In my previous post about Greek net-net AS Company I mentioned I like another Greek stock.
The name of the second company is Kleemann Hellas SA (company website). Kleemann produces elevator systems. Products include: hydraulic elevating mechanisms (piston, power unit, car frame), electromechanical elevating mechanisms (machine, car frame, counterweights), cabins, electronic controllers, electronic systems and compact type elevators for elevating cargos.
The name of the company sounded German to me. It turns out that the company was established in 1983 after it signed a contract with German company Kleemann Hubtechnik GmbH, giving the company a license and the right to use their know-how. It is funny, the more you look into Kleemann the more you find out there is not that much “Greek” about the company right now.
Kleemann first caught my eye, because it is trading at a large discount to book value: Kleemann’s market cap is €36.7 million while book value on March 31, 2013 stood at €80.1 million.
The second thing that I noticed is that there is a large disconnect between the income statement and the cash flow statement. Viewing the income statement an investor might look at Kleemann with concern. From 2008 to 2012 revenues have fallen from €117m to €92m, while net income dropped from €10m to a small loss of around €100k in 2012. The cash flow statement shows a very different picture though: in 2012 the company generated around €11m in cash.
Looking into this deeper I found that an important cause for the discrepancies are increases in provisions: €5.0m in 2012 and €3.5m in 2011. From the 2012 annual report:
“It is noted that the Group’s financial results include a provision of 5.6 mln euros for doubtful debtors, from 3.3 mln euros in 2011. Such a high provision was made in context with the Group’s prudent policy and concern clients in the Greek market, who were affected from the economic crisis.”
The demand for Kleemann’s products is related to the building activity in the regions where Kleemann is active. Kleemann has a 72% share of the Greek lift market. Therefore it is not surprising that Kleemann was impacted by the Greek depression. Not only has the company lost a lot of Greek sales, because of decreased building activity, it also turned out that some of their Greek customers could not pay their bills, forcing Kleemann to take these provisions.
I think “the market” currently views Kleemann as a Greek company with substantial debt (€28m), declining earnings and stagnant sales (around €91m from 2010-2012), but I believe this picture is wrong. The principal reason is that Kleemann today is very different from the company it was in 2007-2008.
If you look at this company presentation (PDF), you will see that almost 59% of Kleemann’s sales in 2007 were Greek. After the financial crisis broke out, management has focused on internationalization and has been very successful: in 2012 the percentage of international sales was 78%. Kleemann expects international sales to increase to 90% of total sales in 2013. The company still only has a 2% share of the world market, but says it is one of the seven largest lift companies in the world. One of the countries where Kleemann has been succesful is Russia: in 2012 the company had €11.5 million in Russian sales, doubling the 2011 sales. Also Turkey is an important market with €19.8 million in sales.
Meanwhile Greek sales are down from €62.7 million in 2007 to just €20.1 million in 2012. Instead of a Greek company suffering from a depression, you could also view Kleemann as a strongly growing company in emerging countries.
The declining Greek sales and the impact of doubtful debtors on the income statement is distorting the picture. Another useful piece of information is on page 52 of the 2012 annual report. There you can see the composition of the receivables. Greek receivables are currently €28.9 million, down from €39.8m in 2011.
It seems to me that the impact of the severely depressed Greek market on Kleemann should continue to decrease. Kleemann looks like it will continue to grow strong internationally. One extra contributor to growth could be their Chinese subsidiary that was established late in 2012 and that is now ready for operations. China is the main growth market for the elevator industry.
Also we should not forget that Kleemann continues to be the market leader in Greece. If the Greek economy recovers at some point in the future and building activity picks up again, Kleemann will benefit as well.
Kleemann’s balance sheet looks reasonably healthy. The company has €26.2 million in cash, against €20.6 million in short term debt and €7.7 million in long term debt. Kleemann has managed to restructure it’s existing debt in March and April 2013:
“The parent company with the Extraordinary General Assembly of shareholders on November 14th, 2012, decided the issue of one or more joint bond loans up to 13.5 million euros. Through this decision, the administration of Kleemann aims at the restructuring of its existing bank loans by lengthening the repayment period as well as the reduction of its total bank loans. It is noted that the Group has an excellent capital structure, with net loans on 31/12/12 amounting to just 2.7 million euros.
In context with the aforementioned Extraordinary General Meeting, the Management proceeded in March 2013 in signing a new bond loan amounting to 6 million euros, and within the first half of April will have signed another bond loan of 7,5 million euros.”
Kleemann is family controlled: the Koukountzos family owns 67.1% of the shares. Here is a short recent video interview with the General Manager of Kleemann, Nikolaos N. Koukountzos: http://www.youtube.com/watch?v=Jb7D5VRQjjw.
I really like the company and don’t see why it deserves to trade at such a large discount to book value and such a low multiple of free cash flow. Even though the share price has more than doubled in the last year, the company still looks very cheap. The main reason I don’t own Kleemann yet is that I don’t have a broker that can give me access to the Greek market. I have received suggestions for using Fidelity for this.
Currently I’m still thinking about Kleemann. I think I will only go through the hassle of opening another brokerage account if I’m confident enough to make it a fairly large position. I thought it was best to fist write this post. Perhaps some of you can kill this stock idea and dampen my enthusiasm for Kleemann. You can give feedback by commenting on this post, using the contact form, or by e-mailing me: info at valueinvestingblog.net
Disclosure: no postion currently.