The company was established in 1989 as an importer and distributer of various electrical appliances – air conditioners, refrigerators, washing machines and other white goods. In 2015 Tadiran made a strategic decision to focus solely on the growing and profitable air conditioning business, due to destructive competition in other segments.
In parallel with importing ACs from the global leading manufacturer GREE, Tadiran also produces central air conditioners in Israel. Both products are marketed under a fully owned brand (“Tadiran”) that is familiar and appreciated by most consumers in Israel (1st place in customer satisfaction survey, 2013).
This valuable mixture of importer-manufacturer allows Tadiran to offer a “one stop shop” to its customers (business & commercial), shortening lead-time and allowing for locally required product adjustments.
Alongside Tadiran, the second dominant player is Electra – operating with a similar business model while also owning retail floor, dedicated to electrical appliances, unlike Tadiran. This pair commands a combined market share of more than 80%, approximately equally split, whereas the next largest player holds about 10%.
Management wise, Tadiran is owned and operated by Moshe Mamrod, with a personal stake of 74% in the company. Throughout the years, Mamrod has led Tadiran through strategic acquisitions and decisions that created exceptional value to shareholders, multiplying the market cap by more than 5 in the past decade.
Going forward, we still have much value creation to expect. The stock is trading at a humble P/E ratio of 8.7, based on historical 2015 results. This, without taking into account the future revenue soon to be delivered by a long-term government concession to improve energy consumption in 11 different hospitals.
Also, as a result of significant growth during the past year (19%), the company successfully renegotiated contracts with its supplier, lowering the price purchase per unit. This last improvement (Q4) was barely visible in the company’s annual report for 2015, since the prevailing seasonality of the AC business shifts most of the revenue to Q2, Q3. This summer is expected to be even more profitable than the last one, being an all-time profit record in itself.
Tax- the company has some net loss carry-overs from the past (discontinued operations), which are recorded as tax assets and are expected to materialize so that no tax will be actually paid in cash, more or less, up to 2019.
Summary: We estimate this owner-operator company traded at a 8.5 P/E and 5.3 EV/FCF on 2016 with bonuses coming from Hospitals energy efficient program coming to effect 2017 & ~10% holding in Enverid, a successful energy efficient startup.
This post is excerpted from the Reading Capital May 2016 Letter to Investors.
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