Broedr. Hartmann (ISIN DK0010256197): A truly Egg-citing Special situation ?

Disclaimer: This isn’t funding recommendation. PLEASE DO YOUR OWN RESEARCH !!!

Introduction

“Catalyst”: Lowball bid from Majority shareholder

Delisting in Denmark – what I discovered to this point

Majority Shareholder Thornico

What’s Thornico’s final aim ?

State of affairs Evaluation, Dangers & Abstract

Introduction

Broeder. Hartmann (to not mistake with Paul Hartmann AG) is an organization I checked out throughout my All Danish Shares sequence in final July. I feel it will be honest to name it a “hidden champion”. Their enterprise mannequin is concentrated nearly 100% on egg packaging which as such is already one thing I like loads. Their important product seems to be like this (solely the field, not the content material):

Or this:

Extraordinarily horny product, isn’t it ? In actuality, in addition they appear to supply paper based mostly apple packaging in Brazil and India, however egg cartons are their important product.

In Mid 2022, after I checked out them first,  the corporate was nonetheless struggling. That is what I wrote then:

From the basic facet, issues appear to look loads higher nowadays. In 2023, they’ve up to date the steerage already 2 instances as might be seen on this desk from the half yr report:

The share worth has principally not reacted to this and remains to be ~-50% in comparison with the height:

As of now, they commerce at a 6,7x EV/EBIT (2023) which is sort of low-cost for a enterprise that has first rate margins and returns of capital and is globally diversified regardless of its small dimension. Right here a fast overview on some indicators:

TIKR to this point has not up to date estimates for 2023, so in TIKR the inventory seems to be dearer for 2023 than the up to date Steering signifies..

Money Movement has additionally recovered properly. It’s exhausting to foretell this however this chart from the 6M report, I might guess that at present they commerce at not less than 10% FCF/EV yield:

I’m not positive if that degree is sustainable. By the best way, reporting is sort of good for a small firm.

“Catalyst”: Lowball bid from Majority shareholder:

The bulk investor (Thornico Holdings, 69%)  simply has launched an opportunistic low ball bid at DKK 300 and desires to delist and squeeze out minority shareholders. This has been preceded by one other particular board assembly, the place Thornico exchanged a couple of of its board members to be able to “align higher with the Technique” of Hartmann. Just a few weeks later, Hartmann’s CFO resigned and was changed.

To present credit score the place it’s due: I used to be alerted to this by a Twitter thread from a younger (native ?) investor:

Though I might not see it as a “scandal”, it’s clearly an opportunistic lowball bid. They justify the quantity within the provide by stating that that is above the typical as lined out within the firm communication:

3) Delisting in Denmark – what I discovered to this point

Based on a number of sources, a Delisting in Denmark  must be authorized by 90% of all shareholders. This appears to have been carried out solely in 2020, earlier than it was simpler to delist (solely ⅔ vote required).

It appears to be that the Inventory trade (not the regulator) is allowed to resolve if a suggestion is cheap or not. Nevertheless, based on the unique doc, they’d not decide the valuation, simply whether it is completely unreasonable or not:

With their present 69%, there appears to be little likelihood that they may get even near the 90% required. Lots of buyers is likely to be anchored on the upper costs from 2-3 years in the past and may (rightfully) take into account this as a lowball bid.

The particular shareholder assembly is scheduled October sixteenth. If 90% of the shareholders settle for and the inventory trade doesn’t reject the provide, sharholder can have 4 weeks to promote the shares to Thornico at 300 DKK.

4) Majority Shareholder Thornico

The principle shareholder, Thornico is a holding firm owned by Father (Thor) and son (Nicholas) Stadil. Here’s a image of those 2 Gents:

The Group is lively in Meals, packaging, Sports activities tools and actual property. Inside packaging, there are two different corporations, one in China and one in Malaysia.

Nevertheless, probably the most related Group firm that pertains to Hartmann is Sanovo, an organization that gives each possible expertise round egg manufacturing, together with packing machines. I may think about that combining Hartmann and Sanovo may make lots of sense. Curiously, Hartmann purchased a packaging firm from Sanovo known as Sanovo Greenpack in 2014.

In recent times, there appeared to have some troubles within the empire, particularly within the now discontinued transport section the place they needed to endure a chapter.

