Chargeurs SA
The world leading company you've never heard about.
Summary
Chargeurs SA is an industrial conglomerate with world-leading positions in several niche markets.
Focus on high value-added niche markets with low capital intensity and strong growth potential.
Repositioning from an industrial company to a luxury player.
Net income CAGR at double digit since 2015.
Leap Forward 2025 strategic plan aspires to double revenues and recurring income.
After a 50% decline from ATHs the stock offers a good entry point, currently trading under 12 times 2023 expected earnings and under 9 times 2024 expected earnings.
CEO Michaël Fribourg controls almost 30% of the company, ensuring alignment with shareholders.
Introduction
Winning matters. In life and in business it’s important to reach the number one position, as the saying says “no one remembers who came in second”. In sports journalists talk non-stop about the next Michael Jordan or the next Roger Federer and in business every company wants to be labeled the next Google or the next Apple. Everybody recognizes a winner and everybody wants to be one.
But sometimes there are winners that are completely unknown.
Chargeurs SA (EPA:CRI) is a french small-cap (€357M market capitalization) which is the world leader in several niche markets. While these markets might not be big and flashy, they are extremely profitable with high barriers to entry. At the same time the stock is not widely follow and it’s quite difficult to know someone outside of France who has heard about it.
In addition its CEO controls almost 30% of the company, since he arrived in 2015 the company has achieved a remarkable CAGR in every metric, and right now his plan for the company is to transform it from an industrial player to a luxury one. The stock price has fallen around 50% from its all ATHs so now it’s the right time to have a look at it.
Unraveling Chargeurs SA
Chargeurs SA (EPA:CRI) was formed in 1972 as a shipping company (Compagnie Maritime des Chargeurs Réunis) and throughout the years it operated in many different business activities, like banking, insurance, telecommunications, media, and textile. In 1996 the group split in two companies: Pathé (television, film and print press) and Chargeurs International (textiles, wool and temporary surface protection), which is what is now Chargeurs SA.
Chargeurs can be viewed as an array of businesses each operating on a niche area with certain charasteristics:
Total Adressable Market <€1B.
Fragmented number of players.
Possible to capture at least 25% of the worldwide market share.
No customer representing more than 5% of the market.
In 2015 Michael Fribourg acquired a 26% stake through his family holding starting a new era in the company. During his tenure at the top the company has achieved a remarkable CAGR in most metrics.
His growth strategy has consisted of two clear pillars. Firstly, using the company cash flows to modernise its industrial base and to fund acquisitions with a strong strategic fit. Some of these adquisitions - 15 in total, 5 in its Technologies division and 10 in its Luxury division - were vertical acquisitions to complete its value offer in an exististing business, while other adquisitions have been in new niche business segments with high growth potential.
Secondly, the Premiutization of its businesses to improve margins and consolidate its leadership, raising the barriers to entry and elevating its pricing power.
Its last rearrangement last July, the company divided its operations into 3 different segments each consisting of several businesses
Technologies Division
The main division of the company (2022 9M €434.4M Revenue, 75% of total revenue), consists of two different B2B businesses in high value-added niche markets. Its products benefit from low price elasticity as they are essential to clients and account for a small fraction of their costs and final product price. In both businesses, Chargeurs is positioned on the high end of the product spectrum thanks to its proprietary technologies.
1 - Chargeurs Advanced Materials - Operating under the Novacel brand, it’s the world leader in protective films for high value added materials (for example the plastic film that protects the screen when you buy a smartphone). CAM has the most extensive range of very high-tech surface solutions on the market: plastic and paper films, technical adhesives and application machinery.
Total Adressable Market at €1B, 30% global market share
Revenue 9M 2022 €267.5M, more than 45% of the group total
HY 2022 EBITDA margin 10.2%, EBIT margin 6.8% due to inflation.
Management guides for an EBIT margin between 10%-12% under normal circumstances
2 - Chargeurs PCC Fashion Technologies - It’s the leading supplier of technical textiles and interlinings for the fashion industry. These are internal components of clothing which contribute to their design performance and durability, including interlining, tapes, shoulder pads, belt loops, tape bindings, etc. Customers range from luxury brands (Dior, Gucci, Louis Vuitton, etc) to more affordable brands like Zara or Uniqlo to sport brands like Adidas or Lululemon.
TAM around €800M, 25% global market share.
Revenue 9M 2022 €166.9M, almost 30% of the group total.
HY 2022 EBITDA margin 10.2%, EBIT margin around 6.8% (vs FY 2021 11.0% and 7.6%)
Luxury Division
Much smaller than the technologies division (2022 9M €139.2M Revenue, almost 25% of total revenue), it’s the division where management intends to grow to become a sizeable player.
