00:00I'm often asked what company you're keeping an eye on right now, the real gem of the moment.
00:05Well today I'm taking you to discover Mettler Toledo, a real gold mine, and we're going to see that right away.
00:09So, its real name is Mettler Toledo International Inc., and it operates in the healthcare sector under the ticker MTD.
00:16and it is listed on the New York Stock Exchange.
00:18It was founded in 1991 and today the CEO is Patrick Kaltenbach since 2021
00:23and the company is now worth $24.18 billion.
00:28Its business is based on the design of high-precision instruments, notably three precise branches.
00:34The Laboratory Instruments, therefore with scales, analyzers and software that go with them,
00:39therefore particularly in health, pharmaceuticals, research.
00:42We also have a second branch which is for industry, Industrial Instruments,
00:46so for sensors, production weighing and product inspection.
00:50And finally the third branch, Retail Food, which is more for weighing and labeling systems for points of sale.
00:56Its main value proposition is really the reliability of these products which are recognized
01:01and which provide strict compliance with international standards which are essential,
01:05particularly in certain sectors, including chemicals, health, etc.
01:09But it also has complete solutions, that is, the creation of instruments,
01:13but also provides software based on these instruments, therefore highly integrated,
01:18and also compliance services like maintenance etc.
01:20This leads to a significant customer lock-in and therefore we will potentially see significant switching costs later.
01:26In terms of revenue, it has 80% of its sales in instruments and software platforms.
01:33and 20% for recurring services that come from these instruments.
01:37If we look at the company's sales, therefore in the laboratory part, we are at 56% of the turnover.
01:42For industry, we are at 39% and Food Retail, which is much more modest, we are at 5%.
01:47And if we look at it geographically, America accounts for 43% of sales, Europe 28% and Asia 29%.
01:52So we end up with a company that is very well diversified internationally.
01:55and thanks to its great range of diversified products, it can potentially generate good revenues.
02:01Then, does she have a moat?
02:02So already, it has an advantage which is very clear, it is its integrated hardware ecosystem,
02:06so instruments that it will sell, with also its software which is adapted to the material
02:11and also an offer of additional services, such as maintenance, as I was saying earlier,
02:16to offer a truly fluid, automated and difficult to replace experience
02:21for example research centers, laboratories, etc.
02:24And so we really have apparent switching costs for the company.
02:27These switching costs come from a strong technological and regulatory lock-in among customers.
02:32There are also many barriers to entry and exit from the business,
02:35including high research and development costs to achieve levels of precision,
02:39extremely high reliability and compliance.
02:42We also have technology that is protected by patents, industrial know-how and certain experience.
02:48The company has been around for over 30 years.
02:50We also have a customer base that is extremely loyal,
02:53which is often bound by service or software contracts that are integrated into the hardware.
02:58Which means that the company cannot change equipment as it wishes,
03:00because it already has the software built in for that.
03:03And so that would require potentially changing staff training for software.
03:08and also to invest enormously in new tools, new instruments.
03:12So in the end, as we can see right here, we have a retention rate that is extremely high,
03:16greater than 95%.
03:17This is absolutely huge.
03:19And finally, obviously, it seems so logical, but it's very important.
03:22It is a market that is difficult to penetrate without scientific credibility and without certification as well.
03:27Note however that there are no super investors invested in Mettler Toledo,
03:31except for reputable funds like Vanguard, BlackRock and State Street which are already extremely good.
03:36Besides this, the company has strengths and weaknesses.
03:39It is notably a world leader in precision, laboratory equipment and inspection systems.
03:44It also has, as I said earlier, a very diversified product portfolio.
03:48So despite a market that tends to be cyclical, it can potentially be growing most years.
03:53And we also have R&D that is robust and differentiated in precision, miniaturization and compliance.
04:00But the company also has weaknesses, notably its dependence on the cyclicality of demand, as I mentioned earlier.
04:06And also the fact that it is necessary for it to spend enormous amounts on research and development to maintain technological leadership.
04:13Knowing that this technological leadership is not for the sake of having a break with our competitors, we cannot really have a technology that is more interesting than the others.
04:231 cm equals 1 cm and no matter the measuring instrument, it will always be that.
04:27On the other hand, it is necessary to invest enormously to ensure continuous improvement of the instruments and to be able to offer ever more interesting products.
04:34So there is really a big weakness in the company's business, there is no real break.
04:38Besides this, the company also faces opportunities and threats. In terms of opportunities, there is obviously a growing demand for precision instruments,
04:46whether in emerging countries, but also in the pharmaceutical sector for example.
