Description

Summary

Lurking in the shadowy corners of  French equity markets, Vente Unique (ALVU) is a safe, uniquely profitable, dividend paying and growing online furniture business with  a steady-hand CEO at the helm, good visibility and a decent multi-year runway thanks to numerous tailwinds. For those that can overcome the abysmal liquidity, not to mention the quasi total absence of coverage and interest on the name, I recommend a Long on this Growth At (very) Reasonable Price idea that should gently compound double digit in the foreseeable future.

 Quick overview

 Vente Unique claims to the be the market leader in on line furniture in France and in Europe. They operate in 11 European countries including France, Germany, Spain, Portugal, Italy, Belgium, Netherlands, and Poland.

A track record of profitable growth

As you can gauge, Vente Unique doubled its sales the last four years and  5y sales CAGR amounts to a respectable 18%. 

This growth was fueled by an even ever more rapid expansion in Non-French markets: Northern/Eastern Europe+ South Europe now make for half of sales as against a quarter 5 years ago.

This fast expansion, albeit from a small base and we are still not quite at scale obviously, has not come at the expense of profitability; quite the contrary, the company boasts a long history of profitable growth-as long as 15 years of positive operating profits-.

We are now witnessing the first innings of a new period where operating leverage and margin expansion are starting to shine: Ebitda/sales margin is now well in the double digits from 7 %to 9% 5 years back.

Basic valuation thoughts

Valuation metrics show a solid balance sheet and healthy profitability.

With a net cash position of EUR 21 million, at EUR 16, Vente Unique’s EV is 135 million.

ALVU last posted an Ebitda of EUR 12.6m for the semi-annual period ending in 30 March 2021. This brings TTM Ebitda at EUR 20.2m and puts EV/TTM Ebitda below 7: Vente Unique is undeniably cheap.

Vente Unique’s secret sauce : a logistics guru, prudent execution and an eye on advertising costs and customer satisfaction.

 I believe Mister Giaoui , a 67 year old French citizen of Tunisian origin, is a remarkable self-made man.  He arrived in France from Tunisia at 18, dropped out of a high school in Nice without any degree to his name, and flew with two buddies (both are still holding key roles at Vente Unique) to the remote tropical island French territory of Guadeloupe, where, against all odds, he embarked on a distinguished retail career in the wider French West Indies and beyond : Guadeloupe, Martinique, La Reunion, Saint Martin, New Caledonia and Guyana.  Proving to be a talented and visionary businessman, he successfully developed a series of retail businesses, as early as the 1970s, starting with door-to-door distribution of TV and Hi-Fi stereos sourced from Japan and the US, then adding furniture in the 1980s.

His main holding CAFOM, for Centrale d’Achat Française pour l’Outre-Mer or French Purchasing Center for the Overseas, was funded in 1986, and acts as the central vehicle for distribution through franchises of French household goods giants such as  But and Darty, and lately e-commerce (BtoC with Vente Unique and BtoB withg Direct LowCost). The common factor driving those enterprises, beyond a deep understanding of customer needs,  was the ability to spot unserved niches, cutting intermediaries, the skill to centralize and master difficult logistics that had failed and discouraged previous competitors.  This runaway success, although mostly unbeknown to the wider French business community, culminated in 2011 when CAFOM  acquired Habitat, a fledging but worldwide brand, that Mr Giaoui thought would help him create and monetize value beyond the power of mere distribution. This proved to be a total misstep, and since then Habitat was sold. If anything my take is that Mr Gaoui is now even more pragmatic, chastened by the failure to turn around Habitat.

Vente Unique was launched in 2007 with the grand sum of EUR 250,000 by Monsieur Herve Giaoui with a view to become an online channel to sell furniture to retail customers  in Europe. It is very well known that the logistics hurdles attached to those specific goods have deterred Amazon to enter the fray, leaving actors like Wayfair in the US or Home24 and Westwing in Germany to carve a way into this difficult segment. Vente Unique’s trajectory and achievements in the online furniture market, so notoriously unsexy, and even more so in old Europe,  are laudable I think. ALVU IPoed in France in 2018 on the Euronext growth market, as a spin-off of CAFOM, raising EUR 38 million at EUR 10.7 to fund expansion and more specifically a bigger logistics warehouse.  Worth remembering, in the 2010s, many start-ups dedicated to online furniture sprung, most of them very well-funded, and to this day very few have managed to survive. Deeply rooted in the way the company is run, the will to advance prudently (some critics may say too cautiously) and not overspend is incontestable. Vente Unique does not bombard blanket ad campaigns, but try to hone in their digital spending when the customer is already quite advanced in the search process.   Vente Unique’s customer satisfaction scores, in particular, are exceedingly high: 94%. Customers are praising (i) the breadth of their offering with the widest choice in the online market by an order of magnitude on most items such as sofas (ii) the low price ranges (iii) their short delays of delivery that are consistently achieved.

Where should this kind of business trade?

The furniture market pie in Europe is thought to approximate EUR 120 bln, of which about 12% is currently purchased on-line. Growth of the furniture market itself is tepid, probably just chugging along with the old continent’s own sedate GDP.

However, the gradual catching up with the US where 35% is purchased online should help fuel double-digit growth, helped by the generational attitude shift with the millennials reaching adulthood, and, needless to say, the acceleration of e-commerce and home furnishing and decoration during the Covid19 lockdowns. I see no reason why the company should not continue to enjoy double digit growth in revenues and operating profits in the foreseeable future. After all they only capture a fraction: EUR 150 million, of a EUR 120 billion pie.

Home 24,  a direct competitor, boasts a EUR 400m Market Cap, for a revenue in the EUR 550m region, has raised more than EUR 100 million without ever achieving visible positive free cash flow. Vente Unique’s positive bottom line whilst pursuing double digit growth  is an oddity in the on-line sector where competitors typically spend an inordinate portion of their capital and cash-flow towards customer acquisition, and are typically valued as a function of their sales because they are perpetually loss-making.  This would have me joke that if Vente Unique was less profitable, it would be more richly valued. I would posit Vente Unique could become an acquisition candidate if the sector consolidates, and that a fair EV/trailing Ebitda multiple should be at least x10, which would justify a Price Target close to EUR 30, aiming for a double on the current price.

 Why does this opportunity exist:

- European furniture is a unsexy as it gets, even online.

- there are no analysts covering the company (to my knowledge)

- liquidity is very poor: ADV is about EUR 80k.

- with insiders holding 68% of the company, Free float is only 3 million shares: ie less than EUR 50 million, far too small for most funds to deploy cash.

Catalyst

A takeover by a competitor, or further equity sales by CAFOM that could improve liquidity and awareness of the name and enable institutions to partake