Suez SA is a French-based utility company which operates largely in the water treatment and waste management sectors.
Suez stock didn’t
do any miracles over the past decade but the dividend is significant at 4.79%.
recently published Suez SA plan for 2030. If I scroll through it, I see many empty words. The
stock didn’t go anywhere for a reason. The reason is that fancy, but empty
words don’t make for a competitive advantage.
The last decade has
been a decade of renegotiating water contracts in France, the same is about to
happen in Spain, while the waste management business is highly dependent on
industrial activity. In Europe, industrial activity is a big risk as we are
already seeing within the automotive industry.
They are trying to
expand into emerging markets, but you don’t have a moat in this business and
you need to be the lowest bidder to win business.
It is likely that
they will not see improved margins from international expansion, plus, it is
not going to come for free. Another risk is cheap European money, if that
source dries up for whatever reason, companies like Suez immediately become
much less competitive globally.
Suez SA Stock
Over the last
decade, the company did grow revenues, but it did so at the cost of declining
With a price to earnings ratio of 20, where all the earnings are paid out in the form of dividends (the pay-out ratio was above 100% for 5 years in the last 10 years), it is unlikely you will see something spectacular coming out of this investment. The exposure to industrial activity in Europe makes it extremely risky above book value. If you buy Suez SA stock, you do that with a huge margin of safety below book value and when earnings are negative in a recession or slowdown like it was the case in 2012 when earnings fell 50% and Suez SA stock price was closer to EUR 5.