CNDUF - Conduril

[writser]

2016 AR has been published a few days ago (not yet in English): http://www.conduril.pt/grupoprestacaocontas.php . Looks like they sold some of the Angolean bonds (not sure - cash flow statement is not very helpful). The 80m due guaranteed by the Portuguese state has unfortunately not been delivered yet but they (still) expect the money to arrive soon. During the year they delevered the balance sheet and made a small profit despite problems in Africa. Backlog is slightly up compared to last year.

 

This might not be the best company in the world but the market cap is now ~65m euro.  If shares double it is still cheap.

[writser]

2017 AR has been released, Portuguese only so far. Major news: COSEC guaranteed amount of 83m should have been settled as of March, 21.  Pro-forma balance sheet is more or less debt-free and interest savings should improve profitability significantly in 2018. A friend wrote a small blog post about it here. Still one of the cheapest stocks I know and one of my largest positions.

[rolling]

2017 AR has been released, Portuguese only so far. Major news: COSEC guaranteed amount of 83m should have been settled as of March, 21.  Pro-forma balance sheet is more or less debt-free and interest savings should improve profitability significantly in 2018. A friend wrote a small blog post about it here. Still one of the cheapest stocks I know and one of my largest positions.

I finally entered Conduril. At a premium to recent valuations. It is now my 3rd biggest position at a little over 10% (exited Davita for that).

 

The oil price spike played an important role. I had a small hedge on oil (by exposure through Angola) through Ibersol and as I saw oil rising bought another hedge through BPI (well managed portuguese bank with an almost 50% position in an highly profitable Angola bank), but got bought out (they are taking the company under) in 2 weeks at an 18% gain.

 

Even while paying a small premium I still am paying less than half last reported book. Currency devaluation has certainly erase a decent chunk from book but it is still at a discount. If you add that debt should have gone significantly down by now, then things are likely to go right (even if oil prices go down yet another time, which would be good news for the majority of my portfolio).

[Jurgis]

Just for fun: this has gone nowhere for the last 4-5 years. How you guys think this is going to work out and why? What are you guys thinking about the opportunity cost? What are you going to do if it goes nowhere for another 4-5 years? Is the expectation that it goes nowhere for a while and then suddenly it goes 3x which still results in OKish annualized return? (2x won't cut it for a good return if you bought in 2014...)

 

(Yeah, there were some trading opportunities, and clearly someone who bought last year in $30s is up a bit).

 

Disclaimer: Yeah, you can ask similar questions for quite a few of my stocks...  8)

[rolling]

Just for fun: this has gone nowhere for the last 4-5 years. How you guys think this is going to work out and why? What are you guys thinking about the opportunity cost? What are you going to do if it goes nowhere for another 4-5 years? Is the expectation that it goes nowhere for a while and then suddenly it goes 3x which still results in OKish annualized return? (2x won't cut it for a good return if you bought in 2014...)

 

(Yeah, there were some trading opportunities, and clearly someone who bought last year in $30s is up a bit).

 

Disclaimer: Yeah, you can ask similar questions for quite a few of my stocks...  8)

Angola suffered a lot with the oil crisis and Conduril stagnated as a result: receivables piled up and debt surged to cover those receivables. Even a few months ago I doubted this was going anywhere: you couldn't count on those receivables to actually be received.

 

 

Now,

- a big shunk of those receivables have been paid in March through a portuguese exports insurance, which allows an almost clearance of the debt.

- Angola changed government and unexpectedly their new president actually looks like he will part ways with the prior regimen and seems to be trying to solve their problems

- oil is going up, which, if maintained, will help make sure things go right

- Portugal-Angola relations improved a lot through a court decision last week: Angola's prior vice president (or something similar) is on trial for corruption in Portugal. There was a prior agreement that this kind of cases should be judged in Angola (or Portugal if the opposite happened) but that wasn't happening. Current Angola president saw that as a lack of trust in Angola judiciary system and a breach in the agreement. Portuguese courts now decided that the trial should be in Angola and political relationships (which were going through a very rough path) seem to be going back to normal

 

[writser]

Just for fun: this has gone nowhere for the last 4-5 years. How you guys think this is going to work out and why? What are you guys thinking about the opportunity cost? What are you going to do if it goes nowhere for another 4-5 years? Is the expectation that it goes nowhere for a while and then suddenly it goes 3x which still results in OKish annualized return? (2x won't cut it for a good return if you bought in 2014...)

 

(Yeah, there were some trading opportunities, and clearly someone who bought last year in $30s is up a bit).

 

Disclaimer: Yeah, you can ask similar questions for quite a few of my stocks...  8)

 

Good questions. First, let me point out that this isn't some sort of compounder that I'm willing to hold at any price. In a few years Conduril shares roughly quadrupled, got slashed by 60% and are now up 70% again. If you bought all your shares at E84 then sure, you're not doing very well, but I'd say that is at least partially your own fault.

 

In hindsight I think I was too enthousiast about this company at a relatively high valuation, see for example my June 2014 post in this topic. But even so, I managed to buy most of my shares at a ridiculous valuation in 2013, sold a significant chunk in 2015 after oil prices (and Conduril results) collapsed and bought back a boatload in 2016 / 2017 when shares were trading at a super low valuation again. As of today my average entry price is around E22. And this includes some really stupid trades like buying a few extra shares at E80 in 2014 when this was already my largest position. Good investors now probably have a negative average entry price. Also, don't forget that Conduril paid out E9 in cumulative dividends since 2013. So actually I'm not doing too bad despite this stock going nowhere and me being an idiot.

