CTT Correios: A Simple Business With Robust Free Cash Flow

Sebastien Lemonnier presented his in-depth investment thesis on CTT Correios (Portugal: CTT) at European Investing Summit 2016.

CTT Correios is a cheap defensive investment idea. CTT provides postal services. It is not a fashionable business with favorable megatrends, but it is a simple business to understand. The business has robust FCF generation. The historical mail business has been optimized by management and delivers a normalized 10+% FCF yield. The balance sheet is robust, making management’s dividend commitment quite secure; the annualized dividend yield was recently in excess of 7%. The balance sheet strength appears to be underappreciated, with significant tangible assets that seem to be overlooked by the market. Management is experienced and disciplined and has received support from a financial investor who owns 8-10% of the shares and has a board presence. The launch of CTT Banco creates a free longer-term option on growth, the headwinds created by the ongoing low interest rate environment notwithstanding. Sebastien estimates the discount to intrinsic value at 25-35%.

About the instructor:

Sebastien joined Mansartis, the Paris-based family-run financial services group, in 2014 after 10 years of experience in European equities, both as financial analyst and since 2006 as fund manager. Before joining Mansartis, Sebastien had been managing the Tocqueville Value Europe fund. Sebastien holds a Masters Degree in Financial Management from Panthéon-Sorbonne Paris.

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