Company Interview / Is this French stock tres bien?

Key points:

Our guest provides a fresh perspective towards French company Lagardère's role in general book publishing and airport convenience retail.Lagardère (EPA: MMB) is uniquely positioned in two sectors with scarcely contested competition: book publishing via Hachette and airport convenience retail through travel retail.Our guest forecasts a bright future for Lagardère, potentially exceeding past expectations following Vivendi's 2022 bid.

Andrew Brown, from East 72, offers his view on French company Lagardère. As Andrew emphasises, despite being potentially under the radar for many Australians, products from Lagardère have likely permeated their lives. Currently, 63% of the company is owned by Vivendi, while other shareholders of interest include the world's wealthiest man, Bernard Arnault, and Counter Holding. Andrew underscores Lagardère's intrigue due to its operation in scarcely contested sectors by public companies, highlighting its activities in general book publishing and airport convenience retail.

Andrew outlines Lagardère's unique standing within these sectors. He sheds light on Lagardère's imprint within the book publishing business through Hachette, presenting it as a substantial entity within the industry with modest competition. Comparing it to HarperCollins, Andrew underscores Lagardère's expected valuation following its intending segmentation as Group, Louis Hachette, in 2025. Further capturing interest, Andrew frames Lagardère's convenience retail arm, travel retail, distinguishing it involves two primary verticals, duty-free and convenience retail.

Providing a fresh perspective towards travel retail, Andrew uncovers excitedly its enviable robust performance as reflected through its skyrocketing revenues and cash flow. He forecasts a bright future for the company, anticipating a potentially lucrative sale orchestrated by Bolloré, likely attracting keen interest. Regardless of the independent expert's views, Andrew is optimistic about Lagardère's prospects, foreseeing them to exceed past expectations following Vivendi's bid in 2022.

Full unedited transcript:

0:00

Let's get into stock specifics. With the focus on the Olympics now and a French stock in particular. Andrew Brown from East 72 joins me. Bonjour, Andrew. What are you looking at? Well, Juliet, uh, I'm looking at Lagardere. Uh, the stock ticker code is m b.

0:19

Um, that sounds a bit strange. The company is to be Matra um, which is a very famous French name from the 1960s through the 1980s. Um, and uh, basically Matra used to be, um, used to be controlled by Jean-Luc Lagardere, uh, whose name obviously is now given to the company. He died in 2013. Um, the story behind Lagardere is really quite simple. Um, it's 63% owned by Vivendi, which itself is controlled by Bolloré. But it has a number of other very interesting shareholders. Bernard Arnault, who is the chairman of LVMH. So richest man in the world, depending on which month you measure it. He owns 8% privately. Counter holding own 11. Uh, Mr. Lagardere, junior Arnault, Lagardere. He owns eight. This is 87% in public hands. But it's a very, very interesting company because it's involved in two

1:19

businesses we all know. And that Australians, even though they've probably never heard of Lagardere, certainly have bought products from them and their businesses where there are very few other listed companies. So the two. Yeah, I was just going to say, I mean, Hachette, huge Hachette, Philip Pack, the the general book publishing Company, and also something that you see kind of everywhere you go If you're in an airport, in a bookshop as well. What does that mean in terms of, I guess, demand from investors,

1:52

um, to mine for investors, if we look at the two parts to the company and split them up, because in fact, that's actually what's going to happen. General book publishing, which is Hachette, there are very few poor, uh, pure general book publishers. There's only really one which is Bloomsbury. They are famous for Harry Potter. Uh, there's some there's some sort of technical ones that's going to get split off into a company called Group, Louis Hachette, uh, early in 2025. Um, Harpercollins is part of news. So you can look at how they go against them. And we think that'll trade at about nine times enterprise value to EBITDA. And these guys make just under €400 million a year. So we think that part of the business is worth sort of €3.5 billion. And if you consider the equity value, this company is only 3.2 billion and there's 2 billion of debt. Uh, that starts to give you a bit of an idea that it's quite interesting.

2:51

The second bit of the company is called travel is travel Retail. You would know it better if you go to Sydney Airport as relay. So it's one of those places you go and pay $5 for a chocolate bar. Um, it's part of a group of very few companies listed that bus stop travel retail into three bits duty free. Most of those companies are all private, uh, convenience retail where the these guys are and food service. There's only one other company listed around the world which is in Switzerland called Our Volta, um, which basically is in the two verticals that Lagardere, which is duty free and convenience retail. And of course, guess what? This is booming at the moment. Um, their revenues in the first half were up 18%. Uh, the profits are up 65%, but the profits are measured in a really peculiar way for every company in this area. So we focus on

3:50

cash flow, and that's been up very, very strongly as well. And we believe Bolloré are going to orchestrate a sale of travel retail. And we think a lot of people are going to be very, very interested in it. And it's worth way more than the independent expert suggested when Vivendi made their bid for Lagardere in 2022.