TESB.BR - Tessenderlo Group

[skanjete]

"Tessenderlo launches an up to EUR 174.8 million 1 for 3 Rights Offering of maximum 10,592,265 New Shares at an Issue Price of EUR 16.50 per New Share"

 

Everything should be done and paid for by the end of the year.

[skanjete]

An interesting fact that hadn't been mentioned before : they have 398m € of NOL's.

 

As a reference : after the rights issue, they should have about 450m € in book value.

 

 

 

[skanjete]

According to the prospectus, Tack will exercise all his rights. Moreover, he has the possibility to buy non-exercised rights (scrips) to buy extra shares.

 

So he has the possibility to raise his stake above 30%, without an obligation to make an offer for the complete company since the stake over 30% was built in a capital raise.

 

75% of the proceeds will be used for investments, mainly expansion investments in the agro part of the business (Kerley). I'm pleased to read they see possibilities to play offence instead of defence (paying back debts).

 

I'm curious what kind of EBITDA they will be producing in 3 years time.

And remember, the "I" part of EBITDA will be limited and "T" part of the EBITDA will be almost non-existent (NOL's). So cash flow will almost equal EBITDA and EBIT will be a good proxy for free cash flow...

 

Very interesting indeed.

[thefatbaboon]

According to the prospectus, Tack will exercise all his rights. Moreover, he has the possibility to buy non-exercised rights (scrips) to buy extra shares.

 

So he has the possibility to raise his stake above 30%, without an obligation to make an offer for the complete company since the stake over 30% was built in a capital raise.

 

75% of the proceeds will be used for investments, mainly expansion investments in the agro part of the business (Kerley). I'm pleased to read they see possibilities to play offence instead of defence (paying back debts).

 

I'm curious what kind of EBITDA they will be producing in 3 years time.

And remember, the "I" part of EBITDA will be limited and "T" part of the EBITDA will be almost non-existent (NOL's). So cash flow will almost equal EBITDA and EBIT will be a good proxy for free cash flow...

 

Very interesting indeed.

 

skanjete,

 

You may well be correct on the "I" but unfortunately I think you will be mistaken on the "T".  The NOLs are not available for the profits of their US Kerley business.  So the Belgium businesses need to start kicking out some meaningful profits!

[skanjete]

According to the prospectus, Tack will exercise all his rights. Moreover, he has the possibility to buy non-exercised rights (scrips) to buy extra shares.

 

So he has the possibility to raise his stake above 30%, without an obligation to make an offer for the complete company since the stake over 30% was built in a capital raise.

 

75% of the proceeds will be used for investments, mainly expansion investments in the agro part of the business (Kerley). I'm pleased to read they see possibilities to play offence instead of defence (paying back debts).

 

I'm curious what kind of EBITDA they will be producing in 3 years time.

And remember, the "I" part of EBITDA will be limited and "T" part of the EBITDA will be almost non-existent (NOL's). So cash flow will almost equal EBITDA and EBIT will be a good proxy for free cash flow...

 

Very interesting indeed.

 

skanjete,

 

You may well be correct on the "I" but unfortunately I think you will be mistaken on the "T".  The NOLs are not available for the profits of their US Kerley business.  So the Belgium businesses need to start kicking out some meaningful profits!

 

thefatbaboon,

 

You're right about US Kerley, I wasn't very nuanced.

Thanks for pointing it out.

[whistlerbumps]

What do people think about the outlook of Tessenderlo Kerley.... While I agree it looks like an interesting asset, I am a bit concerned about recent numbers representing peak conditions given what has gone on in North American Ag recently... Given that backdrop why shouldn't 2016 Kerley EBITDA be materially lower than recent numbers (excluding capacity expansions)? 

[skanjete]

What do people think about the outlook of Tessenderlo Kerley.... While I agree it looks like an interesting asset, I am a bit concerned about recent numbers representing peak conditions given what has gone on in North American Ag recently... Given that backdrop why shouldn't 2016 Kerley EBITDA be materially lower than recent numbers (excluding capacity expansions)?

 

The weather won't be the same every year and thus the Kerley results won't be the same every year.

It possible that 2014 was exceptionally good for Kerley. On the other hand, the 2 other divisions did worse than average.

