WE.Connect - Deep dive PDF
Investment thesis #2 - 2024
WE.connect
After a brief overview of the company you can download a PDF file which contains an extensive analysis of the company, including valuation models.
WE.CONNECT in a nutshell
WE.connect group is an IT hardware wholesaler whose main products are computers, monitors, multimedia products, storage products, printers and supplies and accessories. It distributes products of more than 30 brands, some of them very well known, such as Acer, Samsung, HP, Lenovo, Iyama, LG and many others. It complements its activity as a distributor with the sale of products under its own brands, which compete in the low-cost segment.
Over the years, the company has increased its agreements with suppliers and the number of brands distributed.
Their main market is France, which accounts for more than 90% of the sales. Internationally, the company sells their main brand, WE, in the Gulf countries.
The company is growing organically by gaining market share and entering new partnerships with suppliers and also through acquisitions that help them expand their product portfolio and generate synergies such as the absorption of fixed costs or the introduction of new customers.
The market is coming off two bad years with the post-covid hangover, where demand for IT products increased dramatically. Demand should start to recover and be robust over the next few years, as the refresh cycle of PCs sold during covid begins. In addition, the introduction of the new AI computers and the end of Windows 10 support in 2025 should boost sales.
Since its IPO in 2016, the company has grown at a CAGR of 19.5%, including M&A and organic growth. Organic growth has averaged a CAGR of 12%.
Despite being a company that generates over 25% ROICS, it trades at very attractive multiples of 4.6x EV/EBITDA, 5.2x P/E and 6.7x FCF normalized by working capital.
One of the keys to investment is working capital. Due to supply chain issues during the pandemic, the company increased their investment in working capital. Currently, working capital investment represents 93% of enterprise value. Just by normalizing working capital levels, the company will generate cash flow equivalent to nearly half of its enterprise value.
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I was wondering if you could share what you include into working capital? I have been trying to get the same number as you but without success.
For instance, looking at 2021 with "actif circulant" of 129 meur, and payable 63Meur + other debt 6meur, would give 129 - 63 - 6 => 60. But you've mentioned 23Meur. I'm looking at the consolidated financial for the group here: http://www.connect-we.com/img/cms/We.Connect_Comptes_consolides_2021.pdf
I just know stumble upon this write-up. This is very impressive and thorough work. Thanks for taking the time and effort to put this together.