Precia (5) - AGM 06/21

A compounder that punches above its weight. Part 5: Last Friday’s shareholders’ meeting.

One of us was attending Precia’s AGM last week. It was the opportunity to meet with the company’s management as well as learn or confirm information. These are the main take-aways.

Prospects 2021

The revenue guidance of €140-145m (ex-Creative IT) for 2021 was reiterated. As already mentioned by the company in its Q1 revenues press release, its order backlog is above its pre-Covid level and 2021 budget. Revenues are on an upward trend especially in Europe, India and China.

Management’s goal is to achieve rapidly a revenue split between equipment sales and services of 50/50 (vs. 55/45 in 2020). Operating income is expected to increase. Although the company did not provide any forecast, we would expect the latter to come close to €15m in 2021.

Board appointments

3 new members got appointed to the board to assist the CEO: the CFO, the export director and the technical director. We believe this move should be put in the perspective of a succession plan although we expect the current CEO to stay a few more years at the helm.

Subsidiaries’ activity in 2020

The management is extremely satisfied with the integration of Milviteka as strong synergies are being achieved with common clients. A representation office was set up in Riga (Latvia) in order to serve Northern and Eastern European markets.

Europe. Netherlands and Belgium both had a good year 2020 while UK made a solid comeback.

Brazil is getting traction with new contracts establishing Precia as a benchmark in this market.

Asia-Pacific. In spite of being severely affected by the pandemic and lockdowns in 2020, India was still able to maintain a strong connection with its clients. Similarly, Malaysia suffered from the pandemic which resulted in delayed deliveries and a much lower activity. Australia had a bad year 2020 due mainly to organizational issues and poorly managed projects.

In France, Precia Molen Services revenues were stable vs. 2019 and it will prioritize efficiency and productivity going forward.  Precia S.A. 2020 sales were down due to reduced equipment sales.

Investments / Capex

In India, the new factory, built next to the existing one, was opened last month and should help Precia double its Indian manufacturing capacity. Chennai’s new airport will be only 20 kms away from the site.

In Veyras (France), a new building will soon host the after-sales, maintenance and commercial services. The space thus freed up will be used to increase capacity for electronic assembly. A metrology lab will also be up and running by year-end allowing for faster time-to-market.

Over the last five years, Precia has upgraded and internalized its manufacturing capabilities to improve its margins and add more value.

Employees relationships / COVID-19

Precia and its teams globally weathered the pandemic crisis quite well. Employees have been comfortable coming back to work in the office so far. Before the COVID-19 pandemic, an agreement was signed to let people work from home up to 20 days a year.

Employees now own 3% of the company’s shares (up from 2.8% last year). This is done primarily through an ESOP plan.

Precia did not apply for any COVID-19 government-guaranteed loan as they were not needed and considered too expensive.

Treasury shares / share buyback program

As mentioned in a previous article, treasury shares were purchased at an average share price of €97 (vs. €280 today). Management confirmed there is no plan to cancel them at this stage as they might be used opportunistically in the future.

During the AGM, the share buyback program resolution was amended and the max. purchase price increased from €265 (as mentioned in our previously article) to €340.

Risk management

In the current inflationary context, Precia is closely monitoring raw material price changes and confirmed it has not passed any increase to its clients yet. It is also putting a strong emphasis on cyber security.

Creative IT acquisition

This acquisition was funded with bank debt at a very low interest rate. It was confirmed 7 key managers will retain a 20% ownership. To recall, Creative IT generated €3.2m in revenues in 2020 with 40 employees. Its EBITDA margin is close to 25% with an expected revenue CAGR of 20% over the next few years.

Precia sees the deal as a win-win transaction for both parties as Precia broadens its services offering through a new MES software while Creative IT can access new key client accounts.

Working capital

Days sales outstanding has improved significantly to under 60 days. Working capital now represents 13.5% of revenues. This is a compelling performance especially given the tailor-made nature of Precia’s products and its industrial client base.

Precia will release its H1 results on September 29. We will obviously keep you updated on any significant event in the meantime, if need be.

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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 Precia Molen at the time of publishing this article (this is a disclosure and NOT A RECOMMENDATION).