DO & CO

From Japan to Argentina, the world is voting in office strong pro-business political leaders. Europe is not far behind.

While these important political changes will channel capital back to overseas markets, we are publishing a number of letters about unique companies not made in the USA. They include a Turkish-Austrian high end catering service provider, a New Zealand rocket manufacturer, a Canadian-German submarine drone technology company and many more.

We believe these companies will perform very well in the coming years regardless of political changes. The winds of change around the world make these investments even more compelling.

Do & Co Gourmet Entertainment Company

Three-time Formula One world champion Niki Lauda and entrepreneur Attila Dogudan became friends while clubbing in Vienna, Austria, in the early 1980s. One night around 3 a.m., the sport’s icon and the young owner of a gourmet delicatessen restaurant struck a verbal deal to trial-cater Lauda Air flights. Contingent on achieving 95% positive passenger feedback, DO & CO—Attila’s company—was given the opportunity to enter the airline catering business. The friendship quickly evolved into a lifelong partnership based on a shared obsession with high standards. Schnitzels on Air Lauda were always cooked to a perfect golden brown color.

Dogudan got his second major breakthrough when his friend Niki Lauda introduced him to Bernie Ecclestone, the owner of the F1 commercial rights. Ecclestone was desperately looking for a last minute replacement to deliver gourmet food for 2,000 VIP guests in the paddock Club at the 1992 Hungarian Grand Prix. It was an instant success and DO & CO became the official supplier for VIP guests at Formula One Grand Prix events worldwide.

Do & Co is a success story built on high quality and culinary diversity. The delicatessen restaurant has grown to become a “global gourmet entertainment” company, spanning airline catering, international events and restaurants/bars/lounges. Today, the company caters to more than 60 airlines with the mission of being “the best restaurant 39,000 feet above”. American travelers may even have noticed how much food has improved on certain Delta international flights.

From modest beginnings, the company’s revenues have surpassed 2.2 billion euros, up 26% over last fiscal year. The Turkish-Austrian founder is still at the helm of the company together with his son. It is a lean operation. The family cares about profitability. Overhead costs are under tight control. Operating margins are at a respectable 8% level and growing.

Catering is a capital and labor intensive business with relatively low margins. What makes DO & CO stand out is their relentless quest for quality. It has now a lock on the most prestigious contract with F1 for another 10 years, a mid-teen market share in the airline catering industry (an oligopolistic industry) and continues to win contracts for major events like the FIFA world cup.

DO & CO has a proven track record, a solid balance sheet, healthy growth prospects and improving profit margins. The business has high barriers to entry. It requires large upfront investments and a savoir-faire that can only be built over time. The relatively low profit margin is a further deterrent to newcomers. Finally, being recognized as the highest quality service provider allows them to charge a premium.

Trading at a little over one time revenues and an EV to EBITDA of less than 10, DO & CO is not priced for perfection. Considering the excellence of their execution and the 30% growth profile, we believe the stock has good long-term potential upside.