M&A: There is a risk associated with acquisitions that may not deliver the anticipated value. Although recent acquisitions have been relatively inexpensive, the potential for value dilution remains a consideration.

MOAT/Competitive Advantages

Orsero's competitive advantages are deeply rooted in its vertical integration, covering production, logistics, and distribution. This structure provides the company with greater control over costs and margins. The use of a dedicated fleet of five ships for fruit transportation enables faster delivery compared to competitors. Orsero’s long-term supplier relationships and diverse customer base further secure its position in the market.

Competitors

The sector is characterised by significant fragmentation, with numerous active competitors. However, several notable acquisitions and mergers have taken place, as detailed below:

• Chiquita Brands International: Acquired by Cutrale Group and Safra Group in 2015.

• Fyffes: Acquired by Sumitomo Group in 2017.

• Total Produce and Dole Food merger: In 2021, Total Produce and Dole Food Inc. merged to create Dole Plc., a primary competitor with a similar business model.

Currently, the main competitor is Dole, which also has a vertically integrated structure. Although both companies are currently trading at multiples below the industry average, Orsero is valued at more attractive multiples compared to Dole. This indicates that a similar business model is being undervalued by the market.

Orsero's financial returns are notably strong compared to its main competitor, and I anticipate that these returns will be sustained or increased over the long term.

Some key figures.

Over the past seven years, Orsero has increased its sales by 64%, achieving a compound annual growth rate (CAGR) of 8.6%. In 2023, the company reported a turnover of €1,540.8 million, reflecting a 28.8% rise compared to 2022. However, growth is expected to moderate in 2024, with projected revenues of approximately €1,545 million, as the shipping and banana markets normalize, bringing profitability in line with historical trends after an exceptional 2023. While the company posted a free cash flow (FCF) of €-9 million in 2023, largely due to acquisitions, FCF is anticipated to recover to around €20 million in 2024, with a projected FCF yield of 9%. Orsero remains financially robust, with total debt reduced to €218.7 million and net debt at €128.6 million as of December 31, 2023.

The attached chart shows how, during the COVID-19 pandemic and despite various geopolitical conflicts, the company has managed to increase both its sales and revenue. While margins have fallen, they remain high despite the normalisation of the shipping and banana business. This demonstrates the resilience of Orsero's business model and the ability of its management team to effectively handle adverse situations.

In 2017, Orsero experienced a drop in its share value following the release of its first-half results, which were negatively affected by the performance of its import and distribution division. The group’s profitability was pressured by an unfavourable environment in the banana and avocado markets. In the case of bananas, an oversupply reduced import prices, while in avocados, global demand outpaced supply and a temporary shortage in Mexico increased purchase prices, without these being reflected in selling prices. Additionally, a 76% increase in fuel prices compared to the previous year and associated operational issues raised costs. The other significant decline in Orsero’s share value has been recorded this year, with a reduction of over 25% year-to-date (YTD).

It is important to note that, although Orsero follows a consistent dividend distribution policy, it does not distribute high dividends (20/30%). The company’s strategy does not focus on profit distribution, as it has sufficient margin to continue investing in its growth.

Orsero operates in a relatively illiquid market, which does not necessarily represent a disadvantage. The lack of liquidity allows for acquiring companies at lower valuations than in liquid markets. Furthermore, investors can benefit from lower volatility, generating long-term value. Typically, shares of a good company tend to become more liquid over time, as investors start to take notice of its performance. The illiquidity of Orsero is due to its size, the sector in which it operates, and the country of is listed.

Valuation

The valuation of Orsero is based on a discounted cash flow (DCF) analysis up to 2027, using a WACC of 8.88% and a terminal growth rate of 1.5%. An EBIT margin of 3.5% has been projected for the next four years, slightly lower than in previous periods. Additionally, a risk-free rate of 3.5% has been used, which is slightly higher than usual to stress the value. These assumptions lead to a valuation of €28.20 per share.