04:49We also have the deployment of industrial connectivity in Industry 4.0, which still represented 39% of its turnover, everything related to industrial instruments.
04:59And so that allows for further integration in this sector.
05:02But it also has threats, such as competition from other suppliers, which can be global and regional.
05:08So it requires, as I said, continuous innovation for simple improvement, and not a real break with competitors.
05:14We also have an economic slowdown which can be detrimental to investments in equipment.
05:19We saw this in particular in my previous analysis of the Medpace company.
05:22Currently, the health sector is in a bit of difficulty due to funding.
05:26And finally, the regulatory or customs risk, with potential restrictions on exports and raw materials that could potentially come from China.
05:33These are obviously unlikely risks, but they must still be taken into account in our analysis.
05:38We now move on to the fundamentals and the valuation of the company.
05:41So we meet directly for the fundamentals on my screener.
05:44We can already see that the growth in turnover over the last 10 years has been extremely low.
05:484.5%, 5.2% over 5 years.
05:52So there you have it, a slight improvement, but it's really not extraordinarily high numbers.
05:56So for me, it is a criterion that is not validated.
05:58Then, we have a turnover growth that is greater than 10 and 11% over 10 and 5 years, with a stagnation of this this year.
06:05So there you have it, it's a criterion that is validated, but really only just.
06:07I am looking for a free cash flow growth of at least 10%.
06:10There we are at 10.1%.
06:12So there you go, be careful with that.
06:13It may still be a criterion that is relatively accepted, but not really.
06:17The growth in free cash flow per share is much higher.
06:20So 14% over 10 years, 15% over 5 years.
06:23So that means we're going to have share buybacks.
06:25We will see later.
06:26Then, we have a gross margin that is greater than 50%, even 60% this year.
06:30So there, a criterion which is totally validated.
06:32The operating margin which is greater than 20%.
06:34We are even at 24 over 5 years and 28 this year.
06:39The net margin which is higher than 15%, notably over 5 years, at 18 and over the current year at 22%.
06:44So there, margins which are very high.
06:46And this is also reflected in the free cash flow margins, which are higher than 16 and 21%.
06:51So there, figures which are extremely high, extremely interesting for a company, therefore, which is very profitable.
06:57We then look at the ROC to free cash flow which, over 10 years, is 41% and over 5 years, 72%.
07:02However, this year there was an error in the figures.
07:04It is at minus 581%.
07:05Obviously, this is not the case.
07:07The company, I believe it is at 42% ROC to free cash flow.
07:10So it's back to its 10-year average.
07:12But it is extremely high.
07:14And that's potentially a sign of a mode that's extremely powerful.
07:17So that's very interesting for us.
07:18This is a very important figure.
07:20So potentially a very good quality company, as we can see from just now.
07:23Then, the outstanding chairs, therefore the share buybacks, they are positive.
07:27That is, the company buys back its shares from time to time.
07:30We can even see that it is extremely high.
07:313.5% over 10 years.
07:343.4% per year over 5 years as well.
07:37And so there, for this year, we are at 4.5%.
07:39So a lot of share buybacks which translates, as a result, into a much higher growth in free cash flow per share.
07:45So there is a real desire to transmit value to the shareholder.
07:48Then, the SBCs compared to free cash flow, therefore the stock base compensations, that is to say the share-based compensations which are extremely low.
07:564% over 10 years, which is very little.
07:583% over 5 years.
08:00And there, we even went to 2.3% this year.
08:03Well, seeing SBCs with all-free cash flow at 2.3% is really very encouraging.
08:07This means that the company is able to limit its stock-based compensation.
08:11The same goes for CAPEX compared to free cash flow: 26.8% 10 years ago is quite high.
08:16But now we are at 18.9% then 11.8%.
08:19Well, 11.8% of CAPEX compared to free cash flow is still very interesting.
08:23Then, the net debt on free cash flow, so there, it would only take 0.1 years to repay the debt.
08:290.5 years for 5 years and at this moment, we don't even have any net debt anymore.
08:33And finally, we have a performance which, over 10 years, is at the level of 13% per year, so which must beat an S&P 500.
08:39On the other hand, over 5 years, 8.5%, so a little lower.
08:42And in particular, over a year, we are at minus 20%, so potentially an opportunity.
08:46As we can see here over 5 years, we have an increase of 50%, which is still relatively low.
08:51And we see that, since December 31, 2021, the company has done nothing but tidy up.
08:56That is to say, it has never exceeded this all-time high again.
09:00And in particular, if we look at the past year, we have a negative performance with potentially, if we look at the high of May 2024, a performance of minus 23.5%.
