Once upon a time... there was a Zurich company that dealt with electrical installations in buildings. A banal and not sexy field for a penny, especially when you choose to focus only on the small and saturated Swiss market. Once upon a time... there was one of the most fantastic performances on the Swiss stock exchange in recent years.
Still waters run deep: Burkhalter is a fantastic company full of qualities that knows how to grow intelligently without harming profitability. Look around you at the number of electronic devices that surround you and you quickly realize the importance of this field. Computers, telephony, lighting or coffee machines: without electricity, we are only a shadow of ourselves.
Burkhalter is a very picky company when selecting customers and orders. It prefers the quality to the quantity.
Although the net profit margin (red curve) is not extremely high, it is at a decent level and is on an upward slope. The ROE is very interesting and has increased significantly in recent years:
Burkhalter's modus operandi consists of a growth through acquisitions. She prefers to make many small acquisitions rather than large, risky purchases. Burkhalter currently consists of 45 small and medium-sized companies.
The dividend yield is very attractive: 4.2% for 2017 and 4.6% for 2018 (estimate). The payout ratio is traditionally very high at Burkhalter, which can constitute a certain risk:
The % of equity is not extraordinary, but it is rather stable and in line with that of other companies active in the building and construction sector:
Main assets:
- The Swiss market for electrical installers is still very fragmented (Burkhalter is the largest player in Switzerland and yet only represents around 10% of the market). There are therefore still plenty of interesting small companies to acquire, allowing Burkhalter to increase its turnover and profit.
- A more than acceptable profitability.
- The company is 100% oriented towards the Swiss market, which gives it good visibility and helps avoid exchange rate risks
Main risks:
- Dependence on the building and construction industry.
- A slowdown in growth has been observed recently.
- High payout ratio.
In summary:
Burkhalter is a healthy, high-quality company with some potential for expansion. The correction of the last few months has made the current valuation attractive. At the current rate of 131 francs, the 2017 PER is 21.55 and the 2018 PER is estimated at 20.
I estimate the appreciation potential at around 12 to 15% per year, of which around a third is due to the dividend.
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This is indeed a great company, and, by the way, a great analysis. Thanks dividinde.
As usual my tastes differ slightly from yours, without being totally opposed either.
We can both like pretty girls, but with a preference for brunettes or blondes. In this case I find Burkhalter a bit expensive in a pure value approach. The dividend gives the illusion that the stock is cheap, to the detriment of a high distribution ratio.
On the other hand, if you are growth-oriented, it is definitely worth a look. Just the price graph makes your heart palpitate! Woohoo!
Thanks Jerome. Let's say that Burkhalter is a brunette with blue eyes... 🙂
Usually I try to avoid too high a payout ratio, but in Burkhalter's case I believe that the stable business model and good visibility of future earnings provide a solid basis for long-term growing dividends.
Brunette with blue eyes. I'm buying! 🙂
Bing, in the (my) teeth
This is a bit of a problem with these overvalued growth stocks. The market penalizes them heavily at the slightest problem. In addition, the payout ratio was high and therefore the dividend will fall due to the lower profit.
I still think that dividinde's analysis is correct: it is a great company. But it was a bit expensive. Now it is much less so!
Let's add to that the adage that you don't buy a falling knife, which means that you have to let the storm pass and see in 6 to 12 months whether you have to take a hit.
On the contrary, I think that my analysis was really not great and I overlooked certain weak points because I was so convinced of this company. I did not know how to remain sufficiently objective and the stock market is always there to remind us of our mistakes.
Burkhalter was also a big position in my portfolio and I took a hell of a slap today. Well, that's part of the game and I accept the rules, you can't be a winner every time. This is neither my first nor my last spanking on the stock market.
And above all, it won't stop me from moving forward, I won't stop until I have reached my goal of financial independence 🙂
The important thing is to learn lessons from it, in particular:
-not to fall in love (as the Quebecois say) with a title
-sufficiently diversify
-don't buy too expensive
I also screwed up last year with Astaldi. Despite a steep fall, the impact on my portfolio was insignificant because the position was small.
I prefer to err on the side of over-diversification rather than the opposite.
That's right, Auguste. But I find that the biggest difficulty is your last point: "don't buy too expensive", because the notion of cheap and expensive varies according to the benefits.
In Burkhalter's example, I found the valuation to be quite reasonable, but when the profit drops by 20% the PER automatically rises by 20% and suddenly the valuation is no longer reasonable.
That's why I don't give much importance to earnings. They are volatile. Yesterday's winners are tomorrow's losers and vice versa. The P/E is a fairly unreliable indicator, both in terms of its consistency and in terms of the confidence that can be placed in it (too easily manipulated).