Valuing the company using multiples and assigning a P/E ratio of 14x, an EV/EBITDA of 8.6x, an EV/EBIT of 13.80x, and an EV/FCF of 13x results in a similar target price of €30.47. If each valuation is weighted equally, the weighted target price results in €29.34, representing an increase of more than 100% compared to the current price (€12.68).

The valuation has been carried out under a neutral scenario, although I typically apply a margin of error of 10% to the target price to cover possible deviations if the projections prove too optimistic. After applying this discount, the adjusted target price is €26.40, representing an increase of 108%.

Conclusion

Overall, I reaffirm my positive stance on Orsero due to its strong cash generation profile, top-tier management team, and resilient business model.

I believe the company is undervalued for several reasons. Firstly, it is a small-cap company with a market capitalisation of just €225.27 million. Additionally, it has low liquidity, which may limit investor interest. Finally, it operates in the food sector, which is viewed as less attractive, potentially resulting in a lower valuation compared to more popular sectors.

Despite these factors, the company exhibits considerable growth potential. However, investors should adopt a genuinely long-term perspective, as the company will not reach its true value overnight due to the aforementioned factors. What is clear is that the outlook for the company is positive. The food sector is essential, and with the increasing trend towards healthier lifestyles, Orsero’s products will continue to be in demand. Furthermore, the company still has room to grow and expand into other countries.

Disclaimer: This is a personal analysis and does not constitute any buying or selling recommendations. Each investor should make their own due diligence.

Please note that nothing posted should be construed as a recommendation to buy or sell. This summary provided here represents only a fraction of the comprehensive research conducted. My analysis encompasses various scenarios, so what you see published is just a condensed overview.

Sanlorenzo (SL), a prestigious Italian firm renowned for its bespoke luxury yacht designs and craftsmanship, has established itself as a leader in the 30 to 40-meter yacht market over the past decade. Since its IPO in 2019, SL has shown remarkable growth across key performance indicators, with revenues increasing at a compound annual rate of 17.6% and net income nearly tripling. Founded in 1958 and headquartered in Italy, SL is celebrated for producing high-quality motor yachts tailored to individual specifications, produced in limited quantities annually.

Company milestones

Following a change in ownership in 2005, SL achieved significant milestones, including winning the World Superyacht Award in 2008 with the launch of the SD112. This success propelled SL to prominence, ranking second among builders of boats over 24 meters by 2014. The decision to go public in December 2019 marked a significant milestone amidst market fluctuations, leading to a notable revaluation by May 2021.

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Industry context

Operating in a highly competitive sector, particularly in Italy, SL competes favourably alongside the Italian Sea Group and other producers. Market forecasts indicate a rising demand for yachts driven by an increase in affluent individuals. Despite limited production capabilities, brands like SL command substantial pricing power due to strong market demand. The yachting industry, akin to the luxury sector represented by brands like Ferrari and Hermes, experiences robust demand and constrained supply, positioning it well for generating solid returns in the foreseeable future.

Why Sanlorenzo?

Massimo Perotti, holding a commanding stake of over 60%, exemplifies robust founder control and alignment of interests. Recent executive appointments, such as Ferruccio Rossi as CEO of SL Monaco and Carla Demaria as CEO of Bluegame, who collectively hold a 2.5% stake, further underscore significant personal investment. SL's focus on smaller boats mitigates project risks compared to competitors like the Italian Sea Group, known for their larger, more complex builds that take longer and carry collection and execution risks, potentially affecting company performance. Additionally, SL demonstrates higher returns than the Italian Sea Group, as detailed in the financial section. Both SL and the Italian Sea Group benefit from strategic locations in Viareggio and La Spezia, ensuring competitive positioning in prime areas.

Moreover, SL's brand power and reputation are enhanced by its consolidated range of boats under the two brands, SL and Bluegame, which I believe strengthens its market presence as a single group.

