Is Analysts’ Sentiment For Warehouses De Pauw’s (EBR:WDP) Justified?

Warehouses De Pauw (ENXTBR:WDP) continues to post impressive revenue growth and its prospects have never been brighter. However, my main concerns are around how the company is managing its balance sheet, and whether their current financial status is sustainable. I will touched on some key aspects you should know on a high level, around its financials and growth prospects going forward.

WDP develops and invests in logistics property (warehouses and offices). Founded in , it currently operates in Belgium at a market cap of €2.57B.

ENXTBR:WDP Future Profit Apr 22nd 18
ENXTBR:WDP Future Profit Apr 22nd 18

There’s no doubt WDP is delivery on its promises, with a soaring annual revenue growth of 17.47% , and a net income growth of 80.57%. Since 2013, revenue has risen 14.30%, corresponding with larger capital expenditure, which most recently reached €11.61M. With continual reinvestment into business operations, a return on investment of 16.00% is forecasted for the upcoming three years, according to the consensus of broker analysts covering the stock. Net income is expected to grow to €239.95M over the next year, outpacing the industry average growth rate of -18.75%. These numbers tell me that WDP has a robust history of delivering profit to shareholders, with a disciplined approach to reinvesting into the company, and a bright future relative to its competitors in the industry.

ENXTBR:WDP Historical Debt Apr 22nd 18
ENXTBR:WDP Historical Debt Apr 22nd 18

WDP’s financial status is a key element to determine whether or not it is a risky investment – a key aspect most investors overlook when they focus too much on growth. TAlarm bells rang in my head when I saw WDP’s debt level exceeds equity on its balance sheet, and its cash from its core activities is only enough to cover a mere 9.56% of this large debt amount. Although EBIT is able to amply cover interest payment, cash management is still not optimal and could still be improved. Or the very least, reduce debt to a more prudent level if cash generated from operating activities is insufficient to cushion for potential future headwinds. The current state of WDP’s financial health lowers my conviction around the sustainability of the business going forward. WDP has poor liquidity management. Firstly, its cash and other liquid assets are not sufficient to meet its upcoming liabilities within the year, let alone its longer term liabilities. Secondly, more than a fifth of its total assets are physical and illiquid, such as inventory. Keeping in mind the downside risk, if we think about the worst case scenario, such as a downturn or bankruptcy, a non-trivial portion of its assets will be hard to liquidate and redistribute back to investors.

WDP is now trading at €103.00 per share. At 24.93 million shares, that’s a €2.57B market cap – which is about right based on a 5-year cumulative average growth rate (CAGR) of 14.30%. With an upcoming 2018 free cash flow figure of €135.20M, the target price for WDP is €97.04. This means the stock is currently trading at a relatively fair value. Also, comparing WDP’s current share price to its peers based on its industry and earnings level, it’s trading at a fair value, with a PE ratio of 9.5x vs. the industry average of 12.49x.

In order to invest in WDP, you have to believe in its growth story, which is a strong one. However, my main reservation with the company is its financial health, as well as the possibility that it is currently overvalued. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I’ve taken my data from.