Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The first three editions in the series can be found here, here, here, and here. Please give us your thoughts on the series through the “Contact Us” page; your feedback will determine if we continue with it. Thanks in advance!

Start of notes

Data as of 17 July 2023

Background

• HQ: Milan, Italy
• Founding: 2004 (idea for the company came in 1994)
• Main listing: In Italy on the Milan stock exchange
• IPO date: 19 November 2018
• Employees: Average number for 2022 was 1,055

Business

• Edilizi Acrobatica is the leading company in Italy and Europe in the field of operational construction using the double safety rope technique. The company’s main services include:
  • Securing and Prompt Intervention: Services that are provided urgently, such as removal of rickety objects on the outside of a building
  • Renovation and maintenance: Restructuring and maintenance of facades, balconies, ledges; ordinary maintenance of hedges as well as rebuilding
  • Building cleaning: Cleaning of walls and facades (glazing and/or cladding panels), roofs, solar panels and windmills, gutters and downpipes
  • Proofing intervention: Removal of localized infiltrations or the complete rebuilding of the waterproofing system that may concern balconies, roofs, ledges and hedges
• Founder Riccardo Iovino was previously a skipper (a boat captain) who was accustomed to moving at high altitudes to carry out maintenance on the masts of boats. In the 1990s, he had a friend who had a gutter to be repaired in a poorly accessible spot. Iovino decided to climb up the roof with the ropework technique and repaired the gutter in a few hours. The experience gave Iovino a great idea: rope works allow a person to intervene effectively outside buildings with enormous advantages in terms of time and money that traditional construction cannot offer. Figure 1 shows Edilizi Acrobatica’s employees in action. Edilizi Acrobatica’s management believes that the double safety rope technique has the following advantages over scaffolding:
  • Better safety for workers: In 2017, Edilizi Acrobatica conducted 222,577 hours of work, with only 2,872 hours of injury (16 injuries), corresponding to an injury frequency index of 1.14%.
  • No risk of theft
  • Less invasiveness for any works conducted: For example, Edilizi Acrobatica employees can work at heights on monuments and historical buildings without disturbing tourists (the company’s rope access technicians worked on Ponte Vecchio in Florence, on the Roman Forum and the Rocca Salimbeni in Siena)
  • Greater cost- and time-effectiveness
  • Better accessibility to areas on buildings that are not reachable with traditional techniques
  • Better for the environment: The Life Cycle Assessment conducted in 2021 showed that of the four main types of techniques used for building-interventions, the double rope technique allows a reduction of between 45% and 76% of the global warming potential by means of a reduced number of journeys; double rope technique allows uses an estimated 51% to 68% of energy consumption and between 7% and 40% of water consumption compared to other techniques.

• Edilizi Acrobatica has more than 130 branches in Italy, France, Spain, Monaco, United Arab Emirates, Saudi Arabia, Nepal. In Europe, it has more than 120 branches, which includes 30 franchises; majority of the branches are in Italy (83 company-branches and 30 franchise-branches at end-2022). The branches in Dubai come from Edilizi Acrobatica’s March 2023 acquisition of 51% of Enigma Capital Investments, which is active in the Middle East in the construction sector, rope access, cleaning services for residential and commercial buildings, and some facility management services; Enigma performs cleaning work for the exterior of the Burj Khalifa, Dubai’s iconic skyscraper. Edilizi Acrobatica offers its services through its wide network of operating offices – both directly-owned and by franchises – which allow for a strong commercial presence at a national level. Edilizi Acrobatica’s branches look attractive and inviting (see Figure 2):

• Edilizi Acrobatica customers come from the residential sector (the company receives orders from private individuals, condominium administrators, or technicians), public administration sector (where the company works on buildings owned by public administration, such as schools, universities, public offices, and hospitals), corporate sector (where the company works on industrial sites, company headquarters, hotels, wind farms, and photovoltaic plants), and religious sector (where the company works on religious structures including churches, monasteries, and convents). In 2017, residential was 80.9% of Edilizi Acrobatica’s revenue from direct operating offices; public administration was 5.3%; corporate was 8.6%; religious structures was 5.1%. Unclear what the split is like in 2022.
• In 2022, Edilizi Acrobatica earned €134.5 million in revenue, of which 89.9% was from Italy, 3.6% from France, 5.9% from a new business called Energy Acrobatica 110 (involved with energy efficiency, anti seismic interventions, installation of photovoltaic systems), and 0.6% from Spain. In 2022, 6.1% of Edilizi Acrobatica’s revenue came from franchises. The average order size in 2022 was €7,000.

