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Tessenderlo: Growth And Value Joined At The Hip

Listed in Belgium, majority-owned and run by Luc Tack, the turnaround artist of Picanol fame, Tessenderlo Group is a diversified industrial conglomerate with the bulk of its business in Europe and the United States.

Interestingly, Berkshire Hathaway director Meryl Witmer counts among minority shareholders, albeit in marginal proportions. The connection may come from the long-standing business relationship between Tessenderlo and Phillips 66, the refining giant part of Berkshire’s investment portfolio.

Mr. Tack seized control of mismanaged Picanol in 2009 as it stood on the verge of collapse. Since then its share price has appreciated thirtyfold, and now there’s a new kind of problem to deal with: the company made so much money that it doesn’t know what to do with it.

In 2014, Tack rolled out a carbon copy of his Picanol’s playbook within a new target cut from the same cloth: Tessenderlo, a formerly state-owned chemical company brought to its knees by inept management after years of debt-funded dividends, restless diworsification and extravagant salaries.

A no-nonsense capital allocator who cuts costs as he breathes and likes to fly under the radar, Tack has once again proven himself shrewd at skating where the puck is going. Assisted by his loyal right-hand men, he recapitalized the company – now sheltered by a rock-solid financial position – and magnificently turned it around.

Yet the market failed to catch up. Tessenderlo remains widely undervalued on a conservative sum-of-the-parts assessment and trades for 10x-12x its current cash earnings, which are soon expected to rise as new plants come online and the agriculture business recovers – among other call options.

The company sports well-entrenched competitive positions in each of its operational segments – agriculture, industrial, biovalorization – and has plenty of leeway to grow, especially in Europe where management is building up an operation modeled after the highly successful North-American subsidiaries.

In fact, Tessenderlo ticks most of Peter Lynch’s perfect stock framework: its name sounds ridiculous, it does something dull and disagreeable — the group’s admittedly unglamorous business is all about turning trash into gold, hence its corporate tagline “every Molecule Counts” — institutions don’t own it, rumors abound about Mr. Tack’s honesty, it’s part of a no-growth industry, it’s got a niche and the insiders are buyers.

Tarred with the wrong brush, Tessenderlo has already hit the inflection point and should soon reap the benefits of its investments. Luc Tack thinks no less, as he is feverishly accumulating shares every week in the open market.

(Long TESB at an average price of €20 a share.)

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