Berentzen Update + Summer links
After being very busy lately, let’s look at some company links and write ups from substack.
Wow, stocks and markets are down.. well, like I keep repeating the only thing to do is follow Warren Buffett and invest for the long run, don’t overpay, and do nothing.. that was Terry Smith too. Wether you own deep value or quality, just do nothing and keep adding to companies at reasonable valuations and ignore all the market movements. The tide that pushes stocks higher is stronger than the fears of investors, because making returns on the money (in the form of dividends) is the biggest push. Otherwise we would find P/E 0.1 stocks with 1000% dividend ratios and we would be able to live of dividends with a meager amount of savings.
EDIT: Looks like stock markets are now back up, a week after I started this article. Nevermind.
LINKS
Here are the write ups I found interesting when I caught up with my inbox
Ala SPA is a aerospace parts distributor, a company that grows organically and with M&A.
Nice to have a a write up about a Portuguese company, a niche business model. However it is quite capital intensive because they plant trees for the corks.
Algoma central seems like a decent value stock. quite centric to one industry and I don’t know anything about shipping, but if you do, you may want to read this. What is interesting is the great lakes business is literally a closed market compared to the open seas.
We are going to the UK with great articles on SDI and Loungers:
It is strange that SDI is out of fashion after it dropped like 70%. I like it better now than then.
Loungers is a good growth story, but it is difficult for non UK people to understand the appeal. The UK customer is very fickle, with some brands like TGI Fridays or Old fashion Pubs suffering.
Hexatronic:
K2A preference shares
A nice growth story in retail:
A good Japanese compounder:
A finish accounting company. (Both ideas were Initially I think presented by Hurdle Rate).
I have added these to my Koyfin watchlists.
Berentzen: Company update.
(Berenten, Market Cap 46 million) is a Speciality beverage small cap out of Germany.
It has had low sales growth and low margins before covid, and also after covid took a margin hit due to inflation.
The company published preliminary H1 results: Consolidated operating profit (EBIT) of EUR 5.1 million, up 55%.
Estimated consolidated EBIT are expected for 2024 between EUR 9.0 to 11.0 million. Sales will be stable or down, due to restructuring of the loss making small business lines.
It shows the ability of consumer defensive companies in food and drinks to recover margins after a two years impacted by inflation.
However, from this EBIT, we will need to deduct interest cost. Although the company has very low net debt, it has some debt (1.3 million of interest costs in 2023) and uses factoring, (selling receivables for a discounts), which records a cost of debt (2 million in 2023). Therefore net profit could be as low as 4 to 5 millions, making the company at a PE of about 10.
On a plus side, a coming decrease in interest rates in Europe would help the bottom line.
A new business plan until 2028 aims for 2028 EBIT of 18 millions, with a margin of 8%
There is still the problem of negative working capital development that needs to be financed with Factoring. Berentzen has not noticed the market when this working capital plans to be released, and I would like more clarity on it.
The company pays a dividend.
So how do they expect to grow EBIT and Revenues until 2028? With increased marketing expense for the three main brands, Mio Mio, Berentzen and Pushkin.
For Mio Mio lemonade, the growth is proven, but for Berentzen and Pushkin vodka, this strategy is not proven and could fail. Mio Mio is still a small part of the overall business and has a good development.
Conclusion: It is unclear if the growth part of the strategy will be fully successful, but a low valuation, cost cutting and potential for lower rates alone should provide good results from there, partly with the dividend.
If we look at P/Sales and EV/EBITDA, we have like 0.25 and 3, which are multiples for a subscale car manufacturer, not a defensive drinks business.
Thanks to some comments on X, we had a good discussion about factoring and debt and I learned how it is accounted for in more details, as it is a very unusual financing method.
Here is the link to the full strategy presentation.
Thanks!! What do you think?
More updates soon.
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Great article! But it reminds me of my youth when we drank Berentzen Saurer Apfel—a trauma I will never overcome. :)
Thanks for the shoutout man I really appreciate it