Hi Olivier, great write up! What do you make of the fact that as the company has grown, they increased revenue by 80% since ipo but at the same time gross profit and cashflow from operations grew by roughly the same % which means there's no operating leverage
Update on H1 2022 calendar earnings. Sales up versus 2019 but profit and ebitda margins still lower than pre covid which is disappointing.
Got an update from management, mostly increase in staff costs due to job market (the company will do better in bad times), and delay in increasing prices corresponding from input inflation.
I received great feedback on maintenance capex, D&A, and leases since I published this article.
From the cash flow statement, we must deduct 1.5 millions of leases. I now learned how it works under the new accounting rules. Although some of these leases are investments because they are in a let to own scheme, It is better to simply remove 1.5 millions from the earnings power estimate.
For maintenance capex and D&A. Well at least for now, the investments detailed in the annual report are not maintenance, they are new stores, store expansions and new factory lines. I do not want to deduct these as a real cost.
In theory, maintenance capex equals to D&A-leases will be due in X years. In my opinion this is not a guarantee, and due to the growth capex, in that X years, even if that maintenance capex is due, the FCF will be much higher, because we will get : much much higher cash flow from ops Minus higher maintenance capex.
But I should also have estimated a small maintenance capex cost at minimum for the current year.
At the end the thesis is still intact, but it is not that cheap. it is still very cheap.
6 millions - 1.5 millions leases - 1 million estimate maintenance capex = 3.5 with covid
with vaccine passport now and reopening, I hope for 1-2 millions more cash flow or lets say 5.
market cap 23 millions
P/E=6.5
P/E with vaccine passport and partial reopening: 4.6 or 5 to average.
The feedback I received made me growth as an investor and it is very valuable to me. Thanks!
Hi, my theory is that in year 1, Operating cash flow is 100. Lets say D&A is 60. with all the growth capex, new bakeries and so on, in year 10 it will be lets say 300. If all the capex is then due in year 10, which is not sure at all (could be aggressive accounting, it is a family owned company), then my new earning power in year 10 is not 100-60, it will be 300-60. So it will go from 40 to 240, huge growth from 40. Obviously that is made up numbers.
Hi Olivier, great write up! What do you make of the fact that as the company has grown, they increased revenue by 80% since ipo but at the same time gross profit and cashflow from operations grew by roughly the same % which means there's no operating leverage
Thanks, it could be the loss making water segment. I think inflation and rising costs as well hurt a lot recently.
Update on H1 2022 calendar earnings. Sales up versus 2019 but profit and ebitda margins still lower than pre covid which is disappointing.
Got an update from management, mostly increase in staff costs due to job market (the company will do better in bad times), and delay in increasing prices corresponding from input inflation.
I received great feedback on maintenance capex, D&A, and leases since I published this article.
From the cash flow statement, we must deduct 1.5 millions of leases. I now learned how it works under the new accounting rules. Although some of these leases are investments because they are in a let to own scheme, It is better to simply remove 1.5 millions from the earnings power estimate.
For maintenance capex and D&A. Well at least for now, the investments detailed in the annual report are not maintenance, they are new stores, store expansions and new factory lines. I do not want to deduct these as a real cost.
In theory, maintenance capex equals to D&A-leases will be due in X years. In my opinion this is not a guarantee, and due to the growth capex, in that X years, even if that maintenance capex is due, the FCF will be much higher, because we will get : much much higher cash flow from ops Minus higher maintenance capex.
But I should also have estimated a small maintenance capex cost at minimum for the current year.
At the end the thesis is still intact, but it is not that cheap. it is still very cheap.
6 millions - 1.5 millions leases - 1 million estimate maintenance capex = 3.5 with covid
with vaccine passport now and reopening, I hope for 1-2 millions more cash flow or lets say 5.
market cap 23 millions
P/E=6.5
P/E with vaccine passport and partial reopening: 4.6 or 5 to average.
The feedback I received made me growth as an investor and it is very valuable to me. Thanks!
It seems that you don't apply much margin of safety to the depreciation costs.
It might cost you 1m in equipment in year 1 and you don't have to pay anything for the next 10 years, but it doesn't mean those aren't costs.
What will you do in year 10? The business has to save up money for that case and the depreciation expenses therefore are the maintenance expenses.
Brick and Mortar businesses should be valued over the P&L statement.
It seems that the business is trading closer to 15x Earnings.
Hi, my theory is that in year 1, Operating cash flow is 100. Lets say D&A is 60. with all the growth capex, new bakeries and so on, in year 10 it will be lets say 300. If all the capex is then due in year 10, which is not sure at all (could be aggressive accounting, it is a family owned company), then my new earning power in year 10 is not 100-60, it will be 300-60. So it will go from 40 to 240, huge growth from 40. Obviously that is made up numbers.
Thank you for the follow-up! I appreciate your honesty and correction.
Too bad I can't read French, it looks exactly like a company I would be interested in given its valuation.