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:


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.


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.


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.

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Hi Jefke, appreciate the extra information. It is a bit of a double edged sword though. It wouldn't be this cheap if they were far more share holder friendly. So the lack of information/need to read between the lines has created a dislocation in the market that one can profit on now. I suppose it is more frustrating if you have been holding for years already.

I think over time the market will appreciate what is happening here. Especially if earnings continue to be strong in the coming years. And I like that Tack has stepped up his buying, he probably wouldn't do that if the current uptick was mostly cyclical.

Re Bio Valorization: It is interesting that profits took a nosedive right after Tack took over. So I wonder if investments were made here that were not capitalized, and are playing out now. Or if it was simply a cyclical thing. Or probably a bit of both. Just maintaining the 2020 8% profit margins and a ~12% ROIC does not seem that excessive. If this becomes a 15-20% ROIC growth business then 2020 might only be the beginning.

Re Industrial: something that I don't think I mentioned in the article (but shows in the table), assets went up significantly from 200m to over 300m since Tack took over. But profits have not really moved up much. So yeah I am hoping there are significant gains to made here as well. If not then Tack basically wasted a 100m+ here. I kind of expect him to be rational enough to not throw money away at 7-8% return projects.

Re T-Power: It seems supply of power will be constrained for some time in Belgium due to the regulatory situation? So I am cautiously optimistic here. Good possible reasons to not give out too much information here is that it could be used by either activists who might not like that some capitalist is generating excessive returns on providing a necessity, or by competitors who could lower the potential returns made?

Part of the thesis also hinges on the competence of Tack here. And the fact that he proved himself with Picanol. If this company had some average nobody as manager I would probably not bother with it.

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"It wouldn't be this cheap if they were far more share holder friendly" 100%

And agree that Tack not handing out details can hide how good some of the (small) deals they do are.

I think it's cheap and I think Tack knows what he's doing: very aware of return on capital, but very conservative (low-no debt, owns building/equipment instead of leasing...)

A possible issue down the road might be whether Tack is willing to share the spoils with smaller shareholder.

But I don't think that's a secret & this likely also contributes to the cheap share price

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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?

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Thanks for the link, I will check it out.

I like holding Tessenderlo better. You have to assign a pretty high multiple to Picanol's weaving business earnings, for Picanol to be cheaper if you think Tessenderlo can double. Plus it is hard to figure out what the appropriate holdco + liquidity discount is for Picanol.

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Liquidity discount might already be priced in for Tessenderlo also. Institutional / larger equity holders keep on selling to Luc Tack. Directly or indirectly with Picanol as buyer. This site tracks those insider buys https://www.trivano.com/aandeel/tessenderlo-group.227.insiders Fyi that site scrapes FSMA regulatory disclosures. Short term, catalyst for higher share price will probably not come from institutional buyers. I think market needs more clarity on either *merger with Picanol *dividend policy *power plant demissionair *capex coming years. I own the equity, but am not sure when catalyst will come.

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Oh thanks, I was searching for a site like that, but couldn't find it. Seems like he stepped up his buying in 2020 and 2021.

Tessenderlo has far better liquidity though, about €1.2m per day vs just €60k per day for Picanol. I agree that this might be cheap for a while, but you never know. Maybe they show a great H1 with improved guidance, and it rerates? It has traded at much higher multiples in the past.

I don't mind no dividend if it means Tack can reinvest it at 15%. But it would be nice if they gave more info on the economics of their reinvestments in the gas plant and that new fertilizer plant.

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Thanks for linking this

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