09:09And we even went down to minus 32%, almost.
09:12So there you have it, a lot, a lot of downhill going at the moment.
09:15The company that is having a little difficulty.
09:16And over the maximum number of years, here we see this range.
09:19And so, potentially, we're going to see that right away, a reacceleration.
09:22And so, we'll see if it's an interesting price for the company.
09:24So here we are for the valuation tab.
09:28So, I entered the ticker, number of shares, cash, debt, and also the company's cash flows.
09:32This will give us a purchase price compared to the current price.
09:36But first, we need to enter the price to free cash flow in 10 years and the growth of free cash flow.
09:40So, in terms of price to free cash flow, we can already see that the company, well, currently, it is selling at 28 times the price to free cash flow.
09:47Which is still quite high.
09:48But as we can see, since 2010, we have a company that is above 20 times the price to free cash flow.
09:55So already, we are going to submit a price to free cash flow greater than 20.
09:58And potentially with, as a result, an improvement in margins, an improvement in growth, etc., and in the business model, thanks in particular to the increase in its services and software,
10:07Well, potentially, we can put 25, even 30 times the free cash flow.
10:10Afterwards, I assume that 30 times, there you go, we're roughly here.
10:14So, it's still quite recent.
10:17We went from 2016 to 2023, so for 7 years, on a price to free cash flow greater than 30.
10:22But I don't necessarily expect that to happen in the next few years.
10:25I still think the company remains quite small.
10:27We are operating in a niche market.
10:29It cannot necessarily achieve growth of 10-15%.
10:32So, for me, that's pretty much it.
10:33I wouldn't put 30 times the price to free cash flow, but rather 25 times to be relatively optimistic all the same.
10:40I'm not trying to be cautious here, but really doing a basic analysis.
10:43So, 25 times the price to free cash flow seems fair to me.
10:46And then, a growth in free cash flow, which, if we look at the past, was 10%, then 11%.
10:51So, we could imagine a criterion, let's say, optimistic, that is to say 13% growth in free cash flow.
10:57And there, we would have a purchase price of 1053 dollars for, suddenly, a current price of 1163, sorry, with, suddenly, an overvaluation of 9.45%.
11:07So that means we are overvalued right now.
11:10So maybe 15% would be needed, no, maybe 14.5%.
11:16So, indeed, it would take 25 times the price to free cash flow and a growth in free cash flow of 14.5% to estimate a purchase at the current time,
11:23which seems extremely high to me, extremely optimistic for this company.
11:28So, even if we start with 30 times the price to free cash flow, we would be, therefore, more like 11%, no, maybe 12%.
11:36So, indeed, 12% growth, that seems to me to be figures that are not very pessimistic, not very safe.
11:42So, if I were to put in a safety margin today, I would perhaps be more on 24 times, for example, the price to free cash flow.
11:48and a price to free cash flow of, well, let's say 10% over 10 years because, well, I have trouble imagining a really huge reacceleration of growth.
11:58And there, on the other hand, we would be almost 30% overvalued.
12:01So there, inevitably, a company that seems to sell itself quite expensively with a nice premium.
12:06So, yes, a stable company with a good business model but which seems to me to be at a very high price.
12:11So, in conclusion, Metler Toledo, it operates in the sector of precision measurement technologies,
12:16a niche market which is very specialized but which is essential, on the other hand, for laboratories, industry and the food industry.
12:22The company offers a complete range of integrated instruments and services, including software, maintenance, etc.
12:29Its expertise, reliability and customer loyalty ensure the company recurring revenues and very high margins, as we have seen, despite a very cyclical sector.
12:39It is based on solid fundamentals and exceptional profitability, despite relatively low organic growth.
12:45We have seen this with turnover growth of no more than 5-6%.
12:49So, if its potential is obviously lower than that of other companies, for example in tech,
12:54Well, its stability, profitability, powerful mode and financial discipline make it a long-term quality value that is not negligible.
13:02So, I put it on my watchlist, but the valuation seems much too high to me at the moment.
13:07So I'm waiting to see if the company can maybe lose 20-30% in the stock market following a crash.
13:11In any case, for now, I believe that the company is more of a defense company than an offensive company.
13:16We are really in a company that is growing very quietly, that is very well managed, but on the other hand, be careful, we will not have growth of 10-15% per year.
13:23So, good defensive value, but not anything extraordinary either.
13:27There you go, I'll obviously talk about it in my next videos.
13:30Please feel free to subscribe, like, and comment if you have this stock, if you are going to boost it, or if you are going to sell it following this analysis.
13:38It was Antoine, ciao!
Commentaires