 

One thing is clear, management apparently sees a lot of opportunities in Kerley over the long term. They acknowledge that results won't be equal every year, but on average Kerley should do very well over the long term.

[whistlerbumps]

OK.  We are coming out of a very strong, multi-year upcycle in North American Ag and appearing to enter a relatively severe downcycle which could also last a few years.  Does anyone really understand the potential cyclicality of the Kerley asset.  Tack may well be right about the long-term performance of Kerley but if his long-term is 5+ years then it may be a bumpy road for minority shareholders with less visibility to the long-term potential if EBITDA declines for the next couple of years. 

 

Also, if recent conditions were a cyclical peak then we probably have to use a pretty discounted multiple on the Kerley earnings which I think lowers the downside protection. 

 

By the way, I am not saying that a downcycle is going to happen... At this point I am just saying that I have not heard any good explanations of why people are confident that it will not happen...

[skanjete]

The rights issue was a succes and all rights are going to be exercised.

 

Tack, via Picanol and Symphony Mills, bought some extra rights, and ups his stake in Tessenderlo to a combined 31,7%.

 

Let's see now what they are going to do with the money...

[thefatbaboon]

Maybe some of the Taminco brands

[kab60]

I find the "Tacke story" compelling, but does Belgium have any natural advantages - ie low energy prices? I like fertilizer giant Yara (from Norway), because they have access to natural advantages like cheap hydro power and lots of natural gas, but the same can't be said for Belgium. Even though Belgium has nuclear power the country also plans some offshore wind farms which are an expensive way to generate power. Not sure how much all of these concerns matter, if at all, but it's been a showstopper for me (and it might not even matter much?). Any thoughts on that, Skanjete? And thanks a lot for the idea, I've been following it very closely.

 

 

[Phaceliacapital]

CEO Luc Tack has been elected manager of the year by a local magazine in Belgium, I'll let you know if interesting tidbits follow.

[whistlerbumps]

Per my concerns about the agro outlook... Corn is a major consumer of Thio-Sul.

 

 

 

(Bloomberg) -- The squeeze on U.S. farmers is getting worse as low crop prices and rising costs erode incomes that not long ago were the highest ever.

Illinois grower Jason Lay said he will buy 30 percent less fertilizer for his 2,500 acres of corn and soybeans, and 7 percent fewer seeds for spring planting. After his most profitable year ever in 2012, Lay said he upgraded his combine, tractor, sprayer and planter. With crop futures now near five-year lows, he has no plans to buy any new equipment.

“You spend when times are prosperous so you don’t need to when they’re not,” Lay, 41, said by telephone from outside Bloomington, Illinois. “That’s how you make it through.” He estimates his profit is down by a quarter from its peak.

 

Farm income in the U.S., the world’s top agricultural producer and exporter, is poised to drop for a third straight year in 2015. While raising livestock remains profitable, as tight meat supplies keep prices high, growers of corn, soybeans and wheat saw crop and land values fall faster than many of their costs. That’s pinching sales for equipment maker Deere & Co. and seed and chemical producers including DuPont Co.

 

“The budget picture for corn and soybeans is as negative as we’ve seen in a long time,” said Brent Gloy, an agricultural economist at Purdue University in West Lafayette, Indiana. “You will see some farmers not able to cover their production costs.”

 

Pasted from <http://www.bloomberg.com/news/articles/2015-02-10/u-s-farmers-watch-100-billion-a-year-profit-fade-away>

 

[netnet]

So the story is buying into a depressed market, a depressed economy and a depressed company that is being turned around by a dynamic CEO who has done it before.  (although not on this size and this particular industry)

 

It looks to me that you have to trust M. Tack

• that he will not screw us.
  
• believe that the turnaround will be successful.
  

 

Looking quickly at the comps it is relatively cheap on a P/S basis as well on a TEV/EBITDA basis. (this is just a really quick review of European Chemical companies.)  So I don't see a big margin of safety here unless you bake in Tack's abilities as the margin of safety.

 

Now that said, I am really partial to owner-operators and I like that he is not (yet) the majority owner. And that he has done turnarounds with EU labor laws!

[60North Investments]

Annual results were reported 11 March. Current market cap is €1.1b, and they did €135m / 9.5% in EBITDA with roughly €60m net debt. They raised €175m in December, and some of it will be used for example to higher capex spending in next years. EBITDA is expected grow "slightly" in 2015 compared to 2014. In 2014 EBITDA grew on comparable scale 32% YoY.

