What is Newlat Food?

Newlat is a small Italian company in terms of market capitalization but not in relevance in the European agri-food sector. Founded in 2004 within the Italian Parmalat group and controlled by the Mastrolia family since 2008 (who took advantage of its insolvency situation to take over the €36 MM debt and acquire the company). Newlat, at its origins specialised in Milk products and pasta. However, over the years, it has grown through M&A and is now present in seven segment of products and more than 60 countries, with annual revenue exceeding €800 MM (our estimation for FY23). Since its IPO in October 2019, it has been listed on the Milan Stock Exchange with the ticker NWL.MI

Brief history

The Mastrolia family has been involved in the agri-food sector for several generations. In 1929, they began procuring milk from local producers in Salerno (Italy) and supplying it to Salerno milk plants, and in the 1960s, they expanded their operations when they started milk cleaning and refrigeration treatments. Currently, they own 60% of the group's shares.

If Newlat, under the leadership of Angelo Mastrolia, is characterized by something, it is that M&A is in its DNA. Over the years, Newlat has developed a strong track record in M&A, often acquiring unprofitable industrial assets and restructuring them. They have been involved in more than 10 acquisitions since their inception, diversifying their business in terms of both countries and segments. From their origins closely tied to the dairy and pasta segments in Italy to the seven segments they have today.

They entered the German market in 2013 with the acquisition of assets from Ebro Foods and the British market in 2021 with the purchase of Symmington. Italy remains their primary market, accounting for almost half of their sales, but Germany and the UK represent 20% each.

The acquisitions they have made since going public have been funded with IPO money (€75 MM) and the issuance of shares (Centrale di Latte, 2020). Additionally, they also took the opportunity to issue a €200 MM fixed-rate bond (2.625%) in February 2021 for acquisitions (which has not been spent). In recent months, their margins have been significantly affected by disruptions in the supply chain and inflation, a situation that appears to be turning around. They currently have a market capitalisation of €280 MM and an enterprise value of €350 MM.

Today, we analyse its numbers, growth strategy, main risks, and company valuation in detail to understand the size of the potential opportunity that Newlat currently presents. To do this, we also focus on aspects such as management, financial structure, procurement,….

Main markets and segments

As we mentioned, thanks to the mentioned acquisitions, Newlat's main markets are Italy, Germany, and the United Kingdom. However, each country is characterized by a different product mix (due to the type of acquisitions made and competition characteristics), which logically have different margins as well as the use of different sales channels.

Italy, whose weight has decreased in recent years despite representing 52% of sales, focuses mainly on milk and pasta (lower margins), largely due to the acquisition of Centrale del Latte (details later).

In Germany, pasta represents almost all of the country's sales (90%). Newlat is the second pasta brand in Germany (it has a very strong private label and almost everything it sells in Germany is under its own brand - We believe Newlat has higher margins in German vs Italy in this segment).

In the United Kingdom, the opposite occurs; more than half of the sales are made with private label products, affecting margins. Working on convert one of its ready meals plant into one for pasta.

Apart from these three main countries, they serve more than 60 countries (including the US, Spain, etc.), with France standing out thanks to its latest acquisition in 2022 (EM Foods).

By segments, they are present in Milk Products, Pasta, Instant Products, Dairy Products, Bakery Products, Special Products, and Others.

Among them, Milk Products stand out (more than 60% coming from the acquisition of Centrale del Latte) . In terms of margins, Bakery Products is the segment that by far contributes the highest margin to the group, followed by Dairy (not in the LTM) and Special Products. On the other end of the spectrum, Milk Products, Others, and Instant Products (although the latter usually has margins around 7.5%, in the LTM, it has been affected by the impact of inflation in the UK and plant utilisation, details in later sections).

Acquisitions and Growth

FULL ARTICLE ON our Substack: https://open.substack.com/pub/moram/p/newlat-investment-thesis-2q23-results?r=94dqf&utm_campaign=post&utm_medium=web

Hi there,

We are updating the investment thesis of one of our best performing ideas in 2023 - as there are several important points to address - . We are talking about an Australian small cap company called Vysarn Ltd $VYS.AX which share price has rallied >110% since we published the thesis 6 months ago.

