Sunday, February 14, 2021

Some Updates on the First Full Year of COVID

COVID hit most of the world starting in March 2020. So, many companies have (almost) had a year of impact from COVID. Many Japanese companies end their accounting year in March and thus their year coincides almost exactly with the start of COVID. So, their annual results will be able to tell us a lot about the true extent of the world's business slowdown.

Tachibana Eletech (TSE:8159) year end revenue is expected to fall 6.2 % to ¥ 160.0 B (2020 ¥ 170.5 B). Year end EPS is expected to fall 26.0 % to ¥ 128.8, (2020 ¥ 173.9), which implies a 13.0 x earnings multiple.

Riken Keiki (TSE:7734) Year end EPS is expected to fall 19.4 % to ¥ 150.5, (2020 ¥ 186.8), which implies a 20.4 x earnings multiple.

Takamatsu Machinery Co.,Ltd (TSE:6155) year end revenue is expected to fall 38.7 % to ¥ 13.4 B (2020 ¥ 21.9 B). Year end EPS is expected to fall to ¥ -12.7, (2020 ¥ 130.8).

Installux SA (PAR:STAL) H1 revenue fell 26.6 % to € 52.5 M (2020 € 71.5 M). H1 EPS fell 73.7 % to € 4.4, (2020 € 16.6). Their year ends in December.

In H1 2020, installux experienced shutdowns in their Spain and France locations and therefore revenues fell significantly. They were still profitable though. However, the company provided no guidance for H2 2020, so we don't know what happened in the last 7 months.

Installux is conservative, well-run, and highly profitable. They expand opportunistically and thus do not overpay for acquisitions. Their expansion has mainly focused on control of the supply chain. Their niche aluminum product offering remains unchanged. Still their sales figures are respectable. It has consistently risen by about 3.5% per year for the last dozen years. And of course they have no debt!

The company currently trades at 13 times 2019 earnings, the last full year of data before COVID. While this PE is not super cheap. The company looks much better when using the EV to EBIT ratio because it has no debt and ample cash. The company's EV is 7.2 times 2019 EBIT.

The coming challenges for the company is how to put its cash to use. The following figure shows the cash and equity buildup through the years. Note that in 2018, cash dipped and PPE rose by the same amount because of the acquisition of a factory in Spain.

The simplest way to get rid of cash is to pay generous dividends but management indicated it prefers not do do so to show solidarity with stagnant employee wages. I suppose this can partially explain why the company recently began share buybacks. So far the company has bought back 2% of the shares. 

Right now, I am really not sure whether I should hold Installux for the longer term, or reduce my position. At € 390, it is probably fairly valued. So, I'll just wait and see. Their annual report should out by April, then I'll decide.

1 comment:

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