Monday, 7 July 2014

Sniezka: Paint manufacturer from Poland

Profile

The Group business focus consists of:
  • manufacture of paints, varnishes, adhesives, solvents, etc.
  • wholesale and retail trade 
Evolution of sales and profit
annual report 2012
 
annual report 2012

The company is reasonably stable and meets the criterions of making a profit more than ten years in a row. Furthermore the company operates in a growth market which results from convergence of Eastern Europe especially Poland, which is Sniezka's main market. I recommend the recent special report of the economist on Poland.

P&L


TTM20132012
total revenues576.2573.9576.5
Gross Profit210.6213.2196.8
Gross Profit Margin36.5%37.1%34.1%
EBITDA 74.476.772.9
EBITDA Margin12.9%13.4%12.6%
Ebit55.357.556.5
Ebit Margin9.6%10.0%9.8%
Net Income43.143.845.6
Operating Cash Flow*71.074.670.3
Net Capital Expenditures 22.122.535.5
Free Cash Flow48.852.134.8
*before changes in working capital

Leverage


1Q201420132012
Cash and cash equivalents23.61824.317.5
Total liquidity23.61824.317.5
Debt94.4989.791.6
Minorities5.9219.18.4
Total interest bearing liabilites100.498.899.9
Net interest bearing liabilites76.874.582.4
NIBL/EBITDA1.030.971.13

Capital structure
Shares series A and B are preference shares with respect to the vote in such a manner that each share carries five votes. Shares series C, D, E and F carry one vote per share. Shares of all series have the same preferences with respect to the dividend and return on equity.
Registered shares of A series are preferential in relation to the right to indicate members of the Supervisory Board within the scope stipulated in § 12 para. 2 – 4 of the Articles of Association: Members of the  Supervisory Board are elected by the General Meeting with the reservation that 4 (four) members of the Supervisory Board are elected exclusively from among the candidates indicated by shareholders holding the shares of A series in such a manner that each 25 000 shares of A series give entitlement to indicate a candidate for one member of the Supervisory Board.

1Q2014
Management holds the majority of shares. The capital structure certainly warrants some kind of discount for the traded bearer shares.

Capital Allocation: Buy-Back via Tender in 2012 and Dividends

Sniezka purchased 932,898 equity shares priced at PLN 31.00 per share spending PLN 28.9 million on that purpose. The Company redeemed these shares during the General Meeting of Shareholders in 2013.
1Q2014 presentation
The company has proven its willingness to return cash to shareholders. This may be due to Management's high ownership of shares.

 Valuation

Shares Outstanding (Total A,B,C,D,E,F)12.62
Price PLN36
Market Cap454.2
Net interest bearing liabilites76.8
Enterprise Value531.0
EV/EBITDA7.1
EV/EBIT9.6
Cash flow yield9.20%
PE10.5

 Low leverage combined with an ROE of 21.3% makes this a compelling valuation. Reasons for being cheap may be:

  • low liquidity of shares
  • capital structure with special rights for controlling shareholders
  • bad 1Q2014
  • income from Ukraine and Belarus
presentation 1Q2014


  •  plants in Ukraine and Belarus
presentation 1Q2014

Conclusion

 Sniezka falls into the compounder and GARP categories. ROE is high and relatively stable. Growth is to be estimated due to convergence of paint consumption in Eastern Europe. Especially the Polish market looks promising. Poland is the biggest net beneficiary of EU money. GDP growth is robust. In contrast to my investments in real estate companies Sniezka could become a long-term holding.

I am long Sniezka.

Links

valueinvestingblog.net

Sniezka


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