We cover:

Vysarn is a vertically integrated company with 4 business divisions providing water services in Western Australia. With a market capitalization of A$ $79M, this micro-cap is trading around 2024’s (FY ends on 30th June) 4.5x EV/EBITDA and less than 7x NPBT. Vysarn is experiencing high growth and entering more profitable and less capital-intensive segments. The Chairman of the company already led a company that multiplied the value of their share x37 in five years. Vysarn´s management is highly experienced in the sector and in M&A.

Core business (hydro dewatering) revenues are backed by multi-year contracts with tier-one iron ore producers. This segment is expected to contribute around 14-16M EBITDA per year.

Since the start of the operations in Sep 2019, they had a clear route of integrating the business vertically, acquiring compatible businesses with their core division. The diversification into more capital-light segments is starting to translate into higher valuation multiples.

After an H1 negatively affected by rig maintenance, on Friday 25th August they just reported the FY2023 results which were proof of the level of revenues and baseline earnings the company can achieve.

Possible catalysts for the share price:

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Peter Hutchinson (current Chairman) bought MHM Metals, an ASX unlisted company, and renamed it as Vysarn in late 2017.

In April 2019 they agreed to buy drilling assets to Ausdrill for $16 million. In September, they relisted Vysarn on the ASX. With this funding ($7M from relisting + $8.8M from debt), Pentium Hydro, one of the subsidiaries of Vysarn, acquired the pre-agreed 10 drilling rigs plus some ancillary equipment (casing rotators, air compressors, rig carriers, etc.). The fair value of these assets was seven million higher than the purchase price.

A few weeks after the relisting, they signed the first contract to provide drilling services. Since then, they have moved from short-term contracts to longer-term ones with tier-one clients. Driven by strong demand, they bought other two drilling rigs. During these years they have accomplished almost full utilization rate during these years.

In November 2021, they completed the acquisition of Yield Test Pumping (Pentium Test Pumping) at less than 4 times EV/EBITDA, starting the company's vertical integration. Before the acquisition, Yield had already signed a two-year contract with Fortescue Metals Group (FMG) to provide test pumping services.

Only three months later, in February 2022, Vysarn launched their consulting division (Pentium Water) organically. And in the summer of 2022, they acquired ProEng for $2.6 million (3x EV/NPBT) entering the Managed Aquifer Recharge (MAR) segment. ProEng is one of the more clear proves of management's ability in M&A, with less than one year consolidated, once consolidated, ProEng has achieved more than $1.5 million in NPBT.

The latest movement by the company was to establish a 50/50 Joint Venture to enter the fluid containment solutions with Concept (a leader in this business in Eastern Australia).

Full thesis + CEO interview + FY23 results analysis --> https://moram.substack.com/p/vysarn-special-investment-thesis

Today, we want to analyze a peculiar case involving two companies that have practically more cash than market capitalization and no debt (except for leases). These companies are related because one is a spin-off of the other and the latter holds a 44.35% ownership stake in the former.

Twin Vee PowerCats ($VEEE) is a company that manufactures recreational power sport boats and has been in operation for over 25 years. However, it went public recently (August 2021), raising $18 MM to finance its growth. Subsequently, it spun off one of its three business lines, electric boats (Forza X1 $FRZA), in August 2022, raising $15 MM.

However, what has caught our attention about both companies is not just that, but the fact that both have significant catalysts on the horizon.

We have read all the available information about both companies and have conducted a comprehensive analysis (we believe there is nothing similar on the internet) to determine the size of the opportunity, potential red flags, critical aspects to monitor in the coming quarters,...

Before we begin:

$VEEE has 9.52 million shares and a market cap (as of Friday's close) of $16.75 million. Forza, after its capital increase in June, has 15.784 million shares and a market cap of $16 million. As we mentioned, $VEEE owns 44.35% of Forza. In this latest capital increase, $VEEE reduced its ownership of $FRZA from 69%. The reasons were not indicated, but it seems evident that the acquisition of AquaSport in 2Q23 played a role.

Warrants and main shareholders will be discussed in the Capital Structure section

Before delving into the details, from an initial glance, we can see that this company is clearly in an expansion phase, focusing on revenue growth and expanding its network of dealers and production. Currently, it has one boat manufacturing facility in production, the second one is entering production, and the third is set to begin operations in 3Q24. We will analyze each of these individually later on.

