Serge Ferrari manufactures surfaces in flexible, non-deformable and fireproof composite, delivered in the form of coils, or on the contrary in prefabricated form, and used mainly in construction: stretched roofs, solar protection, acoustic solutions, waterproofing screens. (credit: Serge Ferrari)

With a Cac 40 at -13% since the start of the year, a Dow Jones at -14% and the rest to match, times are a bit difficult on the equity markets. Which can be understood, since the major parameters of the economy: interest rates, exchange rates, raw materials, oil, etc… and inflation above all, are agitated a little in all directions, without talk about the perplexity displayed now by the economists themselves. Which must make forecasts, and on the whole have not had much luck with that for two years, it must be said.

This being the case, it must be assumed that a forecast is always false (especially in economics, which is probably quite far from being an exact science) and is just used to give yourself a little (intellectual) comfort in the face of a complicated situation. . And that the « macro » does not do everything to explain the evolution of stock market prices, quite the contrary: the « micro », analyzing the basic figures of the listed company on which you plan to bet, also has its say to say. Because, undoubtedly, the market, in its infinite wisdom, looks at these fundamentals and values ​​them, or punishes them as mercilessly as needed.

Watching the markets less, and more watching the accounts of companies, going back to basics, in a way, is therefore possibly the best thing to do at the moment: it does not eat bread, in any case.

Especially since these famous fundamentals are also relatively insignificant once the work of extracting (and pruning) the figures from the consolidated accounts published by the company in question has been carried out. Which is not always obvious, accounting standards being what they are: analysts don’t steal their bread, believe me.

These are on the one hand a few figures taken from the operating account i) the turnover, and how it progresses year after year, ii) the operating margin (the ratio between the balance of turnover minus the operating expenses: purchases, salaries, etc., i.e. current operating profit, and this turnover) and how this margin holds up in relation to the sector and how it changes over time, iii) financial costs and how much those these consume of this operating income, and finally iv) net income, i.e. the money the company has earned (after tax) for its shareholders by working hard.

Good fundamentals also mean a balance sheet with not too much financial debt in relation to shareholders’ equity, which is the capital mobilized by shareholders. This Net Debt/Equity ratio being reasonably presentable when it is less than 50%, that is to say when the company is not too dependent on banks: it is as simple as that.

And finally and above all, the fundamentals are the wealth created year after year by the company: the generation of free cash, the « free cash-flow » in good financial English, which can be roughly measured (even in making purists of financial theory howl, and God knows if there are any) by subtracting gross investments from cash flow (which is simply the net result + depreciation of the operating account).

Free cash flow which is marvelous when it is positive year after year, and all the more marvelous when the company in question also grows, growth that it can therefore finance without calling on its bankers and without asking its shareholders to return to the pot.

Shareholders who, in fact, enrich themselves. What is found one day or another in the stock market, even if it tends to evolve a little erratically from one day to the next, which is quite normal after all, especially with the new great perplexity of the economists.

Needless to say, the analysis of fundamentals is most often simpler when it comes to listed SMEs, « smallcaps » or « midcaps », than when it comes to a large group with global and varied activities. . And since listed SMEs are often family businesses, the fundamentals are often better there. This is what can be seen very particularly at Serge Ferrari Group, an industrial company based in La Tour-du-Pin (Isère), and listed on Euronext in Paris.

Serge Ferrari manufactures surfaces in flexible, non-deformable and fireproof composite, delivered in the form of coils, or on the contrary in prefabricated form, and used mainly in construction: stretched roofs, solar protection, acoustic solutions, sealing screens, etc. for all kinds of applications, from stadium covers to light structures for events, outdoor furniture and tops for pleasure boats, including industrial buildings, warehouses, hangars, tertiary buildings, etc… Serge Ferrari Group also produces for large-scale displays, as well as barrier materials for industries such as bioenergy, wastewater recycling, etc… All for an expected turnover of 335 million euros for 2022 with 1,200 employees in 6 production sites (1 in France: the historic site, 2 in Switzerland, 1 in Germany, 1 in Italy and 1 in Taiwan), 5 R&D centers, representative offices in 14 countries and a network of 100 resellers in 80 countries.