 

EV/EBITDA currently bit below 9. Not sure how much excess fat they can still squeeze out of the company. If I didn't misunderstand, management stated in the conference call that they did most of the cost cuts in 2014 but might have some left still. Bio-valorization segment is the one lacking behind the others, and they'll keep the segment in the company as it is a "strategic part".

 

skanjete or others have any thoughts here? Has this case essentially turned from cost cutting (what it was at least to me when Luc Tack took over) to waiting for the market demand/cycle for their products to turn? For bio-valorization, they expect to reach 2011/2012 levels of profitability, so around +10% EBITDA, when the market cycle turns. Should that happen and all else be equal, EBITDA for the company would probably be around €200m.

 

http://www.tessenderlo.com/binaries/Press%20Release%20English%20FINAL-2_tcm9-29340.pdf

http://www.tessenderlo.com/binaries/IR%20Presentation%20FY2014%20results%20website_tcm9-29343.pdf

[skanjete]

Annual results were reported 11 March. Current market cap is €1.1b, and they did €135m / 9.5% in EBITDA with roughly €60m net debt. They raised €175m in December, and some of it will be used for example to higher capex spending in next years. EBITDA is expected grow "slightly" in 2015 compared to 2014. In 2014 EBITDA grew on comparable scale 32% YoY.

 

EV/EBITDA currently bit below 9. Not sure how much excess fat they can still squeeze out of the company. If I didn't misunderstand, management stated in the conference call that they did most of the cost cuts in 2014 but might have some left still. Bio-valorization segment is the one lacking behind the others, and they'll keep the segment in the company as it is a "strategic part".

 

skanjete or others have any thoughts here? Has this case essentially turned from cost cutting (what it was at least to me when Luc Tack took over) to waiting for the market demand/cycle for their products to turn? For bio-valorization, they expect to reach 2011/2012 levels of profitability, so around +10% EBITDA, when the market cycle turns. Should that happen and all else be equal, EBITDA for the company would probably be around €200m.

 

http://www.tessenderlo.com/binaries/Press%20Release%20English%20FINAL-2_tcm9-29340.pdf

http://www.tessenderlo.com/binaries/IR%20Presentation%20FY2014%20results%20website_tcm9-29343.pdf

 

You made a good summary.

 

Maybe it could be interesting to note that last year, they forecasted EBITDA to be roughly equal to 2013.

The market then read as roughly equal on a comparable basis. But after the halfyear figures, it was clear that this forecast was to conservative. Then, the market assumed a slightly better EBITDA than total 2013 EBITDA.

Finally, they did 35% better than 2013!

 

This is a pattern that can be noticed at Picanol over the years as well. They have a tendency to underestimate and overdeliver, which is exactly the way I like it.

 

I have faith in the capabilities of Tack & Co and am quite certain they will succeed in creating further value. 75% of total EBITDA right now comes from roughly 35% of the activities. If they can sort out the other activities  as well in the future (Biovalorisation has 3-4 year cycles, so we appear to be somewhere at the bottom of the cycle) and add some extra investments as they are doing, EBITDA can grow a lot.

 

Anyhow, we are in a comfortable position to watch the story unfold. After 1 year, we're at a 40% profit, so we have some safety margin and can afford to wait and follow the story.

[Patmo]

Annual results were reported 11 March. Current market cap is €1.1b, and they did €135m / 9.5% in EBITDA with roughly €60m net debt. They raised €175m in December, and some of it will be used for example to higher capex spending in next years. EBITDA is expected grow "slightly" in 2015 compared to 2014. In 2014 EBITDA grew on comparable scale 32% YoY.

 

EV/EBITDA currently bit below 9. Not sure how much excess fat they can still squeeze out of the company. If I didn't misunderstand, management stated in the conference call that they did most of the cost cuts in 2014 but might have some left still. Bio-valorization segment is the one lacking behind the others, and they'll keep the segment in the company as it is a "strategic part".

 

skanjete or others have any thoughts here? Has this case essentially turned from cost cutting (what it was at least to me when Luc Tack took over) to waiting for the market demand/cycle for their products to turn? For bio-valorization, they expect to reach 2011/2012 levels of profitability, so around +10% EBITDA, when the market cycle turns. Should that happen and all else be equal, EBITDA for the company would probably be around €200m.

