|Shares Out. (in M):||0||P/E|
|Market Cap (in $M):||190||P/FCF|
|Net Debt (in $M):||0||EBIT||0||0|
Company: Punch International.
Market cap: 190 million euro
Why do I like the company?
It is cheap. With the stock currently at about €88 it trades at 1.15x book value. Book value (as of mid-year 2006) was €76 but this is widely understated as the company's real estate is on its books for €83 million but its true market value is estimated to be above €165 million.
First normal question would be: why doesn’t management re-asses the value of the real estate? Since 2003 Belgian law states that if you want to re-asses your real estate you should do this on a yearly basis. Since this would be very costly as official estimates would have to be paid for, Punch does not do this. Punch prefers to work with real estate broker estimates but without officially raising its real estate calculations on its books.
Apart from that the company recently partially spun-off some of its units and keeps them on the balance sheet at book value rather than at market value.
Now, this was to peak your interest: What does Punch do?
Punch is a holding company listed in
Punch is divided in:
It is not often that you find a growing company, top-notch management that is heavily invested in its own stock (38% insider ownership) and that trades at 1.15x book value!
The reason why 3 out of 5 Punch entities are partially listed is to show to the market that the Sum Of the Parts is severely undervalued and to unlock some value without giving up complete control.
If we adjust Punch’s book value for its main other publicly listed entities
- Punch Graphix and take PGX's market value (128pence)
- Punch Technix- we take at market value 10 euro
- Punch Telematix – we take at market value of 13.15 euro
We arrive at an adjusted value of €109 or about 23% above the current stock price.
(for simplicity we even ignored value of Punch Motive and Punch Property)
First Half 2006 Numbers came out 29th of August 2006.
Before we layout the numbers we have to emphasize that y-o-y comparisons for Punch are made difficult by the many acquisitions, divestitures and spin-offs the company realized in 2005. Last year Punch spun-off Punch Graphix to be listed on the London AIM exchange which gave a big boost to '05 numbers. That's why the headline “Punch earnings down by 64%” as published by many newspapers was wrong and deceiving.
-Recurring EBITDA increased from €13 to €26 million.
-Recurring EBIT increased 25% from €14 to €17.6 million.
-Tax rate was high (39%) vs. last year's 10% but this was due to IFRS accounting and not actual taxes paid. Going forward it will be difficult to estimate the tax rate Punch will have to pay because it still has a lot of deferred tax assets (DTA) to be taken up.
-Fixed assets increased 21% (partly due to acquired buildings of ZF in recent ZF acquisition)
-Stated Book value increased to €76 which is an increase of 7% over 31st of December 2005.
I recently attended Punch Investor day in Lier,
Punch's Investor Day started with an overview of the company and its overall goal. Punch strives to convert innovative technology to profits. “No technology because we 'have to', only if it is profitable”.
Since coming to the market in 1999 Punch has done a series of acquisitions and divestitures. In all of this M&A activity there is one common denominator: the search for fallen angels. Management is on the look out for companies that were pioneers in their field but either lacked the management or the capital to increase their activities further and went downhill from there. The best example is probably Xeikon which was publicly listed in
Important to note: The CEO is a true “cheap-skate” and is very conservative with his acquisitions. The company pays very little or no goodwill and in fact has been able to sometimes get “badwill” as the CEO likes to call it (basically getting parts for free in an acquisition)
Punch is only interested in investments in a market where it can be a top-3 competitor. They have to be products which are new and innovative but with a proven worldwide customer base.
Punch International: a breakdown by segment
Punch Graphix (listed on London AIM exchange and 59% controlled by Punch Int'l)
This division was listed for 51% on the AIM exchange in
Punch Graphix develops, manufactures and supplies digital printing and prepress systems for the global graphics industry. It has two main brands: BasysPrint and Xeikon.
Under the Xeikon brand high-end digital colour printing presses and consumables for the commercial printing and industrial printing market are developed by a team of engineers.
We got a tour of the Punch Graphix plant in Lier,
BasysPrint offers prepress solutions and offers prepress equipment and related software for offset printing and the commercial/newspaper sector.
Punch Graphix reported a strong set of first half 2006 results. Sales increased by 7% to 84M and pre-tax profit was up 13% vs. the same period last year. For the full year we expect about 170M in revenue and EPS of 0.15. Punch Graphix stock currently trades at 12x 2006 estimated earnings. If we compare this to its main competitors (Domino Printing & Xsar) who trade at 16x estimates we can safely say Punch Graphix is undervalued.
Punch Technix (listed in
Punch Technix is active in the fitness, medical and graphics industry as well as milking robots for cows. In this last segment Punch Technix is the number 3 worldwide after Lely & DeLaval. Punch Technix is the only one with a MultiBox system which is suited for farms with more than 150 cows. This is the least attractive business of Punch's holding and it is a tiny company. It is probably the least attractive of all the business units.
