Santiago Domingo Cebrian of Solventis Asset Management presented his thesis on Corticeira Amorim (Portugal: COR) at European Investing Summit 2019.

Thesis summary:

Corticeira Amorimis the world’s largest producer of cork products. This Portuguese company is family owned (Amorim family owns around 60% of the company) with its origins dating back to 1870. Cork is a great asset but it is only valuable if you transform it in a value-added product as cork stopper for instance. Corticeira leads the cork industry with a market share of around 40% in manufacturing cork stoppers (from the natural to the agglomerated one), floor & walls coverings, composite and insulation cork. Santiago highlights the good and long relationship (more than 140 years in some cases) with suppliers (cork oak owners) and customers (wine and spirit producers among others) as one of the main Corticeira´s intangible assets. The first one is key, because cork oak trees only grow in seven countries and it takes 43 years from sowing to manufacture a cork stopper. Cork by itself has “zero value” but is valuable when transformed into a finished product, and that know-how comes from Corticeira. The second one is also important, because the company has listened to customers for a long time and is prepared to offer them the best solutions. Wine consumption increase, more cork adoption and the expansion of other applications are the main sources of growth of Corticeira that expects to grow around 3-4% per year. The Amorim family is focused on achieving more with less, improving profitability year after year. It can reach around 20-22% margin EBITDA (vs 17,5% in 2018 and 19% in 2016). So Corticeira can generate a normalized net profit of around 110 million € in 2023 that we multiply by a 15x PE that shows a terminal value of 1.650 million € that added to interim FCF of around 400M results in a value of 2.050 million € (vs 1.300 million € of market cap). Corticeira is a company that grows, generates cash flow, and can invest those cash flows at good returns.

Read Santiago’s preview article, Investment Mistakes: Scratch or Scar?

Listen to this session:

slide presentation audio recording

About the instructor:

Santiago Domingo is a portfolio manager at Solventis Asset Management. He is the co-investment manager of Solventis EOS fund since February 2017. Solventis EOS is a long only European equity fund founded in 2006, and focused on investing in companies with sustainable competitive advantages and that are undervalued by the market. Prior to Solventis, Santiago worked as an analyst for a start-up called OralSurgeryTube and in the Endesa´s financial department. Santiago holds a Bachelor´s degree in Finance and Accounting from University of Zaragoza and a Master´s degree in Institutions and Financial Markets from CUNEF.