This week's casual valuation is Piscines Desjoyaux, a company that most of you have never heard of, and rightfully so.
It is a tiny (€106m market cap) French company, operating in a very niche industry.
In this post, I'll share everything that there's to share from my side, but please do not treat this as financial/investment advice. If you want to make any decision, please do your homework.
The post will be divided into the following segments:
- Introduction
- The industry
- Historical financial performance
- 2008/2009 financial crisis
- The balance sheet
- Dividend
- Assumptions and valuation
- Valuation based on assumptions different than mine
- The market is irrational
- Summary
Introduction
The company was founded back in 1966 and is about 70% family-owned.
The main activities of the company are related to:
– Building and renovation of swimming pools (both indoor and outdoor) for individuals/families, as well as communal pools (for hotel resorts, residential buildings, and holiday homes)
– Selling pool-related equipment (Roller covers, counter-current swimming, heat pumps, electric cleaning robots).
The industry
This is one of the most boring industries out there, and the growth/year (both historical and expected in the coming years) is between 1% and 4%. Therefore, the industry doesn't get a lot of attention, as it is unlikely that there will be a significant disruption to it.
Piscines Desjoyaux makes 62% of its revenue in France, so it is worth looking a bit further into the French swimming pool market.
France has a population of 70 million, and the # of households is estimated at 31 million. The country is the largest private pool market in Europe, with more than 3.2 million swimming pools. Based on the statistics, about 1 in 10 individuals have a swimming pool, which is quite a high “penetration rate'.
Historical financial performance
In the past couple of years, the company has earned operating profits above €20 million per year, which is quite significant, considering its market cap (and especially what's on the balance sheet – which will be covered in a bit). Its revenue was €151 million for the last twelve months (ending June 30th, 2023).
However, in the last 6 months, the revenue started to decline, driven by the decreased demand for swimming pools. This is a cyclical business and there's a high chance that a more difficult period is ahead.
So, speaking of uncertain times, I went back to see how the business reacted to the 2008/2009 financial crisis.
2008/2009 financial crisis
2009 vs. 2008, the revenue fell by 22%. During the same period:
The operating margin decreased from 11% to 10%.
The net profit margin decreased from 7% to 5.5%.
The company was able to quickly adapt to the new environment and cut costs almost at the same pace.
The balance sheet
It is not uncommon for family-owned businesses to be conservatively managed, and Piscines Desjoyaux is not an exception to this.
The company has €70 million in cash with €34 million in debt.
This means the market cap of €106 million, adjusted for cash/debt, leads to an enterprise value of €70 million.
Dividend
There's quite some excess cash in the company, and being conservatively managed means the management won't take unnecessary risks.
Until last year, for about a decade, the company was paying a dividend of €0.5/share. Last year, it was increased to €1/share. This leads to a dividend yield of 8.5% based on today's share price.
The total dividend payment per year is €9 million/year (53% payout ratio). Based on the company's current profitability & its financial statement, this dividend is sustainable. Whether the management will continue with it, that's to be seen.
Assumptions and valuation
It was a challenge to go through all the information, as all the public information for the last decade is in French. I reached out to the investor relations department, to get anything in English, without much success. However, I did get information that the company will be expanding in both The Netherlands and Poland.
I am aware that this is a cyclical business, and I used what I think are conservative assumptions:
Revenue: -14% in year 1 (due to further decrease of demand for swimming pools), followed by 4%/year recovery until year 5, and then 0% growth.
Operating margin: 10% (The low end of the historical data)
Discount rate: 8.75% (WACC-based)
Based on these assumptions, the company is worth €151 million (€16.8/share).
For comparison, the market cap today is €106 million (€11.8/share).
Based on my assumptions, the IRR offered is above 15%.
Valuation based on assumptions different than mine
Of course, the future is uncertain and my assumptions could be significantly wrong. Let's take a look at how the valuation (per share) changes if we use different assumptions related to the revenue 10 years from now as well as the operating margin.
| Revenue/Op. margin | 7% | 10% | 13% | 16% |
|---|---|---|---|---|
| -20% (€121m) | €12.0 | €15.3 | €18.5 | €20.7 |
| 0% (€152m) | €12.8 | €16.8 | €20.6 | €23.5 |
| 34% (€203m) | €16.4 | €22.8 | €29.2 | €34.4 |
The €16.8 is the fair value based on my assumptions (in 10 years' time and 10% operating margin).
The market is irrational
The company's share price is down 11% compared to 5 years ago. However, today, it is almost 2x the size it was, and it has over €30m more excess cash than it had back then.
Summary
Here's why I've decided to invest in it:
- Simple business that I can understand
- 70% family owned
- Adapts quickly to tough times (2008/2009)
- Little to no geopolitical risk
- Dividend-paying
- €70m in cash vs. €34m in debt
- EV of €70m, with yearly operating profit of €20m+
- 15%+ IRR based on my conservative assumptions
As always, I appreciate you reading the post, and I'd love to hear your thoughts and feedback.
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