This investment thesis also appears on the SumZero platform.
ANY Biztonsági Nyomda Nyrt.1 (BUD:ANY: 5,960 Ft/share) is a leader in the security printing industry in Hungary and a growing player in Central and Eastern Europe (CEE) and international markets. The business is of high-quality, is possessed of strong competitive advantages, stable cash flows and expansion potential. The firm operates in a structurally attractive oligopoly, with high barriers to entry, long-term government contracts, and pricing power. The company’s rising exports, technological innovation, and strong financial performance make it an attractive investment. Given its solid growth outlook, stable dividend policy, and resilient business model, ANY is well-positioned for long-term value creation. The company earns a Very Attractive rating based on my stock rating methodology. An accompanying spreadsheet that shows the accounting adjustments I made and reverse discounted cash flow (DCF) scenarios simulated, may be read in conjunction with this investment thesis.
A Diverse Portfolio of Products
The security printing industry is a highly specialized segment within the broader printing sector, focused on producing documents that require protection against counterfeiting, fraud, and unauthorized duplication. Customers, broadly, tend to be governments, who require them for passports, visas, tax stamps, ID cards, and election materials; financial institutions, for secure banknotes, checks, and payment cards, and corporations, for authentication labels, security seals, and event tickets.
Four secular trends have driven the demand for security printing solutions. First, the shift towards digital identity is transforming personal ID documents, with initiatives such as the European Union’s Identification and Signature Regulations (eIDAS) regulation facilitating online identity services, particularly benefiting transition economies by improving service accessibility and tax collection. Second, private security printers (PSPs) are evolving into service providers, integrating blockchain technology and identity-as-a-service models to meet government demands for secure digital credentials. Third, tax stamps are the fastest-growing security print product, spurred by regulatory changes such as the World Health Organization’s Framework Convention on Tobacco Control, enabling better tracking of goods and counterfeit prevention. Lastly, payment methods are shifting from cash to contactless and mobile payments, with biometric-enabled payment cards and smartphone-based platforms like Apple Pay and Alipay gaining prominence. While banknote printing remains significant, its market share is expected to decline as digital transactions become more widespread. These trends collectively shape the future of security printing, pushing it toward digital and service-oriented solutions.
To meet this multifaceted demand, ANY has a diverse portfolio of products serving this market that fall under five broad categories, Security Products and Solutions; Card Production and Personalization; Form Production and Personalisation; Traditional Printing Products, and Other.
Through this diverse portfolio, ANY delivers a wide and growing range of complex solutions and complete document issuing systems, from biometric data collection, product personalisation and document verification. The company’s solutions often combine a physical product with digital security elements and verification.
In 2024, the 24% year-over-year growth in security products and solutions revenue was thanks to an increase in sales of election ballots produced with security elements, a rise in passport sales, and other security products, and growth in roll-out tasks of passport issuing systems. The 50% increase in card production and personalisation revenues was due to growing demand for document cards in both domestic and export markets. Revenues from form production, personalisation and data processing grew by 7%, while traditional printing products saw a 1% increase.
The Export Market is Growing
Diversification comes not only from product type but from geographic market, with just over 56% of 2024 revenue emanating from exports, with the firm selling to over 60 countries in five continents. Management believes that its success in the export market is due to growing global recognition of the quality of its innovation. The company’s Document Security Laboratory is staffed by scientists, many of whom are PhD-level, who engage in research and development. In the last few years, their efforts have resulted in 9 active patents. The impact of this innovation touches the entire firm, from security graphics on documents to the security ink used across the world by printers, border control organisations, government departments and other other authorities. The company has produced the world’s only penta-fluorescent ink.
Although Hungary remains the single largest market, with 45% of revenue in 20232, the African market3 is the second largest, with 24% of revenue. Revenues from the African market grew by 353% between 2022 and 2023, largely due to the company’s expansion into Angola. Africa could prove to be a valuable source of revenue given that, because the continent is starting from a lower base than Europe, but is getting richer, and is younger, demand for solutions such as passports and IDs will be fairly high. I anticipate that Africa will be a sustainable source of fast-growing revenue in the years ahead. Europe, Africa and South America will experience medium growth levels in the next five years, while Asia-Pacific, which ANY does not seem to have meaningful exposure to, will experience high levels of growth.
Barriers to Entry Protect Incumbents
The security printing industry is structured as an oligopoly, where a few firms control the market due to high regulatory requirements, technological barriers, and limited supplier availability. The company’s competitive landscape features firms such as the state-owned banknote printer, Pénzjegynyomda Zrt., and, in the CEE Region, De La Rue from the United Kingdom, a global leader in banknotes and security printing; Giesecke+Devrient from Germany, which specializes in security printing and biometric ID solutions, and IDEMIA from France, which focuses on passports, visas, and smart ID solutions. ANY dominates the Hungarian market and is expanding abroad, particularly in emerging markets like Angola, as discussed in the section prior.
The oligopolistic nature of the security printing industry is due to the high transaction costs involved in the business in order to ensure extreme quality control requirements, meet the regulatory hurdles that governments place in order to win contracts, and the limited trust between buyers and sellers, with buyers preferring proven suppliers. The credibility required to be a meaningful player in the industry demands large investments in expensive infrastructure such as printing facilities, investing in proprietary inks, fibers and security tech, and creating incentives to rival the network effects enjoyed by incumbents.
Since buyers cannot risk supply chain failures, they consolidate their contracts with a few trusted players, reducing uncertainty and favoring large, established firms like ANY. Consequently, growth in Africa, for example, could prove crucial because the company could lock in government business for the long-run, in the world’s fastest growing market. At the same time, the company is highly unlikely to lose current contracts.
