The building material giant Saint-Gobain (OTCPK: CODGF) (OTCPK: CODYY) has restored much of the stock price depression that occurred at the end of 2018 / early 2019. My entry point on the stock gives me some good returns at this time given the short time I has kept it.
While macro-tailwinds definitely played a role in driving the stock price up, the truth of the matter is that the company reported some good results for 1Q19. In this article I will go through them with you and translate what it means for my position in the warehouse, as well as how I consider it to go.
Let's get this started.
Mirrors and materials make profits
Saint-Gobain has gone really well in the short term, both since I bought my shares and since the 2018/2019 declines.
(Source: Google Finance ) ] The reasons for this development are several. Overall, macro development across international markets gives the company a significant half-wind. But let's look at the 1Q19 results to add a little more color here, and go into "other" reasons.
The company has had:
- Positive price dynamics of 260 bps.
- Strong volume growth of 310 bps.
- Positive currency impact of 60 bps.
- 10 bps positive corporate structure effect, with the company's M&A, costs divided by disposal / disposal program.
- 5.7% / 570 bps similar sales increase,
Sector by sector
(Source: 1Q19 Presentation )
A pleasure to see, these numbers. Regional trends are equally strong, with each region, except Africa / Middle East, showing positive developments in up to two-digit sales / growth.
Despite continued weakness in the automotive industry, HPS (High Performance Solutions) provided excellent growth in the quarter, among supportive non-automotive industrial markets and the company's increased focus on VAP (Value Added Products). Plaster and mortar products have sold particularly well in Northern Europe, with less increase in glass. This includes Scandinavia, where growth was excellent due to momentum in the construction industry. All in all, looking at all geographical segments, Gypsum, Mortar and Building Glass, the product groups responsible for the good sales figure are increasing in the first quarter.
Overall, most sectors delivered solid results here. Middle East and Africa were the strange men out here, with drops especially in Turkey. (Source: 1Q19 Press Release)
(Source: 1Q19 Presentation)
]] The company provides continuous updates on the development of its new organization and the Transform & Grow program. So far, the updates and progress have been encouraging. The company's program for recruiting nationally born / capable national position leaders (such as a Vietnam-born / traveled businessman / woman for a Vietnam part of operations) has provided some results as well. While the practice of someone is seen as controversial, I think it's positive.
(Source: 1Q19 Presentation)
Corporate outlook until 2019 remains positive. The company expects growth in each region and segment, with the previous focus remaining on the following:
- Focus on sales prices relative to the ongoing global inflationary pressures.
- Company cost savings program, with a view to realizing € 300 million in savings, of which € 50m will be realized in 2019.
- Company CapEx program, focusing on growth CapEx outside Northern Europe, and increased productivity and digital transformation increase .
- Increased focus on R&D to support its high value strategic focus.
- High levels of FCF generation
Looking at what the company has clear so far, there is some reasonable certainty that the company will achieve most, if not all, of these long-term goals.
The company just reported an excellent first quarter, with organic growth in almost all business segments. In short, the business is doing well, despite a challenging industrial view when it comes to the automotive industry and construction warehouses in some areas (Turkey / Africa). This has resulted in the stock, which has already been restored monthly, returning to a level of € 36 on Friday.
At these levels, and to give my purchase price, my investment has grown 24.96% over less than 4 months (including dividends), translates into a 98% CAGR, which is proof of my own investment strategy and contemplates, not only in Scandinavia where I live, but throughout Europe, where I mostly work.
The company again showed that it can thrive even in challenging industrial climates. While I moderated my expectations of the company going forward with the purchase of the stock, it seems that the more positive spectrum of my expectations of the stock has realized itself, and a sudden dive against less than € 30 / share seems quite unlikely at this point.  The company simply goes for good.
Saint-Gobain - A cyclical to consider - but perhaps not to this price
The company's stock price can still be considered appealing, given a very long time frame for the investment and an acceptance of a dividend of 3.7% (My own YoC is almost 4.6%).
However, I do not want to buy more of this company for this valuation. Not because it's not a good company - that's it. Due to macro-uncertainty ahead and my overall building / business exposure is limited, my target for this company is much lower than € 36 per share, making this investment a disadvantage to me at current prices. 19659042] Buying a construction company for a risky period as this requires different safety margins for me.