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Wednesday, July 24, 2024

STEF S.A. (ISIN FR0000064271) – An “Ice Cold” Quality Compounder at a “bonkers bargain” price


Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH !!!

As always with my more detailed writeups, I will focus on the general sections in the post and attach the full pdf for anyone interested in the details. And of course the Bonus Sound Track.

  1. Elevator pitch:

STEF SA is a pretty unique listed French company that runs a “temperature controlled” agrifood supply chain and logistics business across 8 European countries. Majority owned by its Directors and Employees (~72%) the company has compounded book value, earnings and dividends by 12% p.a. over the past 22 years with little or no impact from any of the big crises (GFC, Euro, Covid, Ukraine) that hit Europe in the meantime.

This business trades at an incredible low 8x trailing P/E which in my opinion, considering the track record, their growth opportunities and the “essential infrastructure” character is a “bonkers bargain”.

Some shorter term headwinds exist (interest rates, French politics, agrifood inflation), but in the mid- to long term the set.up for very decent shareholder return is excellent, with very limited fundamental downside, 

  1. Introduction:

I have looked superficially at STEF from time to time but for some reason, I never went deeper but kept it on my watch list. Only recently, when I scored my watchlist more systematically, STEF came out as pretty attractive. In addition, the current political tensions in France motivated me to dig deeper.

  1. The Company & The business

3.1. What Problem does STEF solve ?

STEF is active in “temperature controlled” storage and transport of food from the manufacturers to either wholesalers, retailers or restaurants. Many food items are perishable and the warmer the environment, the faster these items will go bad. In many cases, going bad can effect severe health problems for the ultimate end customer. STEF, with its triukcs and especially warehouses helps to keep food cool and fresh without incurring too high costs for this service.

3.2. The Company.

STEF SA is a French company, Paris headquartered with a market cap of 1,4 bn EUR that is active in “temperature controlled” transport and storage of food. They are active in 8 European countries, the largest market is their home market France.

The company is more than 100 years old, however until 1987, the company was owned by SNCF, the Government train operator. It was then privatized and finally listed in 1998 on the stock market.

11. Pro’s and Con’s:

As always, at this stage a quick summary over the Pro’s and Con’s for STEF;

Pro’s:

  • Employees own 18%, total insider ownership 73%
  • Essential logistic/infrastructure
  • not very cyclical
  • Very good long term track record
  • sale of loss making maritime business in 2023 (at a profit)
  • Good reporting (no adjustments, organic vs. inorganic etc.)
  • market leader in Europe, competition fragmented, Network effects
  • Strategic refocusing (sale of shipping in 2023, Health logistics in 2024)
  • Potential Inflection point for international business
  • interesting adjacent businesses as growth opportunities
  • Decent management alignment
  • Decent capital allocation / Capital management

Cons:

  • capital intensive (real estate)
  • debt /higher interest cost
  • no hard catalyst
  • always relatively low P/E
  • weak French core business due to food inflation in 2023
  • political environment France

12. Conclusion and Game Plan

Overall, STEF looks like the Archetype of company that I am looking for: Boring, under the radar, great track record, decent business, decent management and a very decent valuation. 

Of course, investing into European small caps at the moment is not a lot of fun. On the other hand, this is also the reason why you can buy into such quality compounders at “bonker bargain” prices.

The game plan here is relatively easy: Sit back and watch them execute.

As SETF hits so many of my requirements, I decided to allocate 5% of the portfolio into STEF at a share price of around 116,50 EUR per share.

Why 5% ? Because I really think that the combination of business quality, track record and valuation is quite unique and very attractive. Compared to Eurokai and EVS, the Upside seems comparable, but the downside in my opinion is even better covered by the defensive business model.

In order to partially finance this position, I sold my remaining Biontech position (~1% of the portfolio).

Bonus track:

I think this song fits very nice to STEF’s core business:

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