Twin Vee has 3 business lines:

Acquisition structure: Twin Vee acquired AquaSport™ boat brand and manufacturing facility (including related tooling, molds, and equipment to build five Aquasport models ranging in size from 21 to 25-foot boats for $3.1MM. However, Twin Vee has the option of paying a $22,000 monthly lease (with $16,000 deducted from the outstanding balance) or purchasing the facility at any time during a 5-year period.

For example, if AquaSport buys the facility after 3 years, during the first 3 years, it pays $792,000 ($22,000 per month), and after 36 months, it pays $2.524 million.

Full analysis: https://open.substack.com/pub/moram/p/twin-vee-and-forza-x1-analysis-veee?r=94dqf&utm_campaign=post&utm_medium=web

New Fortress Energy is a fully integrated medium-scale gas-to-power infrastructure provider. The company has positioned itself to take advantage of the increasing role of natural gas to generate power in the foreseeable transition from fossil fuels to renewable energy during the coming 25 years. New Fortress has a presence in the US, Jamaica, Puerto Rico, Nicaragua, Mexico and Brazil

It was founded in 2014 by Wes Edens. NFE cannot be understood without understanding Mr Edens, his CEO, a successful business man who also owns Aston Villa and Milwaukee Bulks. He owns 35% of NFE and has no salary or stock options (Later, we talk about Mr Edens as knowing him has a vital importance to understand the thesis)

In recent years, New Fortress Energy has grown exponentially. Its IPO was in 2019, since then it has grown its revenues 132% CAGR and its EBITDA from -$179MM to $880MM (own calculations, we will discuss this topic later). Currently, its market cap is $5.3Bn and EV $9.95Bn. However, in their core business segment, the terminals, they have suffered from overpromising as the production timings of several terminals have been significantly delayed.

What is most interesting is that these delays have actually made them earn even more money. Since they had committed LNG supply (based on HH), they have sold cargoes in Europe instead of using them in their terminals. Due to the profit margins (TTF-HH) in 2022, the earnings have been enormous

There are tremendous catalysts on the horizon for the depressed stock price, after tremendous organic expansion in Puerto Rico, the growth in Mexico, the upcoming launch of their flagship product (Fast LNG in August 2023 - a potential game changer) and the start of operations in their new terminals in Brazil (Barcarena and Santa Catarina) and Nicaragua, it is expected that they will continue to grow and leverage their entire built infrastructure, reducing their dependence on trading between natural gas markets

Just as New Fortress Energy is a company with tremendous growth and potential, it is equally true that it has many peculiarities, and significant effort is required to analyze it based on the limited information it provides about its contracts. Additionally, careful attention must be paid to details that are present (or absent) in the guidance provided by the company. That is why this entire analysis is based on our own assumptions, after closely following this company since its IPO in 2019. Before analyzing its business model, strategy, management, capital structure, capital allocation, risk, financials, valuation and thoughts about it, let’s have a look at its three operating segments & assets

Upstream - Fast LNG: New Fortress Energy announced in March 2021 the launch of its own offshore liquefaction system - the Fast LNG, to have access to LNG production. This pioneering system, initially comparable to Floating LNG technology (e.g. Golar Hilli), has several advantages over them, such as its fast construction time (about 18 months vs. 3-4 years) and cost ($1 billion). Differently from Floating LNGs, they are designed for shallow water and their capacity is limited to 1.4 MTPA. On paper, the economics are revolutionary (even more so considering the tensions in the natural gas market in 2022 and the possibility of 2/3 difficulties winters in Europe until Qatar new liquefaction coming online 4Q25).

Additionally, this movement gives NFE the advantage of having full control over the natural gas chain and the ability to choose between selling in the market or using it in their terminals depending on the prices. Like Floating LNG, NFE can sign tolling contracts (charging fees for the infrastructure) or produce as a merchant and sell in the market.

Currently, they have their first FLNG near completion, and it will be installed in Altamira (Mexico) - tentatively in 3Q23 - with a capacity of 1.4 MTPA. Likewise, they are starting to produce units 2 and 3, which are expected to be installed in Altamira by the end of 2024. Lakach in Veracruz (Mexico) and Louisiana (US) (pending permits) are the other two potential locations where there are more prospects for deploying new units in the coming years.

