Recently, CAFOM, a French electronic, furniture and decoration retail conglomerate that I have position and that I have written investment thesis earlier this year, published its fiscal first half results for 2018, which showed that earnings for continuous operations have improved significantly.
The main source of earnings growth for continuous operations was Habitat, a loss making decoration retailer:
This is good news because historically Habitat has lost more than the other parts (Outre-mer and Vente-Unique) have earned, as seen from the full year figures:
If the H1/18 trends for all segments would be extrapolated to H2/18, the CAFOM’s continuous operations could earn about 8 MEUR in FY18 :
With current 84 MEUR market cap the extrapolated earnings would imply about 10x forward P/E for continuous earnings:
And if you are not in to forecasts, the earnings multiple would be even somewhat lower if you calculate rolling 12 month continuous earnings (8,7 MEUR) from the table earlier.
Just for perspective, the Vente-Unique segment, a fast growing online furniture retailer, is also listed entity by itself and valued 24x forward P/E and 35x trailing P/E multiples, so the CAFOM’s valuation seems cheap based already on the current situation.
Real icing on the cake would how ever be if the Habitat losses will end totally, as the management’s goal probably is and the recent trend would indicate, which would double CAFOM’s earnings from current levels.
Then, with the current forward and trailing 10x P/E multiple, the stock price could double too. But if the other segments continue to grow, as the stated plan is, I would say some multiple expansion on top of that would be warranted.
So, I have increased my CAFOM position from the original 2,5 % to 9,6 %, second largest position, and with my current thinking I could see myself increasing it further.
Current portfolio allocation:
Ps. As can be found from the original CAFOM writeup linked earlier, the Outre-Mer segment runs electronics and furniture retail stores in French overseas regions i.e. in small islands in Atlantic Ocean, Pacific Ocean, Indian Ocean etc..
Recently, the segment made small purchase of competing stores to re-brand them to their own stores in Guadalope, one of the overseas islands, which competitive authority investigated for potential market dominance (sign of good business).
Quite interestingly, the competitive authority commented that Amazon etc. internet operators are not considered as competitors due to logistics difficulties to the isolated location and customs taxation.
I assume this is applicable to all islands where CAFOM operates and which probably explains, in addition to the first mover advantage mentioned in the original writeup, the high margins in the business.
So, with these valuation levels and potentially high quality businesses, CAFOM starts to see pretty interesting situation.
Appendix 1: Outre-mer segment figures and assumptions
Appendix 2: Habitat segment figures and assumptions
Appendix 3: Vente-Unique segment figures and assumptions