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Cetis d.d., headquartered in Celje, Slovenia, is a European small-cap industrial company in security printing and identity management business. The company operates in a high-barrier niche defined by deep government relationships and technologically complex production. My investment thesis is built on the following pillars:
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* Contracted existing revenue base: A core Slovenian business with a \~EUR 20m run-rate (virtual monopoly) supplemented by \~EUR 40m in contracted international revenues
* Foreign expansion track record: since pivoting toward international markets in 2021, foreign revenues have grown 2.5x, proving Cetis can compete and win tenders globally at scale
* The “New Factory” catalyst: existing facilities are currently running at full capacity, creating an optical stagnation in recent revenue. The completion of a new EUR 40m automated facility this year serves as a primary catalyst, designed to double production capacity while drastically improving efficiency
* High-margin digital pivot: the industry shift from physical documents to integrated phy-gital identity solutions (biometric databases, eGovernment platforms) expands high-margin recurring service revenues and increases customer stickiness
* Hidden subsidiary value: the wider Group generates \~EUR 120m in revenue. With the parent trading at \~13x P/E based only on the core security business, the adjacent packaging, commercial printing, and digital subsidiaries are essentially “free” additions to the current valuation
The stagnant or slightly declining revenues over the past three years are, in my estimation, entirely capacity-driven. The ongoing EUR 40m capital commitment to the “New Factory” - an automated manufacturing and office space - signals strong confidence from the private owners and the management, who also have stake in the company, in long-term demand. Beyond doubling capacity, this facility will lower marginal costs through automation. This deep-dive considers the mother entity only; the subsidiaries should be viewed as a margin of safety or a “bonus” to the investment. Thus, unless specified otherwise, all numbers will refer to the mother company’s EUR 60m run-rate security printing business only, not the EUR 120m Group’s run rate business.
The transition from manufacturing physical passports to establishing overall digital identity infrastructures presents a massive tailwind. This move into software-type solutions, which compliment the physical documents, provides pathway to even better margins, lower long-term Capex, and significantly higher switching costs compared to simple printing contracts. By expanding capacity during this critical industry shift, Cetis is well-positioned to capture market share in emerging economies as they also start digitalising their bureaucracies.
However, investors must account for the inherent risks of the Ljubljana Stock Exchange (LJSE), primarily extreme illiquidity, which is exemplified in Cetis. With a highly concentrated ownership structure and a free-float of only \~1.6%, the stock should be treated as a de-facto private equity investment. It is suited only for a disciplined buy-and-hold approach, as divesting during a downturn may be impossible; position sizing must reflect this.
Furthermore, disclosure regarding specific contracts, future strategy and the New Factory is very limited, requiring a degree of informed assumption. This deep dive presents my own interpretation of company’s direction, and should in now way be relied on for you own investment purposes.
With a market cap of EUR 140m, Cetis trades at current run-rate PE ratio of approximately 12.5x for the mother entity alone - before accounting for the New Factory’s impact or the value of the broader Group / Subsidiaries. Considering the value of Subsidiaries, the current PE stands at 9.5x, and the company can be expected to continue providing c 5% dividend yield in the following years. However, assuming the increased production following the opening and full ramp-up of the New Factory - assumed by 2029 - Cetis currently trades at forward 2029 PE of only 4.4x on a stand-alone basis, and PE of 3.3x considering also the value of Subsidiaries.
As such, the stock price is poised for re-rating once the New Factory’s increased business volume starts ramping up, and Cetis should be on path to becoming EUR 350+m market cap (2.5x from today’s valuation) company, all the while an increase in dividend payouts can be expected as the production ramps up. Thus, the stock continues to offer a compelling entry point for long-term investors, willing to trade liquidity for deep value and growing yield.
Check out my Substack post for a more detailed breakdown: [https://illiquidalpha.substack.com/p/cetis-dd-ljsecetg-deep-dive-and-valuation](https://illiquidalpha.substack.com/p/cetis-dd-ljsecetg-deep-dive-and-valuation)