In the economics section, we analyze what these FLNGs could mean for New Fortress Energy (according to our own estimates, not those of NFE)

Midstream - Shipping: The company possesses a fleet of regasification units (FSRUs), liquefied natural gas carriers (LNGCs), and floating storage units (FSUs) from the Hygo & Golar Partners acquisitions in January 2021 (more about that later). These vessels(LNGC) enable them to transport LNG and natural gas to various locations worldwide and regasify the LNG (FRSU). They also charter vessels from third parties and their joint venture affiliate, Energos (20%-80% JV with Apollo).

New Fortress has long-term charter agreements for up to 20 years with 10 of the Energos vessels. These agreements will begin after the expiration of the vessels' existing third-party charters. As a result, when the current third-party charters expire between April 2023 and August 2027, Energos will charter the vessels to the company for 20-year terms, ending between December 2027 and August 2042.

Energos is consolidated according to the Equity method, so NFE includes 20% of the company's results in its P&L. However, a portion is eliminated due to intercompany transactions, as several ships are working for NFE.

Note: NFE owns 60% of Golar Mazo (LNGC).

Downstream - Terminals & Infraestructure:

They are the main business of New Fortress Energy, and based on that, they have developed the rest of the components (acquisition of Midstream from Golar and recently the launch of FLNG). NFE owns and operates terminals, usually in developing countries with energy deficiencies. The terminals have a greater significance than the Power Plants, several of which have been sold as a capital rotation strategy that we will discuss later.

NFE is present in Jamaica (the initial country), Puerto Rico, Mexico, Brazil, and Nicaragua. They are also in negotiations in Ireland (and in other countries like South Africa, Sri Lanka... which are not considered in this thesis).

As explained later, once NFE signs a contract that allows them to enter a specific geography with guarantees, they oversize their assets and then grow organically (at a faster or slower pace), as recently happened in Puerto Rico, where they will nearly triple their sales starting in 2023

Full thesis and 2Q23 result earnings (with calculations of real EBITDA, real Capex,... ) on:

Sanlorenzo presented today 1H23 with great results, beating in revenue and EBITDA, a significant rise in the guidance, and some positive notes on the outlook for the next two/three years.

Revenue of €388MM (+12.6% YoY), EBITDA up by 20.3% to €67.7MM, with an almost 100% FCF conversion, and net income of €39MM (+20.3% YoY) despite a highest effective tax rate.

Some notes:

We remain positive in this segment as the penetration rate of UHNWI with a superyacht remains below the long-term average due to the sharp increase in the number of UHNWI and the limited offer.

More detailed analysis: moram.eu/2q23-earnings/

Tomorrow, several companies we cover will be reporting, and our entire team will be providing coverage throughout the day:

Today, Ferretti Group, the super-luxury yacht company that recently had its IPO in Italy, reported very good results, which we also shared here:

Ferretti Group just reported 1H23 results, which are quite good: €580MM Revenue, 14.7% EBITDA margin (up 120bp), Net profit €40.9MM (up 36.9% YoY).

Some comments:

We have the theses for all these companies on our website and Substack if you want to take a look

Hi There,

Today, we are sharing the analysis of Intred, an Italian small-cap company that competes with Unidata (investment thesis published a few weeks ago). We believe it is very interesting both to gain a better understanding of the sector and to make a comparison with Unidata.

Also, as we mentioned last week, we are going to publish our analysis and comments on the results of all the companies we follow (analysis published in the last 12 months) and others that are on our radar. Today we share we are sharing the 5 that reported this week . The objective is to cover almost 40 companies among the entire team in the coming weeks.

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MarineMax $ HZO

Record revenue in 3Q23 was $721.8 million (+4.8%), mainly due to the acquisition of IGY Marinas in Oct-22. However, Net Income decreased to $46.5 million (-35%). Gross profit margin was 33.8%, which decreased 50 basis points from 34.3%. SG&A expenses represented 23.4% of sales compared to 20% in 3Q22 (this continues to be one of the main points we dislike about $HZO). As we mentioned, interest expenses also rose significantly (from $1 MM in 3Q22 to $14 MM this quarter).

