Intro
Fuchs Petrolub develops, produces and distributes
lubricants and related specialties. The product program comprises more than
10,000 products and the company has more than 100,000 customers worldwide.
Founded in 1931 as a family business in Germany, the
company employs almost 6,000 employees in 50 countries today and is the world's
largest provider among the independent lubricant manufacturers.
Fuchs has two share classes: ordinary and preference
shares. The preference share enjoys higher trading liquidity and some
advantages regarding the dividend. The Fuchs family still owns 55% of the
business through the ordinary shares with voting rights. In the following, we
focus on the less liquid ordinary shares (yes, you got it, more bang for your
buck!).
Valuation
In 2021, Fuchs showed an increase of revenues of 21%
to €2.9bn and a net profit of approx. €250m. Compared with the current market
cap of around €3.6bn, the P/E stands at around 14x. Due to geopolitical
tensions, Fuchs adjusted its guidance for 2022 slightly to revenues above €3bn
and profit numbers on similar levels as last year.
Fuchs has been consecutively increasing its dividend
per share for the last 20 years and paid €1.02 per ordinary share for last year
with a payout ratio of less than 60% for 2021. This translates into a dividend
yield of more than 4.3%.
For the last ten years, Fuchs has always shown a net
liquidity position giving the company ample of flexibility for acquisitions or
other uses of cash.
What’s next?
There is a lot of pessimism around commodity driven
stocks and also particularly Germany. As in the last 90 years, it can be
estimated that Fuchs will again find a way to ‘solve’ the existing challenges this
time and create value. Although being the largest independent lubricant
manufacturer, there is still a big market share to capture from bigger players
such as Shell, Exxon Mobil or BP. The current valuation coupled with the
attractive growth profile seems to offer an exciting entry point.
Historically, the company also made use of share
buybacks (in the years 2013 and 2014) and due to the very low leverage it might
be on the table again (hopefully) at the prevailing low prices.
Current Price
€23.65 per ordinary share
Disclosure
As with most shares
discussed on here, the author is long FPE.