Given our portfolio strategy and aim to manage risk and volatility, coupled with our favourable entry price—significantly below the current market value—it is prudent to maintain our position in SL. We assess that it remains undervalued and has the potential to deliver returns over the long term.

Risk Analysis

• Default: While operating on a made-to-order basis, there's a risk of client withdrawal during construction, though mitigated by a loyal client base.

• Reputation: SL's meticulous craftsmanship and stringent quality controls safeguard its reputation.

• Regulatory: Proximity to water necessitates compliance with stringent regulations.

• Catastrophe: Vulnerability to maritime-related disasters requires contingency planning.

• Debt and currency: Concentration of deliveries and currency fluctuations are managed through strategic financial management.

Financials.

The graph depicts revenue and EBITDA trends over recent years, with an estimate positioned midway within the company's 2024 and 2025 guidance range. Following the pandemic, the company has demonstrated robust sales growth, increasing its EBITDA margin from 14% to nearly 19%. It anticipates further margin expansion, targeting over 19.5% by 2025, a trajectory expected to be achieved given current performance.

Regarding net and gross backlogs, the net figure, which assesses whether new orders exceed current fulfillment rates, holds significant importance. SL's ongoing investments aim to enhance operational efficiency and widen the disparity between gross and net backlogs. Moreover, the company boasts a high percentage of boats already sold to end customers, providing considerable stability.

In terms of balance sheet analysis, capital intensity remains modest, primarily focused on fixed assets and necessary maintenance investments. The company maintains a negative working capital of €34 million, reflecting efficient financing through advanced customer payments relative to supplier payments. While advantageous for reducing financial needs and financing costs, this strategy entails risks such as potential payment delays from customers and increased supplier costs.

On the liability side, despite some debt, SL holds substantial gross cash reserves. Particularly noteworthy is its net cash position, amounting to €140 million by the end of 2023, inclusive of dividends paid, treasury share purchases, organic net investments, and the consolidation impact of Duerre S.r.l. and Sea Energy S.r.l.

SL's strategic investments in 2023 primarily focused on expanding industrial capacity and advancing new models and product ranges, highlighted by the acquisitions of Duerre S.r.l. and Sea Energy S.r.l. The group's improved financial standing is supported by a robust free cash flow of €66 million in 2023, adjusted for expansion capital expenditures and acquisitions, driven by enhanced EBITDA margins and successful contract fulfillment. Since mid-2022, SL has pursued a prudent and diversified liquidity management strategy. This approach underscores the group's commitment to maintaining strong financial health and supporting ongoing growth initiatives.

Regarding returns, Sanlorenzo currently outperforms its two main competitors, and with its recent investments, expectations are for further increased returns in the coming years.

Valuation.

I employed a discounted cash flow (DCF) model to evaluate SL. The model utilized a WACC of 10.95%, a beta of 0.7, a risk premium of 9%, a long-term growth rate of 2%, and a fixed cost of debt of 4%. Based on this analysis, my estimated valuation for SL is approximately €60 in a basis scenario (neutral).

Additionally, I compiled a relative valuation table incorporating market multiples for The Italian Sea Group, SL, and Ferretti. SL currently trades at higher multiples compared to its main competitors. This premium valuation can be attributed partly to its longer tenure in the market, typically resulting in elevated multiples.

Some analysts argue that companies like these should approach multiples seen in higher-end luxury sectors such as Ferrari and Hermes, which commonly exhibit a PE ratio of around 25x, EV/EBITDA of 15x, EV/EBIT of 18x, and EV/FCF of 28x. While direct comparisons with these luxury segments may not be entirely applicable to the yacht industry, it suggests that overall sector pricing may be undervalued.

In my view, this sector presents attractive investment potential at current market valuations. In particular, my preference leans towards Sanlorenzo, given its proven track record and strong financial metrics. This choice contrasts simultaneously, I perceive it as a lower-risk investment compared to Italian Sea Group, thereby enhancing our portfolio stability. Furthermore, echoing the principles of esteemed investor Lou Simpson, management's commitment to long-term business management provides peace of mind.