The oligopolistic structure and transaction cost economics of the industry means that contracts tend to be long-term4, firms deploy a lot of money into innovating to meet the security needs of the market and firms such as ANY can build close relationships with their clients. Moreover, there are high switching costs for clients. Consider, for example, a country whose passports are produced by ANY and which decides to switch to another supplier. That country would either have to withdraw ANY’s passports, or have systems that can read ANY’s passports as well as the new supplier’s. These features result in firms earning and conserving attractive profits and having considerable pricing power and facing limited competition.
ANY Enjoys Scale Economies
Since 2019, revenue has compounded at about 15.6% a year. As revenue has increased, ANY’s operational efficiency and profitability have improved, with Total Operating Costs and Expenses as a share of Total Revenue, declining from 93.36% to 81.86%, a sign of the firm’s scale economies.
This is especially impressive given that the cost of specialized raw materials such as security paper, biometric chips, and anti-counterfeiting ink, has been on the rise, rising 21% in 2023 and 25% in 2024, due to raw material shortages and export logistics. As the company has pricing power, it has been able to grow its margins despite rising input costs. Three reasons seem to be responsible for this: first, the company everage its Hungarian operations to sell globally, secondly, security products, which are higher-margin, have grown grown in importance, and lastly, ANY’s R&D investments in proprietary security features allows the company to command higher prices.
It is notable that the company’s capital intensity, as measured by the share of revenue devoted to capex, has decreased from about 8.3% in 2019 to 5.5% in 2024, in yet another sign of the company’s scale economies.
Profitability Has Shot Up
ANY’s net operating profit after tax (NOPAT) has compounded at a rate of around 43.5% a year, from approximately 1.8 billion Hungarian forints (Ft) to nearly 11 billion Ft, increasing NOPAT year-over-year in each of the last four years. The astonishing increase in NOPAT is matched by NOPAT margin expansion, which has fattened from 5.3% to almost 15.6% in that time.
In that time, ANY’s capital efficiency has improved as well, from 2.32 to 2.83 invested capital turns. The happy marriage of burgeoning NOPAT margins and invested capital turns has widened returns on invested capital (ROIC) from just over 12.3% to 44.1%.
Dividends Are Supported by Free Cash Flows
Since 2019, ANY has increased its annual dividend from 92 Ft per share to 450 Ft, with a current yield of 7.55%. The quality of dividends depends upon a firm’s long-run free cash flow (FCF) generation. The greater the gulf between FCF generation and dividend payments, the greater the ability of management to sustain and grow dividend payments. In that vein, one observes that since 2019, ANY has generated 15.2 billion Ft, some 15.3% of its enterprise value, and paid out 10.9 billion Ft in dividends. The company’s 6.3 billion Ft in FCF in 2024 has a yield of nearly 6.4%.
A Strong Balance Sheet and Attractive Credit Rating
ANY’s ability to maintain its competitive positioning and navigate any economic turmoil, is bolstered by its strong balance sheet. The company earns an Attractive credit rating based on my credit rating framework.
In addition, with 7.6 billion Ft in cash and cash equivalents as of the end of 2024, ANY has a strong cash position in the event of market distress. As of the end of 2023, the company had an overdraft limit of 4.3 billion. Assuming this remains unchanged -one awaits the overdraft discussion in the coming annual report-, ANY has 11.9 billion Ft in liquidity, with 10.3 billion Ft due in 2025.
Stock is Priced for a 30% Decline in NOPAT
Despite its impressive economics, ANY has a price-to-economic book value (PEBV) of 0.7, implying that the market expects its NOPAT to permanently fall 30% from 2024 levels. I used my reverse DCF model to tease out the expectations for future growth in cash flows implied by various scenarios for ANY.
In the first, I quantified the expectations implied by the current price:
- NOPAT margin falls to 9.7%, its 5-year average compared to its 2024 level of 15.6%.
- Revenue grows at 2.7% a year, the global industry’s estimated compound annual growth rate (CAGR) for the 2025 to 2030 period.
In this scenario, NOPAT falls 1.35% a year to 7.1 billion Ft in 2026, and the stock is worth 5,859 today, roughly equal to its current price.
If, on the other hand, we assume that ANY’s
- NOPAT margin falls to its 3-year average of 11.4%;
- Revenue grows by just 5% a year, then,
the stock is worth 7,347 Ft per share, a 23% upside from the current price.
If ANY’s future cash flows are in line with historic performance, and,
- The current NOPAT margin of 15.6% is maintained
- While revenue grows at its 3-year CAGR of 11.6%, then,
the stock is worth 11,067 Ft today, an 86% upside to its current price.
Impact of Footnotes Adjustments and Forensic Accounting
Here below are details of adjustments made to ANYs’ 2024 unaudited interim report:
Income Statement: I made 3.7 billion Ft in adjustments to calculate NOPAT, with the net effect of adding 3 billion Ft in non-operating expenses. The adjustments are equal to 47% of ANY’ IFRS net income.
Balance Sheet: I made 24 billion Ft in adjustments to calculate invested capital with a net decrease of 23.9 billion. One of the largest of these adjustments was 4.1 billion Ft in excess cash, an adjustment which, on its own, is worth 8% of reported assets.
Valuation: I made 20.6 billion Ft in adjustments with a net effect of decreasing shareholder value by 12.4 billion Ft. The largest of these adjustments was 13.2 billion in adjusted total debt, representing nearly 15% of ANY’s market cap.