Trigano-TRI.PA
French Mid Cap Play
Disclaimer: This newsletter is not financial advice; it is for educational purposes only. Please DO NOT take this newsletter as a buy or sell signal.
Trigano Fundamentals:
Below is a checklist I normally use when analysing a company’s fundamental health. If the company meets my criteria, it will be colour-coded in green, and if it fails to meet my criteria, it will be colour-coded in red, which means I need to investigate further and ask myself why this is the case.
As you can see below, there are five red boxes, and I am going to explain each one:
5-Year Average Profit Margin- When analysing a company, I look for a 5-year average profit margin of over 10%. Trigano operates in an industry where margins can fluctuate based on several factors, such as the demand for recreational vehicles, global supply chain dynamics, and competition within the sector. Additionally, seasonal sales trends and changes in consumer preferences are important considerations, so I will not penalise the company because this is just the nature of the industry.
Shares Outstanding- When analysing a company, I prefer the number of shares outstanding to remain stable or decrease over time. In the case of Trigano, their shares outstanding have increased by 0.52% over the last five years. This level of dilution is minimal, and I am not particularly concerned about it.
Free Cash Flow- Free cash flow (FCF) is a financial metric that measures the cash a company generates from its operations after accounting for capital expenditures. Companies can use their cash flow in various ways, including reinvesting in the business, paying dividends, reducing debt, or repurchasing stock. When free cash flow is negative, it typically indicates that a company is spending more on capital expenditures than it earns from its core operations. In the case of Trigano, the company recently reported negative free cash flow due to supply chain issues stemming from changes in approval standards. To help its distributors manage excess inventory, Trigano retained some of these inventories on its balance sheet, which temporarily increased working capital requirements.
Current Price To Free Cash Flow- Trigano has a negative price-to-free cash flow ratio, primarily because the company has not generated any cash flow in the current financial year. The reason for this is noted above.
Free Cash Flow Yield- Free Cash Flow Yield gives investors another way to assess the value of a company. Free cash flow yield provides a better measure of a company’s performance than the PE ratio because earnings can be manipulated based on accounting rules. The most common way to calculate free cash flow yield is free cash flow divided by the company market cap. Generally, the lower the ratio, the less attractive a company is as an investment because investors are putting money into the company but not receiving an excellent return. A high free cash flow yield implies a company generates enough cash to quickly satisfy its debt and other obligations, including dividend payout. Trigano currently has a negative free cash flow yield, primarily because the company has not generated any cash flow in the current financial year (as noted above). To arrive at a rough estimate of what free cash flow yield Trigano would be trading at if the company were to maintain its previous performance, it would have a free cash flow yield of 6.7%, based on its current market capitalisation of €2.4 billion and a five-year average free cash flow of €165 million.
Business Overview:
Founded in 1934, Trigano is a French company specialising in outdoor leisure. It has established itself as a prominent manufacturer of caravans, camper vans, motorhomes, and trailers, catering to travel enthusiasts and outdoor adventurers. Trigano combines quality craftsmanship with innovation, ensuring each product is designed for comfort, durability, and ease of use. With a mission to enhance camping and outdoor experiences, Trigano offers various models that cater to different preferences and lifestyles, whether for families, couples, or solo travellers. Besides its vehicles, Trigano provides an extensive selection of camping accessories, including tents, awnings, furniture, and cooking gear, establishing itself as a complete resource for outdoor experiences. Trigano also provides after-sales services like maintenance and repairs to enhance the longevity and functionality of their vehicles.
Business Segments:
Motorhomes- Motorhomes are the largest segment of Trigano's business. As a key player in Europe, Trigano offers a variety of innovative vehicles that provide excellent value for money. The company has production facilities in six countries(France, Italy, Germany, England, Spain, and Slovenia). Trigano has developed a diverse portfolio of 27 brands, which are distributed through reliable networks of reputable distributors. These distributors have built strong relationships with the company based on loyalty and trust over the years. Trigano's motorhome customers primarily include active seniors aged 55 to 65, who are discerning buyers with the time and resources to enjoy this leisure activity fully.
Caravans- For more than 50 years, Trigano has specialised in caravan manufacturing. The company operates across all market segments, featuring six prominent brands( Adria, Caravelair, Sterckeman, La Mancelle, Jamet, and Trigano).
Mobile Homes- Trigano provides a diverse selection of outdoor accommodations, from canvas structures to mobile homes, catering to professionals like campsites and tour operators. Its products are marketed under the Adria and Résidences Trigano brands.
Accessories For Leisure Vehicles/ Services- Trigano operates in six countries and has a commercial presence in ten. The company provides a diverse range of accessories and spare parts for equipping and maintaining leisure vehicles. It is active in the European accessories market through twelve subsidiaries and numerous distribution networks. Trigano offers its partners a variety of high-quality tools and services, including logistics, training, online support, merchandising, financing, and operational marketing.
The Distribution Of Leisure Vehicles- With over 50 years of experience in the leisure vehicle industry, Libertium offers its customers the opportunity to fulfil their desire for adventure. The company specialises in the sale of both new and used vehicles, as well as financing options, accessory sales, installation, and after-sales service. Their range of services is continually expanding and adapting to better support customers throughout their purchasing and ownership experience.
Trailers- As Europe's leading trailer manufacturer, Trigano designs, manufactures and markets luggage and utility trailers for private and professional customers. With eight production sites and a vast network of dealers (general and specialist distributors, dealers, and the Internet), Trigano offers a wide range of innovative and competitive models.
Garden Equipment- Trigano offers a wide variety of products, such as porticoes, swings and slides, open-air pools, carports, and garden sheds, which are available at supermarkets and online.