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Disclaimer: It's essential to note that this analysis is for informational purposes only, and individuals should conduct their due diligence before making any investment decisions.

Please note that nothing posted should be construed as a recommendation to buy or sell. This summary provided here represents only a fraction of the comprehensive research conducted. My analysis encompasses various scenarios, so what you see published is just a condensed overview.

Established in 1997 by António Pinto Sousa and Alberto Teixeira, Ibersol specializes in managing fast-food restaurant chains across Spain, Portugal, and Angola. Originally a part of Sonae, a Portuguese conglomerate, Ibersol now oversees renowned brands like Pizza Hut, KFC, and Burger King. Guided by the same leadership since its inception, the company has maintained a strong presence, evidenced by its listing on the PSI-20 index. Despite navigating challenges during the COVID-19 pandemic, including the imperative to raise capital and respond to evolving consumer behaviours, Ibersol has showcased resilience and adaptability. With a steadfast commitment to innovation and customer satisfaction, the company continues to flourish, offering diverse dining experiences and fostering sustainable growth within the industry.

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One of the company's key strategies has been its focus on franchising, particularly with renowned international brands like Burger King, Pizza Hut, KFC, and Taco Bell. However, recent developments, such as the sale of Burger King restaurants for €260 million, have sparked interest in Ibersol's potential as an investment opportunity. Despite this influx of cash, the market response has been subdued, presenting a unique situation for potential investors to consider.

Main event in Ibersol in recent years – Burger King sale.

The divestiture of Burger King by Ibersol in November 2022 had a profound impact on the company's financial landscape. In this transaction, Ibersol received €244.5 million in cash plus an earn-out of €15.5 million. Burger King, as Ibersol's flagship brand, had been a major contributor to the company's earnings, leaving Ibersol with a substantial cash reserve but also raising questions about its future investment strategies. However, Ibersol adeptly navigated this transition without adverse consequences, bolstering its financial position through measures such as extraordinary dividend distribution, debt reduction (€83.4 MM in debt repayment + €16.6 MM associated with the Burger King sale operation), and cash reserve augmentation over the past year. Additionally, Ibersol launched a share buyback program, acquiring a notable percentage of its outstanding shares, commencing in June and extending until May 31, 2024 (4,4359,577 - representing up to 10.29%). Furthermore, the company eliminated treasury shares as of May 26, 2023 (-3,640,423), and witnessed Fergie acquire a 10.74% stake previously held by SGPS, a company owned by the CEO and Teixeira and Barbosa. These strategic manoeuvres underscore Ibersol's proactive stance in asset management and commitment to enhancing shareholder value post-Burger King divestiture.

Management team.

Huge skin in the game. Ensuring management incentives are in sync with shareholders' interests is typically crucial, but given the substantial capital relocation at hand, it becomes paramount.

Let's introduce the dynamic duo. The company is under the stewardship of two lifelong partners, António Pinto Sousa and Alberto Teixeira, who hold the record for the longest tenure as managers of a company listed on the primary Portuguese stock index. In 1997, this pair orchestrated a management buyout of Ibersol, funded in part by an IPO. Before this, Ibersol was a subsidiary of Sonae, a prominent conglomerate in Portugal. Over subsequent decades, Ibersol enjoyed an average sales growth rate of approximately 9%, until the onset of the pandemic. Despite challenging macroeconomic conditions, such as the European Sovereign crisis from 2011 to 2013, wherein the Iberian region was particularly hard hit, capital allocation remained commendable. Capital allocation has been very good for decades, generating an average ROIC of between 9-12%, which represents good management and the ability to create value on the part of the company.

