At the 2025 Value Investing Seminar, Gianfranco Rosati, a value and special situations investor, presented a detailed analysis of a Swedish-based consumer packaging company. Prior to managing proprietary capital and advising investment funds, Rosati specialized in evaluating serial acquirers, conducting private equity-style due diligence, and assessing per-share performance, Return on Invested Capital (ROIC), and reinvestment rate sustainability for a European value investing firm.
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2025 Value Investing Seminar – Gianfranco Rosati
Rosati began by noting the company’s remarkable performance, achieving a 7x return from January 2020 to January 2025, which translates to a 45% Compound Annual Growth Rate (CAGR) without multiple expansion. This success, he explained, stemmed from a series of “very smart” acquisitions orchestrated by a young management team. The management transformed an older business model, which originally focused on a stevia-based sugar substitute, into a “dynamic group of entrepreneurial consumer packaging companies”. The company’s operations are predominantly in Sweden (45% of net sales) and the Nordics (over 50%).
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The company Humble Group AB (STO:HUMBLE) has diversified product portfolio, comprising over 40,000 Stock Keeping Units (SKUs) distributed across a wide range of retailers, from discount stores to large chains like ICA Gruppen in Sweden, as well as retailers in Germany, the UK, and Australia. The company boasts vertical integration across the Fast-Moving Consumer Goods (FMCG) value chain, encompassing R&D, manufacturing, distribution, and branding.
One strength highlighted by Rosati is the strong insider alignment: entrepreneurs whose companies were acquired now collectively own over 30% of the outstanding shares, and the CEO holds 3-4% of the stock, with his entire net worth tied to company shares. Reinforcing management’s conviction, the company rejected a private equity offer in Q4 2022 that was double the then-current price (between 15 and 17 kronas per share, compared to the current 8.5 kronas).
Business Segments and Challenges
The company has two main business segments:
- Sugar and Healthy Confectionery: It holds a 90% market share in Sweden for sugar-reduced or zero-sugar candy and chocolate.
- Environmentally Friendly Products: This is the largest segment, producing environmentally friendly soaps, cleaning products, and diapers, primarily through private labeling for major retailers such as Marks & Spencer in the UK via its Solent Group subsidiary.
Humble Group experienced a significant decline after completing 46 acquisitions over three years, leading to the perception that it was “overleveraged”. Rosati explained that this downturn was driven by several macroeconomic forces at the end of 2022, including increased raw material prices, currency fluctuations (stronger dollar against the Swedish krona), and higher freight costs due to global supply chain disruptions.
The funding structure for acquisitions, relying on debt at STIBOR plus 8%, became problematic. While STIBOR was negative in 2020-2021, leading to an effective 8% interest rate, a sharp 5% rise in STIBOR in 2022 pushed the interest rate to 13%. This, combined with margin compression, led investors to lose interest.
Current Dynamics and Catalysts
Despite the challenges, Rosati believes the company is now in a “very interesting” position.
- Frustration and Consolidation: Management and large shareholders are frustrated with the current stock price. The company is consolidating its operations, reducing its number of subsidiaries from 46 to 25.
- Cost Efficiency: They are implementing cost-cutting measures, including centralized purchasing agreements and renegotiating freight costs, which are already positively impacting financial statements.
- Deleveraging and Future Acquisitions: Humble Group is selling less productive assets and aims to reduce its net debt to EBITDA ratio to 2.5x (currently 2.8x), after which it plans to resume acquisitions.
- Attractive Valuation: Rosati estimates the company is trading at a free cash flow yield of approximately 13%, suggesting a very healthy financial position. He contrasted its valuation (an unnamed EV multiple) with competitors in the FMCG sector, which trade at 13-14 times, despite having lower growth. The low downside risk is supported by its focus on consumer staples and discretionary products across diverse retail sectors.
- Underappreciated Intangibles: The market, in Rosati’s view, fails to recognize the high return on tangible capital. Acquisition accounting inflates reported intangibles, while underlying brand investments are not fully captured, even though some brands are growing at 40-50% annually.
- Brand Value: The company owns well-recognized Nordic brands, such as “Bambi” and “Hard” (known for bamboo toothbrushes). Rosati asserts that these brands, if privately valued, are collectively worth more than the company’s current market capitalization. Historically, consumer brands can trade at 3.5 times revenues. Management is considering selling some brands, which could act as a catalyst for stock price revaluation.
- Effective Capital Allocation: Management has historically been adept at capital allocation. They issued shares at 14 times earnings to acquire smaller private companies at 5-6 times earnings, generating a high reinvestment rate. While this “reflexive trend” (stock price driving earnings growth) has worked against them during the downturn, it has proven effective when the stock price is high.
- Industrial Platform Strength: The business functions as an industrial platform, handling R&D, manufacturing, and distribution for its brands and also for other licensed brands. The industrial manufacturing segment alone generates a strong 25-26% Return on Invested Capital (ROIC). With an additional 150-200 million in capex, the company could add 1.5-2 billion in revenues without significant additional costs due to its existing distribution infrastructure.
- Improved Operations: Rosati expects improved asset utilization, wider income margins (targeting the 10% industry standard), and reduced networking capital (already down to 12.8% from over 15% last quarter) to drive earnings improvement without additional capex.
Risks
Rosati identified several risks for Humble Group. The private labeling contracts, typically three-year agreements, pose renegotiation risk, particularly if product quality is perceived as low. While Solent Group is a strong private labeling producer, a client like Marks & Spencer could seek alternatives, though Solent’s contribution to group revenue is diversified (less than 4-5%).
Macroeconomic factors, such as continued inflation in commodity prices, rising transportation costs, and a weaker Nordic economy, could also negatively impact sales.
The strong engagement of its shareholder base, including prominent Swedish families and investment firms like Alapox, who consult frequently on capital allocation could be at catalyst for further growth. However, if growth remains stagnant, the company might increase dividends or initiate stock buybacks at a high FCF yield, offering multiple avenues for investor returns with limited downside. Rosati recommended “When the Heavens Fell” by Alex, which provides an insider’s view of large corporate deals.