Cofidur SA (ALCOF:PAR)

Recent Share Price: €294

Accounting: French Accounting Standards

Fiscal Year: Dec. 31st

Market Cap: €11.4 million ($13.5 million)

Industry: Technology / Printed Circuit Boards

Cofidur SA is electronics manufacturer that works as a subcontractor to predominately French companies in a variety of industries. Information is quit difficult to come by, but with €16 million in the bank and a €11 million market cap, I’m willing to make some acceptions.

In what was a blood-bath for the first half of this year, with their plants practically sitting idle, Cofidur secured a €5 million loan guaranteed by the state (which I presume to be at favorable terms) and took a negative EV valuation at the start of the year to over €5 million EV at the half-way point. The company followed through with their €8 dividend which is a good sign, but the future is quite uncertain. (The company stated in their first half report that they remain confident given their cash level.)

The Laval and Périguez sites are therefore practically at a standstill, only a few rare productions remain to meet customer demand and the company is implementing the measures adapted to this decrease in activity (taking leave, partial unemployment, etc.) as well as those making it possible to limit the impact on cash flow (deferral of expenses, social security, bank maturities, etc. ) Given this assumption, the first half of 2020 will necessarily be significant decline compared to 2019 (It is still too early to quantify the impact) but the current cash level of the company allows us to remain confident to approach the second half of the year.

Cofidur Press Release (Google Translate)

I cannot find information on their concentration of customers. I have also been unable to ascertain if French Accounting Standards mandate reporting customers that contribute over 10% to revenue, for example (as is the case in the U.S.). Any help on this would be appreciated!

Segment RevenueFranceEuropeUSAOther
2019 (in millions)€61.2€4.50€2.3
2018€70.3€5.40€9.3
2017€73.8€11.40€4.0

I have read that they own their factory in Montpellier, but I have been unable to verify this. The depreciation schedules do not provide help either. Their sites in Laval (where they are headquartered) and in Périgueux appear to be leased. In their 2019 annual report they list €687K in rental contracts on the balance sheet, which they report “mainly concerns real estate at Laval sites and Périgueux”.

In 1998, Cofidur issued approximately €28 million in convertible bonds. Since then, through buybacks and conversions, it has been reduced to a negligible redemption value of €254,000 (conversion ratio: 1 share for 200 bonds).

Cofidur reports no material off-balance sheet commitments.

Cofidur has a share buyback program in place with a max purchase price of €350 per share and up to 10% of shares outstanding, or 3,867 shares. No sign of activity on this though, as the program has been sitting dormant for the past few years. There is a history of share buybacks, so all is not lost.

From the 2019 annual report, EMS Finance is the majority shareholder of Cofidur, with over 50% and over 2/3rds voting rights.. (EMS Finance was established by management to protect itself from the takeover bid of Olane.) In 2019, it appears that the 4 member company was reduced to 3 members (Henri Tranduc, Philippe Broussard, and Serge Villard) with the buyout of Thierry Richli for €5ooK. It is reported that at the 2019 member meeting the buyout was due to Thierry’s retirement. With EMS Finance controlling approximately 50% of Cofidur, and assuming (1) Thierry Richli controlled 25% of EMS Finance, and (2) the purchase price of €500K is accurate, this may provide very interesting insight on the value management places on Cofidur. My assumption is that there is additional information out there that would better explain these numbers.

We accumulated the majority of our shares in the first half of this year. Management appears to have done a nice job allocating resources and making sensible decisions with the company’s capital over the greater part of 5 years. If they continue to make similar decisions in the future, the stock, at current prices, has a good chance of working out favorably over the next 5 years.

Financials

 5 YEARS10 YEARS
Change in Working Capital €   2,300,000  €       679,000 
Net Income € 10,124,000  €  18,423,000 
D&A €   6,858,000  €  15,511,000 
Other non cash charges € (3,783,000) €   (5,675,000)
Capex € (5,115,000) € (12,568,000)
Owner Earnings € 10,384,000  €  16,370,000 

Write-ups

Liquidation Almanack

backoftheenvelopeinvesting

Johan Wigert (and 2017)

TES Optimal Value Investing

Disclosure: We own shares in Cofidur SA (ALCOF:PAR). Leaven Partners, LP may hold any securities mentioned on this blog and may buy or sell these securities at any time.

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