These two friends collectively hold roughly a 56% stake in the company, valued at approximately €165 million at current market rates. This amount surpasses their combined annual salary of €1 million by over a hundredfold and a substantial portion of their overall wealth. Both Mr Teixeira and Mr Pinto Sousa have a significant vested interest in the company's success, ensuring their alignment with the broader shareholder base.

Jumping into its numbers.

Ibersol has demonstrated consistent growth in various key metrics, including the number of establishments, revenues, income, and EBITDA since 2000. However, it experienced a notable deceleration during the financial crisis of 2009-2012 and the pandemic-induced challenges of 2020-2021. The most significant surge in its performance occurred in 2016 following the acquisition of Eat Out Group, which propelled its establishment count from 377 to 504.

Recent years have presented a myriad of significant events, complicating direct comparisons. Factors such as the implementation of new European accounting standards (IFRS 16) in 2019, the disruptions caused by the COVID-19 pandemic in 2020 and 2021, legislative changes impacting its concessions sector by AENA in 2021, and the strategic sale of BK to private equity firm Cinven in 2022 have all exerted considerable influence.

In 2023, the group inked a pivotal agreement with Pret A Manger, a renowned British chain specializing in sandwiches and coffees, signalling its commitment to further consolidation in the Iberian Peninsula. Plans to open 70 new establishments across Spain and Portugal over the next decade underscore its growth ambitions. With only one opening in Barcelona, ample expansion opportunities remain untapped. During the year it opened its first two prets in Spain, specifically at the Barcelona Josep Tarradella Airport.

Ibersol operates within a seasonality industry where sales typically peak in the second half of the year, accounting for roughly 60% of the annual total. The anticipated uptick in sales and revenue in the upcoming years is half driven by projected growth in airport traffic and consumer spending, particularly attributed to tariff reductions. Furthermore, the company is in the initial phase of new concession contracts, specifically 11, for the airports of Madrid, Tenerife, and Malaga. Currently, these contracts are pending completion of the reform process and thus not yet recognized as concessions. Upon their operationalization, these locals are expected to significantly increase future income streams.

Over the past decade, Ibersol has witnessed a remarkable revenue surge of over 140%. Despite encountering hurdles amid the turbulent 2020-2021 period induced by the widespread ramifications of the COVID-19 pandemic on brick-and-mortar establishments, Ibersol has demonstrated resilience, maintaining a robust balance sheet with a Free Cash Flow (FCF) of €47 million. The accompanying chart vividly depicts the temporary setback hardened during this phase, mirroring broader market sentiments. Furthermore, I expect the company to reclaim pre-pandemic revenue levels by 2026.

Regarding net income, Ibersol experienced a significant downturn in 2023, plummeting by 90%. This decline stemmed from escalating costs, the implementation of new reforms, and personnel expenditures, among other factors. Nonetheless, while substantial, this decline is not inherently detrimental. However, I was taken aback by the extent of the drop.

The company maintains a steady dividend, albeit at a relatively modest level. However, there is ample opportunity for it to prioritize investment in growth initiatives. I place little emphasis on the dividend and do not anticipate increases in this regard. Instead, I prefer that the company directs its resources towards generating shareholder value through growth initiatives or share buybacks.

After a challenging 2023, the lingering presence of high-interest rates persists as a concern, placing strain on household finances and casting a shadow over consumption, particularly within the restaurant industry. Forecasts for Portugal and Spain improved for 2024, accompanied by an anticipated decline in inflation and subsequent easing of interest rates. Despite geopolitical uncertainties such as instability in the Middle East and ongoing conflict in Ukraine impacting consumer sentiment, recent indicators, notably airport traffic, suggest that tourism-dependent markets in southern Europe will exhibit resilience, tempering the anticipated consumption deceleration. The ongoing conversion of new concession restaurants at pivotal airports, including Lanzarote, Madrid, Tenerife, and Malaga, is expected to present profitability challenges until their transition to definitive formats and concepts is finalized. Expansion initiatives for brands like Pizza Hut, KFC, Taco Bell, and Pret A Manger remain integral to its operational growth strategy. Furthermore, considering the success of other franchise models like Rodilla, the possibility of diversifying within the sector is not discounted. Additionally, the acquisition of Medfood is poised to bolster revenues, given its operation of 31 KFC outlets. I am optimistic that Ibersol will surpass 95 million euros in revenues solely from its KFCs.

