SFAF analyst meeting report Samse- September 10th 2021
Company presentation, Q&A, analysis and valuation
Here are my notes from the Samse analyst meeting. The post has three parts:
- Operational update from the company
- Q&A from analysts. I will let you guess the one’s I asked!
- Company analysis and feedback in a couple of paragraphs.
Presentation
We are present on 2/3 of the French territory. Specialist brands have the widest range of products. Water supply = pipelines where there are a lot of leaks so lots of opportunities. Reminding us that for DIY, they went from two to a single brand. They manage their logistics themselves. They transport from supplier to their branches as well as from the branches to their customers.
Strong recovery in trading and very strong in DIY. We remain on very good levels. The massive excess activity is slowing down but it is still great. We have lots of brands but we rationalize a lot. DIY: we compare performance to the 2019 results. The trend is very strong, the market dynamic is helping us and we are also gaining some market share. Between 2019 and 2021, for DYI we opened 2 stores.
P&L
We have never had so much tension or shortage on raw materials. This concerns ¾ of our products. We replicate raw materials increases to our customers. In H2 2021, we are moving forward on a market that we have never seen before, so not the same half-year. We compare 2019 operating results with the 2021 numbers: it was the increase in activity which explains the increase. Concerning employee costs (wages…), the 20.6 M€ increase is explained by 10 M€ for the incentives and the contribution plan and 10 M€ by the workforce increase (we have been recruiting).
July and August are the two biggest months for DIY in a normal year excluding covid. DIY: the overheated market conditions are deducing but it remains as dynamic as ever.
There is a non-current loss of 1 M€ which represents the closure of a DIY store in the Ile-de-France region. It was a JV with Mr Bricolage. The branch didn't work out and the region is an atypical market.
The companies accounted for by the equity method (Plattard (33,99% ownership) and Simc (44,77% ownership) performed very well.
The tax burden decreases because we activated a tax deferral from a timber subsidiary acquired 2/3 years ago and President Macron's corporate tax cut will also help in the future.
We have not done any external growth for 18 months. We are resuming contacts but we remain focused about the price to pay because Samse reminds sellers that they are looking at the 2019 figures and not the 2020 to have a normalized vision.
No new borrowings in H1 2021. Slowed capex in H1 2021 as still in a covid situation, inertia too and we also had problems with the suppliers of vehicles and fleets of trucks. There will be a catch-up of capex in H2 2021.
Are we not meant to have so much cash on the balance sheet?
We are aiming for 130 to 150 MEUR in cash on the balance sheet. We will do capex, take a little of debt. Debt ratio at 11.14% versus 38.9% in 2018. We did not expect this to drop so much as usually H1 is lower due to building up inventories. So the cash is in place to make acquisitions.
We have no problems with inventories outside of timber. We have little impact because we have very good relations with our suppliers. For plasterboard, normally delivery is done within 24 hours, at the height of the crisis, we were at 6 weeks and then we were back at 2 weeks. We do not see construction stoppages. The advantage we have is that we still had a lot of inventory so we could pass price increases on an inventory which was bought at a much lower prices.
Wants to start again on external growth. We are on some small projects, but sellers remain on 2021 figures. We don't want to overpay. But we want to start again with growth projects because we have a lot of cash. The priority will be to make acquisitions in specialized trading. We haven't made any acquisitions for 18 months while we usually make 3 to 4 per year. This helps to show the teams that we are back to normal.
In specialist trades, we aim for public works, water supply (full of water leaks), wood (because of the dynamic of constructions with wooden structure) and panels, plasterboard and isolation (because the French isolation plan benefits these last two themes).
Example of rationalization of the group: handed over an agency which was Samse to go to a wood brand of the group.
Remuneration policy = participation + contribution + bonuses. We have always given a lot because it generates the will to work well and the employees worked very well during the crisis.
Blue horizon plan: increase in employee ownership at the capital of the holding (Dumont). 75% of employees are now shareholders through the FCPE (Employee fund) against 64% as of 12/31/2020. Helped the lowest wages by matching 100% on the first 600 euros of participation. Dumont share plan is re-invoiced at Samse but this does not change the number of shares. Objectives to increase permanent contracts. We want employees to stay with us for a long time. Bonus on salaries if compliance with the CSR objective (0.10% is not a lot but it helps to push people in the right direction).
Q&A
IPO of BME in Holland?
Samse was supposed to be in it with Blackstone but that's why we bought Blackstone’s stake at Dumont level because the project was of no interest to us. BME in France is Rabony in Paris, Biuscat in TP (Public works) and had branches in Normandy which were sold to Point P which thus seems to be back in the distribution business. BME France was going to make 230 MEUR in sales. The french part of BME is small. Rabony was sold at a very high price, the scope is complicated, CRH has always struggled to make it profitable. We were not consulted on the sale of Rabony.
D&A amount?
Stable compared to last year
As far as operating results are concerned, are all the brands doing well?
Yes. Wood has outperformed but it remains small with a turnover of 100 MEUR.
Lots of cash, why not pay an additional dividend?
We want more visibility for the year but no additional dividend this year. We will see next year. Dumont has 130 MEUR in debt at 12/31/2021
Change the brand because more to the West?
