Although swimming pools may be getting less press, the group is still selling more than before the health crisis. Above all, it is more profitable than before.
Among the smaller stocks, many of which lag behind on the Paris Bourse, Piscines Desjoyaux is no exception, trading at around €12. This is a long way from the peak of close to €32 in August 2021.
While environmental criticism may be weighing on the image of swimming pools, fundamentals are also lagging behind. After the “Covid effect” boosted sales, business has been contracting since the second half of the 2021/2022 financial year (-8.2%, to €89.2 million).
This trend was then reinforced in the 1st half of 2022/2023, which ran from September to February: over this period, the Group reported last Friday, sales of 61.5 million euros fell by 13.6%. Sales in France (around 66% of the total) fell by 8%, while export sales (the balance) declined by 22.7%, “particularly in view of the geopolitical context in Eastern Europe, which is having a major impact on business in very buoyant markets such as Germany”.
Lower margins, but not net cash flow
As a result, Piscines Desjoyaux’s accounts continued to deteriorate: after being eroded by 430 basis points in 2021/2022 to 17.5%, operating margin fell by a further 550 basis points in the last half-year, to 13.9%. Net profit fell by 38.6% to 6.3 million euros.
What about cash generation? It is faring much better: half-yearly cash flow from operations (CAF) stands at 11.1 million euros, almost as much as at end-February 2022 (13.4 million) and end-February 2021 (11.9 million). As a result, net cash remains positive, with the Group having more cash in its accounts than debt, at €35.2 million at the end of February.
This figure is higher than a year earlier (€33.7 million) and two years earlier (€18.7 million), and represents almost €4 per share. Even though a dividend (2021/2022) of €1 per share was paid in early March, cash generation is unlikely to have ceased thereafter.
Restoring margins is a priority
Now what? Management declares itself “cautious in this inflationary context and given the geopolitical situation”. It adds that it is “working to rebuild margins” by modernizing and automating its logistics and industrial activities, plastics manufacturing, and even by integrating “upstream businesses likely to create additional operating margin”.
Our advice on PISCINES DESJOYAUX: WATCH
Until the summer of 2021, the “Covid effect” on home improvement benefited the group, coinciding moreover with the share’s record: in the second half of 2020/2021, Piscines Desjoyaux thus built more than 7,000 pools (reported in 8 x 4-meter equivalent), a record well above the levels prior to the health crisis, rather around 4,200 units per half-year. What’s next? The last two half-years have been marked by normalization, but the number of pools built is still just over 5,000 units. What’s more, in the 1st half of 2017/2018 and 2018/2019, the operating margin was slightly negative in the former case, and 5.8% in the latter. Despite a less favorable context, the Group is more profitable than before the crisis, and its cash generation is significantly higher (it was around 10.5 million in the two aforementioned half-year periods). The Group therefore has ample resources to invest in improving profitability. If we adjust our target price from €22 to €20, we see significant potential for the company. This is all the more true given the Group’s marked seasonal nature, with the second half of the year, which accounts for the bulk of the fine season, being stronger than the first. With this in mind, we’ll be on the lookout for a move below €11.50 to strengthen this undervalued stock.
Price at date of advice: €12.20
Price target: €20, i.e. potential growth of 63.9%
Investor profile: well-informed investor, PEA
Investment horizon: 12 months
Article published in Le Figaro on 06/28/2023
Journalist: Emmanuel Gentilhomme