Looking forward to the trajectory of Ibersol, a reduction in maintenance CAPEX is on the horizon, attributed to the perceived lower investment requirements linked with the openings of new franchises and concessions. As for free cash flow, significant changes are not foreseen, given the continuous expansion of locals and potential acquisition endeavours, notably the complete integration of Medfood (buy the entire company), which will bolster its KFC expansion ambitions with 31 additional outlets. The strategic outlook underscores a focus on establishing stores with robust margins and low operating costs.

Amidst its good financial performance and promising prospects, Ibersol appears undervalued in the current market landscape. With a P/E ratio of merely 6x, significantly lower than its historical average of over 12x, and the sector average of 20 times, the company presents an enticing investment opportunity. Similarly, the EV/EBITDA ratio stands at a modest 5x, well below the sector norm, particularly when juxtaposed with the valuations of industry giants such as Amrest and Yum Brands.

While Ibersol's yields are good, they do not necessarily confer a substantial advantage over its competitors. However, there remains optimism for their augmentation in the long run.

Nevertheless, it's imperative to acknowledge the inherent risks associated with investing in Ibersol. Operational uncertainties, including lease renewals and evolving consumer preferences, pose potential challenges to the company's performance. Additionally, the competitive landscape presents a formidable hurdle, with the emergence of new players threatening market share. Moreover, the expansion of the franchise business exposes Ibersol to credit risks, albeit diligently managed by prudent management practices.

Furthermore, Ibersol's perceived lack of liquidity may not necessarily be a deterrent for investors. On the contrary, it could offer an opportunity to acquire the company at a discounted valuation compared to a more liquid market. Moreover, investing in a less liquid asset allows investors to harness its potential without succumbing to excessive volatility, thereby fostering long-term value creation. As the company continues to deliver robust performance, its shares are poised to gain traction, gradually enhancing liquidity and investor interest over time.

Valuation.

For the valuation of Ibersol, a DCF analysis will be used until 2027 with a discount rate of 7.55% and a terminal growth rate of 3%. A risk-free rate of 3.80% to stress the value. This results in a valuation of €11.63

If I value using multiples, assigning a P/E ratio of 20x, an EV/EBIT of 12x, an EV/EBIT of 19x and an EV/FCF of 20x, we obtain a price of €10.27. If we weigh each valuation equally, I have a weighted target price of €10.95, representing an upside of more than 56% from the current prices (€7).

The valuation is conducted in a neutral scenario, although I usually incorporate a 5% margin of error on the price in case my projections turn out to be too optimistic and vary. Applying this discount, I obtain a target price for the company of €10.40, representing a 49% increase.

Conclusion.

I find this opportunity to be highly compelling for several reasons. The strategic collaboration with Pret A Manger, expansion in its main source of income (KFC and Taco Bell), and buying of Medfood, coupled with Ibersol's expertise in digital transformation and its alignment with the growing demand for convenient food options, positions the company for significant future success. With a net cash position, robust growth, active share buybacks, and directors holding around 56% ownership, coupled with limited analyst coverage, the company presents a promising investment profile. Despite facing challenges in the pandemic-hit industry, it deserves a higher valuation, given its strong fundamentals. Moreover, potential catalysts such as evolving consumer trends or expansion plans through new concessions and new restaurant openings, could further enhance its valuation. Compared to peers (AmRest mainly), it appears undervalued and exhibits superior quality. Looking ahead, it's vital to monitor food trends, labour market dynamics, and shifts in consumer behaviour, including factors like VAT and consumer confidence. Currently, I maintain confidence in the company and trust its management to continue making prudent investments, as evidenced by its track record thus far.

