Boa Concept : feedback from Forum Lyon Pôle bourse part 3

A change of story with EBITDA margins moving from 21% to 12%

Boa concept’s clients are in the e-commerce and logistics business. They sell conveyor systems which includes reading system, weighing systems, level change, loading system, strapping banding. The aim is to help their clients get as many orders ready as quickly as possible as properly as possible.

Here is a picture of their products.

They exploit 150 sites where they advise and have a close relationship with their clients. 2023 is a transition year. They needed to structure the company. The wages item has grown as they have kept recruiting. We now have 90 employees compared to 50. We recruited 17 employees in 2023. H1 2023 will withstand most of these expenses. They also have a new operations director.

They externalize the boiler making (work on the metal). It helps them remain capex light. They are deploying a new product line: robot picking. It is goods to person approach. We do not want to do high speed. They are focused on load/weight displacement. The robot’s value add is in the interface and the tools. The aim is to offer a plug and play solution where the algorithm makes the difference.

They are aiming for larger installations/products. Their objective is to increase sales but margins will be lower. Margins are higher in making of the products while the warehouse offering has lower margins.

Trading is back to normative levels. We are tagetting larger installations at 5M€ per contrat as well as smaller contrats which are more in the 0,5 to 1 M€ price range where margins are good.

E-commerce and logistics were boosted by Covid but now inflation and its impact on consumption has changed things. Sales cycle has doubled to 6-7 months against 4 months before. But we still have loads of quote requests.

As the contract gets bigger the margin rate will diminish. Historically we have a 21% EBITDA margin.

We want to do some volume and quickly get to 50M€ in sales (2022 sales were at 20 M€). We are aiming for a 12% EBITDA margin as the priority is to increase sales. We want to have a profitable growth.

Automatic storage is the flagship product to attract customers and then we can sell some additional products.

Our aim is to have an EBITDA margin which is above 10% and this will be helped by the robotic offer.

2023 will not be an extraordinary year but will be a profitable year. We know 70% of our sales one year before.

If there will be some M&A it will be during S2 2024. We are looking to acquire some sectors of activity. We are targeting the following countries: Holland, Germany. We do not want to start from

scratch in these countries.

We are working on setting up a sales office in Italy.

The acquisition multiples of the targets (privately held) are between 4,5 and 7 times EBITDA. Due diligence on an acquisition should be over by H2 2024.

During Covid we were focusing our efforts on light loads. We are reorienting our range of products. E-commerce and luxury are working well (i.e business with them is smooth and working without any hiccups). Now we are focusing on industry as reindustrialization is taking place and being helped through some subsidies. We are at a plateau in terms of recruitment.

Maintenance represents 700 to 800 K€ in sales. But we are not staffed to do the recurring part of the business but we need to work on it as our products are installed on 150 sites.

Software is a development axis. In 6 to 7 months we will be moving towards a SAAS model on this part.

The big American client is externalizing so this will go to the transporter.

We do not want to work with Amazon. We are too small. Our clients are our partners so we have to get along.

The founder is still very active.

Interesting points: an accelerated bookbuilding for the capital increase and 2/3 of the financial debt is in fact a PGE debt

For their april 2022 capital increase, Boa Concept used the accelerated bookbuilding procedure by which a company chooses to fill the buyer order book in just a few hours in order to raise funds as quickly as possible. My interpretation is that management probably thought that at 30€ the price was right to do a quick capital increase. Their timing appears to have been good.

Another interesting point is the financial debt. 1,9 M€ out of 2,9 M€ is a PGE debt. It is a debt which is guaranteed by the state and which was set up by the french government to help french companies during the Covid pandemic. Interest rate is between 1% and 2,5% depending on how quickly a company pays it back. Sometimes it can be useful to not reimburse it too quickly too as the interest rate is interesting…

Valuation: not longer that cheap with the new targeted EBITDA margin of the 12%

Valuation appears cheap when using the full year 2022 numbers with a 29 € share price. Indeed EV/EBITDA is at 4,2 with a 9,5 M€ net cash position. But this valuation was with a 21% EBITDA margin. Management indicated that they are now aiming for 12% (H1 2023 was at 13%). In other words, valuation is less attractive when taking into account this element…

As a small reminder, D&A includes some R&D (0,3 M€ out of 0,6 M€) which can be understood as they develop in house know how and technology. They amortize it quickly ( 3years) so it seems fair for me. We even have a whole page explaining why they amortize it (page 30 if you are looking for it!).

My opinion

I am not a fan of the approach of focusing on sales rather than on the margin. Another issue that I have is that the company has been trendy among investors. True it is an interesting technology, they have a know-how but too many people are speaking about it. A capital increase was done opportunistically (and in an accelerated way probably as the share price was high) in April 2022 at 30€ (compared to a current 29€ share price) and represented a 26% capital increase.

They have a solid net cash position (9,5M€) which will help them in M&A. But reducing the EBITDA margin target to 12% in order to get to 50 M€ in sales indicates in my opinion that one cannot apply the same multiples as before.

Additionally and as it has been clearly said by management, the company benefited from a big covid push with overinvestments from clients in e-commerce and logistics. The next step is to keep this dynamic going. For the time being it is a clear pass for me.

Don’t hesitate if you have any questions!

Cheers!

Jeremy

Disclaimer: The above article constitutes the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. The author may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. Disclosure – I hold a position Precia at the time of publishing this article (this is a disclosure and NOT A RECOMMENDATION).