When a non-cyclical company trades at a single-digit FCF multiple, buys back every stock it can find, and offloads assets to fuel the frenzy, my ears perk up. Toss in financial reporting so convoluted it could make a CPA weep, plus a currency mismatch between where profits are earned and where the stock trades, and you may have a mispriced setup for a 50-100% return within two to three years.
This year alone, this company has repurchased 16% of its shares. Since late 2021, it’s obliterated 37% of its shares. Yet, the market still yawns, leaving the stock languishing far below its intrinsic value.
Last year, the company sold a subsidiary at 60% above net assets and nearly double the group’s EBIT multiple, funneling the proceeds to buybacks, and signaling that the fastest path to shareholder riches is likely selling off its remaining assets or the entire business. And with the company priced at a 50% discount to public comps and private M&A multiples, there may be several suitors, since you, by law enacted over a decade ago, cannot recreate the company’s assets without acquiring them.
Management intends to unlock this value for shareholders. After a lackluster 2010s history marked by foolish reach for growth by the previous management, activist owners went in to pivot the strategy three years ago by shrinking the business instead, after replacing the CEO and the majority of the board. The new management has followed through to a tee. What’s left now is cleaning up.
There are several reasons why this has gone unnoticed by the market, still after having been written up more than once elsewhere on the Internet, but by far the most important is its complicated financials.
Let’s dive in.