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Disclaimer:: It's essential to note that this analysis is for informational purposes only, and individuals should conduct their due diligence before making any investment decisions.

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Altri is a Portuguese company that was established in 2005 through the restructuring of Cofina and various acquisitions in the early years, including notable ones like Celtejo, EDP Biolectrica, and Celbi, which it acquired from Stora Enso. Currently, it has a market capitalisation of €980 million and went public in 2005, experiencing a remarkable 1,670% appreciation since then. It currently trades at a P/E ratio of 3 times, achieves an ROIC exceeding 10%, which is above the market average, and has increased its sales by a 12% CAGR since 2021.

Altri, headquartered in Oporto, is a conglomerate that manages forests and produces and markets cellulose. Additionally, it generates and sells renewable energy from biomass. It operates three plants in Portugal with a capacity of over one million tons per year. Just over 50% of its sales consist of tissue paper, with its primary market being Europe (excluding Portugal) accounting for approximately 60% of its sales. The group also manages around 85,000 hectares of forests.

Altri is outstanding in electricity generation. The energy used in its factories is produced in cogeneration plants, entirely from renewable fuels. Cogeneration is the process by which by-products of cellulose production, derived from wood, are valorised, producing steam and electrical energy. This way, the factories' needs are met, and the surplus is injected into the national electrical grid.

Company and Market Outlook

It is expected that the global demand for pulp will increase by 2.1% annually until 2027. The robust demand in China is driving global demand upward despite the weakness observed in Europe and North America. Pulp prices experienced a significant decline in 2023, reaching a minimum of $809 per ton, causing many companies to suffer and substantially reduce their profit margins. Pulp prices in China are already on the rise, and a similar trend is expected to follow in Europe soon. By 2024, a normalisation is expected, reaching around $940 - $1,000 per ton.

Regarding Altri, they expect to have the Gama project up and running this year, located in Galicia, specifically in Lugo. The project entails the establishment of a plant for the production of sustainable textile fibres known as Lyocell. This project positions Altri as a global leader in the production of this material, which is manufactured in an environmentally sustainable manner.

Altri anticipates that with Gama, the company's revenues will be more diversified. This would provide the company with greater stability and improve its financial balance. In addition to increasing sales, the global market for textile fibres is expected to grow at a rate of 7-8% annually until 2030.

Mentioning that, despite the normalization of pulp prices, the company could maintain its profit margins. This could be achieved by offsetting the decline in energy prices, increasing sales volume, and in the future, with the production and sale of Lyocell through its Gama project.

How is Gama going? Ongoing studies are paving the way for a final investment decision (FID) in the near term for the Gama project, slated for the Palas de Rei area in Lugo, Galicia, Spain. Announced as a potential location in April 2022, the 200-hectare project gained approval as a 'Strategic Interest Project' in December 2022, expediting licensing processes. The upcoming steps include an environmental impact study, a detailed engineering plan, economic viability assessment, the pursuit of EU subsidies, and acquiring necessary licenses from authorities.

Management Team and Shareholders - skin in the game.

José Armindo Farinha Soares de Pina has been the CEO and director of Altri since 2020. Carlos Alberto Sousa Van Zeller e Silva is the deputy CEO and director of operations, who recently joined the company. Vítor Miguel Martins Jorge da Silva, the CFO, has also been appointed as the CEO of the Galician subsidiary that will manage the textile fibre factory, accompanied by Carlos Sousa. All of them have over 10 years of experience, and their salaries do not exceed €3.5 million. These salaries seem somewhat excessive, which is a negative point for the management team.

