Conzzeta AG (VTX:CON)’s outlook is one of buoyant sentiment as it continues to post exciting top-line revenue growth. I’ve written a brief commentary on the key things you’d need to believe in order to be long CON.
Firstly, a quick intro on the company – Conzzeta AG, through its subsidiaries, provides solutions in sheet metal processing, sporting goods, foam materials, graphic coatings, and glass processing worldwide. Started in , it operates in Switzerland and is recently valued at CHF2.48b.
There’s no doubt CON is delivering on its promises, with a soaring annual revenue growth of 22.55% , and a bottom line growth of 39.04%. Over the past five years, revenue has risen 2.62%, congruent with larger capital expenditure, which most recently reached CHF29.20m. CON has been reinvesting more into the business, leading to expected return on investment of 12.12% in the next three years, according to the consensus of broker analysts covering the stock. Net income is expected to grow to CHF106.43m in the upcoming year, outstripping the industry average growth rate of 20.80%. In addition, over the next five years, earnings are predicted to rise at an annual rate of 13.78% on average. These figures illustrate CON’s strong track record of producing profit to its investors, with an efficient approach to reinvesting into the business, and a buoyant future compared to peers in the sector.
Investors tend to get swept up by a company’s growth prospects and promises, but a key element to always look at is its financial health in order to minimize the downside risk of investing. Conzzeta has an enviable balance sheet, with high levels of cash generated from its core operating activities (9.6x debt) able to service its borrowings. Furthermore, CON’s debt level is at an appropriate 1.09% of equity and has been declining over the past five years from 1.51%. CON also generates a sufficient level of earnings which amply covers its annual interest payment 67x. Management exhibits strong capacity to effectively utilize capital, increasing my conviction of the sustainability of the business going forward. CON has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. CON has managed its cash well at a current level of CHF399.10m. However, more than a fifth of its total assets are physical assets and inventory, which means that in the worst case scenario, such as a downturn or bankruptcy, a significant portion of assets will be hard to liquidate and redistribute back to investors.
CON currently trades at CHF1,200 per share. At 2.07 million shares, that’s a CHF2.48b market cap – which is about right based on a 5-year cumulative average growth rate (CAGR) of 3.68% (source: analyst consensus). With an upcoming 2018 free cash flow figure of CHF56.00m, the target price for CON is CHF1,207. Therefore the stock is priced around its fair valuation. Furthermore, comparing CON’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 29.64x vs. the industry average of 26.17x.
CON has a strong investment case. The stock is appealing because of its strong fundamentals – financial health, future outlook and track record. However, at its current share price, right now may not be the best time to invest. 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.