AlphaValue Corporate Services Fundamental Analysis FR
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Chargeurs

CR
Bloomberg   CRI FP
Holding Companies  /  France  Web Site   |   Investors Relation
Carrying on with strategic acquisitions
Businesses & Trends

Chargeurs, under the aegis of a new owner-manager since the end of 2015, has quietly shifted from a status of a holding company essentially striving to pay back its bankers to that of an industrial conglomerate investing in profitable growth. So far this successful re-energising has been achieved with the same business lines, though they have also undergone a transformation following the management revamp.

As with any holding company/conglomerate type business, the key is the extent of the parent company’s involvement in the daily operations. Strategy is obviously the remit of the owner while active management is rather unusual with holding companies but more with conglomerates. That is why Chargeurs falls into that category.

Active management goes with one motto: growth in high-value niche markets with a world scope. Unsurprisingly, “niche but world reach” is the common feature of the existing four business lines.

Chargeurs’ geographical breadth is a clearly a plus as growth can be built out of the existing rather lean network of commercial units, plants and offices.

The existing businesses are all profitable. After a first phase of relaunch/strategy redefinition, Chargeurs’ management team invested in younger management and an acquisition team. After accumulating financial ammunition in 2017, Chargeurs fired its first significant shots in 2018, both acquisition-wise and by speeding capex and opex where returns were near-term realisations.

By mid-2019, Chargeurs had four business lines, while its growth ambitions (doubling of revenues by 2021) meant that a biggish acquisition was in the pipeline, possibly in a fifth business.

It may also be stressed that the new management team has displayed an inordinate ability to capture major society trends and turn them to its benefits. This is encapsulated in words such as going all digital, going for “premiumisation” & upmarket, embarking ESG best practices and playing with the ever more intricate supply chains. There is nothing here that other companies will not do, but Chargeurs seems particularly nimble at extracting more from such shifts.

Protective-Films, Chargeurs’ staying cash machine

Protective Films is the world-leader in plastic-films and technical-solutions for temporary surface protection with c.40-years’ experience and a global market share estimated to be above 25%.
Primary end-users (construction, household appliances, electronics, transport and auto sectors) reflect the pace of the global economy (components sourced from everywhere need to travel and be protected) all spurred by the general drive for quality, calling for the protection of parts comprising a finished product. The move to ever-thinner, usable films and associated glues also implies positive mix effects over the long run. Thin films are also widely used in manufacturing processes such as stamping where they contribute to mechanical properties. Thin films technology can be fairly complex when they unfold at great speed, must not break and avoid generating painful noise.

Thin films is one of those great (and discreet) businesses where the client needs a quality supplier for a component which is hardly visible in the final cost of the product. Services in effect matter as much as the film. Chargeurs strengthened that link by acquiring in 2017 designers and manufacturers of film-laying machinery. This magnifies the relationship with clients and the value proposition.

2018 sales slowed down sharply after a firework 2017 when clients had both a good year and built up inventories. 2018 were flat on an organic basis. This included the 2016 acquisition of US Main Tape that presumably did well as it was brought to Chargeurs standards. This essentially added manufacturing capacity in the US, a much-needed step to reduce currency mismatches and to meet strong local demand.

Protective Films is still the most visible part of Chargeurs and where industrial performance matters most. The completion of new top notch capacity by H2 19 should be fairly effective in expanding the high value added part of the business

Fashion Technologies, made noble again

From 2015, Chargeurs split its “old” Interlining business into a “new” Interlining, now dubbed Fashion Technologies, and a speciality business called Technical Substrates (please see below).

Plugging a new name on an old business tends to misfire rapidly. Not here as the plans were clearly to steer the old business of supplying interlining for traditional garments to one of servicing fast-fashion with interlining being a starting point. The big move happened in 2018 when Chargeurs bought a business PCC with its entrepreneurial boss immediately promoted to the head of the revamped Fashion Technologies. PCC is no longer about a product but about servicing the fashion industry. The significance of the move is highlighted by the fact that the business has been rebranded PCC Fashion Technologies.

PCC started as a coating business which expanded in interlining that can be hot-fused in garments. Its geographical reach is very complementary to Chargeurs as it adds the US and Asia from which it derives 90% of its revenues. PCC clearly brings to Chargeurs an access to the fashion brands in these two territories. PCC appears to complement the original interlining business of Fashion Technologies by adding new territories but, above all, adding a large service component as its stock in trade. This amounts to being selected as the “prime” contact by a given brand to ensure the timely supply of the various inputs to the actual manufacturers (usually a motley lot). Brand designers indeed rely on subcontractors with frequent issues of quality consistency.

