EO2 SA: cheap French nanocap with good earnings quality
It has been a while since last post. I was busy with other things such as writing a book. I am close to finalizing the Dutch version. But in the mean time I kept buying and selling small stocks. Recently I had a look at a French nanocap: EO2 SA.
Some data at €5.04 per share:
Market cap = 14.3 million USD and Enterprise value = 12.2 million USD.
EV/EBIT = 2, P/E=3, EV/Revenue = 0.25. When extrapolating EBIT from the last half-year reporting period EV/EBIT is about 5.
This stock has a high Piotroski score and excellent multi-year quality metrics. Also Gross Profit/Total Assets is much higher than average.
Volatility is not so high, about average.
Since 2007 the company trades at the Euronext in Paris, with symbol ALEO2. I had a look at the half year report published in December 2023 and at the consolidated annual accounts over the year ending at 28 February 2023.
The balance sheet is strong with a high current ratio, lots of cash but also substantial non-current debt. Tangible Assets/Tangible Book is 2.0. I do not see any financial distress here.
The business is mainly manufacturing wood pellets for use as fuel. Some people see this as a green investment. It depends on the source of the wood, which I could not find. About 15% of the revenue is from “energy services”: financing and installing boilers, fuel delivery and maintenance. This business segment is just unprofitable. Furthermore the company owns 26% of a hotel. It bought this stake at the end of the coronacrisis citing a need for diversification.
I did a lot of effort to find who owns the shares. Unfortunately I could not find this information. I suppose the two co-founders own the majority of the shares.
In the year ending on 28 February 2022 the three managers, including the two co-founders, together earned €350k including €100k in bonuses. I have not found any other related party transactions.
Although I do not think the company has paid dividends management is shareholder friendly. During last financial year (ending February 2023) and the year before the company did substantial repurchases.
All in all I like this stock much for its excellent statistical properties, including indications of excellent earnings quality and a strong balance sheet. I think this company is well managed with good governance. I consider management shareholder friendly for its repurchases. Finally moderate stock price volatility suggests there are no hidden problems.
Disclosure: Long EO2 SA.