Chargeurs

We regard Chargeurs SA as an industrial group in the Support Services sector, a highly diversified universe of businesses catering for various B2B services on a low capital intensity basis. We had initiated coverage of Chargeurs as a holding company then battling on to pay back its debt. The strategy pursued by the new owner, with a focus on active management of its industrial assets and leveraging its existing capabilities to develop new capital light businesses, has led us to reassess our view on Chargeurs’ valuation profile.

Peer metrics therefore consist of a multi-sector group of companies with a B2B services dimension; plus the odd reference to specialist chemicals as Protective Films is the historically-dominant business (overtaken momentarily by CHS in COVID-19-hit 2020) with a 5-year average of 46% of group sales and 58% of EBITDA. We apply a discount to the peer-based references to account for Chargeurs’ smaller scale versus peers.

The DCF is based on fairly modest EBITDA growth of 3.0%, in line with industry expectations. We assume that the well managed net debt situation of the group would warrant a tight spread now at 280bp. This reflects the fact that the firm seems determined to keep a substantial financing buffer. We make no allowance for the net present value of the tax assets (see below) beyond what stems from the relatively low tax rate projected in 2022 (19%).

For the NAV, we stopped using data calculated and provided by the company in the parent company’s financial statements. The more entrepreneurial management since late 2015 warrants the use of sector multiples which leads to the Protective Films business accounting for around half of the total gross assets.

Finally, there is the vexing issue of what to do with the huge tax loss carry forwards resulting from the historical losses. The previous view, that they were unlikely to be used up by operations over the next few years and the French tax rule tightening so that the open-ended portion was unlikely ever to materialise, is probably too cautious now that the earnings delivery of the group has been confirmed for the fifth year in a row.