PatchesAKF: May Update
Portfolio activity and news: Edenred, Logista Holdings, Nexi Group, NexTone Inc., PT Indocement
This blog has two objectives: 1) to share my research with a wider community, in hopes of receiving constructive feedback and bringing greater awareness to what I believe are attractive investment opportunities, and 2) to formalize my thoughts and create a record that I can scrutinize and learn from over time. I share my thoughts on portfolio-related news more regularly on X (Twitter) at @PatchesAKF
Portfolio Holdings:
Over 75% of my assets are typically invested in 5-7 core holdings that I expect to own for several years. The rest of my portfolio is in opportunities that I believe have attractive reward-to-risk ratios but are shorter-term holdings or have some probability of significant capital impairment. These currently include investments in Chinese companies and special situations.
Core: Barry Callebaut, Edenred SE, Logista Holdings, Megacable Holdings, Nexi Group, NexTone Inc, PT Indocement
Other: GreenTree Hospitality, PDD Holdings 2027 Call Options, two undisclosed position
Core Portfolio Activity: none this month.
Core Portfolio News: Edenred, Logista Holdings, Nexi Group, NexTone Inc., PT Indocement
Edenred held its AGM in early May, where it approved a €1.21 dividend per share to be paid in June. Management also reiterated full year guidance and discussed the regulatory situation in Brazil and France. In my April update I discussed the article that claimed Brazil is considering replacing the meal voucher system with a Pix-based system. A few days after that article, Brazil’s Minister of Labor stated this was not a serious consideration because it would effectively eliminate the meal voucher system. That said, Brazil is considering changes to the meal voucher system to rebalance the costs between the stakeholders. A potential outcome is a cap on merchant fees and shorter payment terms to merchants. These changes would be negative for meal voucher providers but significantly less so than eliminating the entire system. Meal voucher providers can offset some of the impact by increasing fees charged to corporations, which in some cases are negative (i.e., the meal voucher provider pays the corporation for its business).
Logista Holdings reported H1 FY25 results (FYE Sep 30) that were below expectations due to weakness in France (<15% of LTM adjusted EBITA) and non-tobacco transportation. Accordingly, management reduced full year EBITA guidance from flat to a “slight decline” versus FY24. (I evaluate Logista’s results excluding gains from inventory valuations, which are lumpy and outside of Logista’s control.) France has been a headwind for years, with the decline in tobacco volume accelerating from -4% in FY21 to -7% in FY22, -7% in FY23, -11% in FY24, and -12% in H1 FY25. Logista has steadily shrunk these operations to support profitability. I expect France to remain profitable but continue shrinking in the coming years. This decline should be more than offset by the growth in Iberia and Italy. The weakness in non-tobacco transportation appears related to the broader economic slowdown in Europe. Management first flagged this softening a few quarters ago.
Valuation: Logista trade for ~12.6x my estimate of normalized EPS (I adjust for non-economic amortization and a lower interest income to reflect declining interest rates). Management is committed to at least maintaining the FY24 dividend of €2.09 per share, a ~7.3% yield at the current share price. Given Logista’s net cash balance sheet and stable free cash flow, this should not be an issue.
Insiders, including the CEO, purchased shares shortly after the H1 results were released.
Nexi Group reported Q1 sales and EBITDA that were in line with previously stated expectations. Management also confirmed guidance for the full year. Nexi paid its inaugural dividend of €0.25 per share in May and started a €300m share buyback. The buyback—equal to ~5% of shares outstanding and ~11% of the float at the current share price—will be completed in 2025. Net leverage was 2.5x at the end of Q1, within management’s target range of 2.0x to 2.5x. With leverage now at a reasonable level and free cash flow continuing to grow, Nexi expects to return most excess cash to shareholders going forward.
Valuation: Free cash flow is expected to exceed €800m in 2025, equal to ~12% of the current market cap. Adding back expected interest expense, 2025E free cash flow to the firm is equal to ~8% of the enterprise value.
NexTone Inc. reported Q4 (FYE Mar 31) operating profit in line with guidance, increasing more than 200% year-over-year. Management expects strong revenue and operating profit growth to continue in FY26, guiding for 18.5% revenue growth and 79% operating profit growth. NexTone also announced it will begin paying an annual dividend, starting at ¥20 per share in FY26 (~1% yield).
Valuation: NexTone trades for ~7x FY26 EBITA guidance and ~5x the FY28 EBITA target.
PT Indocement declared an IDR259 per share dividend for 2024 at its AGM in May. The dividend will be paid in June and is in addition to the buyback program that was also approved at the AGM.
Misc Research Notes: none this month.
Information Worth Sharing:
Apollo Presentation on US Housing Outlook: link
Disclosure: I usually own shares, at the time of writing, of companies discussed on this blog. I write the articles myself; expressing my own opinions. I have no business relationship with any company mentioned on this blog. There are no plans to provide updates on my buying or selling activities for each stock. I may buy or sell shares of the companies discussed on this blog without notice for any reason at any time.
Disclaimer: All information on this site is for informational purposes only. I make no representations as to the accuracy, completeness, suitability, or validity of any information. I will not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Because the information is based on my opinion and experience, it should not be considered professional financial investment advice. These ideas should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. My thoughts and opinions will change from time to time as I learn and accumulate more information. I am under no obligation to publicly update my thoughts and opinions.