One of the frustrations with being an investor in TESB is that management refuses to give details in individual projects that would help you think about future earnings power / ROIC.
When asked about capex for a new fertilizer plant, they literally said "We don't give individual details on individual projects". They just guide overall capex for the full group and that's it.
Management doesn’t like to give a lot of guidance for the future. So investing in TESB for me is investing in a company cheap on current earnings/cash flows with optionality:
- not all current projects are "mature" (still some extra earnings to be squeezed out. "Continuously looking to de-bottleneck & increase production for existing locations")
- reopening will increase demand for some of their products
- they keep on investing in growth
Key words in the last couple of conference calls were:
Higher-value products: less of a commodity, higher margin/ROIC, less cyclical?
De-bottlenecking: not all plants running @ 100%: earnings can go up with limited extra capital invested
Specific comments on the article:
Bio-valorization
Comparison to Darling:
(keep in mind that TESB is downplaying all the time and doesn’t like to guide to optimistically / doesn’t guide over longer term than next year)
Analyst on cc has specifically asked about the bullishness of Darling & comparison to them:
They replied that the comparison isn’t perfect as Darling is more US focused, TESB more EU & Darling is the bigger, more mature player.
Mining & energy is only a small part of Industrial.
It’s basically 3 categories:
DYKA: plastic pipes
Chemicals for water treatment
Mining & energy (which also includes water treatment)
I have the impression mining & energy is something they don’t really focus on anymore.
No idea how “margins at maturity” can be for this segment. This is where we have trust that Tack knows what he’s doing and he wouldn’t be in this if he didn’t think he could squeeze more earnings out of the revenue in this segment.
T-Power
I see you adjust for the amortization of the customer lists. I think you can go a step further and think about depreciation. Details are a little fuzzy, but:
They earn € through a tolling agreement, independent of actual energy produced.
The power plant is running less than depreciation would indicate.
This agreement lasts until 2026. So at least until then, actual earnings are way higher than reported earnings. Not sure what happens after 2026.
Valuation:
Last CC mgmt said “"We have about 100m FCF a year"... "after 100m investment and 100m repayment of loans"
Note that this investment includes growth capex. So actual current FCF is > 200m / year according to mgmt.
The real question is still how cyclical all these earnings actually are.
Hey IJW, thanks for this writeup. Not sure where to leave my comments: twitter or here? So why not both?
Twitter: https://twitter.com/jefke00/status/1423217280247271424
Comments on TESB in general:
One of the frustrations with being an investor in TESB is that management refuses to give details in individual projects that would help you think about future earnings power / ROIC.
When asked about capex for a new fertilizer plant, they literally said "We don't give individual details on individual projects". They just guide overall capex for the full group and that's it.
Management doesn’t like to give a lot of guidance for the future. So investing in TESB for me is investing in a company cheap on current earnings/cash flows with optionality:
- not all current projects are "mature" (still some extra earnings to be squeezed out. "Continuously looking to de-bottleneck & increase production for existing locations")
- reopening will increase demand for some of their products
- they keep on investing in growth
Key words in the last couple of conference calls were:
Higher-value products: less of a commodity, higher margin/ROIC, less cyclical?
De-bottlenecking: not all plants running @ 100%: earnings can go up with limited extra capital invested
Specific comments on the article:
Bio-valorization
Comparison to Darling:
(keep in mind that TESB is downplaying all the time and doesn’t like to guide to optimistically / doesn’t guide over longer term than next year)
Analyst on cc has specifically asked about the bullishness of Darling & comparison to them:
They replied that the comparison isn’t perfect as Darling is more US focused, TESB more EU & Darling is the bigger, more mature player.
Mining & energy is only a small part of Industrial.
It’s basically 3 categories:
DYKA: plastic pipes
Chemicals for water treatment
Mining & energy (which also includes water treatment)
I have the impression mining & energy is something they don’t really focus on anymore.
No idea how “margins at maturity” can be for this segment. This is where we have trust that Tack knows what he’s doing and he wouldn’t be in this if he didn’t think he could squeeze more earnings out of the revenue in this segment.
T-Power
I see you adjust for the amortization of the customer lists. I think you can go a step further and think about depreciation. Details are a little fuzzy, but:
They earn € through a tolling agreement, independent of actual energy produced.
The power plant is running less than depreciation would indicate.
This agreement lasts until 2026. So at least until then, actual earnings are way higher than reported earnings. Not sure what happens after 2026.
Valuation:
Last CC mgmt said “"We have about 100m FCF a year"... "after 100m investment and 100m repayment of loans"
Note that this investment includes growth capex. So actual current FCF is > 200m / year according to mgmt.
The real question is still how cyclical all these earnings actually are.
Thanks. I recommend reading equity valuation, both via DCF and relative valuation by Antoine Cloquet https://bit.ly/3fgLbXq
What is your opinion on owning Picanol for Tessenderlo exposure?