Three Greek microcaps trading below book value

I’ve written about a few Greek stocks already: AS Company, Stelios Kanakis and Kleemann. Greece continues to be a place that most value investors seem to avoid like the plague.

One problem with investing in Greek small caps is that most of them only publish their financial reports in Greek. Google Translate does a reasonable job, but still it takes much more time to get through one annual report and my level of understanding of the information also drops. That’s the main reason I have avoided most of these Greek reporting small caps. There are some potential bargains there though.

BTW: a micro cap company that has no legal obligation to translate annual reports in English, but does this voluntarily should be looked at carefully in my opinion. This is a very good indicator for shareholder friendliness. These companies go well beyond the minimum of what is required in regard to informing their shareholders and I think it also improves the odds that capital allocation will be rational. I think they will be more inclined to return capital to shareholders when there is excess cash.

I will use this post to highlight three Greek micro caps that look cheap and report in Greek only. Perhaps some of you are interested in looking into them.

General Commercial and Industrial (Athens: GEBKA)

General Commercial and Industrial (company website) is a supplier of piping materials, hand and power tools, hydraulic equipment and industrial tools. They also have a subsidiary that is active in renewable energy. From my understanding that subsidiary has two solar parks, one of which is located on the roof of the building of the subsidiary that is involved in the supplying business.

As you would expect revenues have declined during the crisis, from €35m in 2009 to €26m in 2013. The company has remained profitable in these years though, only slipping to a marginal loss in 2012.

General Commercial had quite a bit of debt in 2009: €15m. Since then the company has managed to bring debt down to €5.3m on March 31, 2014. At that time the company also had €1.6m in cash & cash equivalents.

I think the picture looks reasonably positive here. The market cap of General Commercial is €10.7m and it is trading right around NCAV and ~50% of book value. Cash flow has been positive, debt has been reduced and it looks like the company even managed to pay a dividend in three of the last five years.

In 2008 the stock traded in the €0.80 – €0.90 range which was close to book value. If the company can reach book value again the stock is about a double from today’s levels. I think that is a reasonable bet to make.

Eltrak (Athens: ELTRK)

Eltrak (company website) consists of four companies:

• Eltrak CAT: the exclusive Caterpillar dealership in Greece. Carries the full line of Caterpillar equipment: earthmoving equipment, power generating products, marine engines, CAT lift trucks and they offer after-sale support. Also represents JLG aerial platforms, MaK marine engines and Terex O&K mining equipment.
• Eltrak Bulgaria: the exclusive Caterpillar dealership in Bulgaria.
• ELASTRAK: exclusive distributor for Bridgestone, Firestone & Dayton tyres in Greece.
• Eltrekka: largest supplier of automobile and truck parts for the aftermarket in Greece. Represents over 65 of the worlds top manufacturers.

Revenue dropped from €148m in 2009 to €88m in 2013. It looks like revenue has stabilized, because revenue in 2013 was roughly equal to 2012. Eltrak was profitable in 2013, but earnings were just €0.8m. On March 31, 2014 the company had debt of €25m of which €20m was classified as long-term. Cash & cash equivalents at that date were €8.0m.

Like General Commercial, Eltrak has reduced debt levels substantially: in 2009 the company had debts of €69m. Eltrak’s market cap is currently €26.5m and book value is €59m.

Of the three companies profiled in this post, Eltrak is probably the riskiest, but it also offers the largest upside I think. This company had earnings of €9.5m in 2007 and €7.7m in 2008. It is pretty unlikely that Eltrak will reach these levels again in the short term, but it does show that there’s substantial earning power here if Greece’s economy eventually recovers and construction activity picks up.

Eltrak is probably too hard for me to figure out. It’s pretty tempting to speculate though. For a cyclical like this, I think you should be investing when the news is terrible and that time is now. Eltrak has not seen business pick up yet and the stock price reflects this. If Greece does recover I think Eltrak could turn out to be a multi-bagger.

Ideal Group (Athens: INTEK)

Ideal Group (company website) distributes computer and digital security products. They distribute Toshiba products, including laptops, computer accessories and TV’s. Ideal Group also has a subsidiary called ADACOM which is a IT security integrator and enterprise software vendor.

Recent financials are not available on the company’s website, but can be found (Greek only) on the Hellenic Exchanges website.

I have not done much work on Ideal Group, but did buy a small position. This is purely based on the financials. Ideal Group’s market cap is €6.5m and NCAV is around €13m. The company has earned around €1m in each of the last four years. It has also returned capital to shareholders: in 2011 they paid out €5m through a return of capital and in 2013 they paid out €3m. The majority shareholder is Thrush Investments Holding which holds 55% of the shares.

The shares are very illiquid. I have minimal information here, but I think the large discount to NCAV, the history of profitability and the capital returns are enough to warrant a small position.

Disclosure: long Ideal Group, AS Company and Stelios Kanakis. No position in General Commercial and Eltrak at this time.