“One lucky break, or one supremely shrewd decision — can we tell them apart? — may count for more than a lifetime of journeyman efforts.” (The Intelligent investor, 1971 third edition, postscript)
Speculators crave for exaltation, as new exotic ideas to devise abound in their order of business with unflagging resolve. They show such superb zeal in contriving extravagant stratagems that, in fact, they shall be considered great geniuses, for they always trade a sharp repartee to whatever complex problem they confront.
Action, however, quickly proves their characters febrile and helpless to uphold their designs, should these differ from the arbitrary dictate of the exchange. Inasmuch as greed and fear conduct each of their gambits, yesterday’s convictions will in all likelihood be cracked in a blink tomorrow.
To quote the good old farce: They died young, although they might be buried old.
July 15, 2013
Principled investors, by contrast, distinguish themselves through the strict observance of a simple but powerful set of virtues, of which discipline, fortitude and craftsmanship shape the foundations.
Candidly conceding that quality ideas could never arise in generous supply, they perceive how skill, regardless how polished, consists of little account absent opportunity.
In this manner, they endeavor the taking of calculated risk upon a few selected occasions, oftentimes betting against the herd’s suffrages, and customarily after having identified an appreciable margin of safety, the latter assumed capable of absorbing possible unfortunate developments.
These practitioners of sound judgement, at all times mindful of their own fallibility, elegantly shun precarious ventures. They insist on never revolving too remote from their actual circle of competence, by nature limited, for they have noticed well how whoever caught exalting himself will be promptly humbled.
Yet whenever a qualified prospect surfaces, their keen business logic commands to pounce on it with vigor. In that respect, they typically seek to profit from the speculator’s feverishness, thereby evidencing that the contender who is prudent and lies in wait for an opponent who is not will naturally be triumphant.
Investment, after all, is most intelligent when it is most businesslike.
Founded in Paris by flamboyant baron Marcel Bich seventy years ago, Societe Bic designs, manufactures, and markets pens, lighters, and razors in 160 countries around the world.
The company has, for keeps, diligently operated in conformity with the patriarch’s precept —”method, precision, discipline”— likewise did it remain devoted to the neat, unembellished, and bold strategy laid down at start: “All for quality, at half the price, suffering zero superfluity.”
If simplicity suggests the achievement of maximum returns upon minimal means, Societe Bic has assuredly been quite proficient in implementing the formula. Seven decades after its inception, the company claims a share the aggregate of half of the lighters market, a fifth of the disposable razors market — trailing Gilette — and a tenth of the highly fragmented stationery market — all worldwide figures.
Every day, eight million Bic products are sold throughout the world. In the Americas, two of three lighters in circulation are Bic made.
A fifth of the ballpoints and correction fluids in use over the five continents has been manufactured by Bic or one of its subsidiaries. The company sold up to 120 billion ballpoints since its organization — in ink, an equivalent of the distance from Mercury to Pluto.
The brand’s flagship writing instrument, the Cystal — 5.8 grams in weight, 2 miles in writing — is for decades the best-selling pen worldwide. Its iconic design is fancied by connoisseurs, and the model is part of the permanent exposition at the Museum of Modern Art in New York.
Indispensable, thus fashionable: the byword would appropriately symbolize the company’s products. The three segments — stationery products, lighters, and razors — account for 80% of sales and record increasing production volumes in each of the past consecutive fifty years.
Bic is besides a renowned supplier of promotional products and advertising gadgets — in volume, the fourth in the US and the second in Europe. Despite a growing market share, essentially in North America, the said activity is inherently cyclical, its profits thus less regular.
The brand has also ventured in diverse kinds of creative undertakings such as windsurfing boards, fuel cells, and barbecues. In a like manner, it partners with Intel to produce an educational tablet — the Bic Tab — destined to students of French primary schools.
The sum of these subordinate enterprises accounts for the remaining fifth of the business. Compelling perspectives of growth have been identified in consumer electronics, and the management has undertaken to materialize them in the near future.
Yesterday the chief vectors of success in the West and in Japan, today the distinctive, economic, and essential products Bic designs prompt an expanding demand from emerging markets. The latter already represent a third of the revenue and notably yield a double-digit growth in the razor segment.
