Thread by @FRValue

This is one of the most unknown 100+x bagger (still) listed on Euronext Paris. A mostly untold success-story made in France, combining engineering savvy, family ownership and a relentless focus on the long-term as well as client needs. Gerard Perrier Industries (GPI): a thread.

1990. François Perrier joins the company founded by his father Gérard 23 years earlier. He actually joins Geral, a subsidiary of GPI manufacturing custom-made electric and electronic equipment.

Born in Lyon, Francois graduated in mechanical engineering before getting his MBA in the US. After his military service, he went back to the US to manage the international sales of a company based in San Diego.

He then returns to France. After ten years leading Geral, he joins the HQ but the relationship with his dad is tense and he will leave GPI after only 2 more years in order to run another company in Burgundy.

When his father gets sick in 2008, Francois is back at the helm of GPI which he will co-lead with Grégoire Cacciapuoti. The family holding, SFGP, owns 51% of GPI. SIPAREX, a Lyonnais PE fund, has been instrumental in putting together an OBO in 2005 and has a 32.5% stake in SFGP.

SIPAREX is going to exit SFGP in 2010 but will be back in 2012. More on that later. In 2004, GPI was made of SOTEB, the historical core of the group, and Geral. Its revenues were €55m for a net income of €3.5m.

GPI had then already enjoyed a spectacular growth. Between 1997, year of its transfer from the OTC to the « second market » of the Paris stock exchange, and 2004, its revenues had more than doubled and its net income almost tripled. But the best was yet to come.

GPI, through a combination of organic growth and acquisitions (Bontronic in Germany ; Ardatem, Seirel, Sera, Idem and Technisonic in France), is about to grow much larger over the next years. Its foray into nuclear plants maintenance will be amongst its savviest moves.

The strength of its business model is that a huge chunk of its revenues is recurring (installation/maintenance of electrical equipment) and the business is overall relatively capital-light, which results in an extremely high ROIC/ROE (close to 20%).

This acquisition strategy was made possible by the return of SIPAREX as a shareholder of the family holdco SFGP in 2012. SIPAREX was bought out in 2017 by AMPERRA (a new family holdco), which is now 100% controlled by the Perrier/Cacciapuoti and in turn owns 54% of GPI.

In 2019, GPI had revenues of €211m and a net income of €14m with €32m in net cash on its balance sheet. Still based a few kilometers east of Lyon, it is a leader in automation and electrical equipments for multiple industries. It is also well positioned for Industry 4.0.

GPI’s core values include: a growth under control and profitability first. A special emphasis has also always been put on hiring and retaining top-notch talent as well as focusing on the long-term.

This sound culture and results are reflected in the share price trajectory, which has increased nearly a 150-fold between its low of 1993 and its peak in 2020. GPI’s market capitalization is €226m as of today. Still a microcap with a lot of potential and a reasonable valuation.

Ex-cash, GPI enjoys a PE of 13.9x, i.e. an earnings yield of 7.2%. With average 5-year payout of 40% and ROE of 19%, it’s not completely unreasonable to expect an EPS growth of 5-10% and therefore a total return well in excess of 10% p.a. for at least a few years.

Of course, the COVID-19 pandemic will hurt 2020 results but the company and its culture have a demonstrated resilience and the rock-solid balance sheet is a key asset to weather such a crisis.

In terms of capital allocation, GPI still needs to pay a sizable dividend to its shareholders as AMPERRA must repay the senior debt used to take out SIPAREX in 2017. It repurchased ca. 7% of its own shares (still not cancelled) during that transaction.

I have been a shareholder of GPI for a little while and expect, if things go well, to hold this gem of a company / stock in my portfolio for a long time.

« Notre société durera au-delà des hommes qui l’ont créée et de ceux qui la composent aujourd’hui. »
« Our company will outlast the men who created it and those who form it today.». Gérard Perrier

The return of SIPAREX in Dec. as a core shareholder of AMPERRA (family holdco and majority-owner of $PERR) is a rather good omen of things to come. The third Perrier generation is about to take over with more acquisitions and digitization to be expected.
siparex.com/wp-content/upl…

Based on the 2019 figures, I bought shares on average at an ex-cash FCF yield of nearly 9%. Notwithstanding the 2020 results penalized by the COVID pandemic and given the expected growth, I expect a nice return over several decades!

Like $PREC in a different industry, $PERR is also well-positioned to benefit from the digitization, SaaS and, more generally, “industry 4.0” trends. I believe valuation for such industrial small gems do not take this into account...yet.

On that same topic, I highly recommend you read Citi’s “Factory of the Future” report published in July 2019. Compelling.

Given the extent of the synergies with a player such as $SU (as well their subsidiary $IGE, whose software is used extensively by $PERR), I wouldn’t be surprised if, at some point, both players decided to merge.

Still overlooked and underrated by investors as it looks expensive at first sight, $PERR should continue to deliver an annualized FCF growth of at least 5-7% over the very LT with a ROIC of 15-20%.

It is ideally positioned to benefit from LT structural trends such as automation/industry 4.0, increased electrical/electronic content in capital equipment/industrial processes and growth in renewables/nuclear energy sectors.

It can also act as a consolidator in France (as it has done historically and this year in particular) and neighboring countries in a fragmented industry while also enjoying recurring maintenance revenues currently representing 2/3 of its sales.

Investors should also derive significant comfort from a succession plan that is now well on track with Lucille Perrier, whose background is quite impressive, now a board member while also heading the new markets division.

There are few such micro/small caps in France combining quality, resilience, long runway and generational compounding at a price that remains reasonable imho.

If some of you have been long-term shareholders in this company and/or are sitting on a 10x, 20x or even 100x+ GPI bagger, feel free to reach out and exchange!