We wouldn’t be surprised to see some ‘action’ in this segment (action meaning a sale of the business or Punch Technix management that does an MBO)
Punch Telematix (70% owned by Punch International, listed on Euronext Brussels)
Punch Telematix focuses on being the preferred total solutions provider in Mobile Resource & Asset Management, offering best of breed technology and the highest value for money to customers and partners.
The group sells portable device solutions as well as vehicle mounted solutions. One application is the tracking of a large fleet of cars/trucks by the parent company so it can see where they are at any time of the day. Punch Telematix offers the hardware & installation, airtime, backoffice software and repair services. All this is bundled in a sale with a fixed monthly fee for maintenance and repair.
Punch sees a lot of potential in the market and is growing quickly. The problem (which at he same time is the opportunity) is that until now it has only had sales in Benelux while its main competitors are able to sell in
We recently attended the IPO presentation of Punch Telematix and were very impressed with the potential and management. The CEO, Luk Lammens, comes from Proximus (Belgian's largest mobile company, belongs to Belgacom) where he pioneered mobile telephones in
Punch Motive (100% owned by Punch International)
Punch Motive is the newest venture in the Punch family. The overall goal is to develop a best-in-class hybrid engine. The recent acquisition of ZF in
Currently the hybrid engine market is dominated by JATCO (80% controlled by Nissan and 20% controlled by Mitsubishi), AISIN is the world's second largest and is controlled by
Punch Powertrain (as Punch calls its hybrid engine) is the newcomer in the market but its development has been fully funded by Hyundai so this takes a part of the risk out of the equation. Punch confirmed that its hybrid engines are currently installed in Hyundai cars and are being tested in
During its presentation Punch projected a graph in which it shows the expected growth in demand for hybrid engines by several third party sources. The market is expected to grow around 80% from 245.000 in 2004 to 1 million hybrid engines in 2010. Several research firms are actually more optimistic and vary between 2.5 and 3.5 million engines in 3-4 years time.
Punch Other (mainly consisting of Punch's real estate assets)
Punch's real estate value is significant. Punch showed a slide in its presentation highlighting its entire real estate portfolio and how much was on its books (€83M) and what the estimated fair market value was (€165M) or almost double. According to CEO, Guido Dumarey, this provides a nice cushion should things go wrong at some point for Punch International.
While the real-estate assets have accumulated during acquisitions Punch is looking to streamline its real-estate portfolio and has now hired someone to manage its real-estate portfolio. Punch's main real estate assets are in
Overall Punch management said that there shouldn't be one division that was still loss making by the end of 2006.
Important shareholders :
CEO Dumarey: 38% of stock
Merrill Lynch Blackrock 9.6%
ZA Capital 3%
Full year 2006 figures due 28th of February 2007. After consolidation in 2006 and the share price not doing much for most of 2006 I think 2007 and beyond will start a very fruitful and newsflow heavy period for Punch.
All the business divisions have important catalysts ahead of them in 2007. To list just a few:
Punch Graphix will release the results of the Xeikon 6000 machine, which should be very strong
Punch Telematix is at the crux of a very fast growth phase which should propel EPS at 30+% growth rates over the next three years.
Punch Motive should see tangible results from its development deal with Hyundai and announce some results for this program.
Increased volume in the stock should also lead to more interest from brokers to cover the company. Brokers who have analysts who are willing to do the work on Punch should come to the realization that the company is a bargain, in my opinion.
Management has committed to paying a dividend in 2007. We shouldn’t look for a large payout as it is keen on raising its payout every year.
I have already described the CEO, Guido Dumarey but an important aspect about his management style is that he requires a 15% minimum ROE or none of the other managers get a bonus. There are no options and virtually all top executives hold shares in the company. CFO Wim Deblauwe (whom we have met on several occasions as well) is a deal-savvy financier who along with the CEO bought shares around €80 last summer. For full profiles interested people can go to http://www.punchinternational.com
I continue to believe that Punch is severely undervalued by the market. Since almost no brokers cover the company many investors are not familiar with the story yet. This creates an opportunity. While Punch might only be listed since 1999 it’s in existence for 23 years and CEO Dumarey has clearly shown he knows how to create shareholder value.
After the IPO of Punch Graphix in 2005, Punch sees 2006 as a transitional year but is confident that it will reach 15% ROE which would mean almost €11 per share in profits.
This number is without the impact of any acquisitions which the company continues to seek.
I believe that the company still offers a lot of upside potential with its current stock price at 1.15x book value and a P/E of less than 11 for 2006. The downside on the stock seems limited.
|Entry||02/05/2007 08:24 AM|
|do you know what holding company expenses are? And also are the gains on their publicly traded holdings taxable should they sell (from what I remember the Belgians don't have a cap gains tax but it's been a while)|
|Entry||02/05/2007 09:11 AM|
|There is no capital gains tax in Belgium|
There are no immediate plans for a capital gains tax in Belgium (there are elections in June this year, and socialists have been suggesting the idea but as long as they form a coalition government with liberals and/or chrisian party this is unlikely)
I will get back to you with a response on the holding company expenses question
|Entry||02/05/2007 01:44 PM|
|I come up with a value for the three publicly traded stakes of 166MM Euros (98MM for graphix, 28MM for technix and 40MM for telematix).|
Remaining assets are the Motive subsidiary and the property. I saw an analyst estimate that the real estate is worth 78MM.
