Eurosnack S.A. (ECK.WA)
Insider owned, fast-growing and unknown nano cap specialising in corn crisps with good track record and growth prospects. It's selling for a P/E of 14.5x and EV/EBIT of 9.5x.
Key Facts
Description: Eurosnack (ECK.WA) produces branded food products and sells them to various retailers, primarily in Poland. It makes products in two categories: salty and sweet snacks. Its salty snack range is comprised of gluten-free corn puffs and potato and corn crisps under “Chrupcie”, “Chrupi”, “Maxi”, “Chrupcioki”, ”Pufli”, and “Doflio” brands whilst its sweet snack offer includes sponge cakes sold under “Aksamitki” brand. The company was founded in 1996 and is headquartered in Warsaw.
Track record: Over the last 8 years Eurosnack grew its revenue at a 38.7% CAGR (31.8% over the last 5 years) and its EPS at a CAGR of 51.1% and 51.4% over the last 5 years. It has done so mostly organically through an expansion of scale and product mix whilst utilising fairly low outside financing. Its ROIC has grown from 3.3% in 2013 to 30% in 2022 and the company has managed to keep the gross margin in the 47-54% range.
Market cap: Its market cap as of the 11th of July 2023 is 71.75 million PLN (~$17.75 million). It has grown 552% over the last 5 years. It is also ~113% up from its 52-week low.
Valuation: ECK.WA trades at a TTM P/E of 14.53x (5-year average of 14.20x), EV/EBIT of 9.46x (5-year average of 14.09x), and a dividend yield of 3.47%.
Business Overview
Background
The company is an FMCG-branded food producer and distributor. The majority of its sales come from the corn crisps, which have been its mainstay original product line for years. It also sells potato crisps, popcorn, and sweet sponge cakes. Its brands include: Chrupcie, Chrupcioki, Maxi, Chrupi, Pufli, Dofio, Kapitan Chrup, and Aksamitki. It also sells its corn puffs as private label products sold under the retailers’ brands.
Chrupcie are the original gluten-free corn puffs that often come in different flavours (bubblegum/fruit/chocolate) and are addressed to children and Chrupi are slightly more expensive and addressed to adults whilst Maxi are both. Some of the brands are exported to other countries like, for example, Captain Chrup which can be found in Germany.
Part of its sales comes from the sale of corn crisps sold for retailers’ private labels (e.g. Carrefour and Biedronka). Being the primary supplier of corn puffs gives it a bargaining edge as replacing it will come with a change in the product’s taste and the retailers might not want to risk that. It also allows Eurosnack to develop and grow relationships, which makes it easier for it to sell some of its brands to those retailers.
Eurosnack’s brands occupy a niche where they aren’t 100% healthy but serve as a healthier alternative to most other crisps. This has been a major point of the management’s strategy as a part of which the company has obtained food health certificates: EKO and BIO from BIOCERT MAŁOPOLSKA Sp. z o.o. (www.biocert.pl) and IFS FOOD from DQS CFS GmbH (https://www.mydqs.com/kunden/kundendatenbank.html) for its corn crisps (EKO and IFS FOOD for the sponge cakes). These help increase the quality image of the product with both retailers and consumers.
Its crisp brands like Chrupcie or Maxi are also gluten-free and objectively healthier than alternatives like Lays or Cheetos. The company has been working on reducing the levels of salt, fat, and artificial flavour enhancers whilst trying to keep an attractive brand and flavour, especially for kids as seen with the sweet bubblegum or fruit-flavoured corn crisps that are all gluten-free with reduced salt and artificial ingredients.
The health-conscious image of Eurosnack’s brands, especially more children-addressed Chrupcie and Maxi, could be the deciding factor for their parents who often are the ones making purchase decisions for their kids. Being specialised in the gluten-free corn puff/crisp niche has allowed it to build up a brand and the certifications make Eurosnack more attractive in the eyes of the retailers.
Most of its sales volume comes from sales to discount retailers and smaller local chains. Most notably it sells to Carrefour and Dino. Its partnership with Dino has been a substantial force behind its growth as Eurosnack sells its gull range there, often occupying a whole section of an aisle as visible below.
(Eurosnack’s products at Dino)
Brief history
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