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Burelle, A Growing Euro for 50 Cents

Burelle, A Growing Euro for 50 Cents

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Published by Alex Vzquez
Burelle SA: Analysis of the stock
Burelle SA: Analysis of the stock

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Published by: Alex Vzquez on Mar 12, 2013
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01/21/2014

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1)
 
Introduction
Burelle SA is a French holding company I ran across in a screener both for being cheap relativeto book value and for having high returns on capital employed. Although almost all of thestocks that appeared in the results did not lead to anything meaningful, I think Burelle is anopportunity to buy a very good company at a cheap price.The company is majority owned by the Burelle family (77.85%) and its main asset is a 56.1%stake in Compagnie Plastic Omnium, a listed company with EUR 1.85 Bn in market cap foundedby Pierre Burelle. Apart from that stake, Burelle also owns Sofiparc, a real estate company thatbrought in EUR 7.2 mm in rental income in 2012 and a private equity company whose NAV isestimated at EUR 35 mm.Taking into account the 3 pieces of the holding I estimate that the market cap is around
51.6%of the NAV
as presented below.
2)
 
Valuation: Sum of the parts
2.1 Compagnie Plastic Omnium (POM:PAR)Plastic Omnium is mainly a supplier of automotive parts (90% of revenue), although it also hasa division engaged in environmental services in which they make waste containers and sellrelated services. It is the world leader in their two automotive divisions as well as in theirenvironment division.Over the last 3 years it has averaged an impressive ROCE of around 26% with a current P/E of 10.64, which seems cheap for a company that has grown revenue in the same period at 25%CAGR.The main problem I have with it is that this is a cyclical company trading at close to 2x bookvalue and will probably attract competition due to the hefty returns it is achieving.As the whole valuation of Burelle is related to Plastic Omnium, I will be doing a deeper analysisof Plastic Omnium in the next point.For the sake of this point, we will take the market value of the 56.1% stake:
EUR 1035 MM.
2.2 Sofiparc
 
Company name: Burelle SATicker: BUR:PARShare price: EUR 317.5 (Market capitalization: EUR 588.43 m)
Price target (NAV per share): EUR 615.54 (+94% upside)Current P/E (TTM): 5.39
 
Sofiparc is the real estate part of the group founded in 1989, which had revenues from rents of EUR 7.2 MM in 2012.
Sofiparc’s main asset is a 13,000 sqm buil
ding in Levallois, a commune 6 km away from the citycentre and close to La Défense business district. This building is 80% rented by CompagniePlastic Omnium.The company also owns 30,000 sqm of land in Lyon and Saint-Priest, 6000 of which are leasedto a real estate fund operating two hotels (an Ibis and a Novotel) in Lyon and 6,000 sqm to
McDonald’s and
a car washing company in Saint-Priest. The other 18,000 sqm in Saint-Priestare empty.The simplified balance sheet for Sofiparc looks like this:Thousands of euros
Sofiparc
GoodwillIntangible assetsTangible assets
54,313
Investment property
22,544
StocksReceivables and related accounts
521
Other receivables
536
Customer financing receivables * (C)Current accounts and other financial assets(D)
45,848
Financial hedging instruments (E)Net cash * (A).
TOTAL ASSETS 123,762
Loans and financial liabilities (B)
53,174
Equity
70,588The carrying value for the building and the land in Lyon is EUR 76.9 MM, which I think issomewhat undervalued taking into account that the EUR 7.2 MM made in rental income wouldmake for a rental yield of 9.4%. I believe that it is quite a high yield, especially having a largepart of the land unoccupied (18,000 sqm).In order to have another layer of safety I will take the book value of 
EUR 70.6 MM.
 2.3 Burelle participations
It’s a small private equity firm which invests in French companies. It has a reported NAV of 
EUR35 MM
which will take as face value.2.4 Estimated intrinsic valueThe total value of the three legs comes at
EUR 1,140.6 MM
compared to a market cap of just
EUR 588.43 MM
for a
potential upside to NAV of 94%.
Burelle doesn’t have
 
any debt
 
at theparent level.
 
An investment in Burelle is basically an investment in Compagnie Plastic Omnium with a verybig discount so I will take a look at that company to determine if it is worth an investment.I think the reasons that could explain why Burelle is so cheap could be:-
 
Holding company.-
 
Not much free float (77.85% in the Burelle family’s hands
and 5.53% in treasury stock).-
 
Annual reports in French only.-
 
European company
 –
It would not explain the discount with Compagnie PlasticOmnium.-
 
Related to the automotive industry - It would not explain the discount with CompagniePlastic Omnium.
3)
 
Compagnie Plastic Omnium: Is it worth it?
Compagnie Plastic Omnium operates in two divisions: Automotive and Environment.The biggest and most profitable one is Automotive (90% of revenue), which is subdivided into:-
 
Inergy Automotive: It makes fuel systems, which are comprised of the fuel tank andthe related components.-
 
Plastic Omnium Auto Exterior: It produces exterior components (read fenders,bumpers and tailgates).On the other hand, the Environment division makes plastic containers and sells relatedservices accounting for around 10% of sales.
It’s important to mention that t
he three subdivisions are the world leaders in their marketsand while the Environment division deals primarily with local councils, the automotive divisionworks with the best brands in the industry (see below).
Source: 2012 Financial results presentation.
Last week Plastic Omnium announced its results for 2012. These have been really good for thepast 3 years, growing revenues from EUR 2,459 MM in 2009 to 4,806 MM in 2012 and

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