Europe in focus: Ströer
One of the companies we have in our portfolio is the German company Ströer. Today Ströer is Fondita European Small Cap's largest investment and Ströer is a good example of a company that fulfils Fondita's investment criteria. Ströer is Germany's leading advertising and marketing company focusing on “out-of-home media” such as outdoor advertising and advertising in public places and shopping centres. An increasing proportion of the company's operations will in the future be found in digital advertising and marketing.
Today the company has 230 000 "advertising pillars" installed throughout the DACH area (Germany, Switzerland and Austria) of which 5 500 are digital and 70 000 are smaller screens in trains, buses and metros. Just a few years ago the company had not yet installed any digital screens. The company's growth is primarily driven by the transition from analogue to digital advertising and marketing, which means that the company can increase the number of customers per advertising point, which in turn leads to earnings that are 4 to 6 times higher per advertising point, which in the long run leads to a profitability that is notably higher than today.
The company has increased its sales organically over the past six years on average by 8 % per year, a trend we see continuing as more and more analogue outdoor advertising is being replaced by digital screens. In the long term we also see that Ströer with a strong brand and local expertise has the opportunity to grow internationally outside the DACH area as the digitalization evolves. Ströer focuses a lot on research and development, which we consider to be a very critical aspect since a company that does not invest in developing itself and its products has difficulties in achieving profitable growth over a longer period of time. The company has in silence developed a global digital search service called “Statista” that today grows about 50 % p.a. to a high profitability.
Picture: Ströer's share price (01.01.2009-03.07.2019) Source: Bloomberg
Ströer can be described as a typical "Fondita company", a company that is a market leader in its niche market, has a proven business model (strong cash flow, good profitability, strong balance sheet) and whose growth is driven by a structural change in society that the company has managed to profit from. The company also has a functioning sustainability work that is still being developed. One of the reasons for the company's success is also the fact that it is still run and owned by the founder family Ströer. The founding family stands for continuity, stability and focus on returns and shareholder values on a long-term basis, which we consider important in the companies we invest in.
We are convinced that the company continues to capitalize on its unique market position in the industry. This industry will still face major structural changes and the digital solutions are taking over more and more in our society, which is a positive aspect from an investment perspective.
Kenneth Blomqvist, portfolio manager