1 - Chargeurs Museum Studio - CMS is the only company to provide a full range of skills and expertise across the entire value chain for the museum industry, including strategic consulting, master planning, design, development, project management, publishing, marketing, merchandising, digital content, communication, etc. The museum sector is expected to grow in the next years at double digit rate and offers high margins, making it the ideal high-end fast-growing niche market.
In a very fragmented industry, CMS has been able to diferentiate its offering, via its one stop shop, thanks to several acquisitions in the last years, turning into the global market leader of the market.
TAM €500M, more than 20% global market share.
Revenues still low in 2022 (9M 2022 €56.7M) but are expected to grow in the subsequent years.
Order book in excess of €130M.
5% EBIT margin in HY 2022 (8.3% in 2021), expected to reach 10%-15% in the LT.
2 - Chargeurs Luxury Fibers - Engages in the trading of premium wool fibres for the fashion industry. This is a low margin business where Chargeurs is developing its premiutization strategy to boost its performance.
In order to improve the margins, Chargeurs has launched Nativa, an eco-responsible label to indentify high-quality and traceable wool fibers that comply with the strictest sustainability standards (animal well-being, water treatment, regenerative agriculture programs, etc). So far Nativa accounts for 10% of CLF turnover but is rapidly growing as luxury brands step up the effort in CSR.
Global leader with a market share of more than 20%
More than 50% market share in the premium traceable wool market.
Revenue 9M 2022 €76.2M
HY 2022 EBITDA margin 2.0%, EBIT margin 1.8 (vs FY 2021 2.6% both)
3 - Chargeurs Luxury Goods - In November 2021, Chargeurs acquired the British ultra-luxury gentleman brand Swaine Adeney Brigg and renamed it Swaine London, marking its entrance in the B2C luxury sector. Since 1750, Swaine has been designing, manufacturing and selling a wide range of very high-end accesories under several brands: Swaine Adeney (luggage and briefcases), Brigg (umbrellas) and Herbert Johnson (hats). You may not have heard about them before, but they are responsible for some iconic creations like the Indiana Jones hat or the Kingsman umbrella.
Management goal is to completely revamp the brand, extending the product range to appeal to women and younger generations and accelerating its international growth. A new opening of a flagship store on New Bond Street, the upmarket fashion street in the heart of London’s Mayfair, is scheduled soon and they are having discussions to open 3 stores/corners in Japan (Tokyo and Nagoya).
Last August, Chargeurs acquired The Cambridge Satchel Company, a designer, manufacturer and distributor of premium leather bags and satchels. Founded in Cambridge in 2008 and selling exclusively online until its first store opening in 2013, this Made in Britain affordable-luxury brand offers potential for premiumization and international expansion.
This adquisition also brings a manufacturing facility in Leicester to the group, so it will be possible to internalize all the production required to meet the expected growth in demand at Swaine while lowering the breakeven point in the supply chain of both brands. Moreover, the expertise in marketing and e-commerce that The Cambride Satchel Company has developed will be key to accelerate the growth of Swaine and improve its operating profitability.
Chargeurs has not disclose Swaine’s revenues or net income but at the time of the acquisition revenues were in the low/mid single digit million Euros region.
Same with the Cambridge Satchel Company, Chargeurs does not disclose its financials yet.
In the upcoming FY 2022 earnings release this data will be disclosed.
4 - Chargeurs Personal Care - Formerly known as Chargeurs Healthcare Solutions, this business line was created during the COVID-19 pandemic to provide face masks (disposable and reusable), hand sanitizer, gowns, gloves, etc throughout its brand Lainière Santé. Its outstanding results in 2020 and 2021 helped Chargeurs to weather the storm during the pandemic years when the performance of the rest of the businesses plummeted.
Once the pandemic is over, Chargeurs plan is to this shift the business upscale to cover personal care and wellness. As a result, they got the exclusive distribution contract of the Sockwell brand of compression socks in France and purchased Fournival Altesse, a french maker of high-end hairbrushes.
Although they still have LT contracts to provide PPE, management has stated that CPC is one the businesses where they will be growing via M&A.
Revenue 9M 2022 €6.2M
Management expects a LT EBITDA margin higher than 20%.
Diversification Division
Within this division, Chargeurs groups together interests which are exclusively non-controlling. There is not a lot of info out there about this division, it would be nice if in the future management give us more details about these assets.
Acquisitions and Premiumization.
Chargeurs has closed several acquisitions since 2015 with a clear strategy: first of all, get a leadership position in its Technologies niche markets (2016-2018); then create and grow its Luxury division (since 2018).
