AlphaValue Corporate Services
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SFPI Group

CR
Bloomberg   SFPI FP
Misc. Bldg & Construct Prod  /  France  Web Site   |   Investors Relation
Safety solutions and safe operations at its heart
Target
Upside 103%
Price (€) 2.41
Market Cap (€M) 239
Money Making
Business model at group level: WCR management

The assets are essentially new as they are updated every year. In other words the company’s industrial tools are in excellent condition. The fixed assets are somewhat dominated by goodwill, itself a by-product of a steady flow of acquisitions (80 before Covid put a stop to external growth). Still SFPI does not tie up much in plant. The essence of the business is really determined by the 45% of invested capital going to working capital.

Tying up resources in working capital reflects the need to maintain an in-depth relationship with and a high level of servicing to professionals in the building and security (locks) sectors. Building up a high level of confidence is a time-consuming process which explains why group management is careful about implementing any corporate simplification measure and why acquisitions are the default growth route as they come with all the untold subtleties of a commercial/distribution network.

Obviously protecting existing set-ups is a brake to “extract” synergies that would please a short-term investor but such synergies may end up rapidly burning out.

Management’s own path is to buy good businesses that add to SFPI’s sum of market shares, step-by-step and building-up. It works but may be dependent on the ability of the top management to create the informal glue between businesses and their managers. Owing to post-pandemic caution, acquisition decisions were postponed until 2022. In any case, industrial businesses have been too expensive in a lasting context of easy money for a cautious family-driven business.

Free cash flows have been rather modest of late as the group has suffered from a lack of organic growth in its various businesses. 2020 turned out to be an excellent crop against earlier expectations as WCR contracted. The good news is that this continued in 2021 contrarily to initial expectations that the recovery would tie up more working capital. Contained capex actually helped.

Additionally it must be stressed that R&D is fully expensed so the FCFs are genuine.

Beyond the 2020 reset

2021 confirmed the soundness of SFPI’s operations in a context of rising supply chain issues and higher input prices. Interestingly, the management seems confident that it can ride out these issues which have worsened in 2022. The €600m sales target for the latter year (+5.5) attests to this. As others, SFPI has a strong order book and hopes to implement price increases to defend its gross margins.

Over the longer run and beyond the Covid lull, a lot depends on DOM Security’s ability to boost its growth not only through steady acquisitions of smaller players but by going deeper digital. This is clear from the new product lines incorporating digital-based techniques (say open a lock with a smartphone’s NFC) but just as well on the marketing front. Still the competition is not sleeping and has broader international wings.

Since 2019, the industry-facing businesses (Neu JFK, MMD) have been adjusting their asset bases, including writing off goodwill. These efforts helped weather the 2020 upheavals but it looks as if these industries need to be always adjusting as the end markets are changing fast (demand to green up industrial processes for instance). This is an opportunity provided operating subsidiaries retain their flexibility to chase new markets.

Change 22E/21 Change 23E/22E
  12/21A 12/22E 12/23E 12/24E €M of % total €M of % total
Total 43.6 42.2 46.1 47.1 -1 100% 4 100%
Building - MAC 8.10 8.27 8.60 8.94 0 -12% 0 8%
Building - DOM Security 23.4 22.1 22.3 22.0 -1 93% 0 5%
Building- WO&WO 1.20 3.78 3.93 1 -86% 3 66%
Industrial - MMD 4.70 4.64 4.78 4.92 0 4% 0 4%
Industrial - NEU-JKF 7.50 6.53 7.11 7.99 -1 69% 1 15%
Other/cancellations -0.10 -0.50 -0.50 -0.70 0 29% 0 0%
 
12/21A
12/22E
12/23E
12/24E
 
Total
7.66%
6.73% 6.65% 6.66%  
Building - MAC
4.19%
3.96% 3.96% 3.96%  
Building - DOM Security
11.8%
10.3% 10.0% 9.53%  
Building- WO&WO
6.00% 6.00% 6.00%  
Industrial - MMD
7.86%
7.76% 7.76% 8.24%  
Industrial - NEU-JKF
6.33%
5.20% 5.50% 6.36%  
       
Changes to Story : 10/10/2022, Changes to Forecasts : 10/10/2022.