Groupe SFPI: an industrial group that is not too big but very strong – 05/12/2022 at 08:36

Among the group's business is the division of NEU JKF, which designs, manufactures and markets solutions and equipment customized to improve air quality in industrial environments.  (Image credit: Groupe SFPI)

Among the group’s business is the division of NEU JKF, which designs, manufactures and markets solutions and equipment customized to improve air quality in industrial environments. (Image credit: Groupe SFPI)

Inflation: no small matter

Major topics on our consciences (from time to time) tend to clash at the moment, which probably has consequences for the well-functioning financial markets. The main topic is the resounding return of inflation, that is, the rise in consumer prices: + 8.5% in one year in the United States, + 7.3% in Germany and +4.5% in France, it is a bit too much, but in fact it only reflects the high cost of metals, oil and materials Agricultural raw materials, electronic components, etc. in all the value chains of industries that make all the essential things for our consumer society.

Fuel for our cars in particular, packaged food products of all kinds, as well as electricity for lighting and heating. Which ends up a lot in a world where everyone also spends a significant portion of their monthly budget on housing (and going on vacation).

There are no interest rates, especially at the moment.

From inflation to rising interest rates, which is also an important topic at the moment, there is not far. Because those who lend their good money over a long period don’t want to end up with spent capital (they’ll be able to buy less stuff with that money when it’s paid back to them, because prices will go up a lot in the meantime), and so understandably want to pay more. against the price of their loans in the fund.

Also because we have to raise the rate in the short run and thus increase the base price of money when commercial banks lend too much or to anyone and the economy turns too fast with too easy money and causes excessive rise, thus inflation. One of the primary tasks of the higher economic authorities: that the central banks (the US Federal Reserve, the European Central Bank, etc.) intervene in order (try) to regulate all this.

Central banks have also taken the bad habit of manipulating long-term rates as well, which were nevertheless forever determined by the bond market, and state bond rates give the benchmark yield for bank loan tariffs to businesses and households. Very simple manipulation in fact, with massive purchases of bonds driving up prices, and therefore yields, and thus lower cost of financing the economy. Which helps a lot at first, it’s true, especially when it is necessary to avoid the potentially devastating effects on our beautiful modern economies of a terrible banking crisis, as in 2007-2008, or terrible anti-virus restrictions, as in 2020. But they are no longer of much use today, Humanity has finally somehow adapted to the pandemic.

It all has a huge impact on the stock markets, as you can imagine.

All of this is to say that there are good reasons for prices to rise right now, even if it’s not at all certain that economies are overheated (and if we don’t have any of them completely out of the virus, it has to be said): US-term Treasury yields soared 10 years issued by the French government from 0.20% to nearly 1.50% between the beginning of January and today, which is not insignificant, and the yield of US Treasury bonds on their US counterparts from 1.60% to 3.10% at the same time, which is not bad either.

Maybe a little brutal, but it’s not necessarily the end of the world, even if stock markets don’t help: stocks should theoretically yield 3% more than bonds, because they are riskier in principle, and that’s a “risk premium” since it’s fairly stable over time , it makes sense that the price hike would also affect the stock price to some extent so that its returns are also adjusted.

The risk premium has been more or less 6% for some time on this side of the Atlantic compared to about 3% on Wall Street: European stock markets are therefore much cheaper than the US market, which could explain why they hold up better than the latter. Despite all the bad news constantly attacking us, about -12% YTD for the broad Stoxx 600 (just like most Parisian Cac 40 and SBF120), versus -17% for the S&P 500: no comparison (and everything is relative) .

There are a lot of big considerations at the moment about macroeconomic data and so forth. And it is only the decoration in which the prices of listed companies develop, prices that are supposed to reflect above all the “fundamentals” of these companies, that is, their results, calculations and prospects. Given all of the above, basics such as 1) “pricing power”: the ability to defend their prices well when their costs increase, thus protecting their margins well in somewhat turbulent economic conditions, and, 2) as equilibrium paper that is exposed as little as possible From being exposed to higher interest rates, and therefore has little debt.