Market opportunity

• Edilizi Acrobatica is active in the field of external restructuring of buildings. This market represents over half of the entire construction sector. There’s been a trend toward professionalization in external restructuring in recent years with the growing presence of professionals in the management of buildings, including condominiums both in Italy and abroad, as has already been the case in France for several years. Management believes this market evolution is a tailwind for Ediizi Acrobatica, since it is increasingly a point of reference for large customers who demand fast execution and high-quality standards. Moreover, external restructuring using rope access is gaining popularity with condominium owners and administrators since there are no installation costs for scaffolding or aerial platforms and rope access guarantees the possibility of conducting external restructuring of the buildings through medium small interventions planned in several phases of time, with completion of the works also in a wider period.
• Figure 3 shows the size of the renovation market in Italy for 2007-2016 where renovation interventions include demolition operations, removal and construction of partitions, plastering and smoothing, floors and coverings, painter works, plumbing works, heating system, electrical system, masonry assistance, air conditioning, fixtures and supply of materials. In 2016 renovation works in Italy amounted to €69.4 billion, up by 3.6% compared to 2015 (€67 billion), and giving rise to a 2011-2016 CAGR of 1.7 %. Around 71.5% of the total renovation works (€49.6 billion) were for residential buildings. Worth noting that the renovation market has been very stable, even during the Great Financial Crisis period. Steady growth in the market continued in 2017 and 2018; total renovation works spending was €71.0 billion in 2017 (€50.4 billion for residential buildings) and €72.6 billion in 2018 (€51.4 billion for residential buildings).

 

• In 2011, ISTAT (Italian National Institute of Statistics) compiled a study of buildings and complexes in Italy and found a total of 14.516 million, 13.3% more than in 2001. More specifically, there were 14.453 million buildings and 63,115 complexes, with an inter-census increase of 13.1% and 64.4% respectively. 84.3% of the total buildings surveyed were residential buildings, equal to 12.188 million, up by 8.6% in the decade between the censuses.
• In France, Edilizi Acrobatica’s market opportunity is about €60 billion, which consists of the following activities: Support the completion of new buildings with external and covering finishes, installation of panels in facade, installation of photovoltaic panels, installation of lifelines, and works aimed at improving and maintaining the exterior of buildings.
• Worth pointing out that Edilizi Acrobatica’s competitors (companies that offer similar services as Edilizi Acrobatica using the double rope technique) in Italy and Europe are tiny. Figure 4 show competitors in Italy and their revenues in 2016 and Figures 5, 6, 7 show competitors in France, Switzerland, Spain, and Portugal, and their revenues in 2016. Their revenues are all tiny compared to Edilizi Acrobatica – in 2016, Edilizi Acrobatica’s revenue was €13.3 million. Even in 2022, there are no major new competitors, and the trend of small competitors on a local scale remains unchanged.

Growth strategy

For growth, Edilizi Acrobatica’s management communicated the following in its 2018 IPO prospectus:

• Consolidate Edilizi Acrobatica’s presence in the Italian market 
• Strengthen the company’s commercial activity in the residential sector, through the opening of new operating offices, directly-owned and through franchising 
• Develop dedicated divisions to target Corporate, Public Administration and Religious sectors
• Acquire leading foreign companies operating in the construction market with rope access technique (Edilizi Acrobatica acquired a French company in 2018 and the aforementioned Dubai company in March 2023)
• Strengthen Edilizi Acrobatica’s brand image through the creation of promotional campaigns and promotional activities, through traditional channels and social media (the company now has a very fun social media presence – its FB page has 215,000 followers!)

