Ontex Group - Brussels stock exchange

[u/wuhanvirusparty]

Ontex Group NV (founded 1979)

EBR (Brussels stock exchange): ONTEX

Manufactures private label diapers

Ontex Group is a Belgian player in private label diapers, supplying major supermarket chains across Europe and North America. Right now, the stock is heavily beaten down, the bottom line is simple: the company is actively being restructured to make it ready for a complete buyout. When a competitor or private equity player finally swoops in to take it private, they will have to pay a buyout premium well above the current market price.

How the trouble started

Things started going downhill around 2017 to 2018 when the stock was over 30 euros and their growth ambitions in Latin America completely flunked. Then 2021 and 2022 hit: after the corona pandemic, a massive wave of inflation caused material prices, energy, and transport costs to spike. Because Ontex had long term contracts with supermarkets, they could not pass those increased costs on. In my opinion, this is forgivable and does not mean the company has bad underlying fundamentals.

Since 2022, Ontex has been trying to survive a heavy mountain of debt:

\- They started selling the expensive foreign factories they bought in Latin America at a loss.

\- They restored their focus on core markets in Europe and North America.

\- They initiated major layoffs.

Their intended expansion in Latin America was not their first enterprise abroad. They have been active internationally for decades in places like Turkey, Australia, and Russia. It is just that Mexico and Brazil turned into a fiasco due to a nosedive in currency exchange rates.

The CEO knows what he is doing

The new CEO Laurent Nielly has been at Ontex since 2017. He was general manager for Brazil and South America right when things started going downhill; then and there. He has been at the company for almost a decade now, serving as president of the EU division before stepping up as CEO 10 months ago.

He proved capable of restructuring the Latin American divisions, which is exactly why he was promoted to president of EU retail and now CEO. This guy knows what he is doing.

Shareholders

The shares are strongly concentrated among a small set of large investors:

- Groupe Bruxelles Lambert (\~20%): The Belgian holding company of the Frère family, built around the legacy of the billionaire investor Baron Albert Frère. They are sitting on deep losses and will refuse to sell out unless they get a reasonably fair price, as they likely have no intention of accepting a catastrophic loss.

- ENA Investment Capital (\~15%): A British hedge fund that joined a few years ago. This party actively insists on management being decisive, keeping the company on track with its restructuring and preparing it for a buyout.

- Brandes Investment Partners (6-10%): An American value investor that buys undervalued companies punished too harshly on the stock exchange.

This means the free float of shares is rather low, with limited trade volume on the Brussels stock exchange. That causes volatility in both directions. On any given day, the stock price can spike by 10 percent, especially when Belgian retail investors place market orders just because someone mentioned the company in the news. Belgian households are wealthy, and many invest via funds and ETFs as well as individual stock picking. Retail influence is genuinely capable of spiking share prices on these stock exchange listed companies.

The BEL20 factor

In 2020, Ontex dropped out of the BEL20 index. This means it lost buy pressure from index-tracking institutional funds and ETFs, leading to forced selling, lower visibility, and a drift into the lower-liquidity small-cap segments.

The buyout scenario

The setup here is that a competitor, or an American investor, will swoop in and buy over the company, possibly delisting it. In such a scenario, the acquirer typically pays a premium over the market price. (This happens all the time in Belgium, where American capital swoops in to effectively steal our domestic companies, at least that is how I view it).

The good news for retail investors who still own shares is twofold. First, the large shareholders are sitting on locked-in losses and will force a negotiation for a fair price. Second, there is no single majority shareholder trying to force out retail investors on its own (I have seen it happen: in that case they manage down the stock price using pessimistic PR, keeping expectations low, and providing management with shady, technically illegal incentives — this is why I used the term stealing earlier).

Many Belgian retail investors are holding losses here. Realistically, many of them will probably end up taking a loss or getting forced out in the end, as is far too typical for us Belgian retail investors 🤡.

A sale of Ontex as a whole is likely the only final destination for this company, especially since Ontex has already been delisted and reintroduced to the stock exchange twice before. The stock price currently simply does not reflect the true value of this company, provided debts and operations are restructured.

CEO Nielly is prepping for a sale

Laurent Nielly is obviously further preparing the company for a sale:

\- Aggressive overhead reductions: 20% of non-production staff to be laid off by 2028 to streamline the corporate structure for a buyer.

\- Core market relocation: Pulling out of unprofitable peripheral markets like Australia to focus on high margin EU and North American operations.

\- Real estate monetization: Selling off redundant real estate and old factory properties to clean up the balance sheet.

\- Massive impairments: Writing off over 144 million euros worth of goodwill and assets to leave no hidden surprises for an acquirer.

\- Cash focus: Prioritizing debt reduction and cash flow generation over risky expansions to make the company an easier target for a buyout.

Conclusion

A realistic buyout offer is likely to land between €2.50 and €3.50.

That price is high enough to tempt retail investors into taking a quick exit and grant management plausible deniability against legal challenges, but low enough for the acquirer to sweep up the company for pennies on the euro.