Diversified

The Company

With total sales above TD1.5bn (€687.9m), Poulina Group Holding is ranked among the top private enterprises in Tunisia. The group started in the late 1960s when the founder set up a small chicken farm business with a view to innovating in the mass consumption sector. Diversification came as the group grew fast and developed into a fully integrated business. Today, Poulina is one of the largest Tunisian conglomerates with more than 100 subsidiary companies in a variety of industries, including poultry, consumer goods, distribution, ceramics and building materials, civil engineering, packaging, steel, wood and real estate. Poulina’s current profile is interesting in the sense that it is balanced between defensive activities in consumer goods, which provide 60% of sales and earning before interest, taxes, depreciation and amortisation (EBITDA), and more cyclical activities, helping the group maintain revenue.

In the mid-2000s Poulina began a regional expansion programme, as the local market grew more and more competitive. The group looked to Libya initially, given the large potential of Tunisia’s oil-rich neighbour. While the situation in Libya has changed significantly following the civil war, the group is confident that in the long term their Libyan strategy will pay off. Looking at the post-revolutionary period of 2011-14, and despite the economic downturn, Poulina has posted positive results. Total sales grew 9% per annum, which translates into more than TD460m ($211m) in additional revenues. Growth was driven by internal factors such as greater output capacity, higher sale prices and new products with higher added value, but also external factors like local demand due to around 1m displaced Libyans living in Tunisia. In terms of earnings – once more largely due to the fact that the group is highly diversified – the group has seen decent results, although bottom-line growth does not match unrealised gains from new projects. Sales deriving from new projects were not enough to enable the group to break even, which has obviously had a negative impact. Productivity is also to blame as the group lost valuable time during negotiations with trade unions and other disruptions caused by the revolution. The rising US dollar has also had a negative impact on the group’s purchases. However, EBITDA margins have resisted, dropping only 210 basis points in the period from 2010 to 2014 from 16.3% to 14.2%.

Poulina is also unique in Tunisia for having maintained investors’ interest. The group has invested TD800m (€366.9m) since 2010 and is raising debt to finance its projects, which altered the shape of its balance sheet. At year-end 2014, the group’s net debt hovered around TD1bn (€458.6m), generating TD60m (€27.5m) in financial charges. This level of debt is not alarming, as new projects are set to soon start generating cash flows and reduce the debt.

Outlook

Past investments will generate future growth, and given that the Tunisian economy will likely improve in the future, Poulina will reap the benefits of its investment strategy. In the intermediate term, and with a more stable environment, the group should come back to a more decent earnings profile. It should be noted that the company has progressively shifted from a traditional strategy of industrial expansion, and has become increasingly opportunistic in the way it looks at new investments. For example, Poulina recently started a new retail chain for cosmetics and fragrances, as well as invested in IT and car dealerships, via a stake in Audi and Volkswagen dealer Ennakl. As far as share prices is concerned, since the 2011 revolution Poulina has lost its blue chip status. Given the economic downturn, investors are increasingly reluctant to buy diversified holdings. At current valuation levels (11.1x for a 2015 price-to-earning ratio), Poulina shares are seen as a value stock. The upside potential of the stock is important considering the fact that Poulina will be in the best position to benefit from a likely economic recovery.