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Natuzzi S.P.A.: This Italian Microcap Is A Bargain Right Now

Apr. 02, 2018 10:43 AM ETNatuzzi S.p.A. (NTZ)11 Comments
Gio Danisi profile picture
Gio Danisi


  • Natuzzi S.p.A. designs, manufactures and markets leather and upholstered furniture worldwide.
  • Its owner and CEO, Pasquale Natuzzi, is a self-made entrepreneur, who was able to build a business from scratch, which was worth over one billion dollars by the early 2000s.
  • Natuzzi’s strategy for long-term profitability is well thought-out and already proving successful.
  • The recent Joint Venture with Kuka (Jason Furniture) discloses a massive value that is equivalent, alone, to the actual capitalization of the company.

Towards the end of the last century, Natuzzi S.p.A. (NYSE:NTZ) was traded on the New York Stock Exchange at close to $30 per share. However, those golden times are now a thing of the past.

China’s low labor costs and lack of monitoring over illegal working conditions, introduced by Chinese immigrants living in Italy, contributed to the demise of a considerable number of Italian manufacturing companies.

What has changed now for Natuzzi

For many years, Natuzzi stayed true to its business model, refused to break the rules and continued to manufacture its products in Italian factories. This structure turned out to be unprofitable, since its Italian competitors mostly relied on local Chinese suppliers.

However, in recent years, the firm introduced a new strategy devoted to increasing profitability. It was based on the strength of the Natuzzi brand, one of the most renowned in the luxury furniture & upholstery sector. Even though Natuzzi has always been a wholesaler, it is now focusing on boosting its sales by opening franchised or directly-operated stores instead.

In fact, the directly-operated stores (DOS) have a median gross margin of around 65%, while the average gross margin for the whole company is 35%. The General gross margin has been increasing every quarter, with the opening of new DOS and the closing of the old selling channels. New directly-operated stores are introduced in popular tourist areas, like Palm Beach, FL (one of the latest openings), and are set to provide the highest rewards.

This strategy will eventually decrease Natuzzi’s vulnerability in the current worldwide retail crisis by shortening the sales chain. In Fact, in-store sales have been increasing at a percentage of around 40% for DOS and the firm is bound to break-even.

A fair valuation of Natuzzi S.p.A.

The total capitalization of the company is currently

This article was written by

Gio Danisi profile picture
Private “part time” value investor. I've been managing my personal funds since May 2008.As stocks are just pieces of businesses I try to look at mine with an enterpreneurial approach: that's why my portfolio is made-up by 6-8 holdings, which I follow costantly. My holding period is ideally "forever", even though I can't exclude to make some changes from time to time.

Analyst’s Disclosure: I am/we are long NTZ. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (11)

Mark Choate profile picture
Nice work, Gio.
I've owned Natuzzi for a long time, and now am much more interested in the position, now that we have you following it. Hopefully you will stay on it going forward.
Thank you!
Gio Danisi profile picture
The Q4 conference call just confirmed my take about Kuka JV, explained in this article.

I will write soon another work about the future development and profitability of Natuzzi's business.
Thanks for the article.

Going through the Q4 conference call transcript, a couple of things jumped out to me.

One, even more money (45M Euros) than I thought is going directly to Natuzzi in the Kuka deal.

And two, the deal is structured in a way that is doubly valuable to NTZ in that they will benefit both at the wholesale level and the overall level (49% equity). The latter is certainly important, but the former shouldn't be overlooked as increasing production and leveraging their overall fixed cost structure is huge given their essentially break-even level at current total sales.

If the combination of Kuka, recovery/improvement in Softaly, and continued DOS and franchised growth all happen at the same time, we could easily see 10-20% growth in top-line revenue over the next two years--with a big chunk dropping to the bottom line. A see a $6-8 stock in 12-18 months.

Significantly long since 2015/6. Good luck to all!
The_Hammer profile picture
Long since early '16 but this mgt has failed to execute. i am losing confidence in pasquale who should just step aside if profitability is not achieved soon. The Kuka JV looks good, first the up front payment then working with established player in the Chinese market should help tremendously. agree, with some profitability and some sales growth this is easily $6-8 but patience is wearing thin with this management. They have to start delivering profits or just leave and hire qualified management who can get the job done already.
Good points, and I don't disagree, The_Hammer. 2017 was supposed to be the beginning of this transition, but it was a frustrating year given all the unexpected expenses and stumbles. And you're right. They need a couple of good quarters to show they can execute.

For what it's worth, I was on the board of a small/mid-size furniture company and watched first hand as they transitioned from a designer/wholesaler to a combo wholesale and retail-based brand. It's more complex of a transition than you might imagine. Becoming a strong retailer is a whole different skillset. I like what they're doing so far, though. And they have good people working for them in the U.S.

Kuka is the boost I was looking for, though. It's gives them both immediate growth and capital, as time isn't on their side. The global economic expansion will only go so long before another downturn makes their efforts turning around the business all the harder. The faster they transition, the better.
Gio Danisi profile picture
Kind reader: I hope you enjoy reading.
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Best Regards
enge2103 profile picture
Thanks for your article,

I became a longterm shareholder 2 years ago and have been adding shares at recent low prices and am planning to keep on adding.

Regards from Hulst the Netherlands, where we have a beautifull Natuzzi sales center, doing well according to their sales people..
Great article! I will take a look at this company, the big question is if they can turnaround the decline in sales and start creating some value for the shareholders.
The_Hammer profile picture
net sales were down slightly yoy. A little surprised there was no growth in sales and profitability continues to be unattainable. If this China JV does not jumpstart this company's fortunes then a massive house cleaning is needed in management once and for all.
Gio Danisi profile picture
"A little surprised there was no growth in sales."
No surprise, the exchange rate was deeply negative in the last two quarters.

Full year revenues did not decrease in US dollar base.

China JV will first jumpstart NTZ's balance sheet that is the most important thing now. Then we will see...
Thank you for your good article
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