DO & CO: A Culinary Juggernaut
New Stock Idea
Background
During a recent flight with Iberia departing from London, I found myself stuck in an unexpected delay. Peering out the window, I noticed a flurry of activity on the tarmac. What caught my eye? A catering company, with a ‘DO & CO’ logo, loading fresh produce onto a nearby British Airways plane.
This made me think of Mohnish Pabrai, who once suggested keeping tabs on every product and service encountered for potential investment ideas. So, with 'DO & CO' hastily scribbled down, I made a mental note to investigate further upon touchdown.
Later that afternoon, I was astounded to find DO & CO stock (Ticker: DOC.VI) had skyrocketed 15 times since 2010! I was also amazed at the lack of any sort of discussion about the company on my usual go-to investment research platforms.
Can this serendipitous discovery continue its multibagger journey?
Business Overview
DO & CO, an Austrian company listed on the stock exchange, operates globally with three main segments: Airline Catering, International Event Catering and Restaurants, Lounges & Hotels; offering Gourmet Entertainment across 32 locations in 12 countries on 3 continents. It is renowned for maintaining the highest of standards across its array of products and services.
Restaurants, Lounges & Hotels
This division forms the core of DO & CO, encompassing various units such as restaurants, cafes, lounges, hotels and airport gastronomy. It serves over 4.6 million passengers annually at 31 lounges worldwide. Exceptional hospitality has been noted at venues like DO & CO Restaurant Stephansplatz and the iconic Demel Cafés.
International Event Catering
From prestigious sports events like Formula 1 to cultural gatherings such as film festivals, this division ensures guest satisfaction at every occasion. Catering Formula 1 for over 27 seasons and serving VIP guests at events globally underscores the company's commitment to excellence.
Airline Catering
This division is where most of the revenues come from. With expertise derived from both restaurant operations and international event catering, DO & CO elevates the inflight dining experience to unparalleled heights (pun not intended). Collaborating with partner airlines, DO & CO sets industry benchmarks with innovative service concepts and uncompromising quality standards across 32 sites worldwide.
Moat
Brands
Per DO & CO reports, the company represents the pinnacle of gourmet entertainment, offering a culinary journey characterised by emotions, culture and enjoyment. The Demel brand preserves artisanal traditions in confectionery, while Hédiard adds luxury delicatessen expertise to the portfolio. The Aioli brand embodies Mediterranean flair with its casual and dynamic appeal.
Experience
At the heart of DO & CO's success lies its passionate team of hosts, dedicated to ensuring exceptional experiences for customers worldwide. With a commitment to flexibility, personal service and product quality, every employee contributes to the company's unique and unmistakable brand identity.
Global Gastronomy
Operating in 32 gourmet kitchens across 12 countries and 3 continents, DO & CO upholds its promise of freshness and quality, catering to private events, sports spectacles and partner airlines with unwavering attention to detail.
Leadership
I'm particularly fond of owner-operators and family-run businesses, especially those where said insiders hold substantial ownership stakes. In this regard, DO & CO ticks the right boxes.
Attila Dogudan founded the company in 1981 and has been at the helm ever since, bringing extensive experience and vision to his role. Appointed to the board on 3 June 1997, he oversees the overall management of the company, including strategy, organisation, procurement, legal affairs and operational matters.
Attila Mark Dogudan, born in 1984, joined the board on 10 June 2021. He brings a fresh perspective and is responsible for human resources, marketing and IT.
As of 31 December 2023, 69.10% of the shares are in free float, with the remaining 30.90% held by the private foundation Attila Dogudan Privatstiftung.
Highlights
Financial
DO & CO achieved significant revenue growth in the business year 2022/2023, surpassing €1 billion in revenue for the first time in its corporate history. The Company also reported a positive free cash flow (even after the redemption of group liabilities) and continued to reduce its net debt to EBITDA ratio by nearly half, to 1.92x. Revenues increased by 106%, 86% and 89% across the Airline Catering, International Event Catering and Restaurants, Lounges & Hotels divisions respectfully.
In the current business year 2023/2024, with revenues of €1,358.24m DO & CO recently reported the strongest first three quarters in terms of revenue in the Company’s history. That’s €319.54m more than the same period of the previous year or a 30.8% uptick. It is confident that further success will continue, despite the continuing depreciation of the Turkish lira.
Operational
DO & CO continues to expand operations globally, opening new locations in strategic markets such as Boston, Miami and London Heathrow, with expansions occurring between 2021 and 2023. It secured major contracts with leading airlines like Delta Air Lines, British Airways and Qatar Airways, solidifying DO & CO's position as a premier airline caterer. The company diversified service offerings to include catering for prestigious events like the UEFA EURO 2020, Formula 1 races and the FIFA World Cup in Qatar.
Talent
DO & CO creates thousands of new jobs globally, focusing on attracting top talent and providing opportunities for career growth and development. It implements innovative working time models and employee-centric frameworks to enhance employee satisfaction and retention.
Sustainability
In the last 5 years, DO & CO has committed to sustainability goals, including achieving carbon neutrality and reducing food waste, with initiatives such as using locally sourced products and renewable energy, with targets set for 2030. It has also invested in resource-efficient equipment and adopted sustainable material options to minimise environmental impact across operations.
Social
The company demonstrated a strong commitment to social responsibility by providing humanitarian aid to support earthquake victims in Turkey and supporting employees affected by the conflict in Ukraine, with aid provided in 2022. It has continuously engaged in philanthropic efforts to make a positive impact on communities and promote resilience during crises, with ongoing initiatives throughout various periods.
Industry
Since 2019, DO & CO has received various accolades and awards for excellence in catering, including "World's Best Business Class Catering" for Turkish Airlines, with awards received in various years. It has established strategic partnerships with prominent organisations such as Formula 1 and FIFA, further enhancing brand reputation and market presence across different periods.
COVID-19
The sudden drop in international travel demand and border closures due to the pandemic hit all aspects of DO & CO's operations. In response, the company quickly implemented a range of cost-cutting measures, including a freeze on hiring, reduced hours, layoffs and scaled-back investments. Despite these challenges, DO & CO also found ways to boost liquidity through bank loans and adapted by coming up with new business models.
During pandemic-induced economic downturn and virtual halt in business activities, DO & CO doubled down on cost-cutting, tapping into government subsidies and issuing convertible bonds to shore up finances. They stayed true to their spirit of innovation throughout the period, constantly refining their approach to stay competitive.
DO & CO showed resilience coming out of the pandemic amidst ongoing uncertainties and rising costs, driven by strong demand across all divisions. They kept their focus on sourcing top-notch, local ingredients and fostering a culture of creativity. Their Vienna headquarters even became a hub for skill-building with a new training center.
DO & CO has emerged from the pandemic as a company that’s weathered the storm, with a beefed-up product lineup and growing demand. They're looking ahead, investing strategically and staying committed to quality and service excellence.
Thoughts
While the initial financial results look interesting, I plan to do another write-up in the future where I dive into DO & CO’s numbers and possible valuation. At the time of writing it sits at an EV / EBIT of around 15x or a 6% earnings yield (€122m EBIT / €1890m EV).
In the world of investment, sometimes the most promising opportunities reveal themselves unexpectedly. Perhaps DO & CO won’t turn out to be such an opporunity. In any case, it presents itself as an intriguing opportunity and I'm eager to research further.