Spadel (EBR:SPA)
No Fizz, No Fuss—Just Solid Returns
They say value has no borders—and neither do good companies. This Belgian beverage group popped up on my stock screener, and not just for its financials. Spadel—mercifully shortened from the tongue-twisting Société de Services de Participations, de Direction et d'Élaboration—has quietly doubled its share price over the past decade. With strong fundamentals, a growing margin of safety, and a business model built on natural beverages and local dominance, this overlooked player might just be one of Europe’s better-kept secrets
Business Model
The Group extracts natural mineral water from sources around Europe, which is then sold as either bottled water or natural beverages through its five main brands of Bru, Spa, Carola, Wattwiller, and Devin. Products include natural mineral water, flavoured water, energy drinks and lemonades with continual product expansion and innovation with production facilities across Bulgaria, France and Belgium.
Strategy: Spadel aims to be a ‘multi-local’ group comprised of strong regional brands poised to take advantage of the cultural familiarity with consumers and the move to buy local. To this end, they have abandoned major exports, with 95% of product distribution occurring within 500km of their water sources, placing themselves as an essential player in regional markets. Management has combined organic growth with strategic acquisitions with a focus on purchasing regional market leaders, with 3 of its 5 major brands joining the Group in the last 2 decades. Most of these have focused on northern mainland Europe, with the 2017 acquisition of the Bulgarian national market leader, Devin, being the outlier, but this has proven a prudent move, with the brand becoming one of the main sources of revenue.
Geographical focus: The Benelux (Belgium, Netherlands and France) region dominates the group's sales, while Bulgaria remains a significant contributor. It must be noted that the composition has been changing in the last 4 years, with the Benelux region falling from 70% of revenue in 2020 to 65%, while Bulgaria has steadily increased from 20% to 24%. This is driven by slower revenue growth rates in the mature Benelux market with a modest increase of 28% between 2020 and 2024. Whereas Bulgarian revenues have risen by 84% in the same timeframe.
‘The Source’: In 2021, Spadel launched a venture capital fund called ‘The Source’ with the aim of investing in propitious beverage start-ups using an initial injection of €10 million. Recent investments include a British startup called ‘Something & Nothing’ focused on natural sodas, a French startup focused on chicory-based hot drinks as a coffee alternative and a Belgian energy powder startup.
Shareholders: Currently the free float is a minuscule 2.4%, which explains the lack of liquidity, while 93% is held by CEO Marc du Bois, which stems from the Group’s family roots.
Growth
Product innovation – Last year the Group launched Zyla, a natural energy drink, selling 1.8 million cans in the first year. While also launching the ‘SPA fountain’ for the Belgian office market and introducing a contract-free model with pricing between €18.50 and €25 per month. If successful, this could be expanded to the Netherlands and France. Planned product launches for 2025 include new lemonades at Devin and sparkling flavoured waters at Spa and Carola.
Improved operations – Expanded operations in high-growth areas like Bulgaria with the installation of a new production line storage area at Devin to meet the strong increase in demand. Investments are being ramped up with management advising that the next 2 years will see investment levels equal to the last 6 years, with the Bulgarian brand, Devin, receiving 35% of last year's capex. Also, global price pressures in 2022 led to a slump, and with these easing, operating margins have since rebounded.
Market drivers – Falling alcohol consumption amongst populations in the West has seen demand rise for bottled water, especially amongst those under 40, with prices consumers are willing to pay rising, driven by concerns about health and water quality. For many, flavoured waters are a healthier alternative to more sugary beverages, with consumers desiring products made from natural ingredients free from artificial flavourings and sweeteners, which favours Spadel.
Acquisitions & geographical expansion – Given the success of previous acquisitions, management are always on the lookout for strong regional brands which align well with the group's portfolio. With the transformative acquisition of Devin, the Group could repeat the same trick and expand into new countries, and given the faster market growth rates found in southern and eastern Europe, this could prove a very fruitful strategy.
Financials
Revenues & Profitability: Over the last 10 years, revenues grew by an average of 5.35% annually, although that has risen substantially to 9% annually since 2020. This might be due to the renewed focus on health post-Covid or a spillover effect from the increased adoption of bottled water during Covid. Last year sales grew by 9.5% spurred by a 9.1% increase in volumes sold, which was reflected across all markets where the group operates. Sales grew fastest in Bulgaria, rising by 17.4%, followed by the Benelux (+7.6%) and France (+6.7%). Operating margins of 12.9% are average for the European market, although the same cannot be said for its market-leading ROE & ROC of 13.9% and 14.3%, which rank 2nd and 1st.
Liquidity & Solvency: The group's short-term financial position is stable with a current ratio and quick ratio of 1.82 & 1.63. While net gearing stands at -47% which compares favourably to the sector average of 66%, with cash rising 32% to €150 million, resulting in a net debt position of -€146 million.
Dividends: Current dividend yield of 1.12% are some of the lowest amongst European beverage producers with a dividend cover of over 4, which suggests the company is underpaying its shareholders, perhaps to maintain stability during expansion. Last year it paid 32% of net income as dividends.
Valuation
My key assumptions:
FCF/Net income: 107%
Revenue growth rate: 1% (CAGR for previous 4 years was 7.7%)
Net income margins: 8.1%
WACC: 4.13%
Resulting in a fair value per share of €364, a margin of safety of 82%.
Risks
Pollution contamination – Particularly concerning the water source, either through a weather event or human instigation.
Perception – If a study or publication were to be published linking the Group’s products to a human health risk
Regulatory changes
Consolidation of the retail sector – Resulting in lower profitability.
Higher input prices
Tax pressure – particularly with the increased governmental focus on the environment.
Nice find Mahad, good write-up.