Figure 9 below, from Edilizi Acrobatica’s 2021 earnings presentation, offers great insight into how it wants to expand into Europe (note the reminder again of the small size of peers):

Financials

• Very strong historical revenue growth. 2016-2022 CAGR of 47.0%; 2019-2022 CAGR of 47.7%; 2022 growth of 53.4%
• Profitable since at least 2016, but net income margin has fluctuated between 13.6% (2016) and 2.6% (2019). Net income margin was 11.3% in 2022. Edilizi Acrobatica’s net income has CAGR-ed at 42.6% for 2016-2022, 140.6% for 2019-2022, and 37.5% for 2022
• Operating cash flow data only available from 2017 and since then, operating cash flow has been mostly positive. But, the operating cash flow margin was meagre from 2017 to 2020, coming in between 1.0% (2017) and -6.6% (2020). Operating cash flow only inflected upwards in 2021, with a margin of 16.9%. 
• Free cash flow follows a similar dynamic as operating cash flow, with the difference being it was negative from 2017-2020.
• Balance sheet has fluctuated between low net-debt or low net-cash position.
• Not much dilution since IPO in November 2018, based on end-of-year share count.
• As far as I could tell, started paying a dividend in 2020. Dividend has increased substantially, but payout ratio is low at 27% for 2022.
• Worth noting that the Italian government introduced a “bonus facade” for 2020, which allowed Italian building owners to recover 90% of the costs incurred in 2020 for the maintenance of their building facades with no maximum spending limit. The Bonus Facade was applicable for 2021. In 2022, the Bonus Facade was reduced to 60% of the costs incurred. The Bonus Facade was not renewed for 2023. Edilizi Acrobatica’s strong financial performance in 2021 and 2022 may have been due to the Bonus Facade.

Management

• Edilizi Acrobatica’s founder, Riccardo Iovino, 54, is CEO. His mother (Simonetta Simoni) and partner (Anna Marras) are also on the board of directors; Simoni is the President of Edilizi Acrobatica. 
• Iovino and Marras control Arim Holdings (80-20 split), an investment vehicle which owns 74% of Edilizi Acrobatica’s shares as of 31 December 2022. This equates to 6.09 million Edilizi Acrobatica shares. At 17 July 2023 stock price of €17.15, that’s a stake worth over €104 million, which is significant skin in the game.
• During Edilizi Acrobatica’s IPO, Simoni also had a stake in shares of the company held by Arim Holdings that equated to 8.5% of Edilizi Acrobatica’s shares; unsure if this still holds true. 
• In 2007, when Marras joined Edilizi Acrobatica, it was a turning point in the company as she helped create a sales network, and an internal HR department focused on people and the continuous recruitment of talents. 

Compensation of Management

• Very little detail on compensation of management. Only data is the overall compensation to the directors of Edilizi Acrobatica. Besides  Iovino, Simoni, and Marras, the other directors are Marco Caneva and Simone Muzio. Cavena is an independent director and has worked in the financial services and strategic consulting sector for over 20 years, including 10 in the investment banking division of Goldman Sachs (London, Paris, Milan). Muzio is the Technical Director of Italy for Edilizi Acrobatica and joined the company in 2007.
• Overall compensation of directors vs Edilizi Acrobatica’s net income is shown in table below. Overall compensation used to be very high as percentage of net income and is now lower, but 2022’s level of 9.8% is still fairly high.

Valuation (as of 17 July 2023)

• 17 July 2023 share price of €17.15
• Trailing diluted EPS is €1.85, hence PE is 9.3
• Trailing FCF per share is €1.48, hence PFCF is 11.6
• Low valuations based on trailing earnings and current stock price. Looks likely that Edilizi Acrobatica can continue to win market share from a very fragmented space of direct competitors, and from facade maintenance companies that use scaffolding or other forms of machinery. But unsure how the company’s growth profile will look like in 2023 given the removal of the Bonus Facade.

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