We Connect H1 2024
Before talking about the results, I would like to review two important events that took place during the year.
In March 2024, the company announced a €2 million share buyback program, authorizing the repurchase of up to 116,300 shares, or approximately 4.2% of the capital. During the period, only 4409 shares were repurchased, which is disappointing but may be motivated by the other major event in 2024.
The acquisition of MCA Technology. On July 21, the company announced the acquisition of MCA Technology, a distributor focused on professional customers. This is an important acquisition for the company, as we are talking about a company that will generate revenues of $110 million in 2023, compared to We connect $264 million in 2023.
Key details of the acquisition:
1. The purchase price was €16.3 million, representing a sales multiple of 0.15.
2. The company had a capital increase of 3 M, which was fully subscribed by the founders of MCA Technology. Personally, I think the fact that the selling company wants to be a shareholder is a positive sign.
3. In several interviews and press releases, the company has stated that it expects synergies in the form of cost reduction by increasing volume and by cross-selling, as the acquisition brings agreements with new brands for We connect and new customers, as only 25% of the company's customers were common.
Let's start with the results (excluding the MCA acquisition):
Revenues: Revenues were 120.3 million, a decrease of 7.3% compared to the same period of the previous year. The decrease in revenues is due to a generally poor economic situation in the sector and not to a specific case of the company.
Margins: In terms of margins, the company has improved despite the poor general situation. Gross margin was 12.1% compared to 10.7% for the same period last year and 11.3% for the full year 2023, this improvement is due to an increase in the weight of the company's own brands. EBITDA was 5.8 million with a margin of 5.1%, at the same level as last year.
Net income: Net income was 3.7 M, 12.7% lower than in 2023, due to an unfavorable euro-dollar exchange rate
Cash Flow
The Company's operating cash flow was -7.4 M with a negative working capital effect. This is due to the seasonality of the business with higher sales in H2 with events such as Black Friday, Back to School and Christmas.
Investing cash flow was negative 15.9 M, which includes the acquisition of MCA.
Balance sheet
The company's balance sheet is solid, with net debt of 20.4m, giving a net debt/EBITDA ratio of 1.6x if we assume H1 EBITDA on an annualised basis. Taking into account that H2 is better than H1 due to seasonality, that cash generation should improve and that the acquisition will be consolidated from H2 onwards, the actual debt ratio is much lower.
Conclusion
Considering the current price of the company, it seems to me to be an extremely attractive option considering the 3 main points of the thesis:
1. The valuation is attractive, with simple pro forma estimates, holding margins constant and expecting a similar revenue decline in H2, the company would trade below 6x earnings.
2. The industry should be improving. The PC refresh cycle lasts 3-5 years, with the last peak in 2020, and the new cycle is not far away, supported by the end of Windows 10 support in 2025 and new PCs with artificial intelligence.
3. Cash generation should improve significantly in the next few years, as in many industries during the pandemic, working capital increased too much, so even as the company grows, cash generation should be good.
Verallia
Verallia reported sales and adjusted ebitda results.
The company reported sales of 871 million euros, down 6.5% year-on-year, entirely due to price erosion, with a slight improvement in volumes, although the sector is still in a bad situation.
Adjusted EBITDA: Adjusted EBITDA was 210 million, with the margin declining from 27.5% in Q32023 to 24.1% this year. For the full year, the company expects EBITDA to be in line with 2022.
CC notes:
The decline in volume for glass manufacturers has been higher than the decline in end user consumption, due to destocking by customers. In Europe, this effect seems to have come to an end.
They expect volumes to continue to grow.
They are postponing investment in new capacity.
Conclusion
They did not give much new information and we will have to wait for the full year results. The analysts' consensus is for earnings per share of 2.4 euros in 2024 and 3 euros in 2025, which would give the company a P/E of 11 and 9 respectively. A very attractive price, in my opinion, for an industry that is an oligopoly and where all the players are moving in the same direction. We can see this because they have all postponed investments in capacity increases, in addition to closing furnaces in Europe, which is good for the industry in the medium term.
Auto Partner
Sales for the month of September increased by 5.48% compared to last year. Cumulative sales for the period January to September 2024 are up 14.11%. Growth seems to be slowing down, although we are starting from a very strong base, as was the case last year.
Delko
On October 3, Delko announced a PLN 12 million share buyback program. Currently, the company has a market cap of 114 million, which would be about 10%. The company will report results on October 30, which we will cover in next month's monthly update.
Capital Allocation
To be more transparent, since not every time I write a thesis it means that I am buying stocks at that moment, I will comment on the movements made during the month.
Sales: Reduced the Auto Partner position by 25%. I still believe that this company will be a long-term compounder, the sale is simply to gain liquidity for other opportunities.
Purchases:
We initiated a position in Esautomotion, The sector has been badly hit and with the company's recent decline, the price looks attractive..
We initiated a position in MCBride.
DISCLAIMER: This is not an investment recommendation, but the personal opinion of the author.