Tarczynski S.A. (TAR.WA)

Founder led and owned micro cap branded snack sausage maker, selling for less than 50% of value, p/e of 5.81, EV/EBIT of 9.6, and dividend yield of 4.7%.

1. Key Facts

Description: Tarczynski (TAR.WA) is the largest branded Polish producer of dried pork sausages (kabanos) that has expanded into various meat and sausage snack products over the last few years. These include protein snacks, beef jerky, plant-based sausages, poultry snacks, frankfurters, ham fillets, and kid meat snacks. Its strategy revolves around strong marketing/branding and selling products at premium prices. It sells in Poland and internationally (primarily in Western Europe) and is headquartered in Ujezdziec Maly, Poland. Tarczynski was founded in 1989 and is 75% owned by the founder CEO and his wife.

Track record: Over the last 10 years Tarczynski compounded revenue at 15.3% CAGR (20.7% over the last 5 years) and its EPS at a CAGR of 27.5% over the last 10 and 41.2% over the last 5 years. It has done so by reinvesting its operating cash flow and using substantial financial leverage (D/E of 1.3). Simultaneously it has improved its ROIC (10-year average of 11.5% and 5-year average of 15%). It launched many big-scale media campaigns and used sports sponsorships as its marketing strategy.

Market cap: Its market cap as of the 22nd of August 2023 is PLN 523 million ($127 million). It has grown at a CAGR of ~32.4% over the last 5 years. It is also ~28.1% up from its 52-week low.

Valuation: TAR.WA trades at a TTM P/E of 5.81x (5-year average of 5.3x), EV/EBIT of 9.64x (5-year average of 6.9x), and a dividend yield of 4.68%. 

2. Business Overview

Background 

Tarczynski is the major sausage producer in Poland with a significant and growing export presence in countries like Germany, Netherlands, and England. As of FY 2022, 24.5% of sales came from export and 75.5% from the domestic Polish market. The company produces sausages in different categories. Its main and oldest product is “kabanos”, which is a long, thin and dry sausage that originated in Poland. It’s traditionally made out of pork but Tarczynski has produced poultry and mixed (pork + poultry) versions. The company has dominated the Polish kabanos market and acquired a 70%+ market share in this category. It naturally followed that Tarczynski expanded to other sausage categories like frankfurters where it aims to build a similar position as it has in the kabanos market. 

Over the last 5 years, the total number of products in the portfolio has fallen from 350 to 250 as of FY 2022. However, at the same time, the company introduced many new product types and entered new meat snack categories. The brand has also increased its recognition amidst large marketing campaigns and a newly expanded product mix. As such, the product quality seems to have increased amidst a decreasing quantity.

(Tarczynski kabanos in different sizes and formats)

It’s worth highlighting that most of Tarczynski's products, especially the kabanos range, are meat snacks. They can be found not just in stores but also in vending machines and they can be taken for a hike or a trip without a risk of going bad due to how dry they are. The recommended temperature is 2 to 25 degrees Celsius. Some of the newest products take that snack creed even further. During the last 2 fiscal years, the company introduced meat crisps with different flavours (chicken, pork, pepper, etc), and beef jerky, and added new packages and sizes for its kabanos sausages so that they are easier to carry, eat, and snack. This included an introduction of a new range of snack kabanos for children.

One of the more recent product innovations is the introduction of plant-based kabanos sausages, which have 0 meat in them and are made out of soy (32%), onions and other ingredients. These are Tarczynski’s baby steps in the vegan market where it could have a large growth opportunity if it executes correctly. plant-based kabanos

All of the company’s products sell at slightly premium prices compared to alternatives. However, they are largely affordable for consumers (7-10 PLN per 90g pack). One of the strong aspects of Tarczynski is its vast product and flavour selection. The company experiments a lot and its flavours range from cheese and chilli to jalapeno and piri-piri.

(Tarczynski beef jerky I got)

Tarczynski has two production plants. The main one was built in 2007, underwent expansion in 2013-2015 and has a 120t daily capacity and the other one is approximately 30t. The main plant was expanded further in 2019 with 2 new production halls.

The company supplies 50% of its meat from abroad, mostly Western Europe (Germany, Netherlands, Denmark, etc.), but also Lithuania and Latvia. If the Euro rises in relation to Zloty, the company may suffer extra costs. Tarczynski controls this currency risk by purchasing currency forward contracts.

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