Finnish listed company Elecster Oyj focuses on the design, manufacture, and marketing of UHT (Ultra High Temperature) milk processing and aseptic packaging lines, as well as the global sale of related packaging materials. 80–90% of the company’s products, which are primarily export-oriented, are delivered to approximately 60 different countries.
Speculatively made up pros and cons:
Pros:
operational profitability has improved for the first half of the year
demand for dairy machinery is increasing
the company operates in many different markets, such as Asia, the Baltics, and the Nordics
apparently, technical support and maintenance services provide a continuous revenue stream
Cons:
negative profit warning, investors do not appreciate it
the company is not covered by Inderes, which is why it is much, much more unknown, completely unfamiliar to me
decrease in packaging material deliveries
the market environment is not favorable for this company either
ELECSTER OYJ INSIDE INFORMATION 26.1.2024 AT 1:00 PM
INSIDE INFORMATION, PROFIT WARNING: ELECSTER LOWERS ITS REVENUE AND EARNINGS ESTIMATE
Elecster Group lowers its guidance for 2023 revenue and earnings per share.
New guidance For the full year, we estimate the Group’s revenue to decrease and earnings per share to turn into a loss.
Previously, Elecster estimated full-year revenue to remain at the same level or decrease, and earnings per share to remain at the same level or improve compared to the previous year.
The increase in interest rates and the significant depreciation of currencies central to Elecster against the euro have substantially increased financing costs and slowed down the implementation of customer investment projects more than anticipated. Partially for the same reason, the delivery volume of packaging materials in the last quarter remained clearly below the comparison year’s level. The result is also weakened by one-off write-downs on receivables, which do not affect cash. Thus, the relative improvement in operational profitability was not fully reflected in earnings per share.
Elecster will publish its financial statement release for the period 1.1.-31.12.2023 on 22.2.2024.
Further information: CEO Arto Kinnunen, tel. +358 400 191 980
Elecster is a cigar butt of the Helsinki Stock Exchange. The company doesn’t seem capable of profitable growth, with the business stagnating year after year. Additionally, the company has a K-share series, which hoards voting power for a small inner circle. Those should finally be scrapped for listed companies.
Buy, but very, very cheap, and remember to sell on time. You shouldn’t fall in love with mediocre businesses and wait around to see if the company somehow starts creating value for its owners.
I would add Elecster’s presence in Russia to the list of cons. There is a moral side to the matter, but also a country risk for business continuity. Sanctions have not affected Elecster’s film factory in Perm for the time being, nor has the administration nationalized operations, so far.
The Russian operations were still described in the 2021 annual report, but in the 2022 annual report, they likely no longer wanted to emphasize business there and the description of operations has been omitted.
From the 2021 annual report:
“Elecster operates in Russia under the Finnpack brand, because the name has a strong image and decades of tradition in the local dairy industry. Finnpack has two locations in Russia: an office in St. Petersburg and a film factory in Perm.
The Perm film factory ensures that customers in the CIS region can be quickly supplied with high-quality packaging material for the packaging machines supplied by Elecster. Approximately 40% more production space has been added to the Perm film factory premises, which enables an even higher level of film manufacturing quality. The interior construction of the new premises is still ongoing, but commissioning should take place during 2022.”
Just a quick comment: there probably aren’t many Elecster UHT milk lines in the Nordics. Milk consumption is still growing in developing countries, and UHT milk processing and packaging lines are mainly sold to countries that still lack a reliable cold chain. UHT milk in plastic packaging keeps for a long time in warm conditions. It is worth following milk consumption statistics in South America, Africa, and developing Asian countries. I didn’t start digging for facts right now, but as I understand it, consumption is still growing in those regions.
It could grow, but when looking at sales to Finland, Europe, and other countries, no trend-like growth can be observed in these so-called growth segments. In principle, the company could be interesting if it had a growth market whose performance was being masked by the recession in its main markets, but the figures do not suggest anything of the sort.
I don’t think Elecster has disclosed the share of sales from Russia in more detail? Either way, it’s probably not worth assigning much value to that. Even if business were to continue, the economy will likely slump more severely at some point, and business operations in the country will run into trouble.
CW. Contains prose (‘I suffered for my art, now it’s your turn’ - Marshall Crenshaw)
When the thread was started, I spent quite a bit of time surfing around trying to find info on the market for these production lines, mainly regarding competitors. I didn’t quite grasp from the technical descriptions whether competitors had the possibility for a similar modular approach, which does look good for Elecster.
The providers of these production lines seem to have a way of informing that goes ‘if you want to know more, our sales department is more than willing to talk to you’ So it remains a mere scratch on the surface.
Therefore, I decided that the right approach would be to pore through the company’s annual reports over a 20-year period and record the development trajectory (seasoned with figures) up to the present day. After all, the annual reports contain reflections on the market and technology at a level that cannot be reached by Googling. However, I don’t have the time & energy for this right now, but I recommend it to @Sijoittaja-alokas if you haven’t already.