With EV of around 280MM that implies the Motive sub being valued at 36MM. If I am reading the documents correctly the Motive sub did 10MM of EBIT for the first 6 months of 2006.
If you value Motive at 200MM (10x annualized EBIT) that gets me to equity value of 350MM compared to the 318MM you used in the write-up.
Based on your conversations with management do you think 20MM is a realistic annual EBIT for Motive?
How much tax would be due on the real estate if sold? In the 2005 annual report they mention briefly that the appreciation of the real estate is creating a capital gains liability.
Also, where can I get copy of the slide where they lay out what they think the company is worth. I didn't see it on the website or in the presentation.
|Entry||02/06/2007 05:27 PM|
|What is the debt and net debt at the holding company, not including debt from consolidating the three publicly traded units?|
Put another way, what is total consolidated net debt, less net debt at each of three publicly traded units?
|Subject||re: net debt|
|Entry||02/08/2007 02:29 PM|
|Punch Telematix has 0 long term debt and 0.4 short term financial debt (likely to increase as they will do acquisitions)|
Punch Graphix had 13.75 million net financial debt in 2005.
Expected to increase to 16 million by 2006 (exact figure not out yet)
Punch Technix had short term debt of 19.6M in 2005 and 2.6M long term debt. No estimate for 2006 (figures are not out yet)
Punch International had net financial debt of 70M in 2005, which is expected to increase to 90M in 2006 (this last one is a guess, full figures will come out on 28th of Feb 2007)
|Entry||02/14/2007 09:07 AM|
|Punch International announced today that it controls 92.6% of Punch Graphix after its mandatory cash offer (at GBp 128).|
Punch is planning to cancel the PGX listing on AIM and transfer the listing to Euronext Brussels, including the placement of part of the Punch participation. I think this will be good for PGX's exposure to investors and its valuation.
Expect to hear more about this on February 28th when Punch announces its results.
|Subject||Sells all real-estate for 245m|
|Entry||06/30/2008 03:58 PM|
|Accentis divests its present project development activities to De Speyebeek |
Sint-Martens-Latem and Merelbeke, Belgium, 30 June 2008 – Punch International nv (‘Punch’), the diversified industrial holding headquartered in Sint-Martens-Latem and Accentis nv (‘Accentis’), the Belgian listed holding active in the construction sector, today announced that the Punch group (Punch and companies affiliated with Punch) has sold all its real estate properties to Accentis.
Effective 30 June 2008, Accentis has taken over all shares in Punch Property International nv, the property arm of the Punch group. Binding agreements have also been made for the sale and takeover of all other immovable property belonging to the Punch group. The total acquisition price is 245 million euros. The agreement stipulates that Punch will provide Accentis with a six-year rental guarantee to a value of 19.5 million euros annually. The agreement also provides for delayed payment by Accentis until 31 October 2008 at the latest, whereby the latter has the prior right if necessary to convert part or all of the outstanding debt vis-à-vis Punch into capital.
Prior to the transaction, Accentis transferred, at the request of the Punch group, its project development activities to main shareholder De Speyebeek for an amount of 16.4 million euros. This decision was approved in accordance with the conflict of interest procedure set forth in articles 523 and 524 of the Belgian Companies Code. The added value realised in this transfer is 0.4 million euros, while De Speyebeek also stands surety for various obligations and the result of Accentis’s first six months.
Finally, the De Speyebeek group acquires the ability to transfer its shares in the company to Punch at a price of 0.15 euros per share through a put option from 1 July 2008 up to and including 30 September 2008 should it appear that Accentis is unable to meet its borrowing obligations. The put option may be exercised by the De Speyebeek group from 1 October 2008 up to and including 31 December 2008, irrespective of whether the abovementioned conditions are met. In exercising the put option by the De Speyebeek group, or the conversion right by Accentis, Punch will set up a public bid to obtain all shares held by the other shareholders in accordance with applicable laws and at a minimum value of 0.15 euros per share.
“This transaction symbolises the start of a new future for Accentis, of a strategic repositioning in which the focus shifts from project development to industrial property,” says Jean-Luc Desmet, CEO of Accentis, “The development potential of the locations in the portfolio, particularly the land, is also extremely advantageous. All things considered this is a transaction which will safeguard the continuity of our company over the long term.”
“We are pleased that our portfolio will be in the hands of an experienced group like Accentis whose core business is property,” according to Guido Dumarey, CEO of Punch, “Thanks to this transaction we can reduce our debt position and focus on our operational activities, which is precisely what was intended.”