dylex849 wrote this idea up in Oct 07 and I will refer you to his excellent job on this company which is a retailer with 1000+ stores in Europe selling costume jewelry. I just don't think much has changed except the valuation is a whole lot less, and if this were an American retailer it would be double this price.
*company has an impeccable balance sheet with over 150m in excess cash (all figures euro) as of Dec 07
*company pays a $6.50 dividend which is 8.1% at the current price
*company is 50.3% insider owned
*company issues no options and there is no pension plan for management (per annual)
*company generated 80m in cash past 12 months; cash flow is roughly 92m with 18m fairly typical for CapEx
*over 1000 stores with 80 planned this year; growth in Spain, Germany, and Eastern Europe; stores in UK have opened optimistically
*PE ratio is 8.2; pcf ratio is 7.1, pfcf is 8.9x
*company is currently buying shares; not much, but they seem to like the shares more as the price goes down (unlike a lot of companies)
so why does it trade where it does?
*margins are extraordinary high; net margins have been a high of 19.8% in 2003 and 24.1% in 2005 and they are more than vulnerable to declines
*company has reported negative comps for the past few quarters and forecasts more of the same in future quarters
*no conference calls and you have to slog through different looking filings with interesting english translations
*more competition; as reported in the other threads on dylex note, management is seeing more competition from other vendors and also admitted that the business just reached peak levels in 2005 so it was time for the trend to go the other way for a while (see CLE)
What has to happen for the company to succeed?
*execute; they already are; even with tough comps last year management kept profits high and did something similarly in the 1Q; inventory looks fine and the buyback - which seems well-considered - has to indicate something positive long-term
*keep expanding at the measured pace they have; the company has grown very big very fast and there are risks to ever larger numbers, but they've done it in various countries and in different retail environments and you have to admire them for that
In short, you get the idea for 652m with 150m free and clear and an 8% dividend and growth potential and good management that doesn't do options and a buyback thrown in for good measure. Maybe comps aren't going to recover anytime soon but even if margins got cut in half the stock would still trade for just 16x earnings. Just three years or so ago people were fallling over themselves to buy these sorts of companies for 20x earnings now nobody wants them when they approach the 5x level. And so it goes...