Not at the moment.
Merger with Hérige?
We are in the same common purchasing group (MCD). We know them very well, but we have no plans to deal with them. Culturally its not the same. Outside of the purchasing group there is no synergy.
Inventories?
Like any good trader, we took advantage of it. If there is a strong fall, we will have less margin but we will still be making a profit win. In the mark-up, yes there is from 0.2 to 0,4% which comes from the fact that we had inventories acquired at lower prices.
Are you going to pursue other activities?
No, we don't see other jobs to go to. Above all, we have a priority on the geographical network. We stick to what we know. PACA, Alpes, Ouest, Lyon, Bordeaux are cities and rich areas where we have better margins. There are margin disparities depending on the geographic areas. Thus in mountainous areas we have 80% market share. Between two branches there can be a 5% point margin spread.
Do-it-yourself: goal of opening one store per year. Difficult to create new agencies with town planning rules.
Trading: the market is atomized; we can still do a lot of things.
Client payments: very good semester. We have not taken back the 3.6 MEUR provision that we took last year. The situation is very healthy in terms of payment but there will probably be a catch-up effect with the end of the PGE (French support program put in place during the covid crisis).
How do customers react to price increases? Customers accept and understand them. It is the customer who takes care of the increases and who decreases his margins (developers in particular). We kept the wood for our good customers, we keep the relationships with our existing customers. So, for example, a new big customer arrived with a huge order for wood: we said no. Priority is given to existing customers.
The CVAE (French tax) went down from 1.5 to 0.5%.
Impact on the logistics chain?
We managed it well. The teams were paid overtime, the employees worked a lot but they were paid and they were motivated. Everything is going well. We had a maximum of 20% inventories shortage rate.
DIY: we believe that this will remain at good levels of activity in the future with the rise of remote working in particular. We are not worried. Building and construction are very resilient markets. S2 2021 will not be stronger than S2 2020. For July and August we rather see a normalization. July was better than budgeted but less than July 2020, which had benefited from a catch-up effect.
Professional customers?
They are exhausted and cannot find a workforce.
We are not particularly worried, but we are not blissfully optimistic.
Samse share pledge // Dumont loan?
Problem if Samse share price falls to 70 euros but in this case it is all of France that is having a problem. 6-year Business Plan: over the first 2 years we are already above. We are not at all worried. We reimburse 13 MEUR per year (capital plus interest) at the Dumont level.
Analysis
Samse owns half of its sites. You can find the whole list in the annual report (pages 187-190). That’s one hidden asset, another one are the two companies in which they are minority shareholders (Plattar and Simc). These two companies are very profitable and are leaders in their regions. Another hidden asset is the employee’s implication. During the pandemic, finance department employees went to help the DIY shops which were flooded. In fact all the shops were able to stay open during the pandemic as they were under the 10 000 square foot threshold which the French government put in place to determine which type of shops could open or not.
It’s the second time I have been able to see management and I will be seeing them again at the end of the month. The management team is great, they are transparent, honest and do not avoid any questions. When something goes wrong it is quickly put forward. The three top managers seem to work very well together. This is one of the rare companies where you have more then 70% of employees which are also shareholders.
Their strategy is to improve their market share in the regions where they already are and then go in a region where market share is low. They focus on the east and south of France. The game plan is clear.
Capital allocation is focused on doing external growth and paying a dividend to quickly reduce the holdings’s debt which was taken to buy out Blackstone which was present at the holding level. The BME IPO will help us to have a comparable and maybe put forward the undervaluation of Samse/
To downplay all these good points, let’s not forget that the DIY had an exceptional year which should still be good but clearly at one point it will slow down. At which point trading will take over and is resilient business. Balance sheet is solid and it will be more on the trading business that acquisitions will be made. DIY is not an area of external growth focus.
Capex is divided between acquiring real estate (10 to 15 MEUR) and the rest is more classic capex. Samse keeps investing in it’s real estate and the portfolio keeps increasing year in year out. It also acts as a safety cushion if cash is required to reinforce the balance sheet. This is what they did in 2020 at the height of the crisis. The assets sold were recent so as to limit the tax on gains. They sought of stopping the selling process as the crisis receded but decided to move forward.
Valuation
There is a self controlling loop as Samse which owns 7,02% of Dumont Investissement which in its turn is owns 77,3% of Samse. The number of shares to take into account is 3,26 million. Samse owns half of it’s real estate which can be approximately valued at 420 MEUR. By using the 2020 numbers (and estimating that net debt will be around 20 MEUR ) which were exceptional but which should still be very good in 2021, FCF yield is at 16,5%. And remember this is without taking into account the share of companies accounted by the equity method (Plattard and SIMC) which delivered 4 M€ in net results.
If we normalize the yield towards 7% the last 3% can be easily gained through external growth which is part of Samse’s game plan. As a bonus you get a 4% dividend yield each year which is recurring as Dumont is reimbursing the loan it took to buyout Blackstone and you can potentially have an additional dividend which Samse did in 2020. Samse is a rare company with a top management and employees.
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 Samse at the time of publishing this article (this is a disclosure and NOT A RECOMMENDATION).
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