Brother Hartmann (ISIN DK0010256197): A special situation that really forces the egg?

Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH!!!

  1. Introduction
  2. “Catalyst”: A low bid from a majority shareholder
  3. Decommissioning in Denmark – what I have found so far
  4. Majority shareholder of Thornico
  5. What is Thornic’s ultimate goal?
  6. Scenario analysis, risk and summary
  1. Introduction

Broeder. Hartmann (not to be confused with Paul Hartmann AG) is a company I looked at it during my All Danish Shares series last July. I think it would be fair to call him the “Hidden Champion”. Their business model is focused almost 100% on egg packaging, which I already like a lot. Their main product looks like this (just the box, not the contents):

Or this:

Extremely sexy product, right? In fact, they also seem to offer paper apple wrappers in Brazil and India, but their main product is egg wrappers.

In mid-2022, when I first looked at them, the company was still struggling. This is what I wrote then:

On the fundamental side, things seem to be looking much better these days. They have already updated the guidelines twice in 2023, as seen in this table from the mid-year report:

The stock price hasn’t really responded to this and is still ~-50% from the peak:

As of now, they trade at 6.7x EV/EBIT (2023), which is quite cheap for a company that has decent margins and return on capital and is globally diversified despite its small size. Here is a quick overview of some indicators:

TIKR has not yet updated estimates for 2023, so stocks look more expensive in TIKR for 2023 than the updated guidance suggests.

Cash Flow has also recovered nicely. It’s hard to predict, but looking at this chart from the 6M report, I’d guess they’re currently trading at at least a 10% FCF/EV yield:

I’m not sure if this level is sustainable. By the way, the reporting is pretty good for a small business.

  1. “Catalyst”: Low bid from majority shareholder:

Majority investor (Thornico Holdings, 69%) just started an occasional low bid at DKK 300 and wants to remove and force out minority shareholders. This was preceded by another extraordinary meeting of the board of directors, where Thornico replaced several board members to “better align with the strategy” of Hartmann. A few weeks later, Hartmann’s CFO resigned and was replaced.

To give credit where it’s due: I’ve been made aware of this via a Twitter thread from a young (local?) investor:

While I wouldn’t see this as a “scandal”, it is clearly an opportunistic low bid. They justify the amount in the offer by saying that it is above average, as stated in the company communication:

3) Delisting in Denmark – what I have found so far

According to several sources, Delisting in Denmark must be approved by 90% of all shareholders. It doesn’t seem to have been implemented until 2020than removal was easier (only ⅔ vote required).

It appears that the exchange (not the regulator) can decide whether the offer is reasonable or not. However, according to the original documentthey would not consider an award unless it is grossly disproportionate or not:

At its current 69%, there seems little chance it will approach the required 90%. Many investors may be anchored on higher prices from 2-3 years ago and may (rightfully) see this as a low offer.

An extraordinary general meeting is scheduled for October 16. If 90% of the shareholders accept and the stock exchange does not reject the offer, the shareholder will have 4 weeks to sell Thornico shares for DKK 300.

4) The majority shareholder of Thornico

The main shareholder of Thornico is a holding company owned by father (Thor) and son (Nicholas) Stadil. Here is a picture of these 2 gentlemen:

The group operates in the fields of food, packaging, sporting goods and real estate. There are two other companies within the package, one in China and one in Malaysia.

However, the most relevant group company that concerns Hartmann is Sanovo, a company that offers every imaginable technology around egg production, including packaging machines. I could imagine that pairing Hartmann and Sanov could make a lot of sense. interestingly, Hartmann bought a packaging company from Sanovo called Sanovo Greenpack in 2014.

In recent years, there seemed to be some problems in the empire, especially in the now defunct shipping segment, where they had to suffer bankruptcy.

Thornico bought its first stake in 2011, according to the annual report, and then offered to buy back all shares for DKK 95:

In 2012, Thornico increased its stake to 68.5% after buying shares from two other large shareholders:

In 2013, Thonrico slightly increased its share to 68.6%, but since then the share has remained constant, although according to TIKR it increased its share to 69% (the half-yearly report still says 68.6%).

According to the articleD/S Norden paid Thonrico ~$60m for shipping activities, meaning they may have some cash to finance the increase in Hartmann’s share.

Christian Stadilly interesting he has his personal website where he presents himself as a mixture of visionary, artist and martial arts expert. He too He seems to have created a Champagne label that should be drunk straight from the bottle.

Overall, they seem to be quite shrewd allocators of capital. They bought the initial stake in B. Hartmann at a very interesting time at a price of around DKK 100/share and have already recovered most of it by paying dividends. I don’t think they’re bad, but they also don’t seem like a waste of money.

5. What is Thornic’s ultimate goal?

  1. If they really want to scrap, they need to know that 300 is too little because there is no premium. So to get more shares, they have to make a higher bid
  2. Maybe they want to scare investors and just want to increase their stock on the cheap
  3. Maybe it was a very opportunistic move and they won’t continue with it if it fails

My current impression Ithat they really want to get rid of minorities, especially since they started reshuffled the board. Hartmann is also their only registered holding, so I guess they prefer to keep everything private. Also, I think they might want to tie Hartmann closer to their other “egg-related” activities, as I think there is a lot of customer overlap.

My guess is that they may be afraid that the shares will be too expensive if the turnaround is confirmed and Hartmann would show a great result for FY 2023. DKK 300 per share may be the lowest price they can offer as a starting price, otherwise the stock exchange could mark it downright for unreasonable. Even though they’re smart, they might have thought: I’ve got to raise the bid anyway, so let’s start with the lowest possible number to anchor people on.

If this is true, I think they will have to come up with an offer later that is clearly higher than the current DkK 300.

6. Scenario analysis and summary:

So basically we have 3 basic scenarios:

  1. Offer will be accepted at DKK 300 more than 90%, stock will be removed.
  2. Most shareholders do not accept and life goes on as before
  3. Thornico raises its offer to above 90% and then withdraws it

Personally, I think 1) is highly unlikely. 2) is clearly more likely. For 3) different prices can be assumed at different probabilities.

This is my first attempt at modeling a case based on a share price of DKK 310 for 6 months:

After the offer expires, I expected the share price to fall to the YTD 2023 low of DKK 269, which I think is conservative.

Summing it up over my assumed scenarios, the expected return is ~18.3%. Of course, any or all of my assumptions could be completely wrong, but I think it’s interesting as a special situation.

Personally, I think the downside is quite limited as the shares really do look cheap and attractive on their own, but you never know. In theory, Hartmann would even be a good investment if they don’t raise the offer, but for now I only see it as a Special Situation with a 6-12 month time horizon.

There are clearly risks, as always. The worst case scenario would be that the free float shrinks to, say, 20%, and then the economic situation deteriorates again for one reason or another. In such a scenario, there could clearly be a downside to the stock, which I’m trying to capture in the “quote errors” scenario. Maybe the probability is higher than 20%, but who knows?

That’s why I allocated ~2.5% of the portfolio into this particular situation. I financed it by reselling it to Schaffner.

The game plan is to re-examine the case at least after 6 and 12 months unless something like a higher offer or something happens.

Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH!!!

PS: I would be very grateful for more information on the Danish delisting regulation

PS2: Although not directly related to Hartmann, the egg packaging post has to include this video excerpt from German goalkeeping legend Oli “The Titan” Kahn:

Oliver Kahn’s best moment: Eier wir brauchen Eier!

PS 3: I was also looking at the Hafen Hamburg situation. I like this one a lot more though.

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