Fashion Technologies’ sales should overtake the €200m revenue mark as soon as 2019. EBIT margins may not be far from 9% once the integration of this €66m acquisition (7.5x Ebitda) is completed.

The 2018 regime change at Fashion Technologies is a big signal that this division, which employs half of the group’s staff but accounts for a quarter of sales, sees itself as capable of moving the needle.

Museum Solutions (ex-Technical Substrates): a growth story in unexpected ways

As soon as 2014, it appeared that non-apparel end-markets for interlining (which is essentially a sophisticated non-woven robust textile) had gained substance. This has been the case in the advertising industry where technical textile bases (although different from interlinings’) appear to have found fresh usages. The principle is to endow technical textiles with the right substrate to give them ad hoc features (say capture only a certain type of light). In 2015, Chargeurs segregated these activities into a new business called Technical Substrates.

The growth potential from an admittedly low base is high and seems to be a case of discovering it as one walks. The acquisition of a small UK firm, Leach, has been a catalyst with the technical substrate being framed on a “lightbook”, thereby opening a vast market of high quality pictures used in fashion shops and museums alike. The latter quickly became the focus for the division through a series of acquisitions made in 2019. The addition of three companies (Design PM, MET Studio and Hypsos) to the Chargeurs roster of niche-focused businesses resulted in the creation of a market leader in the business of museum servicing. In early 2020, the strategic redirection of the business was fully established, through the acquisition of the market leader in the US-based museum services market, D&P Incorporated and the subsequent renaming of the division to Museum Solutions. Going beyond the original technical substrate offering provided by Leach, to now encompass the entire value chain in exhibit production and museum projects. The business ambitions are clearly set with a target tripling of 2018 sales to €100m by 2021, which is expected to be reached quite ahead of schedule thanks to the acquisition of D&P.

Luxury Materials (ex Chargeurs-Wool)

Chargeurs has long been a leading world player in the “top making” and sale of combed, top of the range wool (6% est. market share). It knows the wool industry inside-out but essentially withdrew from the risk side (industrial processing, market making) back in 2012. It is about servicing with a turnover highly dependent on wool prices, though no risk at the operating profit level, which is stable at around 2.5% of the turnover.

Its knowledge has been put at work when Chargeurs launched its plan to act as a quality guarantor over the full wool manufacturing process. Blockchain based end-to-end quality control for top quality wools is the objective so as to capitalise on the demand for ever-higher-quality natural fibres and ever-thinner materials. This is an ambitious plan (encapsulated under the Organica branding) as it will take time and considerable energy to convince the worldwide wool supply chain that this is a winning strategy. In 2018 and presumably to make the point, the wool business rebranded Luxury Materials launched a luxury wool brand: Amédée 1851 selling scarves. All very classy and useful to show that blockchain works in the wool industry.

Human assets

In all, in less than four years, Chargeurs has successfully given a new life to its four business lines through tight management and the conviction that any niche is worth exploring further. By successively convincing existing staff to wake up, go for profitable growth and then hire young talents, train them and make acquisitions, Chargeurs has managed to surprise about every observer.

Target
Upside 95.5%
Price (€) 13.64
Market Cap (€M) 389
Divisional Breakdown Of Revenues
Change 20E/19 Change 21E/20E
  Sector 12/19A 12/20E 12/21E 12/22E €M of % total €M of % total
Total sales 626 643 887 974 17 100% 244 100%
Protective Films Chemicals-Specialty 278 261 301 325 -17 -100% 40 16%
PCC Fashion Technolo... Apparel,Textile,Fas... 211 179 200 217 -32 ns 21 9%
Museum Solutions (ex ... Advanced Materials 37.3 97.9 116 133 61 356% 18 7%
Luxury Materials Apparel,Textile,Fas... 100 90.0 100 100 -10 -59% 10 4%
Other 15.0 170 200 15 88% 155 64%
  Revenues Costs Equity
Australian $ 0.0% 10.0% 0.0%
Dollar 15.0% 10.0% 0.0%
Emerging currencies 10.0% 10.0% 0.0%
Long-term global warming 0.0% 0.0% 0.0%
Oil price (Brent $/bl) 0.0% 13.0% 0.0%
Renminbi 12.0% 10.0% 0.0%
Sales By Geography
 
Europe 43.0%
    Of which Italy 12.0%
    Of which Germany 7.0%
    Of which France 7.0%
Americas 30.0%
    Of which United States 18.0%
Asia 25.0%
    Of which China 12.0%
Other 2.0%
Changes to Story : 17/04/2020, Changes to Forecasts : 17/04/2020.