Description
Karelia Tobacco is a Greek tobacco company that is 95% family-owned and sells cigarettes mainly in Europe, with significant and growing market shares in Greece in cigarettes (20%) and roll-your-own tobacco (27%). The float is 35m EUR, so for PA's or small funds only. There was a thorough writeup on VIC by Berman on 6/23/20 at 258 EUR/share (3.5x EBIT) and I encourage you to check that for background.
Since that writeup, the company has performed strongly, growing volumes, revenue, and EBIT. EBIT is up from 81m in 2019 to 102m TTM. The company generated 150m EUR cash in 2019 & 2020 and paid a 9 EUR/share dividend in each year. To give a sense of the longer-term, EBIT was 34m in 2006, 41m in 2011, 89m in 2016, and 99m in 2021.
The company did net sales of 228m EUR in 2022 (1.2b EUR gross of excise taxes). Sales by location were Greece 24%, rest of Europe 49%, Africa 22%, Asia 4%. Generally cigarette volumes in the majority of these countries are better than those in U.S./Western Europe.
This is a very simple thesis. Karelia is a well run, growing tobacco company that trades for 1.2x EBIT, 1.5x PE ex-cash and 8x PE. The company has been run by the family for a very long time, growing nicely by any financial metrics one cares to look at. It also pays a 4% dividend. The stock has been flat for about 7 years, but in the interim EBIT and net cash are each up over 65% and the EBIT multiple has dropped from ~5x to 1.5x.
Karelia is up over 400x since IPO in 1976 and the stock has historically moved in bursts. It initially came across my radar in 2011 as a stable, growing, profitable cigarette company trading at a negative EV at a price of 60 EUR/share. The price then went up 4x over the next few years. It is possible to build a 6 figure position with some patience.
The family owns 95% and that is split between two factions who have some kind of Greek family feud going on. It does not seem to affect the business and if anything seems to keep everyone on their toes. From what I understand, the family lives off the dividends and the company is legally required to pay out 35% of earnings. Most of the cash and investments are held in major banks outside of Greece.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
There is no catalyst. Maybe this is flat for years, who knows. In my experience, one generally does well owning companies like this at 1.5x EBIT and 8x PE with a 4% dividend. So sit back, enjoy a pack of American Legend heaters, and maybe someday this re-rates or gets bought by a major.
https://www.joycigs.com/american-legend.aspx