Value Column von Hans Peter Schupp
March 11th, 2025
How to turn scrap into profits
Hans Peter Schupp, Managing Partner of Fidecum AG and portfolio manager of the Contrarian Value Euroland Fund (ISIN: LU0370217092) about the investment in Dérichebourg.
What is Trump saying? How is the EU positioning itself? What does Merz’s ‚whatever it takes‘ mean for stock markets and interest rates?
In recent weeks, investment decisions have changed almost hourly in response to the news. For us, politics is not the decisive factor. We invest in companies that promise success largely independently of this – because the business model is right and the valuation is favorable.
A current example is the French family business Dérichebourg (ISIN: FR0000053381). At the beginning of the 1950s, former mechanic Guy Dérichebourg was still driving around the greater Paris area in his van, collecting scrap metal and clearing out houses. It has since become a recycling and service company with a turnover of 3.6 billion euros. And it is still 41 percent family-owned.
Metal prices are a key factor for success
Recycling is a business with a promising future, but one that is subject to strong fluctuations in earnings. Companies make their profits by extracting valuable raw materials from waste and recycling them. Metal prices are therefore a key influencing factor. If they are high, the cost of sorting, transportation and processing is worthwhile. If they fall below a certain level, recycling is no longer profitable. This is why Dérichebourg’s share price also correlates strongly with the development of metal prices (see chart below).
Forecasting the development of metal prices is a difficult task. In the long term, however, there are good reasons to assume a rising price trend. The trend towards a circular economy and sustainability, the hunger for raw materials in the transition to renewable energies, stricter regulations for new permits for raw material extraction, the decreasing raw material content in mines and the fear of bottlenecks due to geopolitical tensions and trade restrictions tend to point to rising demand for raw materials and correspondingly higher prices. Against this backdrop, recycling is likely to remain a promising, albeit cyclical, market segment.
Diversification reduces dependency
As investors, we find it particularly exciting how Dérichebourg has been reducing its dependence on the development of metal prices for some time now. The company has been gradually diversifying its business activities since 2007. For example, it acquired a facility management company that also offered cleaning, security and industrial services. This pillar was further expanded in 2020 with a 20% stake in the listed catering company Elior SA (ISIN: FR0011950732). In 2023, Dérichebourg then merged its own service activities with private customers into the Elior Group, increasing its stake to 48.4%.
From our point of view, this was a smart move. The Elior Group was in a difficult situation at the time. The pandemic had hit the company hard, as demand for catering and facility management services had fallen sharply in many areas. At the same time, Elior was unable to fully pass on the inflation-related cost increases to its customers. Last but not least, the company’s high level of debt was severely limiting its financial flexibility.
In this situation, Daniel Dérichebourg took over the position of Chairman and CEO of Elior. Under his leadership, unprofitable contracts were terminated, prices were adjusted and cost optimization measures were implemented. This seems to have initiated the turnaround of the Elior Group. With sales of more than six billion euros, Eliot should return to profit in the coming year.
Threefold opportunity for investors
Today, an investment in Dérichebourg shares is interesting for three reasons.
Firstly, the company is valued very favorably. The market capitalization currently stands at 935 million Euros. In the challenging financial year 2023/24, a net profit of 75 million Euros was achieved. However, this result included a charge of 15 million Euros in connection with a cyber attack and a loss of 20 million Euros from the investment in the Elior Group. However, a net profit of 160 million Euros is already forecast for the coming financial year. The price/earnings ratio (P/E ratio) would then be below 6.
Secondly, Dérichebourg would benefit from a sustainable turnaround at the Elior Group. Due to past difficulties, the Elior Group’s share price is currently trading close to an all-time low. The stock market value is just EUR 685 million – that is only around ten percent of turnover. Even at this low level, however, Dérichebourg’s stake in Elior is still worth 340 million Euros. If the turnaround in earnings is successful, the value of the investment would probably increase significantly.
Thirdly, Dérichebourg could experience a revaluation on the stock exchange in the future. In a group of companies with two strong pillars, the dependence on the metal price trend is reduced. The profit trend should stabilize and justify a higher price/earnings ratio. We are invested and want to accompany the company on its journey for a long time to come.
Our investment approach
With our Contrarian Value Euroland Fund (ISIN: LU0370217092), we have remained true to our investment philosophy of investing in undervalued companies with potential and a comprehensible business model for 25 years. In doing so, we act like an entrepreneur who wants to buy the entire company and – if necessary – deliberately go against the prevailing market opinion.
About the author: Hans Peter Schupp, is a managing partner of Fidecum AG and portfolio manager of the Contrarian Value Euroland Fund.
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