The company markets its products to 4,000 customers, mainly major prescribers such as architectural agencies and furniture designers, organizers of trade fairs and events of all kinds, and builders of industrial buildings. Finally, it is constantly developing new products with 50 employees in R&D, and has several ranges that allow it to differentiate itself and address its market niches: Précontraint for stretched fabrics for large infrastructures, Soltis, for protective screens solar, Batyline AW for acoustic solutions, Stamisol for waterproofing screens, and so on.

The company produces partly with its own technology, which makes it possible to manufacture in very large widths possibly. Production is highly integrated with the manufacture of the PET micro-cable (in Switzerland), then its weaving (in France), the manufacture of coating polymers and finally the coating of the woven reinforcement (in France and Switzerland ) to arrive at the final product. Serge Ferrari also produces with other technologies (Stamskin, Stamisol, SK, and glass-PFTE) in its other factories in Switzerland and Germany, and also uses extrusion, a classic process for manufacturing flexible materials, used in particular in furniture, in its French factory and in its Italian factory. The company has also developed a technology for recycling composite materials (manufacturing off-cuts or materials recovered at the end of their life): Texyloop, which produces raw materials of good quality a priori.

The company made two acquisitions in 2020 which broadened its offer by providing expertise in a new material: glass-PFTE (alias Teflon for consumer products), with FIT, a small company (8 million euros in turnover business) based in Taiwan, and also and above all Verseidag-Indutex GmbH, a German company based in Krefeld (57 million euros in turnover), which both manufacture incombustible membranes. It has also just taken majority stakes in three small companies in the first half of 2022: its distributor in Lithuania, as well as two Dutch companies: MSE, and DCS, designer installers of membranes for biogas plants, which are strengthening the activity that already has Serge Ferrari in Germany in this area, and a priori gives a serious share of this new market, which is increasingly buoyant in Europe.

Almost 75% controlled by its founding family, which is still in charge (on the Supervisory Board), the company produces good results year after year. Starting with steady organic growth in revenue, improved by acquisitions (and very particularly Verseidag-Indutex in 2021, a year in which business grew by +46%), with further good growth in the 1st half of 2022, i.e. +17%. Which owes above all, it must be said, to the price increases that the company has managed to pass on to its customers to pass on the sharp increases in material costs, energy costs, and transport costs of the moment. For stable volumes, but with a well-oriented demand however, particularly in tense architecture, and modular structures for events, two activities which have restarted well in 2022.

Serge Ferrari also generates rather solid profitability, since the operating margin fell from 4% in 2019 to 3.4% in 2020, which is a good resistance in this somewhat dreadful year for everyone, to rebound to 6.7%. in 2021, and to hold in the 1st half of 2022 at about the same level as in the 1st half of 2021, with a fixed cost base under control a priori, with the help of industrial rationalisations, and better used capacities too.

We can also see that the company has good quality finances, with a Net Financial Debt/Equity ratio of 23% on its balance sheet at the end of December (and, for connoisseurs, a Net Debt/Ebitda leverage of only 0 ,7x). However, this ratio deteriorated a little as of June 30, while remaining within reasonable limits, ie 42%, mainly due to more inventory to be financed. Stocks which are however at the highest of the year, the seasonality of the activity being what it is, and are also worth more with the general rise in the prices of raw materials, a phenomenon that everyone knows.

As you can imagine, these good finances are very much due to the fact that Serge Ferrari, as a good industrialist that he is, generates cash year after year (except in the event of a major acquisition such as in 2021). In any case, this is shown by an elementary calculation of free cash flow (for the theory, see above). And Serge Ferrari should still generate it in 2022, even if the investments are higher this year to improve the information system and to digitize in particular, to transfer activities from one site to another, or even to create new capacities.

Finally, if the activity is rather good at the moment, new markets are also opening up, with always new applications for membranes: solar protection for vehicles, heat protection for buildings, water reservoirs and aquaculture, storage roofing biogas etc.

« Sky is the limit » in a way, and it’s not for nothing that the company is creating an Innovation Center this year. And it’s not for nothing either that the share price has held up rather well, i.e. -5% since the start of the year, compared to a Cac Mid & Small index at around -16% today. of today.

The fundamentals, only that is true. That’s a fact.

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