Chargeurs Advanced Materials (4 acquisitions) - In 2016 CAM acquired US company Main Tape for €20M which at the time of the deal generated $22M of revenues in North America.
In 2017, it acquired three small players with combined revenues of €8M (Somerra in France, Walco in US and Omma in Italy) specialized in film application machines, which created a new business line offering customers the ability to apply protective films directly on-site.
Chargeurs CPP Fashion Technologies (1 acquisition) - The acquisition of CPP Interlinings (€70M revenue) in 2018 was transformative for the business because it allowed Chargeurs to reach the world leading position and captured both commercial and cost synergies. On the revenue side, it increased its share in new markets (Asia) and products (lingerie and aporswear); on the cost side, it lowered the breakeven point at manufacturing sites.
Chargeurs Museum Studio (7 acquisitions) - It originally operated Senfa Technologies, a technical textile and coating company which operated in the advertising, decoration, museum industry.
Sensing the opportunity due to the lack of strong players in the museum industry, Chargeurs went on a shopping spree acquiring several companies in the span of 4 years, building the industry leader.
In July 2022 CMS acquired a 80% stake in Skira Editore Spa, a italian publisher of classic and modern art and design books (€15M in annual sales).
Chargeurs Luxury Goods (2 acquisitions) - Both Swaine and The Cambridge Satchel Company were going through rough times when they were acquired: Swaine was in need of a total revamp and The Cambridge Satchel Company was losing money due to a hurried expansion.
Nonetheless both brands have a strong reputation making a possible tournaround a great challenge for management, a touchstone to determine if Chargeurs is ready to compete in the B2C luxury sector.
Chargeurs Personal Care (1 acquisition) - In 2021 CPC closed the adquisition of Fournival Altesse, a french company founded in 1875 which is the european leader in high-end hairbrushes. As always, Chargeurs has worked in the premiutization of the brand, changing its name to Altesse Studio and revamping its packaging and merchandising with a view to accelerating its dissemination in travel retail and selective distribution.
So far this acquisition looks like a winner because comparable sales have gone up >40% since Chargeurs took charge.
Leap Forward 2025
In February 2021 Chargeurs unveiled its Leap Forward 2025 strategic plan with two clear targets:
Reach €1B in Revenue in 2025 (like-for-like), €1.5B adding potential adquisitions.
Reach €100M in Recurring operating profit (like-for like), €150M adding potential adquisitions.
The math is straightforward: the company is expects to grow revenue at double digits in the next three years and also expects to reach a 10% EBIT margin.
In a presentation last December, management reiterated its 2025 targets and gave a little more colour in terms of EBITDA.
The goal is to achieve a balanced contribution in performance between the Technologies and Luxury activities in 2025 (€170M EBITDA 2025). The strategy is to keep a leadership position in its Technologies businesses to fund acquisitions in the Luxury sector in order to be viewed, perceived, and valued as a Luxury player.
The target are companies that meet the following criteria:
Iconic and profitable assets
Strong growth potential
Reasonable acquisition price
Management has stated that they are in talks with several acquisition targets but nothing has come up yet. It has also hinted that the next acquisition could be remarkably larger than the ones before, a company with at least €50M in revenue.
Michaël Fribourg
The man that has changed Chargeurs is Michaël Fribourg, who is the chairman and CEO since 2015, when the holding company Colombus SAS (undisclosed majority ownership position by its family holding Groupe Familial Fribourg) purchased the shares of Chargeurs in the hands of former CEOs Jérôme Seydoux and Eduardo Malone at 8€ per share. In September 2022, Colombus increased again its stake reaching 26.46% of the capital and 29.06% of the voting rights.
During his tenure at the top he has completely transformed and company, directing its efforts on growing in its existing businesses and creating new ones taking advantage of the opportunities available in the market (CMS, masks sales during the pandemic, etc). Owning a large portion of the company, it ensures alignment with shareholders (dividend 60% of net income) and a LT vision strategy (he expects Chargeurs to get into the top 40 french companies by 2030).
Stock Price Roaller Coaster
Chargeurs used to be a quite a boring stock trading around 5€ per share until 2015. Since then the stock has experienced several boom-bust cycles, drawing 4 clear different stages in its price chart:
1 - 2015 - 2018: Michaël Fribourg buys its stake at 8€ per share, new strategy is implemented and the stock more than triples reaching almost €30.
2 - 2018 - April 2020: After tripling the stock loses some momentum, bottoming with beginning of the COVID pandemic below 10€/share, losing around 2/3 of its value from its January 2018 peak.
3 - April 2020 - November 2021: Quick reaction from mangement to the COVID pandemic getting amazing results thanks to the sale of PPE , stock more than triples again to almost 30€/share.
