PAY.BR - Payton Planar Magnetics limited

[A Dhandho Investor]

This is a GARP investment. Payton Planar Magnetics has grown revenues at a CAGR of over 10% over the last 10 years, while maintaining profitability in each of those years thanks to its ROIC in the 40% range, gross margins in the 30-40% range and net income margins north of 20%.

 

It is active as one of the market leaders in the planar transformer industry (>20% market share), an industry that is expected to grow double digits for the considerable future due to the boom in the EV and cloud data center industries. Thanks to its 100% free cash flow conversion, the company was able to build a rock-solid balance sheet with a net cash balance to the tune of $42 million, despite having distributed $14,5 million in dividends over the last 4 years. The company is currently trading at 13 * PE or an 8% free cash flow yield (for 2020: 9 million of net income / expected free cash flow on an enterprise value of 118 million).

 

The company has a clean share structure with 17.7 million shares outstanding (no options or warrants), of which one third (34% of the shares) are quoted on Euronext Brussels. The remaining 66% is owned by Payton Industries Ldt, a company quoted on the Israel stock exchange (ticker: PAYT.TA). The founder and chairman of Payton, David Yativ, owns 51% of Payton Industries and as a consequence, about 33% of Payton Planar Magnetics. As per today, Payton Industries is trading on the Israeli stock exchange at a valuation that is 24% higher than the implied valuation on the Brussels stock exchange, due to the illiquid nature of the stock (it is trading on the fixing market of the Brussels stock exchange, where the trading price is only set twice per day via an auction system).

 

For those interested in the company, there are 3 articles on SA by Lucid Capital. This is the most recent one: https://seekingalpha.com/article/4379784-payton-planar-hitting-all-cylinders-in-spite-of-pandemic

 

[A Dhandho Investor]

Payton had an excellent Q4, posting $3,1m in net income on $13m in revenues: https://www.paytongroup.com/webfiles/fck/files/FS311220.pdf

 

They also had a record backlog of $18,9m as per 31/12 which bodes well for Q1 2021. With that kind of backlog and the YoY growth figures its largest customer, Quanta computer, is witnessing (via: https://www.quantatw.com/Quanta/english/investment/financials_ms.aspx), 2021 is most likely going to become Payton's best year ever.

 

Exposure to sexy sectors like data centers, the electric vehicle market, etc at an enterprise value of 14 * TTM earnings and possibly 11 * FY 2021 earnings.

[Guest Failed Reddit Investor]

I have been looking into this business for few days now. Do you know how much of their revenue comes from design wins and how much comes from off the rack parts? 

[A Dhandho Investor]

On 3/31/2021 at 5:33 PM, Guest Failed Reddit Investor said:

I have been looking into this business for few days now. Do you know how much of their revenue comes from design wins and how much comes from off the rack parts? 

It's not something the company discloses to the investment community, but given the high margin profile I would say that the majority of the revenue comes from design ins. 

edit: they also just published a new investor presentation: https://www.paytongroup.com/webfiles/files/c3bc8f5f723777b2235e19757cafe5a7.pdf

Edited April 5, 2021 by A Dhandho Investor