During this month 4 companies have presented results, Pax global , Esautomotion , Macfarlane and Toya.
Pax Global annual results
Revenue was HKD 6,044.9 million, a 9.9% decrease compared to 2023.
Gross profit amounted to HKD 2,853 million, a 4.7% decrease from 2023. This was due to an improvement in the gross margin, which reached 47.2% in 2024 compared to 44.6% in 2023.
Operating income decreased by 31.7%, with an operating margin of 14.1% compared to 18.6% in 2023. The decrease in operating margin was attributed to higher promotional expenses, sales commissions and increased R&D expenses.
The company's net profit was HKD 713.4 million, a 38.2% decrease compared to the previous year.
Cash Flow
Cash generators were strong, with Net cash from operations amounting to HKD 1,162.7 million. More details will be available in the annual report to determine free cash flow.
Balance Sheet
The company has Cash and cash equivalents of HKD 3,083 million and short-term deposits of HKD 162 million, with no debt. Currently, its market capitalization is HKD 5,149 million, meaning that over 60% of its market cap is in cash.
Shareholder Remuneration
Thanks to its strong cash position, the company has been able to increase its dividend by 11%. During the year, an interim dividend of HKD 0.24 was paid, and a final dividend of HKD 0.25 has been announced. At current prices, this equates to a dividend yield of 10%.
In addition to the dividend, the company has repurchased shares worth HKD 57 million.
Guidance
Revenue: -5% to -10%. Gross profit: 45% to 47%. Operating margin: 13% to 15%.
The guidance was the weakest part of the results, although in my opinion, after the profit warnings this year, they are being conservative.
Valuation
The company's valuation is very attractive, trading at 7.4 times earnings and with a dividend yield of 10%.
Conclusion
The poor business performance is not because the company is underperforming relative to the market or because its competitors are stealing market share, but because the pandemic has outpaced the structural growth of the business, driven by a decline in cash payments and a shift from older POS to Android terminals. On top of that, POS sales are dependent on a weak retail sector.
We can say that the industry appears to be at the bottom of the cycle and will eventually return to growth, and an attractive valuation with a 10% dividend yield makes the wait worthwhile.
Esautomotion annual results
Revenue for 2024 was equivalent to €27.1 million, a decrease of 23.8%. Most of the revenue decline came from non-European markets.
The decrease in sales was due to two reasons. Firstly, a decrease in general market demand due to the macroeconomic context and secondly, a destocking by customers after a high inventory build-up during the pandemic, which we have seen in several industries.
The company has significant operating leverage, so a 23.8% drop in revenue translated into a 53% drop in EBITDA, reaching €3.9 million in 2024 versus €8.4 million the previous year, and an EBIT of €1.594 million with a margin of 5.9% versus 16.9% in 2023.
Net profit was €0.868 million, 80% lower, also due to an increase in financial expenses in addition to the aforementioned factors.
Cash Flow
The company generated free cash flow of €1.5 million, which was influenced by a reduction in working capital.
Working capital will play a key role in future cash generation, as the company has increased its inventories well above sales in 2022 and 2023 to secure components due to the tensions in the supply chain caused by the pandemic. Over the next 24 months, they expect to normalize inventory levels, which I expect will convert between €3 million and €4 million of inventory to cash.
Balance Sheet
Currently, the company has net cash of €4.6 million, close to 13% of its market cap. Something very interesting is that the calculation of this net cash includes €3.5 million as debt for the option to buy the remaining 35% of Sangalli Servomotori.
Conclusion
The company is clearly in the lower part of the cycle, and although far from a recovery, it seems that the market is stabilizing in 2025.
After several meetings with management, I expect the company to return to growth this year, not due to a market recovery but through the acquisition of new clients. Analyst reports expect something similar, estimating sales for 2025 close to 2023 levels. If the company achieves this recovery solely through new clients, when the market recovers, we could see even greater growth, along with the net cash position and the extra cash generated by the normalization of inventories. I am very positive about the company for 2025.
Macfarlane annual results
In a challenging environment characterized by weak customer demand and price deflation, revenue decreased by 4% to £270.4 million (2023: £280.7 million). Organically, the fall was 8% due to both price and volume, but this was offset by two acquisitions. This is the second consecutive year in which the company (and the sector) has experienced negative organic growth, with 2023 decreasing 8.9%. Looking ahead to this year, they do not expect a substantial improvement in the market.
Gross profit reached £105.3 million, practically at the same level as 2023. This is due to an improvement in margins, reaching a gross margin of 39% (2023: 37.6%). The company is currently at historical highs for gross margin, and although in the conference call they stated that they do not expect further improvements, they believe the current margin is adequate for the added value they provide.
Operating profit was £23.6 million, with an operating margin of 8.7% (2023: £22.06 with a margin of 7.9%). This improvement in operating margin is due to the net effect of changes to the fair value of deferred contingent consideration related to acquisitions.
Net profit reached £15.5 million, an increase of 4%. In per-share terms, the company generated 9.74 pence.
They have announced a final dividend of 2.7 pence, which is equivalent to an annual dividend of 3.66 pence.
Free cash flow was slightly lower than net profit, reaching £14.3 million. This difference is mainly due to working capital.
Balance Sheet
The company ended the year with net debt of £1.9 million, but due to the acquisition made at the beginning of 2025, I estimate that it currently has net debt of £16.5 million.
Key Conference Call Notes
At the current multiple, share buybacks are being considered, although their main focus remains growth.
They do not expect a drastic improvement in gross margin in the future, but they consider the current level adequate for the added value they provide to customers.
The organic decline in 2024 was 8%, but the trend improved in the second half of the year, settling at just over 3%. The first weeks of 2025 show figures similar to 2024, so they feel they have likely passed the worst.
They believe they are gaining market share in large corporate clients due to their value-added proposition. However, they are probably not being as effective in the smaller client segment (approximately 10% of revenue), so they have relaunched their website.
Opinion
Considering the current situation, the results have not been bad. The problem lies with the sector in general and not just the company, something that will eventually return to normal and could generate a rebound in sales, although it seems this will not happen this year. Despite not expecting organic growth, the company has already made an acquisition, and a market situation like the current one may be ideal for M&A.
The valuation looks attractive, with an EV/EBITDA (including the acquisition) of 4.3 and a last-twelve-months (LTM) P/E of 10. Adjusting earnings for the typically higher free cash flow (FCF) compared to net profit (explained in my analysis: [https://10baggernewsletter.substack.com/p/macfarlane-group-the-full-package]), the stock price would imply a P/E closer to 8x.
One of the main risks is that the company is at peak margins, and despite their statement that these margins are adequate, is something I don't like.
Toya
Toya has released its annual results. Toya will be this month's analysis and will be published shortly, so the results will be analyzed in that upcoming post.
Disclaimer : this is not an investment advice.