The top five largest shareholders of Altri collectively own more than 65% of the company. Among them are companies led by members of Altri's board. Promendo is led by Ana Menéres Mendonca, Canderno Azul is managed by Joao Manuel Matos, vice president of Altri. Domingos José Vieira de Matos, one of the founders of Cofina (the company that led to the creation of Altri through a spin-off), has been involved in managing the group since its inception. He is the director and majority shareholder of Livrefluxo, S.A. Paulo Jorge dos Santos is the director and majority shareholder of Actium Capital. Lastly, 1 Thing Investments has Pedro Miguel Matos Borges de Oliveira as an advisor on its board, who also serves as an advisor in Altri.

Some key figures.

Over the last 10 years, Altri has increased its net profit by 51%, with a CAGR of 35% in the last 5 years. The company has managed to maintain an average operating margin of 16%, while its competitors typically hover around 10%. In 2022, it recorded revenue of €1,066.20 million, a 34.40% increase from 2021. However, it posted a negative free cash flow of -€220 million, the first time in its history, attributed to investments in new projects. Nonetheless, the company maintains a robust balance sheet, with reduced debt currently at €438 million.

In the following graph, we can observe that in 2020, the company faced challenges as pulp prices dropped by 22% compared to the average price recorded in 2019, and it was impacted by the effects of the COVID-19 pandemic.

There are good reasons to believe that Altri's results will continue to improve as pulp prices rise, demand increases as expected, and the Gama project begins to operate. The company's operations report EBITDA margins of over 20%, and I anticipate these margins to expand in the coming years. Additionally, with the decline in energy prices, the company will reduce costs, leading to increased revenues and margins.

It's worth noting that the company does not have a sustained dividend policy. Their objective is not focused on dividend distribution, as they have room to continue investing in growth.

Despite the growth, positive future outlook, and excellent capital returns, Altri is trading at a P/E ratio of 2.3x, significantly below its historical average of over 7x and the sector average of 10.6x. This suggests that the company may be undervalued. Additionally, the EV/EBITDA ratio is at 5.3x, well below the sector average. Notably, well-known companies in the sector like Navigator or Stora Enso trade at higher multiples.

The returns are impressive, and I expect them to be sustained in the long term. The only company that competes with Altri in terms of returns is Navigator.

However, despite these positive figures, the company is not without risks. The main risks include a decline in cellulose and energy prices, delays in the Galicia project, natural disasters, new regulations, or unexpected shutdowns at any of its three factories in Portugal.

Altri is somewhat illiquid, which is not necessarily a drawback. Illiquidity allows for the acquisition of a company at a lower valuation than in a liquid market. Investors can enable the company to work for them with less volatility, generating value year after year. Typically, shares of a good company become more liquid over time as investors begin to take notice. Altri's illiquidity is attributed to its size, sector, and the country in which it operates. However, I do not doubt that with the rise of ESG, more funds in this category will focus on it and start investing.

Valuation.

For the valuation of Altri, a DCF analysis will be used until 2027 with a discount rate of 9% and a terminal growth rate of 2%. An EBIT margin of 18% for the next 4 years, slightly lower than previously recorded, and finally, a risk-free rate of 3.8% to stress the value. This results in a valuation of €7.25.

If I value using multiples, assigning a P/E ratio of 9x, an EV/EBIT of 8x, and an EV/FCF of 12x, we obtain a very similar target price of €9.38. If we weigh each valuation equally, I have a weighted target price of €8.31, representing an upside of 85.58% from the current prices (€4.48).

The valuation is conducted in a neutral scenario, although I usually incorporate a 5% margin of error on the price in case my projections turn out to be too optimistic and vary. Applying this discount, I obtain a target price for the company of €7.90, representing a 76% increase.

Conclusion.

The company appears interesting, with quite attractive growth potential. However, investors must have a truly long-term perspective, as the company will not reach its true value overnight, due to the factors mentioned earlier. What is clear, though, is that the prospects for the company are positive, with the Gama project in Galicia expected to significantly boost revenues and, above all, provide greater diversification.

Disclaimer: This is a personal analysis and does not constitute any buying or selling recommendations. Each investor should make their own due diligence.