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Viscofan: A Great Business, But I'm Still Waiting For A Fair Price

Mar. 08, 2018 5:30 AM ETViscofan, S.A. (VSCFF)2 Comments


  • Viscofan does everything right, and is being rewarded with a superior valuation.
  • The company appears to be priced for perfection, and I'm waiting for a lower share price before initiating a long position.
  • Despite a substantial FCF increase in 2018, the free cash flow yield will still be less than 5%.

A few years ago, I discussed Viscofan (OTC:VSCFF) here at Seeking Alpha. I like the company's business model (it's making artificial casings for sausages, which are more appealing for consumers than using the intestines of pigs which is the traditional way of "casing a sausage"). As you can see on the next chart, Viscofan's share price has remained pretty stable throughout the past few years, but the company remains pretty expensive (on both an EV/EBITDA as well as a free cash flow yield basis).

Source: finanzen.net

As Viscofan's main market is the Bolsa de Madrid, I would strongly recommend you to trade in the company's stock there as the liquidity is much better. Viscofan is trading with VIS as its ticker symbol, and the average daily volume is 104,000 shares. The current market capitalization is approximately 2.5B EUR. As the company reports and trades in Euro's I will use the Euro as base currency throughout this article.

Sausage casings. Source: financial report

A strong result in 2017 despite higher capital expenditures

2017 was a pretty good year for Viscofan as the emerging regions (especially Brazil) are pushing the total revenue higher: up 6.5% to 778M EUR. Unfortunately there was some pressure on the company's margins as the EBITDA increased by just 3.5% due to a higher amount of 'net purchases' and personnel expenses as these both expenses increased faster than the revenue did. The situation isn't alarming, as the EBITDA margin remains very robust at 27.1% (compared to 27.9% in FY 2016) with the full-year EBITDA coming in at approximately 211M EUR.

Source: financial statements

Viscofan was also hit by the Euro-Dollar exchange rate and instead of reporting a 3M EUR FX gain in 2016, it now had to include a FX charge of 8.5M EUR in its FY 2017 results. That's

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This article was written by

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We zoom in on capital gains and dividend income in European small-caps
As I'm a long-term investor, I'll highlight some stockpicks which will have a 5-7 year investment horizon. As I strongly believe a portfolio should consist of a mixture of dividend-paying stocks and growth stocks, my articles will reflect my thoughts on this mixture.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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