|Shares Out. (in M):||44||P/E||6.9||0|
|Market Cap (in $M):||84||P/FCF||0||0|
|Net Debt (in $M):||59||EBIT||20||0|
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Thrace Plastics Co. S.A. is a Greek domiciled, small-cap, multi-national company. It operates in primarily two segments: technical plastic fabrics and plastic packaging. Tainted by the developments in Greece over the last several years, enterprising investors will find a materially undervalued security trading at a 35% discount to tangible book value and a mid-single digit multiple of underlying earnings. Thrace appears cheap on an absolute and relative basis - relative to comparable businesses and a broad sample of Greek companies. Furthermore, substantial incremental capital expansion over the last 18 months has yet to produce any business. The tailwinds on revenue and margins from this investment will soon become apparent. Comfort in such a Greek investment ought to be found in the fact that Thrace Plastics is barely Greek! In fact, 83% of revenue is derived outside of Greece, while 53% of production is inside the country. And finally, the company understands the shares are cheap, and has been repurchasing shares to the maximum extent permissible.
Recent Greek Overview
I view this sequence of events as a significant, though by no means final, test of the Greek / EU relationship. However:
There is very likely to be periodic skirmishes over a long period that challenge investor resolve.
Thrace Plastics Overview
3 Primary Businesses
1) Technical Fabrics - geosynthetics, construction, agriculture, landscaping, automotive, packaging, flooring
2) Packaging - filling solutions, bags, packaging, liners, thermoforming cups, garbage bags
3) Agriculture - greenhouse vegetable production (very small, not at all core to thesis)
Management and Ownership
How Greek is Thrace?
Thrace is an exporter with substantial productive capacity inside Greece. The packaging business is slightly higher margin (8.1% operating margin vs. 7.1% operating margin) and is more Greek dependent (38% vs. 5%) and likely makes the Greek contribution to operating profit a bit higher than sales. With the investment program detailed below, it is expected the proportion of sales outside Greece will expand. While cognizant of the short-term potential impact ont he share price of any future Grexit, this profile should mitigate the longer-term consequences to the business of a future Grexit. This was a key feature of my interest in the company.
Below are the figures for the TTM. State grants have been excluded (1.2 million). There are two important adjustments that I have not made: 1) There was a sizable Q4 2015 executive departure package at the company's UK subsidiary. I don't know the exact figure, but it could be mid 6 figures or more; and 2) admin costs have begun to ramp in anticipation of the investment program (described below) which has yet to produce revenue.
On a P/TBV basis the shares have been below TBV for a number of years now. No doubt this was due to poor returns on equity through this period. From 2008 to 2014 the average ROE was 3.6%. This has begun to change and we expect it to continue to improve as this investment program bears fruit. On a ttm basis ROE is over 10%.
I would agrue the company is Greek cheap. The screen which produced the results in the table above consisted of 65 EBIT profitable public companies above 20 million in market cap (out of approximately 185 total listed companies). I also excluded the banks and shipping companies, which each have their own set of unique problems. While there is a substantial range of metrics, I think Thrace looks Greek cheap especially when considering it is primarily an exporter and seems to now produce a comparable ROE with comparable revenue growth.
It would appear that the company is comparably cheap when looking at a number of global peers. I should note the distinction of packaging versus technical fabrics above can be blurry.
The company has prudently been repurchasing shares. The label on the chart above are the yearly average P/TBV for the shares. I'd note:
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