EXEL Industries: French Niche Specialist In The Sprayer Industry

Louis d’Arvieu presented his in-depth investment thesis on EXEL Industries (Paris: EXE) at European Investing Summit 2016.

EXEL Industries is a French niche specialist in the sprayer industry. 45-50% of sales are for agriculture (leader in Europe), 25% for industry, mainly auto, 12% for consumers. The remaining 18% is on beet harvesters. They generate 15+% of pre-tax ROCE over the cycles, including goodwill. Louis believes they should reach 20% on a normalized basis going forward. They execute well, are an innovative company gaining market share, and are optimizing the cost base as often as possible in France despite the challenging legal environment, while keeping a great relationship with the workforce. They excel at capital allocation, and free cash flow generation is solid. Since the IPO in 1997, they have grown from €150 million in sales to €800 million, both internally and externally, but with zero capital increase. They love to buy bankrupt companies and make them profitable. They have good timing; for example, they recently bought ET Works in the U.S. in the agricultural sprayer market after sales decreased 50%. Exel is a family-owned company with strong family involvement, but members of the family are in no way given priority and are expected to begin working elsewhere. Currently, both the agriculture and the beet harvesting businesses are in a downcycle, but even so, the valuation is reasonable at 11x PE with close to 10% free cash flow yield. On a normalized mid-cycle basis, the company trades at 8x PE and 13% free cash flow yield, much too cheap, in Louis’ view.

About the instructor:

Louis d’Arvieu joined Amiral Gestion in 2005 and serves as a fund manager for the Sextant funds. Founded by François Badelon, Amiral is an independent asset management firm based in Paris. Amiral’s single goal is sustained performance with minimum risk based on the firm’s value investing approach. Louis graduated from the HEC School of Management in Paris.

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