Thornico has purchased its first stake in 2011 based on the annual report and again then supplied to purchase all shares at DKK 95:

In 2012 then, Thornico elevated its stake to 68,5% after buying the shares from the opposite two huge shareholders:

In 2013, Thonrico barely elevated their stake to 68,6%, however since then the stake has remained fixed, though based on TIKR they’ve elevated their stake to 69% (Half yr report nonetheless says 68,6%).

Based on an article, D/S Norden paid ~60 mn USD to Thonrico for the transport actions, which means that they could have some money mendacity round to fund a rise within the Hartmann stake.

Christian Stadil apparently has his personal private web site the place he presents himself as a mix of visionary, artist and martial arts skilled. He additionally appears to have created a Champagne label that ought to be drunk straight from the bottle.

Total, they appear to be fairly shrewed capital allocators.They purchased the preliminary stake in B. Hartmann at a really attention-grabbing cut-off date at round 100 DKK/Share and have recovered most of this already by dividend funds. I don’t assume that they’re evil guys, however in addition they don’t appear to throw round cash both.

5. What’s Thornico’s final aim ?

In the event that they actually need to delist, they have to know that 300 is simply too low as there isn’t a premium. So to be able to get extra shares they have to make a better bid

Perhaps they need to scare buyers and simply need to enhance their shares for affordable

Perhaps it was a really opportunistic transfer and so they received’t pursue it additional if it fails

My present impression is that they actually need to do away with minorities, particularly as a result of they began with a board reshuffle. Hartmann can be their solely listed holding, so I suppose they like to have every thing personal. As well as, I feel they could need to hyperlink Hartmann nearer to their different “egg associated” actions as I suppose that clients do overlap loads.

My guess is that they’re perhaps afraid that the inventory will get too costly if the turnaround is confirmed and Hartmann would present an ideal FY 2023 outcome. 300 DKK per share is likely to be the bottom worth they’ll bid as a starter, in any other case the inventory trade may instantly name this unreasonable. Shrewd as they’re, perhaps they thought: I’ve to extend the bid anyway, so let’s begin with the bottom attainable quantity to anchor individuals on this.

If that’s true, I suppose they might want to give you a suggestion that’s clearly increased than the present 300 DkK at a later cut-off date.

6. State of affairs Evaluation & Abstract:

So in precept now we have 3 base eventualities:

Provide will get accepted at 300 DKK by greater than 90%, Inventory will get delisted.

Most shareholders don’t settle for and life goes on as earlier than

Thornico will increase its provide to get above 90% after which delists subsequently

Personally, I feel 1) could be very unlikely. 2) is clearly extra seemingly. For 3) one may assume totally different costs at totally different possibilities. 

That is my first try at modeling the case based mostly on a share worth of 310 DKK for a time of 6 months:

For a lapse of the provide, I assumed that the share worth goes right down to the bottom worth YTD 2023 which was 269 DKK, which I feel is conservative.

Summarized over my assumed eventualities, the anticipated return is ~18,3%. In fact, all or any of my assumptions may very well be utterly incorrect, however I do assume that that is attention-grabbing as a particular scenario.

Personally, I do assume the draw back is sort of restricted because the inventory actually seems to be low-cost and engaging stand-alone, however one by no means is aware of. In concept, Hartmann would even be a great funding in the event that they don’t enhance the bid, however for now I solely see it as a Particular scenario with a time horizon of 6-12 months.

There are clearly dangers, as at all times. The worst case situation can be that the free float will get smaller, let’s say to twenty% and subsequently, the financial scenario once more will get dangerous for one purpose or the opposite. In such a situation, there may very well be clearly a draw back to the inventory which I attempt to seize within the “provide lapses” situation. Perhaps the chance is increased than 20%, however who is aware of ?

I due to this fact allotted ~2,5% of the portfolio into this Particular scenario. I’ve funded this through additional gross sales of Schaffner.

The sport plan is to revisit the case not less than after 6 and 12 months except one thing occur like a better bid or so.

Disclaimer: This isn’t funding recommendation. PLEASE DO YOUR OWN RESEARCH !!!

P.S.: I might be very grateful for extra details about Danish regulation with regard to delisting

P.S.2: Though it doesn’t relate on to Hartmann, a submit about egg packaging should comprise this Video snippet from German aim keeper legend Oli “The Titan” Kahn:

Oliver Kahn greatest second: Eier wir brauchen Eier!

P.S. 3: I additionally appeared on the Hafen Hamburg Scenario. Nevertheless I Like this one significantly better.