Cheap Tech Stocks & Overlooked Recoveries
Small Cap Earnings Review 05/08/22
FILA.MI - 357,6m
Fila produces design & modeling supplies (e.g. crayons). With schools shut down and everyone working from home - earnings took a hit.
However, now that covid is pretty much out over, children all over the world are going back to school and the demand for supplies is recovering.
Despite inflation being the new concern, F.I.L.A looks like non-obvious recovery play:
The sector benefits from steady structural mid-single digit organic growth as education rates rise worldwide, and F.I.L.A has been leveraging its balance sheet to consolidate the market.
On the other hand, the stock is now trading at its lower ever EV/EBITDA multiple (7.2x 2022). The increase in inventories and accounts receivable (100m in H1) point to high growth in H2 (never mind the negative operating cashflow, that’s just seasonality + building non-depreciating inventory in a constrained supply chain environment).
Overall, you could own a ~10% compounder for pretty cheap, yielding just under 3% with the post-lockdown recovery as a short-term tailwind.
Talenom OYJ - 500m
The growth story continues for the digital accounting services consulting firm. Its low cost offering is very attractive for SMEs, and they are expanding geographically.
Sales were up 25% in H1 to 52.2m€, but more importantly, revenues in Sweden were up 77% to 9.3m€.
As they scale in Sweden, which is a larger market in Finland, operating margin should expand from the current 5.3% closer to the 22.8% margin in Finland, which makes up 80% of sales.
Even though the current economic conditions could impact their SME clients unfavorably, we can expect >15% revenue CAGR in the medium term and operating leverage. If they manage to scale in Spain as well, the growth could be faster.
However, trading at 33x Forward EBIT (guidance is for 100m€ in sales and 16m€ in EBIT), the stock isn’t cheap, but its worth looking at.
TeamViewer AG - 1956m
Team Viewer has had some problems since Q3 2021. It showed a sharp deceleration in customer acquisition and a large increase in customer acquisition cost. Since then, the stock is down over 80%.
However, management has shown they are confident in the business’ outlook, repurchasing 10% of outstanding shares.
In fact, the business is far from dead, with profit growing over 30% and billings by 12% in H1.
Trading at around a 10% FCF yield, with double digit growth still the base case, Teamviewer could be an interesting play.
SMCP- 452m
The history of this company has been pretty volatile over the past years, but it seems that the focus is finally back on growing the business after the dispute between creditors and its Chinese shareholders resolved earlier this year.
H1 results were nothing short of a blowout: 25% LFL growth, 77% EBIT growth, reduction of net debt from 2.5x to 2.1x EBITDA.
Free cashflow generation was poor, but this is seasonal, and inventory build up was very high this semester. On a full year basis, I think a ballpark of >10% FCF yield is a very reasonable expectation.
Of course, the macro is bad for apparel, but SMCP could be a good medium term turnaround situation.