Picks and shovels play on EVs, Robotics, Solar etc

Payton Planar Magnetics

(Ticker: PAY, listed on EuroNext exchange)

Current share price as at 2nd March 2025 EUR 7.40

What the business does

The company produces planar transformers, which are specialist transformers (an electrical device that transfers power from one circuit to another). Compared to coil transformers, planar transforms are more expensive, slimmer profile, lighter, higher efficiency with less heat generated, more reliable and can better handle abrupt changes in current load (quicker).

Planar transforms are increasingly used in electric vehicles, data centres, AI and solar technology. See link for more details:

https://www.paytongroup.com/what-is-planar-technology

Why I like this business

· High quality business: Strong and consistent revenue growth with operating margins of 30%. Strong potential for high growth due to industry dynamics and new owners

· Exceptionally cheap Vs larger competitors EV/ EBIT multiple is c. 4x vs competitors 14x.

· Market leader in the industry with 27 years in business

· Owner operator has 30% of the business and recently sold his controlling share the larges PE firm in Israel. This is aimed at helping with future growth of the business

· Balance sheet is clean with big net cash position. Dividend yield of over 6%.

· Can easily see near-term upside of 200% and long runway for growth.

· Stock is dual listed in Belgium and Israel. Both are relatively illiquid; however Belgium listing is a very backwater listing and very illiquid. It currently trades at discount of 50% to its Israeli listing despite the shares being one for one.

Key stats

Market cap USD230m

c. 6.5% div yield

P/E around 5 excluding cash

Net income 16.6m

Net cash 60m

Growth 12% pa

EBIT margins c.28%

EV / EBIT of c.4.2

Leader in niche growth end market

Catalyst (PE firm) recent position

Dual listing, 60% discount arb on stock with identical voting rights

Three main reasons it’s cheap

Illiquidity on the Belgium exchange.

Withholding tax - 30%, but if your country has a double taxation agreement some / all of it can be reclaimed.

Small cap - too small for institutional investors. More than 50% is held by insiders

Catalyst

FIMI is the PE firm that has recently (early 2024) bought a controlling stake. They have combined listings before so I think there is a fair chance they will convert Belgium listing to Israel and close the arb, giving a c.60% upside.

They did it with this Belgian listed business 15 months after taking a large stake:

https://live.euronext.com/en/products/equities/company-news/2017-06-06-delisting-unitronics-shares-euronext-brussels

https://en.globes.co.il/en/article-fimi-buys-50-unitronics-stake-for-nis-110m-1001111320

Management

Still managed by the family that started it.

They have been too cautious on growth / haven’t been able to market their offerings well. And demand hasn’t been there until recently.

Net cash / cautious approach.

I expect PE firm (largest in Israel) will change all this with their controlling stake. They are offering consulting services to the business as well. I suspect the PE firm will influence the sales strategy and introduce it to other related businesses in its portfolio.

Growth

Picks and shovels play on growth areas such as EVs, data centres, robotics, medical equipment.

See above on PE firm impact on sales strategy and Managment.

Growth is not currently being priced in.

Moat

Growing but small TAM so not worth competitors entering market (yet).

Decades of development with patents and reputation.

Technology is mature so not prone to disruption - see low R&D spend

There are two main competitors that produce planar transformers. But they each specialise in different areas, which are marketed to / useful for different industries. Payton’s specialising is small size and low heat - ideal for EVs, robotics, medical equipment etc. anything where size and weight is important

Not a recommendation

This is a very rough outline of the investment thesis for those that want to look into it further.

Nothing here’s is investment / tax advice just sharing an interesting business I found. Do your own due diligence.

This is a high risk investment. Especially given the low level of liquidity and small market cap size. This is not a recommendation and not financial advice.

I have a significant holding in this business as do those who invest in my investment vehicle.

Thanks,

Joe and Swapnil

Find us on X, DMs open:

@Joevalue and @swapnil00456809

Swapnil Singh