20 European Stocks - A Discussion

European Stock Analysis: A Detailed Review

Key Concepts:

• Value Investing: Identifying undervalued companies with potential for future growth.
• Spin-off: The creation of an independent company from a parent company.
• IBITA (Adjusted Interest, Before Income Taxes and Amortization): A measure of a company’s profitability.
• P/E Ratio (Price-to-Earnings Ratio): A valuation ratio comparing a company’s stock price to its earnings per share.
• Return on Invested Capital (ROIC): A measure of how efficiently a company is using its capital to generate profits.
• Free Cash Flow (FCF): The cash a company generates after accounting for capital expenditures.
• Structural vs. Cyclical Issues: Distinguishing between long-term, inherent problems versus temporary economic fluctuations.
• M&A (Mergers and Acquisitions): The consolidation of companies or assets through various types of financial transactions.
• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets.
• Net Debt to EBITDA: A leverage ratio indicating a company’s ability to pay off its debts.

I. Manium Ice Cream (Spin-off from Unilair)

The analysis begins with Manium Ice Cream, recently spun off from Unilair. Despite a global ice cream market exhibiting resilience and growth, particularly in the artisanal segment, the speaker expresses skepticism. While Manium boasts revenues and a 21% global retail market share, the spin-off occurred because the business experienced no growth when adjusted for inflation. The company targets above-market growth (3-5%), a 20% ROIC, and 1 billion euros in free cash flow. However, the speaker highlights that the spin-off involved loading the company with 3 billion euros in debt, suggesting the parent company didn’t view it as a high-potential asset. The current P/E ratio is around 15 based on 500 million euros net profit on an 8 billion market cap. A potential sell-off after the lock-up period (approximately 6 months) is anticipated, potentially lowering the price. The speaker concludes that Manium is an “okay” brand, not a “great” business, and would have been retained by Unilair if it were truly exceptional.

II. Electricity Stocks: Strasbour Bunel Deutsche Bors

The discussion shifts to electricity stocks. Strasbour currently yields 6-7% but has already doubled in price, potentially making it late to invest. The speaker admits a lack of understanding of the French electricity market. Bunel, previously a highly sought-after stock during its growth phase, has experienced a significant decline, making it more interesting. Currently, the P/E ratio is 13 with a dividend yield of 3.6-6%. Bunel operates in distribution and packaging, experiencing rapid growth through M&A for the past 20 years. However, slowing M&A activity, lower growth guidance, and declining margins have triggered a market correction. The bearish thesis centers on structural margin pressure exacerbated by sticky cost inflation, potentially permanently reducing earnings power. The speaker emphasizes the need for further research into Bunel’s organic growth.

III. Nokian Tyres, Altom, and the Italian C Group

Nokian Tyres suffered a significant setback due to the loss of its Russian business but is now showing signs of recovery. The speaker references a previous video from six years ago warning about the risks of relying on the Russian market. He also notes the tire industry lacks a strong competitive advantage and is essentially a commodity business. Altom (production-related) and the Italian C Group (luxury yachts) are deemed too risky for investment. The Italian C Group, despite good initial revenues, is heavily controlled by its founder, Giovanni Constantino, and faces uncertainty in the luxury yacht market. A 10% revenue decline and concerns about future cash flows to owners contribute to the risk assessment.

IV. Rubis, Signify, and Veroy & B Toilets

Rubis, previously discussed at a lower price, is now considered less attractive. The investment thesis relies on a potential acquisition at a 6-7% free cash flow yield. Signify (lighting industry) offers a 7% dividend and 5-7% buyback, resulting in a 12% shareholder yield. However, the speaker finds the long-term outlook for the lighting business uncertain due to intense competition from Chinese manufacturers. Veroy & B Toilets, a traditionally stable company, has introduced risk through a 600 million euro acquisition, leading to current lack of profits. While offering a 5% dividend, the speaker remains unconvinced, preferring to wait for potentially more lucrative opportunities during a proper crisis.

V. Granka, Walters Clover, and Wash Tech

Granka (leasing laptops, etc.) faces headwinds from trends like reduced mobility and workforce downsizing. Walters Clover (software) is deemed too complex for the speaker’s expertise. Wash Tech (car wash machines) presents a more interesting profile with a good dividend yield, valuation, and recurring revenue. However, the speaker expresses concern about potential disruption from cheaper washing robots. Significant investment in new stations is noted.

VI. Telefonica and Cadiller

Telefonica is considered expensive with a P/E ratio of 20, lacking a clear catalyst for value creation. Cadiller (wind park vessel fleet) is a recent IPO with a thesis based on increasing demand and rising prices for specialized vessels. The speaker acknowledges the potential but highlights risks related to Chinese competition, political factors (referencing potential actions by Trump), and high capital expenditure. The lack of a sustainable competitive advantage (boats being commodities) is also a concern.

VII. Paj Moi Ailia and Vonovia

Paj Moi Ailia (Vespa brand) is declining across most markets, facing intense competition from China. Vonovia (real estate) experienced a crash and subsequent partial recovery. While performance is improving, the speaker highlights a high net debt to EBITDA ratio (14x) and a substantial debt load (30-40 billion euros) exceeding market capitalization, indicating the business is largely owned by bondholders.

VIII. Valmet and ASML/Ferrari

Valmet (spin-off from Metso, paper machines) is identified as a potentially interesting business requiring a thorough review of the paper market cycle. ASML and Ferrari are dismissed as overvalued and driven by hype.

IX. Dino Polska and Final Thoughts

Dino Polska (Polish retailer) has experienced 10x growth over the past seven years, expanding profitably despite competition from Aldi and Lidl. The speaker recommends further research into the Polish retail market and competitive landscape. Vonovia is deemed too risky due to its high debt levels. The speaker concludes by emphasizing a focus on identifying “beautiful” businesses available at attractive prices, rather than simply chasing cheap stocks. He directs viewers to his research platform for more detailed analysis and portfolio insights.

Notable Quotes:

• “If it would be a great pearl in the Uni leafer portfolio they would have kept it.” (Regarding Manium Ice Cream)
• “I want the beautiful and I want it for free.” (Expressing investment philosophy)
• “Boats are commodities and that’s it.” (Regarding Cadiller)
• “You cannot know in my eyes.” (Regarding the Italian C Group)

Synthesis/Conclusion:

The analysis provides a critical assessment of numerous European stocks, emphasizing the importance of understanding underlying business fundamentals, competitive landscapes, and potential risks. The speaker consistently prioritizes identifying companies with sustainable competitive advantages, strong cash flows, and reasonable valuations. He cautions against investing in businesses facing structural challenges, excessive debt, or relying solely on speculative growth narratives. The overall message is a call for disciplined value investing and thorough due diligence.