BIC Group (EPA: BB)

Intro
Probably most people have used a product of this company, which produces ballpoint pens, lighters and razors. In 2019, BIC sold 31 million products every day and is either number one (for lighters) or number two (for shavers and stationery) in terms of market share. Total revenue was hovering around €2 billion p.a. with a free cash flow generation of approx. €200 million per year – as can be expected from a mature, solid firm with a long history.

The founder’s family still holds 45% of the shares (voting rights 61%) which guarantees a long-term vision and strategy.

Valuation
BIC has withdrawn its guidance for 2020, as many other companies as well, where it was initially guiding for a flat year. Historically, BIC earned around €5 per share and we may expect similar numbers after the current crisis will be over, which would result in a P/E of approx. 10x. Besides the attractive dividend (was set at €3.45 per share in the last years and reduced to €2.45 due to COVID-19), the company actively buys back shares for significant amounts in normal times. Cash flow will primarily be invested in either CAPEX or acquisitions, followed by paying dividends and share buy-backs.

The company shows a solid balance sheet (equity ratio above 60%) with a net cash position at the end of June.

What’s next?
Similar to other companies, a recovery should also be underway for BIC. With ongoing free cash flow generation, growth coming mainly from smaller acquisitions and fair shareholder remuneration, BIC’s current valuation seems to be attractive – a steady and “boring” company coupled with a strong market share and a long-term oriented owner structure, right up our alley!

Current Price
€50.30 per share

Altria Group (NYSE: MO)

Intro
Cigarettes? Who and why would anybody invest in cigarettes nowadays since everybody is aware of its possible health issues it can cause and hence the declining client base? Well, the tobacco industry has done an excellent job to more than compensate the declining customer base with price increases or substitutes. Altria, probably best known for its Marlboro cigarettes, has a very long history and is seeking to invest its high cash flows from the tobacco portfolio into other related trends such as the stakes in IQOS or JUUL. Besides, the company owns shares in ABInbev, the drink and brewing company, as well as a wine producer and cannabis firm.

Valuation
Altria’s share price dropped around 50% from almost $80 just three years ago. Does this make the company a bargain? Of course not, but let’s look at the earnings and balance sheet: The company has been generating consistent revenues of around $25 billion in the last years and, what’s more impressive, has been able to raise its operating income almost every year. COVID-19 only has had a minor effect on Altria whose net revenue in the first half year increased by 3.9% and adjusted EPS by 8.5% – very resilient numbers which show the low cyclicality of its underlying business.

If we do a quick and dirty valuation, taking an EBITDA of $10 billion, a multiple of 12x and add the equity investments of $22 billion (as shown on the balance sheet at the end of June), enterprise value stands at $154 billion. From this, we subtract net debt of $24 billion to derive an equity value of $130 billion which we divide by the number of shares outstanding of approx. 1.86 billion and calculate a value per share of almost $70. This is just a back of the envelope calculation but may indicate the attractiveness of the current share price.

Adjusted EPS has been hovering above $4 and therefore shares are trading at an attractive ~10x P/E ratio. Due to the low amount of capital investments, free cash flow generation is huge and decent dividends of currently annualized $3.44 are being paid (more than 8% dividend yield!).

What's next?
Many institutional investors and funds have reassessed its investment criteria and a large part of these investors are much more cautious in what businesses they invest in – needless to say that the highly addictive tobacco business does not check their boxes. Some of them may have been forced to sell shares in this industry and thus created an opportunity for investors not adhering to these strict guidelines.

With an unbelievable track record of 55 dividend increases in the last 51 years, Altria should also be able to produce solid results for its shareholders in the next years be this from the tobacco business and its complementary assets.

Current Price
$42.17 per share