4 - November 2021 - Nowadays: The pandemic starts to fade so the income from the PPE sales almost disappears, the rollout of CMS is slower than expected and lower margins in its Technologies division due to inflation impact the bottom line. The stock price loses more than 50% from its November 2021 peak.
Valuation
Chargeurs stock is currently trading at €14.92 per share (closing price on 7th February), which implies a Market Capitalization of €357M and an Total Enterprise Value of €540M. There are several challenges that make it very difficult to properly value a conglomerate like Chargeurs:
First of all, a sum-of-the-part model well suited to value a conglomarate is difficult to use due to the lack of listed peers in the group’s niche markets where competitors are smaller privately owned companies.
Secondly, the businesses that form Chargeurs operate in very different markets, with very different growth prospects, which makes choosing a multiple for the whole company impossible.
Lastly, any transformative acquisition could radically change its finances and make the valuation obsolete. Moreover, as is the case, when management has clearly stated that they are looking to make this kind of acquisition in the near future.
Having a look at the consensus estimated by analysts for next years two points stand out:
Revenue growth is much slower than mangement guidance (around 5% vs double digit guidance).
EBIT margin is far from the 10% management guidance in 2025 (7.3% in 2024).
I think analysts estimates are more conservative and more achievable so I’m more confortable working with these numbers, but at the same time I have in mind that Chargeurs was able to beat analysts estimates in the period 2015-2021 so un upward surprise is not unconceivable.
As we can see from the table, 2022 is expected to be an outlier in terms of profitability, well below the pre-pandemic levels. Margins will improve from 2023 onwards, increasing EPS and FCF at a rapid rate, so I think its better for valuation purposes not to rely on 2022 financials.
P/E Ratio Valuation
Let’s calculate the Price-to-earnings ratio for 2023 and 2024 (I use 2024 financials also because it’s when margins are closer to its historical levels giving a more accurate valuation of the company)
2023 Forward P/E ratio = €14.92 per share / 1.27 EPS Normalized = 11.74
2024 Forward P/E ratio = €14.92 per share / 1.67 EPS Normalized = 8.93
What’s the right multiple for Chargeurs? Very difficult to say, I personally think that a company with its dominance in several markets and growth potential deserves a multiple of at least 15.
Applying a 15 multiple we would arrive at a valuation of 19.05€ using 2023 EPS (27.68% upside potential); using 2024 EPS we would arrive to a valuation of 25.05 (67.89 upside potential).
Moreover, if management is able to achieve its guidance in the next years there’s even more upside, both by margin expansion and earnings growth.
P/FCF Ratio Valuation
Using Free-Cash-Flow instead of Earnings gives us a very similar picture of the company:
2023 Forward P/FCF ratio = €14.92 per share / (€35.85M FCF / 23.97M shares outstanding) = 10.17
2024 Forward P/FCF ratio = €14.92 per share / (€41.18M FCF / 23.97M shares outstanding) = 8.68
Right now the company is not a bargain but its not trading at very high multiples if we take into account its growth potential.
Company-Specific Risks
Integration Risks - As any company that grows via M&A, there’s a risk that the integration of newly acquired companies doesn’t go according to plan.
Luxury Shift - Although Chargeurs wants to grow in the luxury area, nowadays the vast majority of its revenues come from the B2B Technology division. It has not experience in the B2C luxury sector, making it a more difficult to become a relevant player in this market.
Consumer Spending - The cost of living crisis (high inflation, high interest rates) can take a dent in the consumer spending habits of the people and a company with a high exposure to the luxury sector and high end products may be hit harder.
Raw Material Prices - Both businesses in the Technologies division are suffering lower margins due to inflation in its raw materials. If this inflationary pressure continues it could take longer to recover its margins to normal conditions.
Conclusion
Chargeurs SA (EPA:CRI) is a conglomerate with leadership position in different niche markets. Since 2015 when current CEO Michaël Fribourg acquired almost 30% of the company, Chargeurs has enjoyed double digit earnings growth thanks to a strategy with two clear pillars: acquisitions and premiutization.
To continue this double digit growth for the next years, the company unveiled its ambitious 2025 strategic plan which aspires to double revenues and recurring income from 2021 levels counting on acquisitions in its Luxury division.
Having lost around 50% of its market capitalization since November 2021 due to several headwinds (lower margins in its Technologies segment, slow rollout of CMS, sales of masks disappearing once the pandemic is over) the stock is trading at a reasonable price if mangement is able to deliver in its growth ambitions. While not a bargain, it could be a good entry point for a company that can drastically transform in the coming years.
Additional Material
If you want to learn more about Chargeurs I highly recommend you to read its Strategic Vision Presentation from last December.