Bijou Brigitte is a Germany-based fashion jewellery and accessories store. We found this company listed in the General Standard segment of the Frankfurt Stock Exchange in Germany. By downloading the general standard segment we were able to scan and highlight a few companies, that although were beaten down during the pandemic, are still solid businesses. If you're interested in creating your own spreadsheets to scan and analyse stocks, check out an article we wrote on our tools here.
Bijou Brigitte (BIJ)
Bijou Brigitte manufactures, imports and distributes fashion jewellery, gold and silver jewellery, fashion accessories and complementary products. It operates through numerous subsidiaries mainly in Europe, but also in China and the Middle East. Since the pandemic began Bijou Brigitte has suffered. The stock lost up to 60% of its value and it has barely recovered since. However, it is one of our highest conviction investments yet. At a current 48% discount to its pre-pandemic stock price, we think it provides incredible value for those patient enough. Let's get into the details and the company’s financials.
What’s great
Profit
High gross profit margins at around 80%
€357m in assets and a return on assets of around 7%
Cash and equivalents of €110m
Company
EV/EBITDA looks cheap at 6.3x, which is cheaper than most years
Low expense on Sales, General & Administrative at around 17% of gross profit
Low depreciation at around 5% of gross profit
PPE costs are low and can be covered with just 4 years earnings
Carries treasury stock which seems to be increasing over time
Debt
Hardly any debt and a low debt to shareholder equity at 0.74
Low interest expenses
What’s okay
Net earnings as percent of revenue is low, at around 7%
Bijou Brigitte uses around 65% of its earnings for capital expenditure, which isn’t great but not bad either
What isn't great:
Revenue has barely changed over the last decade and has roughly contracted at 1% per year
EPS has gone down and since stabilised at around €3.2 per share
Retained earnings has gone down at an average of 2% per year
Low return on shareholders equity at around 8-9%
Revenue
When looking at the financials below, we can see that revenue has barely moved in the last decade. If we exclude 2020, we can in fact see it has contracted at roughly 1% per year. This obviously isn’t great but it is one of the few negatives. On the flip side, we can see that there’s pretty much no debt and with taking the current stock price its EV/EBITDA ratio is at a low 6.2x.
Cashflow
Let’s take a look at the free cash flow. We can see quite a stable free cash flow being produced. The number of shares has not risen and capital expenditure has gotten lower over time. This enables the company to have a decent and perhaps a growing FCFE/yield every year.
Forecast
For our EV multiple forecast, we can assume EBITDA will get less and less over time. Let’s assume an improvement as we slowly get out of the pandemic, but then a slow decline of 0.5% annually. This gives us a target stock price of €28:
For our FCFE forecast, although there is an average FCFE/share of 4.13, let’s assume a conservative FCFE/share of 2.75 in line with prior years. We’ll also use the same negative growth rate as above. This gives us a target stock price of €42.
Averaging out the two forecasts gives us a share price of €35 by 2030. Using the FCFE and EV models, we model the future share price at €37.73 in 2030.
With a share price at €37.73 in 2030, this equates to an IRR of 15% which is market beating. We’re not using aggressive numbers and we could see this easily outperforming an IRR of 15%, particularly in the short term.
Why it’s great value
Although Bijou Brigitte could produce market beating returns, it may not seem like a special business. However because of the value of it and the cash flow it produces, the downside is little and is therefore a unique opportunity. Let’s go through some of the details that made us arrive at this perspective.
It’s predictable
The business is clearly not growing over time and is in fact getting smaller over time. But it is clear what future revenue may look like due to its consistency. It's perhaps the opposite of Tesla which has a marketcap of 1 trillion dollars, comparable to Apple’s 2.45 trillion valuation. Yet Apple has a net income of 57 billion dollars while Tesla has a net income of 0.71 billion dollars. So while Apple trades at 36x net income, Tesla trades at 1430x net income. Tesla certainly has high expectations to meet in the near future. With Bijou Brigitte, we see a predictable business that has a market cap of 207 million but a net income of 25 million, so it trades at just 8.2x of income. We’re confident the company will create cash flow overtime that will be worth more than what the company is at the moment.
A cheap business
With cash and equivalents of €110 million, Bijou Brigitte looks really cheap. Its cash and equivalents alone are half its market cap and more than 4x its net income. We think you get a lot for what you pay for, while the business has little downside. While this isn’t exactly a Warren Buffet and See’s Candy scenario, it’s not too far from it.
While Bijou Brigitte may not have a strong reputation and brand recognition, in terms of value it is similar. In 1972, Buffet bought See’s Candy, which generated $4 million in pre-tax profit that year, for $25 million (6.3x pre-tax earnings). Bijou Brigitte generates $34 million pre-tax profit and is available through shares at €207 million (6x pre-tax earnings), which makes it slightly cheaper than Warren’s 1972 purchase, but perhaps with less brand recognition and not as strong of a business.
It hasn’t recovered yet, unlike other stocks
Take a high street retailer like H&M and we can see the stock has exceeded pre-pandemic levels. It does not make sense for one high street retailer to exceed these levels, while others don’t, so this may be due to the exchange and much smaller market cap of Bijou Brigitte. We think it will get there in time.
Overall, we are happy to own stock in Bijou Brigitte. It seems like a prudent investment which is with less excitement but more surety.
Giles Capital confidence score: 9/10
Look to buy and hold for the medium to long term until a solid recovery has happened and has been reflected in their balance sheet.
Interested to do your own analysis?
Check our GCS tool that helps you pull in data so you can do your own analysis in Google Sheets. This is what we use to analyse companies financials statements.
Disclosure:
We have held a position in Bijou Brigitte since early summer.
Disclaimer:
This is not investment advice. Our content to be used for informational purposes only. It is important you do your own analysis before making any investment based on your own personal circumstances.
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Thanks for the idea. Bijou Brigitte had a strong year in 2019. Do you know the reason for this?
https://trends.google.com/trends/explore?date=all&geo=DE&q=Bijou%20Brigitte