Camping Equipment- With over 50 years of experience in manufacturing camping equipment, Trigano offers a complete range of tents and camping furniture for individuals, communities, and outdoor hotels.
Management:
When evaluating management, I judge the CEO based on several factors, such as experience, capital allocation skills, and Incentives. In this section, I will discuss whether management incentives are aligned with shareholders.
Experience- Stéphane Gigou has been the CEO of Trigano since September 2020. Before becoming CEO, he served as the deputy managing director of the company from July 2020 until he stepped into the CEO role. Stéphane Gigou graduated from La Sapienza University in Rome, where he earned a degree in Economics and Trade. His professional background is primarily in the automotive industry, where he has accumulated extensive experience over the years. Stéphane Gigou began his career at Renault, a well-known French automotive manufacturer, where he developed a deep understanding of the sector. He then further enhanced his expertise at Fiat Chrysler Automobiles, serving as the general director for Fiat Professional. After a significant tenure in the automotive sector, Gigou transitioned to Trigano, bringing with him a wealth of knowledge and a strong track record in management and operational excellence.
Below is an image illustrating the current experience of Trigano board members:
Capital Allocation- Capital allocation is very important when judging management because I want them to create value for shareholders, not destroy it. So far, Trigano has done a great job with capital allocation. They are providing value back to shareholders by reinvesting in the business to improve customer experience and paying dividends.
Trigano currently offers a dividend with a yield of 4.18%. However, this dividend is not supported by the company's current cash flow, as it consumes an unsustainable -901% of their trailing cash flow due to the lack of cash flow generation this year. Nevertheless, the dividend remains sustainable through earnings, accounting for only 18% of the company’s profits.
Incentive- This is important because if the current board is buying shares of their own business, it indicates that management believes the stock is undervalued and is confident in the company’s long-term prospects.
As you can see below, we have zero buy and sell orders from insiders.
Bull And Bear Case:
Bull Case
Bull Case- The first bull case is strong brand recognition. Trigano has established itself as a leading manufacturer of recreational vehicles and camping equipment in Europe. The brand is known for its quality and reliability, providing a significant advantage in attracting customer loyalty.
Bull Case- The second bull case is a diverse product range. Trigano offers a wide variety of products, including motorhomes, caravans, tents, and trailers, which cater to different customer preferences in the outdoor leisure market. This diversity enables Trigano to capture a larger share of the market and reduces its dependency on any single product line.
Bull Case- The third bull case is an established distribution network. Trigano has established a strong distribution network throughout Europe, which is essential for effectively reaching customers. This established network serves as a barrier to new market entrants, providing a significant competitive advantage.
Bear Case
Bear Case- The first bear case is the company's vulnerability to economic downturns. The recreational vehicle (RV) industry, where Trigano operates, can be highly cyclical. In times of economic downturn or recession, discretionary spending on leisure activities and purchases may decline significantly. If consumer confidence wanes, demand for Trigano's products could drop, adversely affecting sales and profitability.
Bear Case- The second bear case is Competition- The RV and outdoor leisure market is highly competitive, with many players vying for market share. If Trigano does not differentiate its products or if rivals provide more innovative and cost-effective options, Trigano may lose market share, negatively affecting sales.
Bear Case- The third bear case is Interest rate sensitivity- When interest rates increase, financing costs may rise, making it more expensive for consumers to purchase RVs. Higher borrowing costs can reduce consumer demand, impacting Trigano's sales.
Valuation:
In this section, I will discuss valuation. Using some basic metrics, I will compare Trigano to its industry rivals and determine whether the company is cheap relative to its peers. Then, I will value Trigano using a discounted cash flow model to determine a price I am willing to pay based on its expected growth rate and my desired return of 15%.
When comparing Trigano and Knaus Tabbert AG, both score 3/5. However, I believe Trigano is managed more effectively based on several factors, such as:
Product Range- Trigano provides a wide range of products, including motorhomes, accessories, and camping gear. In contrast, Knaus Tabbert offers a selection of luxury and mid-range caravans, such as the Knaus Sport and Knaus Tabbert Art, which are known for their stylish interiors and innovative layouts.
Quality and Durability- Trigano products are generally reliable but may use simpler materials compared to their higher-end counterpart. They offer good durability for recreational use and are primarily designed for budget-conscious consumers. In contrast, Knaus Tabbert is known for its outstanding build quality and the use of premium materials, ensuring longevity. Their caravans and motorhomes undergo rigorous testing for durability. Additionally, Knaus Tabbert often provides extensive warranties, reflecting their confidence in the durability of their products.
Pricing Strategy- Trigano offers products at generally modest prices, making them accessible to a broader audience, including first-time buyers and occasional campers. In contrast, Knaus Tabbert products are priced higher due to their premium quality, advanced features, and innovative designs. This pricing strategy reflects the brand’s commitment to delivering a superior camping experience.
Distribution Network- Trigano has an extensive distribution network throughout many European countries, allowing it to adapt its strategy to local market trends and customer preferences. In contrast, Knaus Tabbert primarily operates in Central Europe but is actively seeking to expand its presence in key markets such as Scandinavia and The UK.
As you can see, based on my conservative assumption, Trigano is looking to grow mid-single digits over the long run, so I went conservative and assumed a 4% growth in the first 1-3 years, then the growth will slow down to 1% 4-6 years out. In my assumption, I also went with an exit multiple of 8x earnings, which is below the historical average at which Trigano has traded. Based on my assumption, I have come to a buy price of €128.93 compared to the current stock price of €127.30, which means right now, Trigano is trading below intrinsic value.
Thanks for reading my newsletter on Trigano. Disclaimer: This newsletter is not financial advice. This is for educational purposes only, so please DO NOT take this as a buy or sell signal.
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