Thinking about the Past and Having Closure: Reply SpA $REY.MI
Fourth week
As a value investor, sometimes we think about the past to learn from it and have closure. Today, I want to talk about my experience with an Italian software consulting company Reply SpA ($REY.MI).
30-bagger in 22 years
Reply SpA is an Italian company founded in 1995 and based in Turin, Italy. It has been profitable since 1998. But its stock price was almost flat in 2001 and it dropped 40% alone in 2002 inline with the Italian market index NUMTEL (macro factors).
Stock and company financial History
It IPOed in Dec 2000. Its stock price compounded with a CAGR of 16% without compounding the dividends, its revenue (20%) and net income (23%) were both inline with the stock price respectively.
It has been a 30-bagger since IPO until today, a 52-bagger between IPO and 2021, and a 95(!)-bagger between the all-time low in 2003 and the all-time high in 2021.
My Timeline with the company
In 2017, I heard about Comsysto Reply, a subsidiary of Reply SpA, for the very first time during my master’s studies, because one of my colleagues just broke off his studies to pursue a career as a full-time software engineer at Comsysto Reply, a German IT-consulting company, 100% owned by Reply SpA. If I invested in $REY.MI and held it until today, it would have been a CAGR of 17% (without compounding the dividends). But I knew nothing about investing in stocks back then.
By the End of March 2019, I had an interview at Comsysto Reply’s headquarters in Munich. And I had a great impression of its services and management. If I invested in $REY.MI and held it until today, it would have been a CAGR of 16%, again without compounding the dividends.
Old too soon, wise too late
So why nobody is looking at Italian companies that also operate in other European countries? ComSysto Reply Gmbh was acquired for €6M back in 2017, as it was struggling financially. However, it earned €8.1M in recent 2 years (2020–2021).
Reasoning
As Dede Eyesan once said in his book “global outperformed”: “Reply S.p.A was undervalued and neglected by the market because no one searched for IT services compounders in Italy. … In fact, Reply had consistently been below 5x EV/EBIT between 2007 and 2012. … The lesson here is that one should not simply neglect companies listed in lesser growth economies like Italy (one of the PIG countries) despite its track record because other investors are thinking just like you.”
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This blog belongs to the Global 10 to 1 series (name recently changed from Global 100 to 1) that I post weekly, see you next time!
Disclaimer:
This article is for informational purposes only and represents the author’s own opinions. It is not a formal recommendation to buy or sell any stock, as the author is not a registered investment advisor. Please do your own due diligence and/or consult a financial professional prior to making investment decisions. All investments carry risk, including loss of principal.
