Author Topic: TESB.BR - Tessenderlo Group  (Read 70515 times)

skanjete

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TESB.BR - Tessenderlo Group
« on: June 18, 2014, 12:03:16 AM »
My best idea (and actually my only one) so far this year is Tessenderlo Group.

It's a Belgian specialty chemical group, listed on Euronext.

The idea is a combination of
1) an cheaply valued stock
2) a great capital allocator and owner/operator

To keep things a little clear, in a second post, I'll concentrate on 2) and in a third post, I'll elaborate on 1)
« Last Edit: June 19, 2014, 12:29:50 AM by skanjete »


skanjete

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Re: Tessenderlo Group
« Reply #1 on: June 18, 2014, 12:36:27 AM »
I'll start with the capital allocator/owner/operator : Mr. Luc Tack

Until a few years ago, mr. Tack concentrated on his privately held businesses, and so is not a very known public figure.

But if you talk to people who were involved with him from the very beginning, each time you hear the same message : he's a terribly focused hard worker and above all a great enterpreneur.
When he was 18 years old, he applied with the government to get "legal adult status" (in those days one was considered adult only at 21) in order to be able to start in business.

So he started at 18 with basically nothing. He always worked with industrial businesses in sectors as textile, timber, textile, truck cleaning,... Not exactly sectors with a lot of back wind. Each business he took grew to a success and with the generated cash he bought something new.

Then fast forward to 2009. That's the year he entered the public market. He had a limited investment in a company called Picanol. Picanol is a producer of weaving machines and operated in a nice niche. However, the company had been badly managed for years by the controlling family and operated in a notoriously cyclical sector.
So in 2009 they almost went belly up and had to organise an equity issue through rights issue to survive. Tack invested in the operation and bought out part of the controlling family for about 15m euro and this way controlled about 85% of the company. Since then he has bought some more shares so that his current position must be about 89%.

He assumed the CEO role without any pay and got to work. Most of the old management had to go and he brought in his right hand man, Haspeslagh.
Fast forward again : In the four years since he assumed control of the company, he squeezed out a cool 230m euro from the company. Mind you : this is not cash flow, (partly) reinvested in the company. This is free cash flow, neatly stashed away in a money account.

So for his 15m investment, after 4 years he got 90% of 230m cash and a company that generates about 70m euro free cash flow a year. I won't even bother to calculate his annual return, it's clear it's in the "exceptional" range.

And this in a down to earth sector of textile machine manufacturing.

Picanol is still listed on the Euronext, and they have no intention to delist, mainly because of commercial reasons. However one has to consider this a privately held company with a stock quote. The stock is still not expensive, but the efficiencies have been attained, and the very small free float is a negative.

At the last annual meeting, there were only 12 people and most of the specific business questions were neatly dodged.
So in my view, the stock quotation has to be considered as pro forma and just as they say for commercial reasons only (it seams to opens some doors in Asia).

So the story of Picanol is interesting and tells something about Tack and Haspeslagh.
Doubly so because in 2013, they took the cash stash (192,4m) of Picanol and invested it completely to buy 27,5% of Tessenderlo Group.
« Last Edit: June 18, 2014, 04:56:42 AM by skanjete »

skanjete

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Re: Tessenderlo Group
« Reply #2 on: June 18, 2014, 01:20:21 AM »
Now we get to Tessenderlo Group.

In july 2013 Picanol bought 27,5% of Tessenderlo Group for 192,4 m euro.
If you know that at that time, the book value of Picanol was 261m euro, this is a major investment.

So knowing Tack & Co and seeing him make such a major move, it pays to pay attention.

Tessenderlo is an old Belgian chemical company that tried to move away from the old mass chemicals to specialty chemicals over the last say 5 years.
The main shareholder was the French government and these were not very "business minded", to put it mildly.
Though they were interested in the dividend, so over the last few years Tessenderlo had to borrow in order to be able to pay a nice dividend.
Management was terrible and over the last five years managed to evaporate 2/3 of book value.
You can imagine the stock performance : almost an exact inversion of Picanol's.

So but when things got so bad that it got clear that a dividend in 2013 would be difficult, the French government suddenly was prepared to sell to the only buyer, Picanol. FYI : picanol bought at 22€ a share.

Since then, the story is almost an exact copy of the Picanol turnaround. After a few months, Tack assumed the CEO role, recently Haspeslagh was appointed chairman, the old management was ousted, and they got to work again.
Also telling is the new director remuneration policy : the noble board directors recently got a pay reduction of about 2/3 to 4/5. Can you imagine the discussion at the last board meeting with the proud counts and barons at the table?

So it's clear there was a lot of fat to be cut, and Tack has an extremely sharp knife.

But what about the valuation?

If I made a sum of the parts analysis, based on the normalised earnings of the different segments of the company, I come to a value of 27€/share. That's with all the fat included and the last few years were a real crisis for some divisions of the company. So 27€ is my base value in case they manage to stabilise the company, and thus basically my downside.

