Signaux Girod SA (GIRO)

Signaux Girod SA specializes in the design, manufacture, marketing, installation, and maintenance of sign equipment. The company has been in business since the 1960s. Signaux Girod SA is listed in France (Euronext Paris) under the ticker GIRO. Note that GIRO file their financial reports in French, so please be aware that there is a risk that I have misunderstood or overlooked something that might be of importance.

Similar to many of the other Liquidation Oxymoron’s that I own, GIRO is a nano-cap company (€13,8M) with shares that are highly illiquid. Unlike some of my other ideas though, GIRO is a family-owned and operated Liquidation Oxymoron that conducts its business in a boring and quite stable industry. When I initiated my position in GIRO at a price of €12,20 the shares were trading at a 52-week low. Not only that, looking back historically one realizes that GIRO has only traded at current price levels and valuation multiples a handful of times. As I will try to demonstrate below, GIRO is a perfect candidate for a diversified portfolio of Liquidation Oxymorons.

Margin of safety

1) Selling below liquidation value?

According to the latest financial report GIRO has an NCAV of €19,9M. In relation to the market cap of €13,8M, GIRO is currently selling at a price-to-NCAV multiple of 0,69x. However, as stated in their latest annual report, GIRO has operating leases of €3,4M. With the operating leases taken into consideration, the price-to-NCAV multiple of 0,84x is a little bit less appetizing. On the other hand, looking at the latest balance sheet we find €29,4M of PP&E. With a net-tangible-asset value of €51,5M, we here have a company that is selling at a price-to-net-tangible-asset multiple of 0,27x. Digging a little bit deeper into the latest financial report one concludes that land and buildings make up for €19M of the total amount of PP&E. Furthermore, the €19M value of land and buildings included in the PP&E value on the balance sheet is an amount that has been highly depreciated. The gross value for land and buildings is stated at an amount of €38M. In sum, although it’s hard to say what the exact liquidation value for GIRO is, looking at the numbers mentioned above I also think it’s hard to not come to the conclusions that GIRO today is selling well below its liquidation value. As Benjamin Graham has famously said;

You don’t need to know a man’s weight to know that he’s fat.

2) Proven business model?

Looking at the historical records one soon comes to the realization that GIRO’s business model is not only a proven one but a quite stable one as well. In the last ten years, GIRO has posted a positive net income in seven of those. Looking at GIRO’s retained earnings of €44M per the last quarterly report further certifies that view. However, last year was one of those three years where the company posted a negative net income. So far this trend has persisted as the last financial report (2018/2019 half-year report) also had negative net income numbers. If one is to believe management though there are some positive indicators for what lies ahead. For example, management state in the last financial report that they expect higher profitability for the second half of the year compared to the same time period last year.

3) Sound financial position?

GIRO currently sits on its smallest debt position in ten years. Per the last financial report, GIRO had €13,7M of debt on the books while they for many years carried an amount of ~€30M of debt. While the trend of a decreasing debt position is a good sign, what is maybe most encouraging is the current debt-to-equity ratio of 0,2. That is a ratio that I in absolute terms determine to be a financially sound one. Furthermore, considering that GIRO for the majority of the last ten years has posted positive net income numbers also suggest that the amount of debt they carry is manageable for them. In other words, GIRO is to be considered financial sound on income statement basis as well. Similar to some of my other ideas though, GIRO’s current Z-score of 2 indicates that financial troubles (i.e. bankruptcy) could lie ahead for the company. However, considering what I have described above, I don’t think the risk of bankruptcy as the Z-score formula suggest is a palpable or even real one in this case.

4) Responsible management?

GIRO has not only been aggressive in paying down their debt position over the last couple of years, management has also made sure that shareholders directly and continuously have gotten a piece of the capital-allocation-pie as well. In the last ten years, GIRO has paid a dividend in eight of those. A small side note to that, in 2018 GIRO paid their shareholders €10M in dividends after the company had sold one of their businesses. The €10M dividend amount is huge considering that GIRO is a €13,8M market cap company (back then the market cap was around €20M). Finally, the company has also been quite aggressive buying back its shares on the open market. In total, GIRO has bought back 7,6% of the total shares outstanding as of current date. There is a buyback program in place and it seems that management is determined to continue with their share buybacks. A side note here is that the shares bought back have not been canceled (i.e. they are held in treasury). In sum, I think it’s pretty clear that GIRO’s management as operators and capital allocators has not only been responsible but quite shareholder-friendly.

Other factors and characteristics

GIRO is owned and operated (e.g. CEO and chairman is Claud Girod) by the Girod family. As of today, the family owns 63% of GIRO.

Disclosure: The author is long Signaux Girod SA (EPA:GIRO)

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