 

http://www.tessenderlo.com/binaries/Press%20Release%20English%20FINAL-2_tcm9-29340.pdf

http://www.tessenderlo.com/binaries/IR%20Presentation%20FY2014%20results%20website_tcm9-29343.pdf

 

You made a good summary.

 

Maybe it could be interesting to note that last year, they forecasted EBITDA to be roughly equal to 2013.

The market then read as roughly equal on a comparable basis. But after the halfyear figures, it was clear that this forecast was to conservative. Then, the market assumed a slightly better EBITDA than total 2013 EBITDA.

Finally, they did 35% better than 2013!

 

This is a pattern that can be noticed at Picanol over the years as well. They have a tendency to underestimate and overdeliver, which is exactly the way I like it.

 

I have faith in the capabilities of Tack & Co and am quite certain they will succeed in creating further value. 75% of total EBITDA right now comes from roughly 35% of the activities. If they can sort out the other activities  as well in the future (Biovalorisation has 3-4 year cycles, so we appear to be somewhere at the bottom of the cycle) and add some extra investments as they are doing, EBITDA can grow a lot.

 

Anyhow, we are in a comfortable position to watch the story unfold. After 1 year, we're at a 40% profit, so we have some safety margin and can afford to wait and follow the story.

 

Cheers for the idea Skanjete

[60North Investments]

Q1 results are out, and they surely keep on executing. Comparable sales +10% (though excl. forex effects +3%), comp. EBITDA +27% (excl. forex +10%, EBITDA margin 11.3%) which also includes a 8.5m€ inventory write-off due to "changed accounting estimates concerning inventory obsolescence". Agro was again leading the way, while bio-valorization and industrial solutions were lacking behind.

 

Other events worth mentioning: co-CEO & CFO Mel de Vogue is leaving in the end of this month, and Tack's right hand Haspeslagh will take the CFO spot while remaining BoD Chairman. Great news I believe! Also, earlier this month they announced a 50m€ investment into a production plant (in Industrial solutions segment) that will be necessary due to some regulatory changes coming in the next few years. And within the next few months they'll announce issuance of 150m€ bond to refinance Oct 2015 debt.

 

46m€ EBITDA for Q1, and the guidance is now +15-20% compared to 2014, which was 136m€. We're currently somewhere around 1.4b€ EV, so with 165m€ EBITDA this year you're paying 8.5 EBITDA. Not sure if I'd enter or add here, but surely will happily wait and see the magic of these two champs..

 

http://www.tessenderlo.com/binaries/Trading%20update%201Q15%20ENG_tcm9-29627.pdf

[skanjete]

Q1 results are out, and they surely keep on executing. Comparable sales +10% (though excl. forex effects +3%), comp. EBITDA +27% (excl. forex +10%, EBITDA margin 11.3%) which also includes a 8.5m€ inventory write-off due to "changed accounting estimates concerning inventory obsolescence". Agro was again leading the way, while bio-valorization and industrial solutions were lacking behind.

 

Other events worth mentioning: co-CEO & CFO Mel de Vogue is leaving in the end of this month, and Tack's right hand Haspeslagh will take the CFO spot while remaining BoD Chairman. Great news I believe! Also, earlier this month they announced a 50m€ investment into a production plant (in Industrial solutions segment) that will be necessary due to some regulatory changes coming in the next few years. And within the next few months they'll announce issuance of 150m€ bond to refinance Oct 2015 debt.

 

46m€ EBITDA for Q1, and the guidance is now +15-20% compared to 2014, which was 136m€. We're currently somewhere around 1.4b€ EV, so with 165m€ EBITDA this year you're paying 8.5 EBITDA. Not sure if I'd enter or add here, but surely will happily wait and see the magic of these two champs..

 

http://www.tessenderlo.com/binaries/Trading%20update%201Q15%20ENG_tcm9-29627.pdf

 

Nice summary.

 

This investment and Tack/Haspeslagh are performing as expected or hoped for...

In less than a year, we're at a profit of >60%.

In my opinion, we got the low hanging fruit, but if the duo keeps on performing as they did in the past, the future could bring some more of the same.

 

Also Picanol is very well performing, although it's a pity that the shares are so illiquid, which makes them difficult to invest in...

