20y. of life, 10y. of 20% average nav discount. BION SW - BB BIOTECH AG-REG

Italian Airport Services Stocks: a bargain?

Look @ these graphs with ‘Airport Services’ stocks.

I’ll take SAT, ‘Societa Aeroporto Toscano S.p.A. manages the Galileo Galilei Airport in Pisa’, as an example + I’ve added some peers.

The Italians seems cheap.

Debt to equity: historically low (<50%) vs average 70% for peers. Seems safe.

Free cash flow yield: historically positive. Seems healthy.

… even if reducing for Pisa:

… but enough to pay a nice dvd …

… even if it seems free cash flow now is covering less of this dvd …

(but, you know, someone has to pay for the money Monte Paschi now is not able to give …

And, to sum it up,

Ev to sales: peers has an average of 4! Venezia is 2.5, Firenze is 2.3, Pisa (a better solution in my opinion thanks to Ryanair and Easyjet) is 1.8!

Thanks to the Euro problem the market is leaving this stock very undervalued.

Maybe. But the fact that shareholders are not mutual funds or etfs and that it has an average 5.000 € of daily transactions it could be really a nice story to play the beautiful part of our dear Italian country …

Irce S.p.A. - Industria Romagnola Conduttori Elettrici is a net net

Today I'll talk about an italian company that seems a 'net-net' so is trading at discount to Ncav as defined by Benjamin Graham.

Ncav is net current asset value or current assets - cash, receivables, and inventory - minus all liabilities; so every time Ncav > Market Cap (and so the net current asset value per share is higher than the traded price on the exchange) that stock is defined a 'net - net' (here for a valid source of this kind of stocks).

Irce is in the business of magnet wires and cables ('conduttori per avvolgimento' and 'cavi' in the Italian annual report).

Giving that metals like copper represent a huge components of raw material, IRC reports sales without metals, defined 'hollow turnover' as exposed in this useful presentation (give a look at p. 13).

End Markets. 

Magnet wires.

Year	2012	2011	2010	2009	2008
% on sales	79.5%	76.3%	77.9%	72.3%	65.1%

Applications are on electric motors, generators, transformers, etc.

Magnet wires can be segmented pursuant to (1) the raw material used, (2) their shape, (3) the wire gauge, and (4) the characteristics of the insulating materials.

(1) Raw material: magnet wire can be distinguished between copper wires and aluminium wires. Copper wires form the greater part of the market.

(2) Shape: the wires may be round or rectangular.

(3) Wire gauge: pursuant to their gauge, magnet wires are classified into: ultra-fine (diameter < 0,05mm); fine (0,05mm < diameter < 0,15mm); medium (0,15mm < diameter <2mm); big (diameter > 2mm). Fine and ultra fine wires finds their most frequent applications in the electronic sectors. The medium size wires are mostly destined to the industries of White Goods, Automotive, Lighting, Mechanical Tools, etc. Big wires are mainly used by the industries of the transport and of the generation of energy.

(4) Insulating materials: the main characteristics of these materials (polyurethanes, polyesterimide, polyimide) are connected to the degree of their heat resistance that may vary from 130 to 220 degrees centigrade.

Geographically the market is divided in major areas: Europe, South America, North America, Far East, etc; with limited trade among the areas.

In the Magnet Wire business IRCE is mainly engaged in the segments of the fine and medium wires, serving primarily the white goods (Whirlpool / Embraco, Siemens-Bosch, Nidec motor etc.) and automotive (Denso Manufacturing, G. Cartier Technologies, Robert Bosch) sectors, principally in Europe, where it is third by size.

Energy and data cables.

The principal final industry sectors are the construction industry, housing and industrial applications, and consumer durables industries (vehicles, domestic appliances and other electrical appliances).

Here I re-write the data on the whole revenues (wires and cables):

	2012	2011	2010	2009	2008
Revenues	392.6	432	390.1	236.1	357.5
EBIT Adjusted (*)	14.3	-6.2	7.2	12.2	7.1
EBIT Adjusted (*) Margin	3.6%	-1.4%	1.8%	5.2%	2.0%
Perc. On revenues
Cost of material	77.8%	78.4%	81.2%	69.0%	73.3%
Personnel costs	7.6%	6.9%	7.4%	11.1%	8.1%
Other costs and services	9.2%	8.7%	9.4%	12.1%	10.6%
ROCE (EBIT Adj. / Net Capital Employed)	8.30%	-3.60%	3.00%	5.10%	3.20%

(*) ... plus income or loss on copper erivatives and minus/plus the effect of the copper price increase/decreases on the value of inventory

… generally speaking, while revenues are very volatile (it sounds like a cyclical business in a European context of not the typical recession!) but costs and profitability not so much.

Looking now at debt and free cash flow

	Fcf	Net Debt	Net Debt to Ebitda	Ebitda to Int.Exp.
2008	€ 47.16	€ 36.38	3.5	2.6
2009	-€ 14.38	€ 49.23	4.3	9.9
2010	-€ 51.23	€ 99.16	3.2
2011	€ 10.30	€ 92.92	3.7
2012	€ 20.69	€ 79.77	6	3.3

… we see that after two bad years (2009, 2010) in negative cash flow mode, where the debt increased by more than 60 mln. €, it seems that the environment is improved with fcf now positive and debt slightly reduced. Ok, it remains in a bad zone (net debt to ebitda > 6 and ebitda to int.exp > 3) but at least the trend is positive. 

So, summing all it up, it seems not a dying business and, importantly, here we have a net - net, so we should not worrying too much about the company as a going concern because we are doing an asset based valuation and, at least in theory, everyone could buy the whole shares on the market and could get a profit liquidating the entire company. In fact, we have a balance sheet were the most ‘liquid’ part of the asset side, current asset, is way more than total liabilites, by 62 mln €, and the market is valuing the whole company at only 40 mln. € (so you are buying 65cents on the dollar). Ok, this current assets are payments to be received by clients (43%) and inventories (50%), so not exactly deposits on bank’s account, but maybe, with this discount we should have enough margin of safety.

Ticker	IRC IM Equity
Short Name	IRCE SPA
P/Ncav	65.0%
Market Cap	€ 40,110,528.00
Curr Assets	€ 194,681,472.00
Total Liab	€ 132,961,360.00
Ncav	€ 61,720,112.00
Cash	€ 3,265,239.00	1.7%
Accounts & Notes Receivable	€ 83,286,608.00	42.8%
Inv	€ 98,604,432.00	50.6%
Other Curr Assets	€ 9,525,197.00	4.9%