Two important squares at the moment seem to have been identified by a small, somewhat unclassified industrial group listed in Paris: SFPI.

Beautiful industrial ETI

Still managed and controlled by its founder, and built largely through acquisitions, the SFPI Group is undoubtedly what we would call a fine ETI, with turnover of €569 million in 2021 and around 3,800 employees. Which is active in relatively diverse activities in fact, since SFPI has more than forty subsidiary companies, also of different sizes, which operate in four market segments: a) Locksmithing and access control equipment in general (35% uniform turnover) for the third building Above all, the activities grouped together in the DOM security division, which has 60% of its activity in Europe except for France, b) Closures: windows, blinds, roller blinds, etc. for housing and shops (34% turnover), i.e. a very large number of made-to-measure work carried out in industrial carpentry with subsidiaries such as Sipa, France Closures, Franciaflex and Faber grouped together under the auspices of MAC, c) air treatment (dust removal/purification, hood) in the industrial environment of the NEU-JKF branch (21% of the activity), that is, turnkey heavy equipment manufacturing, with a presence in four countries (France, Denmark, Poland, Malaysia), and, finally, d) the equivalents of advanced industrial equipment designed and manufactured Almost on demand: heat exchangers for Barriquand Echangeurs, ASET, BATT and Cipriani subsidiaries, used particularly in large heating systems, and Steriflow sterilizers, used to sterilize all types of products, in certain foodstuffs, before they are marketed, all bundled together in MMD.

SFPI addresses a truly diverse clientele, from locksmiths and installers primarily engaged in building renovations to large industrial groups, in the food, pharmaceutical, tire, lumber, and paper industries, etc., through to major project builders/integrators and design offices. their own architects.

Good numbers, even in 2020

SFPI had a good fiscal year in 2021, with consolidated revenue increasing +14%, operating margin (percentage operating profit, operating profit, or post-depreciation Ebitda for proponents of modern finance/sales, in other words sales) 7.7%, a +2 point increase For 2020. That’s while the previous fiscal year 2020 went fairly well despite everything, with the 5.7% operating margin being slightly higher than in 2019, with turnover down -11% due to the health crisis.

Good numbers, whatever happens, result from several sets of good reasons. First of all, a priori good price levels, especially in the recovery of 2021, thanks in particular to markets that are somewhat protected by very national standards or product characteristics, such as locksmithing, the ability to make locks to order, and therefore top-of-the-range , in closing. Or the ability to offer highly effective and reliable solutions to improve industrial processes, such as purifying the air around production which generates a lot of dust and dust harmful to the health of operators, accelerating the wear of machines, and we can no longer absorb and reject as such in the atmosphere as well. Then, according to the management, long-term relationships with most of the numerous suppliers of the group’s subsidiaries, which in principle allow to better mitigate shocks, which have been frequent lately, in supply chains.

Finally, a highly decentralized organization, each subsidiary is fully responsible for its own operating account. However, with a very proactive group management, experienced in crisis management, which always happens on one day or another, which has responded so very quickly to the unprecedented decline in activity in 2020, by imposing cost savings, and postponing a number of projects, etc. …etc…

In short, there are many good provisions that exist in a good generation of free cash, in other words free cash flow in good financial French: year after year consolidated accounts show excess liquidity. This can be calculated in a primitive way by subtracting the investments from the self-financing capacity reduced to its simplest expression i.e. net result plus depreciation. Financial analysis does not include, one suspects, the claim to manipulate exact values ​​(unlike astrophysics).

Nice durability too

The surpluses undoubtedly found in the balance sheet, which was one of the strongest at the end of last December, with nearly double the amount of cash available for financial debt on the liabilities side, thus placing a largely positive net cash position. Which is of course the best insurance against trouble: SFPI seems to have enough to get through the very tough times, which are never left out.

In other words, SFPI is real business: an organization can go for months without doing anything, and stagnation is what it is. And also, which does not spoil anything, an intentionally desirable structure in silos, in which the difficulties of the subsidiary could not in advance question the sustainability of the whole.

Don’t put all your eggs in one basket, and that applies to industry as well as to finance, after all.

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