ESI Group (ESI.PA) Holds Key Asset, Saving Money for Auto Companies with Virtual Prototypes: Expert Portfolio Manager Joshua B. Stewart Discusses One of His Top Picks with The Wall Street Transcript

Wall Street Transcript

67 WALL STREET, New York - August 21, 2013 - The Wall Street Transcript has just published its International Investing and Other Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Bottom-Up Stock Selection - Value Oriented Strategy - Value Investing - Deep Value - Exposure to Emerging Markets - High-Quality Companies, Value Investing - Investing in Asia - Longer-Term Investing - Asia Pacific Investment Theses - Investing in China - Equity Investing Strategies - China's Domestic Markets

Companies include: Apple Inc. (AAPL), Netflix, Inc. (NFLX), Amazon.com Inc. (AMZN) and many more.

In the following excerpt from the International Investing and Other Strategies Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Tell us about one you hold right now and why.

Mr. Stewart: One I hold right now is called ESI Group (ESI.PA), and this company creates software that all the automakers use to do things like crash tests. It is virtual prototyping and crash testing. It costs a lot of money, often more than $1 million, to make a prototype of a new car model.

Volkswagen (VOW.DE) is ESI's biggest customer, and using a prototype made virtually with software, you can run thousands and thousands of tests without any incremental costs. Volkswagen probably pays them 10 million euro a year, which seems kind of high. But then Volkswagen can run thousands and thousands of tests on every model, and can evaluate the impact of changes on the tests without incurring additional costs. It saves a lot of money for the automotive companies.

ESI has a key asset that its customers can't live without at this point, and its customers are figuring out even more ways to use its tools as they try to reduce the physical prototypes as much as they possibly can, and that saves them money. In the financial crisis, ESI didn't lose any of its big key customers.

However, there is a French microcap discount that the company has to deal with. ESI is well below the radar of most investors, and it's frustrating because the company could grow faster, but it can't raise capital using equity because the shares are so cheap. ESI's peers listed in the U.S. are valued at four times EV to sales. Those listed in Germany get two times EV to sales. And ESI in France is valued around one time EV to sales. That is essentially what you are paying for this.

It is an asset that is really attractive, it's not going anywhere, and someone could easily look to acquire. It is in a really nice growing niche that people are going to use more and more, and it's trading at 1.25 times EV to sales. So it is much cheaper...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Rates

View Comments (0)