I skimmed a few myself (superficially) 2002-2003, 2021-2022 and well, nothing special. Steady chugging along, perhaps with a higher-than-usual risk. The people are the same; at least the CEO from the early days, belonging to the same family, has just drifted into the board and a new one was chosen to replace him. Cash flow figures are in the same ballpark on both sides of the 20-year gap, so I don’t really see anything mouth-watering here. (the balance sheet has certainly strengthened, at least to my untrained eye)
Throughout the company’s entire history, there has been a strong global need in certain places for long-life milk, but no major ‘rocketing’ seems to have happened in this industry. I wouldn’t start projecting anything based on any government or UN etc. projects/talk. As a snap judgment, I would currently consider the OMXH25 index an outright superior investment compared to this when weighing the risks, which are significant here. It’s a different matter if one drills deeper and finds something that is hidden from me.
@Iikka has made an excellent tweet thread about the company.
Kiitos Iikka, this company is talked about too little. I’m not a fan of the company, but it’s nice to get more information and thoughts on things that are generally discussed very little.
Elecster’s share price is struggling.
Elecster has managed to generate about €2.5M in net profit during good years.
The P/E ratio would then be 5.5x, which is not much, but there are risks in the company…
Thanks @Iikka for the thread! I went through the company myself about a year or two ago. In my opinion, the company is exactly what you would call superficially cheap, because if you look at the size of the company’s free cash flow relative to enterprise value, it isn’t even cheap anymore. Growth is hard to come by and earnings may even be under pressure. Too many operations are at risk in authoritarian countries and growth must be sought in developing countries. Cheap for a reason, in my opinion.
Very well summarized! I agree that valuation multiples are weighed down by the business’s focus on emerging or authoritarian countries. This is somewhat similar to Tecnotree, whose core operations are in emerging markets where the local currency is not necessarily always very stable.
Developing countries first need to have primary production to UHT-treat and package. For example, in Asia, a lot of imported UHT milk is used; “fresh” milk has only started to become available in recent years.
Growing primary production is difficult and time-consuming. Consequently, I don’t believe in this company’s near future.
Elecster published its results and below is a link to the full release. I only highlighted a few things here.
Elecster’s business in Russia primarily involves the sale of packaging materials manufactured by our local subsidiary to local dairy companies. Sanctions have been expanded multiple times, which has also impacted Elecster’s exports to Russia.
For Elecster, withdrawing from Russian operations would also be a time-consuming and difficult process. As previously announced, the Elecster Group will continue its operations in Russia for the time being and monitor the development of the situation.
Thanks to a strong order book, the outlook for 2025 is positive. For dairy machinery, we expect positive development right from the beginning of the year, and for packaging materials, we anticipate that delivery volumes in the first half of the year will be at the same level as the comparison year, and in the second half, our investments in increasing packaging material sales will start to show as growth in delivery volume.
Well then, this tweet from Tomi Lahti also came across:
It’s a strange explanation, quarter after quarter, that it’s so difficult to give up the film packaging factory in Russia. For example, Huhtamäki managed to exit Russia quite decisively and quickly. I wonder about this company’s motive to firmly remain in a country that practices terror. Perhaps, when a company is small enough, it can still operate under the radar there. As a larger company, it would be caught differently for this.
I believe that many small investors, on principle, no longer want to invest in this Akaa wonder because of this Russia connection.
Net sales EUR 24.0 million (1-9/2024: EUR 25.9 million)
Operating profit EUR 0.8 million (EUR 2.1 million)
Profit before taxes EUR -0.6 million (EUR 2.2 million)
Earnings per share EUR -0.19 (EUR 0.38)
Equity ratio 58.1% (56.1%)
July-September:
Net sales EUR 7.3 million (7-9/2024: EUR 7.4 million)
Operating profit EUR 0.3 million (EUR 0.5 million)
Profit before taxes EUR -0.1 million (EUR 0.5 million)
Earnings per share EUR -0.08 (EUR 0.03)
The Kauppalehti article below is not behind a paywall, at least not yet. I spotted the article on Sijoituskästi’s Jani Järvinen’s X account.
In its financial statement release at the beginning of March, Elecster reported a possible embezzlement in the company’s Chinese subsidiary, which is being investigated by the Chinese police. The company recorded a one-off impairment charge of approximately EUR 1 million due to the suspected embezzlement in the last quarter’s result of last year.
Correspondingly, Elecster states that its Russian business primarily consists of selling packaging materials manufactured by its local subsidiary to local dairy companies. Sanctions have been expanded multiple times, and according to the company, this has also affected Elecster’s exports to Russia.
So it remains a mere scratch on the surface.