 

 

[Libs]

Skanjete,

 

Kudos for a great idea, even though we've hit my 8 x EBITDA target, I'm holding on for the ride. When you find an operator like this it's a mistake to cut and run.

 

I'm kind of bitter about the currency problem though. The stock is up 50% but I'm only up 20% here in the US.

 

 

[skanjete]

Skanjete,

 

Kudos for a great idea, even though we've hit my 8 x EBITDA target, I'm holding on for the ride. When you find an operator like this it's a mistake to cut and run.

 

I'm kind of bitter about the currency problem though. The stock is up 50% but I'm only up 20% here in the US.

 

I had the same problem for years with my US investments when the euro rose against the dollar. Now things are moving my way again. In the long term however, the currency movements tend to equal out and don't make much of a difference.

[misterkrusty]

trying to make some sense of the 9% drop in TESB shares today...

 

Picanol announces 1H15 results, with earnings from TESB more than doubling (EUR 4.8m to 11.7m).  sounds pretty good to me.  why does Mr. Market not agree?

 

I haven't modeled TESB in excruciating detail, but I do have REBITDA going from 135.5m in 2014 to 160.0m in 2015.  1H is typically stronger than 2H but not overwhelmingly so.  1Q15 REBITDA was 46.2m - up 27.1% from 36.3m in 1Q14.  I just don't see how this "read-thru" to TESB 2Q15 results could disappoint anybody so much.

[tombgrt]

Think they issued a press release today.

 

http://www.tijd.be/ondernemen/textiel/Luc_Tack_China_is_niet_stilgevallen_he.9668724-3117.art?ckc=1&ts=1440596367

 

Read with Google translate.

 

 

U zegt in een persbericht van Tessenderlo Group TESB -10,04% expliciet dat de volatiele economische en financiële omstandigheden een rem om de winstgroei kan zetten. Zijn er concrete signalen dat de business vermindert?

 

Haspeslagh: Eerst en vooral, we bevestigen onze prognose om 15 à 20 procent meer rebitda te boeken dit jaar. Maar we willen beleggers – zij die het nog niet doorhadden – erop wijzen dat we leven in een volatiele wereld. De lage prijzen voor landbouwgrondstoffen zoals soja en maïs kunnen een impact hebben op de vraag naar onze meststoffen zoals ook John Deere bijvoorbeeld zijn verkoop van landbouwmachines ziet dalen. Een boer moet namelijk ook zijn rekening maken.

 

in English:

 

You say in a press release Tessenderlo Group TESB -10.04 % explicitly that a brake volatile economic and financial conditions can convert the earnings growth. There are concrete signs that the business decreases ?

 

Haspeslagh : First and foremost , we confirm our forecast to 15 to 20 percent more REBITDA books this year. But we want investors - those who have not had it - stress that we live in a volatile world . The low prices for agricultural commodities such as soybeans and corn may have an impact on the demand for our fertilizers as also John Deere for example, sees its sales of agricultural machinery fall . A farmer must also make clear his account.

 

[misterkrusty]

I am saying that the share price of Tessenderlo is down 10%, but the business appears to be doing quite well.  I don't understand how anyone could be so disappointed in the 1H15 results for Tessenderlo as reported in the Picanol 1H15 results.

[60North Investments]

Oct 27th Tessenderlo came out with Q3 results. No discussion of those here yet so I'll post some notes.

 

Comparable sales +8% (though excl. forex effects +2.2%), comp. EBITDA +23.5% (excl. forex +11%, EBITDA margin 10.7%) which includes a further 0.6m€ inventory write-off due to "changed accounting estimates concerning inventory obsolescence". This time industrial solutions was leading the way with Agro and Bio-valorization coming behind with smaller improvements.

 

The refinancing was done in July as they issued 192m€ worth of 2022 and 58m€ worth of 2025 bonds (2.9% and 3.4% gross coupons respectively). Current net debt is 90.6m€, roughly 25m€ more than Q2. The net financial leverage that they have isn't really huge, which I guess is reasonable considering the industries they operate in.

 

For the 9 months they have 142m€ EBITDA, and the guidance is currently +20-25% compared to 2014, which was 136m€. At 1.35b€ EV, with 163-170m€ EBITDA this year you're paying currently about 8x EBITDA.