MarineMax narrowed/confirmed its fiscal year 2023 guidance for adjusted earnings to a range of $5.10 to $5.50 per diluted share, compared with a prior range of $4.90 to $5.50. Adjusted EBITDA guidance was also narrowed to a range of $225 MM to $245 MM, compared with a prior range of $220 MM to $245 MM. (We understand this movement as a confirmation of its guidance)

Some comments:

Thoughts:

After 2 consecutive quarters of lowering the guidance, the market has taken this quarter's numbers well. We are concerned that while the gross margin has increased by 3%, SG&A expenses have gone up by 20% (apart from the interests, but this has been a trend across the industry and is inherent to the cycle). What we don't like at all is that inventories have increased from $711 million to $740 million, when this is the quarter where they should be decreasing. On the positive side, due to the acquisition of the marinas, the percentage of revenue derived from the sale of new boats continues to decrease, dropping 3 points to 69%. The number of shares has increased by 2% year-to-date....

...

Vysarn is a vertically integrated company with 5 business divisions providing water services in Western Australia.

The core business, Pentium Hydro drills bore fields and extracts the water above the iron ore. More than 75% of the iron ore mines in the Pilbara have a great part of ore below the water table, which must be dewatered to be exploited. That is why Vysarn is not having problems signing multi-year contracts with Tier 1 ore miners. In fact, they are increasing the price. With the cash flow of this business, Vysarn is expanding to less capital-intensive divisions.

Despite the rest of the divisions being settled/acquired in 2021 or 2022, they are already good cash generators with positive surprises in the first half of the year. And with the optionality of a very interesting Joint Venture of fluid containment which could bring $0.5-1mto the bottom line per contract signed

The business is led by James Clement with who we had the opportunity to chat (you can read it on the second link). And the Chairman, Peter Hutchinson, who has long experience in ASX-listed companies and in M&A. He already led a company in which the share price did an x37.

At the beginning of the year, the board expected a NPBT of $5.1m and an EBITDA of $6.1m only for Pentium Hydro in the second half of the year (fiscal year ended on 30th June). After a c.20% revision upward in both metrics in May. This week, the company released another earnings update in which they expect to deliver a NPBT of $6.8-$7m and an EBITDA of $7.5m for Pentium Hydro.

The current market cap is around AUD $60m . We presented this small micro-cap in February and since then the stock has gone up +75%. The good news? It trades as cheap as in February, less than 3.5x EV/EBITDA and 7 P/E for 2024, given our estimates.

Since going public in 2015, Italian Wine Brands has experienced continuous growth (both organically and through M&A to expand its sales in the US and Canada) They have also acquired vineyards in the Tuscany region and established a presence in the Ho.Re.Ca sector.

Currently, the company's board holds more than 35% of the company's shares. However, it has not yet fully recovered from the setback it suffered in 2022, despite overcoming supply chain issues (glass shortages) and rising raw material costs (due to a poor wine harvest in 2022). The company's margins, as confirmed by the company in March, are already showing signs of recovery in 2023. We believe that it trades at a very compelling valuation compared to its peers & consumer discretionary sector

Italian Wine Brands (IWB) is a leading producer in the Italian wine sector covering the entire value chain of wine, excluding the production of grapes. It trades on the Milan Stock Exchange with a market cap of €210MM (9.65MM shares - €21.90) and its Enterprise Value around €320MM

IWB has a capital-light business model, which means that it does not own vineyards. The raw materials (grapes, must and bulk wine) are purchased from around 200 Italian vineyards and wine producers and then processed in the group's cellars (65%) and third parties’ facilities (35%).

The group distributes its products through two different channels: B2C and B2B. B2C involves the production and distribution of wine through non-store retail channels (e-commerce) mainly internationally, but also in Italy. Meanwhile, B2B is focused on sales and distribution and is oriented towards international supermarket chains where the private label or registered brand products are distributed. Recently, due to M&A activity, it has also added HoReCa to its B2B segment.

....

In order to complete our analysis of the US boat dealers industry - industry that seems attractive to us because it is highly segmented, highly prone to the serial acquirer model, and trading at attractive multiples due to anticipating an imminent recession (among other things) - today we analyse the main competitor of OneWater Marine, MarineMax. We have been following MarineMax for about a year since we learned about it through their acquisition of IGY Marinas (when we were already looking for ways to invest in marinas)

Today, we focus on understanding the business of MarineMax (which, although similar, is not exactly the same as OneWater Marine) and conducting a comparative analysis of the key differences between the two. Finally, we provide our opinion, strategy, and next steps (aspects to follow, opportunities, scenarios...)