Gérard Perrier Industries (3)
A use of the whole capital allocation tool set and valuation.
External growth to improve geographic positioning of BU’s
GPI more or less acquires one company per year. External growth is used to improve the network locally (IDEM, Technosonic), to expand in a new country (Germany and its dense set up of SME’s with Bontronic) or to enter a new business (ER31 for hydroelectric and wind power; AECE for the aeronautic and defense sector and R3EA for automatism in the glass industry).
The timing of the AECE acquisition appears very good as it was acquired in 2021, in a difficult for the aeronautic sector.
The Bontronic and Technosonic acquisitions have fared well as sales have increased respectively by 60 and 27% on a 5 year and a 3 year span and are profitable. Idem has been integrated in Soteb (manufacturing BU) and should be doing fine. Only ER3I saw its sales decrease.
Changes at the holding level enabled the family to reinforce its control
In the last ten years, three financial transactions took place at the holding level. The end game is that it resulted in the family improving its control from 26,3 % to 37,7%. François Perrier increased his personal stake from 21% to 26,4 %. In August 2021, an additional Perrier family member joined the board. The managing director (Grégoire Cacciapuoti) strongly reduced his stake from 15,6% to 3% and Siparex is back in the mix with 11,64% acquired at 63 euros in 2021 after having initially sold its stake in 2017 at 45.3 euros. . Siparex has already done a good deal with the current share price of 84 €.
Opportunistic use of treasury shares, buybacks, dividend and re affecting the use of some treasury shares
GPI has used all the span of capital allocation concerning their shares. They have bought back shares, sold some treasury shares (true it was a little amount: 10 000 shares at 63 euros) during the pandemic, buying back shares from the holding which controls a majority stake (52%) to facilitate a transition, re affecting 1/3 of the treasury shares from being cancelled to being used for external growth and they used some (19 858) to partly pay for the AECE acquisition (share price was then at 77,6 €). The use of treasury shares to acquire AECE is not necessarily a sign that GPI thinks that the company is overvalued as it ensures key management of the target stays onboard.
The dividend increased in time and was maintained even during the pandemic. Dividend yield currently stands at 1,9%. A dividend is required as the controlling holding most probably used debt to increase its stake. The dividend can be easily serviced as GPI has a regular FCF (14,2 MEUR in 2019) thanks to an asset light business model.
Valuation
A point to bear in mind as we go forward, GPI tends to exceed its initial sales and results targets which it puts forward each year. With the 2020 numbers we have an EBITDA/EV multiple of 14. This is more or less the average price of private transactions for SME’s in Europe. The FCF yield stands at 3,2% at the current share price of 84 €. It is nicely priced and will require it to increase its profits by nearly 7 p.a on a long period to get us to an annualized return.
To mitigate this, 2020 was a special year and business is back on track, there has been an unusually big and structural acquisition with AECE, which gives them a new business.
By using the 2019 “normal” numbers for FCF and EBITDA (coincidentally the 2021 sales objectives match the 2019 sales numbers), the picture is better with a 4,7% yield and a 11,6 VE/EBITDA multiple. A 5% growth appears doable especially when one takes into account the AECE acquisition (which represents 12% of the 2021 sales objective), regular organic growth and increase in margins at AECE once we are back at a normal situation in the aeronautic sector.
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 authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. Disclosure – we hold a position in Gérard Perrier Industrie at the time of publishing this article (this is a disclosure and NOT A RECOMMENDATION).
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