But I realistically expect more of course.
An EBITDA margin of 10% is realistic. Some of activities suggest even more. Up to 14% could even be possible. So an EBITDA of  6-8€/sh should be possible in a few years.
Net debt should be about 7,5€/sh at the moment, so E.V. is say 30€. Comparable companies are valued at 6-8 times EBITDA,
so taking into account the cash that will be generated in the coming years, a stock price of 36-64 seems possible in a few years time.
This assumes no growth at all, only efficiencies. If one dares to assume some growth (I do), the potential is of course higher.

I know, most turnarounds are difficult to turn around. But Tessenderlo didn't get into trouble because of secular headwinds. Mostly it was a matter of wrong priorities (French government) and inept management. So in conclusion I see a combination of low risk (cfr. base case), huge potential and great, motivated management. Also the free float is better than with Picanol. 27,5% gives Tack enough control to change things, but no absolute control...

« Last Edit: June 18, 2014, 04:59:42 AM by skanjete »

skanjete

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Re: Tessenderlo Group
« Reply #3 on: June 18, 2014, 01:30:09 AM »
PS the annual meeting of Tessenderlo a few weeks ago was also very interesting
It was the day that the former chairman had to go and Haspeslagh got in.
It was clear there was a new wind blowing in the company and that the old guard and it's ways had to go.

One older shareholder longingly told me a story about the days the annual meeting were an event. In the old days, all the shareholders were invited to a first class restaurant were they organised a free-for-all lunch and party until the late hours.
Maybe that was a reason that there were more shareholders present than on the Picanol annual meeting.

However they got disappointed if they expected a great feast. Now things got rather sober. Tack didn't even bother to come (he is co-CEO with Mel De Vogue) and Haspeslagh didn't join the other directors, but sat on the last line. If you didn't know him, you wouldn't have known the new chairman was in the room.
For me it made him quite a bit more accessible afterwards because few people knew him...

rjstc

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Re: Tessenderlo Group
« Reply #4 on: June 18, 2014, 02:31:39 AM »
Good story so far. Keep it going. How did your discussion with Haspeslagh go?

giofranchi

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Re: Tessenderlo Group
« Reply #5 on: June 18, 2014, 02:48:11 AM »
So knowing Tack & Co and seeing him make such a major move, it pays to pay attention.

Thank you very much for the idea! :)
Where is it possible to find more information about Tack & Co?

Cheers,

Gio
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skanjete

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Re: Tessenderlo Group
« Reply #6 on: June 18, 2014, 02:52:06 AM »
Good story so far. Keep it going. How did your discussion with Haspeslagh go?

Great. My confidence in them grew considerably.

I saw him twice. First time at Picanol he was a bit reserved.
Second time at Tessenderlo he loosened up a bit and talked some more.

Basically, now that they manage the company for 6 months and start to get acquainted with the company, things at Tessenderlo appear to be as expected when they first invested in the company.
There evidently is a lot more to be done, but things are moving in the right direction he says.

Asked about their investment at 22€/sh a year ago, the potential and the expectations about that investment, he just smiled. When I told him that I supposed they wouldn't have invested at 22€ a year ago if they didn't value the company a lot higher, he smiled some more. Remember, one has to consider this investment in the context of Picanol.

As a pleasant aside, it actually appeared our families are distantly related, although I previously didn't know him.

skanjete

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Re: Tessenderlo Group
« Reply #7 on: June 18, 2014, 03:02:28 AM »
So knowing Tack & Co and seeing him make such a major move, it pays to pay attention.

Thank you very much for the idea! :)
Where is it possible to find more information about Tack & Co?

Cheers,

Gio

It's not very easy to get a lot of information.

He is rather public shy and prefers to work instead of sociolising or giving interviews. But, when there is a commercial interest, he isn't shy at all. He even arranged a meeting with Xi Jinping of China when he was in Brussels, just because a picture of a businessman with the president makes that businessman credible and trustworthy in China. That picture alone opened a lot of doors in China he told.

My first information came from the newspapers.
Then I started scuttlebutt and tried to reconstruct a bit his business past before his public investments.

I talked to employees, talked to colleagues, business relations, I met a neighbour, talked to family,...
And then of course the annual meetings. At the Picanol meeting he was present and since there were only 12 people, contact was somewhat easier.

giofranchi

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Re: Tessenderlo Group
« Reply #8 on: June 18, 2014, 03:18:59 AM »
He is rather public shy and prefers to work instead of sociolising or giving interviews.

Yeah! I know communication with shareholders might be time-consuming, probably a waste of time, someone would even say a promotional activity… Yet, I think that as a shareholder it is of great usefulness to me!
How could I come to understand whether I want to partner with you and to make business with you, if you don’t make the effort of explaining your strategy to me, and your means to create value for both of us? … That’s basically what I have just said in the BH thread… ;)

Gio
« Last Edit: June 18, 2014, 05:17:19 AM by giofranchi »
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moody202

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Re: Tessenderlo Group
« Reply #9 on: June 18, 2014, 04:17:43 AM »
At the last annual meeting, there were only 12 people and most of the specific business questions were neatly dodged.

Is this not concerning? Why would they not want to answer business questions?
Many shall be revived that now are fallen, and many fall that are now in honor.