Balta Group: Enough black cats on the carpet

Published on 16 December 2019 at 12:06

Balta Group is a producer of textile floor coverings in 4 segments: Rugs (area rugs for indoor and outdoor use), Residential ( wall-to-wall carpet and carpet tiles for private use), Commercial (wall-to-wall carpet and carpet tiles for commercial use) and Non-Woven (needle felt, carpet backing and technical non-wovens). Balta Group has almost 4.000 employees and exports its products to 139 countries worldwide.

On December 13th, Balta announced that, as a result of the US Rugs business performing below expectations, Balta expects its 2019 full year Adjusted EBITDA to be below last year by "mid-to-high single digit €millions".

This warning is the last one in a row of bad news releases for Balta since it went public in June 2017. In the less than two and a half years since the IPO, the share price dropped with a whopping 80% from €12,51 to €2,64 today:

When analysts, in 2017, expected the share price to increase to €15 after the IPO we were skeptical about the analysts. When the analysts stated, in the beginning of 2018, that a share price of €10 was too negative, we were skeptical about the analysts. Now, in 2019, we are skeptical about Mr. Market. When we look at the underlying value of the company, a share price of €2,64 means that today Balta Group is priced at 0.15 times Sales (P/S), 0,38 times Book Value (P/B), 3,7 times Earnings (P/E) and 2,2 times Cash Flow (P/CF).

As you know by now, we strongly believe we cannot predict the future. We also believe we cannot understand what drives Mr. Market. However, we suspect that such a negative interpretation of Balta's value is probably due to the fact that most IPO (and early) buyers of Balta shares have now been so disappointed by the negative news that they have simply dumped their shares, no matter what.

As we strongly belief we cannot say anything intelligent about the future, we have no idea what the future of Balta Group will bring - certainly not the short-term future. However, we think the share price is now so low compared to fundamentals (turnover, profit, book value, cash flow, etc.) that there is a big margin for error and thus that Balta Group is interesting to consider for inclusion in a portfolio of low valued companies.

 

Disclaimer: as unintelligent investors we are only certain of one thing and that is that we cannot predict the future of stock prices. Under no circumstances this analysis should be seen as an advice or recommendation to buy, hold or sell.


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