EMB

[galumay]

I finally managed to secure a parcel of EMB, Embelton Limited, a specialist flooring and metal fabrication business. It must be one of the most tightly held businesses on the ASX, 88% of the shares are held by the top 20 shareholders, it hardly ever trades and so getting in is not easy. I was lucky enough to pick up 674 shares at $10 today. EMB should probably be a private company, they have some pretty unusual numbers in the modern world, the business has been around since 1924, its NTA (net tangible assets) are about $8 per share, its equity is nearly entirely retained profits - only $1.5m of shareholder equity, retained earnings account for about $16m of the equity!

There are only about 2.2m shares on issue, and only 157 shareholders!

Its worth reading a couple of the half yearly and annual reports, beautiful in their simplicity, short, concise and clear. No need for acccounting degrees or maths speciality to read and understand this business.

I have followed the business for about 3 years and have never been able to buy shares at a price I was comfortable with, but $10 is a price I would happily buy many mre than the 674 that were available.

EMB is a cyclical business following the fortunes of the housing market to a fair extent in Australia, although they do have some diversification in their industrial/corporate flooring and the engineering sector. My investment is a very long term investment in the business that i expect will generate very satisfactory returns over the long term from the dividends and some steady growth in the share price, all the while comforted by thought that the business could be wound up tomorrow and I would get most of my capital back.

What could go wrong with my thesis is that the fortunes of the business could slowly decline over time as the market for their type of products shrinks and margins get squeezed by currency movements and increased costs. It would be prudent to keep an eye on the longer term trends in these metrics so as not to get trapped if this is the direction the business goes, as exiting a position would be at least as difficult as making one!

Founded in 1925, Embelton operates in two main industries; Flooring and Acoustic and Vibration Isolation, with manufacturing operations in metal fabrication.

Headquartered in Melbourne, Australia, Embelton employs over 100 permanent staff along with hundreds of contractors across three countries and seven capital cities. Embelton also has key distribution relationships in Asia and the South Pacific.

Embelton works with leading acoustical consultants, structural design engineers, architects, builders and installers to design and supply solutions for acoustic isolation, vibration control and flooring. As a result, Embelton’s product portfolio showcases many major projects across Australia, Asia, Europe and the Middle East.

Further, Embelton is one of Australia’s largest wholesale distributors of flooring, sold through an extensive network of flooring retailers.

With a reputation for delivering quality products, service and expertise, Embelton offers a unique capability for our clients from design to finished installation.

G P EMBELTON & CO PTY LTD
Distribution of flooring, noise control equipment and industrial products and materials
Flooring and Consumer Products: Industrial and Construction Products:
 • Wooden parquetry flooring •
• Prefinished and natural strip flooring •
• Timber, Bamboo, Laminate and Hybrid Flooring •
Structural noise and vibration isolation systems Anti-vibration mountings - springs and rubber Seismic restraints for resiliently mounted equipment
• Rubber and sports flooring
• Adhesives and finishes
• Other flooring accessories
• Compressed cork sheets, blocks and rolls
• Recycled and natural rubber sheets
• Spandex cork jointing
• Other jointing media
• Tube and Pipe bending

Why will this business be around in 10 years? -Because people will still be buying high end flooring for their houses. Lindy effect is strong too, been around for 100 years.

[galumay]

EMB H1 2021 results released to market late Friday afternoon, and ASX failed to mark them price sensitive. Lucky its so illiquid!!

Typical EMB report, zero commentary on the results, revenue up very slightly, profit down about 10%, FCF up very strongly (mainly changes in working capital) Debt paid off. Lower margin on revenue looks like its mainly due to Admin & Other Expenses as well as Distribution/storage costs.

[galumay]

FY 2021 A poor year, but the cash flow was much better than the profit so there is that, it meant they were able to pay the debt down to near 0.

[galumay]

A tough H1 2022, for me its a reminder of why I seek to buy well managed, profitable businesses with low or no debt and good ROIIC, they can weather external impacts better and have more resilience. A Red flag here is that EMB have had to take on some debt this half, FCF strongly negative which is mainly due to excess inventory. Hopefully we will see a recovery post covid, but I will be watching this one closely.

[galumay]

$EMB reported yesterday, a tough year for this odd little business, I just love the lack of bullshit with their reporting, prelim annual report is basically the financials & 1 paragraph of commentary! No pics.(10 pages total!) The debt is now the issue for me, need to see them removing it as soon as conditions normalise, even at the expense of some of the divvy IMO.

[galumay]

$EMB with a typically brief H1 2023 report, no pictures, very little commentary, just the numbers. Wish more did the same.

[galumay]

A reasonable result in a tough FY2023 for EMB, notably they have minimised the impact of the softness in construction with active management of costs and also managed to reduce the debt they were carrying, something I raised last year. The remaining debt is now a current liability so I expect to see that paid down this FY.

[galumay]

As expected debt almost gone now, another tick for management and their capital allocation. A better result, but still looks to be hard work in the flooring game!