Established in Brazil since the early 60s and widely distributed across Latin America, Bic acquired a foothold in China seven years ago and, just recently, has finalized the purchase of Cello, the largest Indian manufacturer of writing instruments.
The brand also reaps the benefits of its prestige in Africa — the fastest growing market for razors — where it prevails as a prime ambassador of the French touch.
In the least developed markets, Bic deploys a clever distribution strategy articulated around the installation of “service points” — in fact kiosks — amid communities that exclusively sell the company’s products.
The prudent expansion strategy coupled with a strong consumer appeal for the brand accounts for the steady gain of global market share, whereas a great deal of its competitors have seen their sales tumble or stagnate with the recession.
2003: 1,360 15%
2004: 1,265 14%
2005: 1,381 17%
2006: 1,448 17%
2007: 1,456 18%
2008: 1,421 15%
2009: 1,563 14%
2010: 1,832 17%
2011: 1,824 19%
2012: 1,899 20%
The company’s blueprint and know-how in marketing first-rate necessity goods should prove favorable to the business performance in the long run, inasmuch as more consumers worldwide benefit from a broader purchasing power.
Faithful to its tradition of honoring the past in order to better invent the future, Bic has dodged the option to relocate its production in low-cost labor countries. On the contrary, the management has been resolute in ceaselessly allocating the necessary resources to upgrade the twenty-three manufacturing facilities the company directly possesses and operates.
Bic indeed derives almost the entirety of its sales from its own factories’ output. In a single day, the plant in western Paris assembles up to three million ballpoints, as the one in Redon, Britanny casts more than two million lighters.
These facilities are largely robotized, for mass production on such a large scale of efficiency requires state-of-the-art engineering and micrometric precision. The manifold industrial processes performed are, of course, jealously kept secrets.
For instance, Bic is accustomed to claiming that its lighters supply “the safest flame in the market,” as each unit goes through a fully automated fifty-steps quality testing — a procedure low-cost competitors notoriously elude.
Lighters, along with pens and razors, may have the appearance of altogether commoditized products, yet in reality they are subject to drastic safety and environmental norms, especially within the mature markets. The stiffer these regulations, the better for the company.
In addition, not all of the said merchandises are created equal. In that respect, Bic requires each of its products to last twice longer than competitors’: its lighters dispense twice the flame, its pens twice the ink, and its disposable razors remain sharp for a complete month of intensive use.
This superior quality, oftentimes produced at a fraction of the cost beared by Chinese rivals, warrant the concrete — although not invincible — advantage Bic enjoys over the competition. It further enables the company to propose a widely diverse, affordable, and modish offer to the nebula of distributors it works with.
Societe Bic presents an immaculate, debt-free balance sheet. A sensible part of the earnings are retained yearly, and intelligent capital allocation over the years has in effect contributed to consistently build up shareholders’ value.
(per share data)
book earnings dividend
2003: 20.59 1.99 -
2004: 19.14 2.15 -
2005: 20.27 3.10 -
2006: 22.04 3.41 -
2007: 23.78 3.50 -
2008: 24.14 3.00 0.40
2009: 26.91 3.14 1.35
2010: 29.67 4.29 2.40
2011: 30.80 4.95 1.90
2012: 30.91 5.49 2.20
Perhaps not innocently, the company remains largely owned by the Bich family, whose interest equals 40% of the equity.
Mario Guevara, a former regional executive who worked his way up to the CEO position in 2006, has done a superb job at streamlining operating expenses and aligning the business with the challenges of sustainable development, a field in which Bic is held up as an example to imitate.
Backed by a sheltered financial position, Bic resembles a wonderful franchise fit to profit from fairly predictable perspectives. Yet at $75 a share, favorable prospects are apparently regarded as something to look for but not to pay for.
An investment operation thus appears to entail a thoughtful defensive play for the enterprising investor, should these two be compatible.
(1) Business we understand well – CHECK
(2) Demonstrated consistent earning power – CHECK
(3) Tangible and durable competitive advantage – CHECK
(4) Attractive price
and compelling margin of safety – CHECK
(5) Able management in place – CHECK
BUY [suggested price frame: $75 and less].
$ symbol is used, but currency is euro.
The author owns shares of SocieteBic.
"The worth of a good analyst undoubtedly shows itself decisively over the years in the sum total results of his recommendations."
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