Famous Belgian Chocolatier Hidden Inside An Obscure Holding Called 'Bois Sauvage'

Summary

• Holding trading at 18% discount to conservatively valued NAV.
• Owner/operator picked many right stocks in the last decade.
• This illiquid and obscure name fully owns one of the few prestigious Belgian Praline houses "Neuhaus".
• Neuhaus can be found in many large cities and airports and might benefit from the secular growth in global travel.

In this article, I will discuss the major investment holdings and philosophy of Bois Sauvage, a very old Belgian holding company. Let's start with the sum-of-the-parts.

Famous chocolatier Neuhaus and Corné Port Royale

As we can see, almost half of the NAV is from "United Belgian Chocolate Makers" or UBCM, a fully owned Belgian pralines holding company that owns Neuhaus (and some other less known niche names). Neuhaus's history dates from 1857 when it started its first store in the most famous gallery in Brussels. Today, Neuhaus is one of the most recognized Belgian pralines brands and has over 1,500 stores in over 50 countries. Other famous brands are Godiva, Leonidas, Jeff de Bruges, and Corné Port Royale. The latter two are actually owned by UBCM as well.

Famous and old Belgian praline brands are scarce assets in a world of consumers that are increasingly shifting towards experiences and travel. In addition, international travel is on the rise as the Chinese middle class is growing fast and getting richer to travel increasingly outbound. One important pillar in Chinese culture is to bring back many small presents for friends and family. Some Chinese even bring a spare suitcase. Pralines are unique souvenirs linked to Belgian national heritage that are convenient to carry (i.e. small) and yet of high perceived value.

I, therefore, believe old and famous praline houses have the moat to grow profitably for a long time to come. Strong brands can even capitalize on e-commerce by going direct to consumers.

Chocolatier Financials

The company does not break out many financials. Return on equity seems to confirm the moat UBCM has from its famous brands. We do observe slow revenue growth: in part, this can be explained by the lackluster tourism in 2017 in the aftermath of the Brussels airport terrorist attack. The most disconcerting thing is the lack of operating leverage: net profit has been flat.

The valuation management and I used in the sum-of-the-parts is a peers valuation minus a 15% illiquidity discount. While I don't necessarily agree with an illiquidity discount, I find the valuation is quite steep at 29x FY17 earnings.

Umicore

With 20% of Bois Sauvage's NAV invested in Umicore, this is the other major holding. Umicore is the largest recycler of precious metals in the world. It has benefitted from profitable growth recently as it supplies rechargeable battery materials for which demand is growing fast. As battery safety and longevity/consistency is at a huge premium in electric cars, nobody gets fired to choose a known player such as Umicore over an unknown Chinese entrant.

Other investments and comments

While other investments make up one-third of remaining NAV, the portfolio is managed conservatively (i.e. turnover has been very low) and diversified across many small investments.

Owner-operator Guy Pacquot seems to agree Bois Sauvage was a bargain in 2015: he converted convertible bonds into stocks at an out-of-the-money strike price (approx. 10% premium).

Conclusion

I believe very long-term holders of Bois Sauvage will at a minimum outperform the market due to the value accretion that takes place from the return of capital of a slightly undervalued NAV. The dividend yield is 2% and has grown at around 1-2% per annum. While things have gone right in the last years due to Bois Sauvage's successful Umicore stake, I decided not to invest as the discount to NAV has been as high as 40% as recently as 2015 and this posits a major downside risk in my opinion.

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.