 

Regarding the past few years, I think investors were a bit unlucky in a sense. In 2014 it was not a given that oil prices & African business would collapse and that it would take ages for Conduril to convert their receivables into cash. Had I known that I would've probably sold all my shares ..  The past few years did not turn out in the best way possible for Conduril and I don't think that that was entirely their own fault.

 

What are you going to do if it goes nowhere for another 4-5 years? Is the expectation that it goes nowhere for a while and then suddenly it goes 3x which still results in OKish annualized return? (2x won't cut it for a good return if you bought in 2014...)

 

I think these are bad questions to ponder. You are basically anchoring yourself on (to? not a native speaker .. ) stock prices / movements from the past and thinking in terms of: what if that happens again? How do I get break-even? How do I salvage a good return from this train wreck? Sunk cost fallacy .. Whether you bought at E22 in 2012 or E84 in 2014 and how the stock traded the past five years is irrelevant. Only thing that you should try to think about now is the current stock price and business outlook / valuation.

 

Regarding that: Conduril managed to stay profitable during the past five years, i.e. it looks like they are not completely incompetent. At this point in time, oil prices have risen substantially, the Portuguese economy is booming and Conduril finally managed to delever their balance sheet. Conduril is trading at a discount to NCAV, ~0.5x TBV, has been profitable the past decade, trades at a decent earnings multiple (especially when adjusted for interest savings), pays a nice dividend, is family-owned and has the potential for huge earnings growth.

 

I can't name another stock with the same characteristics. So I like this and at this point in time it is my largest position (again) and I'm happy to own it even if it goes nowhere the next 4-5 years. Especially if you mean by that that I have again the opportunity to sell it at 80, buy it back at 30 and collect a nice dividend on the way 8) . Sure, some things can (and probably will) go wrong again, but at current prices I'd say that that risk is more than priced in.

[Spekulatius]

Just for fun: this has gone nowhere for the last 4-5 years. How you guys think this is going to work out and why? What are you guys thinking about the opportunity cost? What are you going to do if it goes nowhere for another 4-5 years? Is the expectation that it goes nowhere for a while and then suddenly it goes 3x which still results in OKish annualized return? (2x won't cut it for a good return if you bought in 2014...)

 

(Yeah, there were some trading opportunities, and clearly someone who bought last year in $30s is up a bit).

 

Disclaimer: Yeah, you can ask similar questions for quite a few of my stocks...  8)

 

The answer is most cases is simple - these companies are not compounded.If they were, they would be much larger than they are. So you need to strive to buy and sell them at the right time.

 

I do have some asset rich stocks that have gone nowhere for a couple of years, even though their intrinsic value has increased. It happens. I don’t think that these stocks should be a huge part of portfolio, but a few of those are probably OK.the nice thing about thr, is that the share price has virtually no correlation to the general stock market, so if thr market turns down, you can probably use them as a source of funds to purchase stocks with more immediate potential. every once in a while, you will get a revaluation in some of these stocks, but the timing is often hard to predict.

[Hielko]

If I could I would absolutely love to have my whole portfolio in stuff like this.

[oddballstocks]

There's a difference in the company compounding vs your portfolio compounding.  Yes, Conduril will not compound, but you can absolutely compound your own portfolio holding them.  Like others said, by trading this, and through dividends, you have ample opportunities for gains.

 

If anyone else has non-compounders with a similar profile they're looking to unload please drop the name in this thread, I think there'd be a lot of buyers..

[Jurgis]

OK, thanks for the answers.  8)

[rolling]

anybody has the semi annual reports of the last few years? To get the future ones I need to ask the investor relations if I understood correctly? Thank you

 

 

[Hielko]

I've got for you them if you send me a PM with your email address.

[rolling]

I've got for you them if you send me a PM with your email address.

Done, thank you. I usually reach a conclusion on an investment quite quickly, but I like to go a little deeper since it makes holding much easier (both on the way up and down), so I'll try to read the reports soon.

 

ps: I'll read either in portuguese (my native language) or in english

[Hielko]

I've got for you them if you send me a PM with your email address.

Done, thank you. I usually reach a conclusion on an investment quite quickly, but I like to go a little deeper since it makes holding much easier (both on the way up and down), so I'll try to read the reports soon.

 

ps: I'll read either in portuguese (my native language) or in english

The interim reports are only in Portuguese, but no problem for you then. I have to Google translate it. I by the way doubt that having those interim reports will add a lot of information, since everything is covered in the annual reports as well.

[rolling]

Another (bigger) portuguese construction company CEO talking about portuguese construction business and other unrelated things in today's newspaper

 

http://www.jornaldenegocios.pt/empresas/construcao/detalhe/presidente-da-mota-engil-o-nosso-mercado-vai-ser-invadido-pela-construcao-espanhola?ref=Not%C3%ADcias%20no%20Minuto_outros

[fishwithwings]

Even if you bought at less than half of book value, the stock never traded above book value.  I'm not saying it's a terrible buy but how much upside is there at current prices...

 

2017 AR has been released, Portuguese only so far. Major news: COSEC guaranteed amount of 83m should have been settled as of March, 21.  Pro-forma balance sheet is more or less debt-free and interest savings should improve profitability significantly in 2018. A friend wrote a small blog post about it here. Still one of the cheapest stocks I know and one of my largest positions.

I finally entered Conduril. At a premium to recent valuations. It is now my 3rd biggest position at a little over 10% (exited Davita for that).

 

The oil price spike played an important role. I had a small hedge on oil (by exposure through Angola) through Ibersol and as I saw oil rising bought another hedge through BPI (well managed portuguese bank with an almost 50% position in an highly profitable Angola bank), but got bought out (they are taking the company under) in 2 weeks at an 18% gain.

 

Even while paying a small premium I still am paying less than half last reported book. Currency devaluation has certainly erase a decent chunk from book but it is still at a discount. If you add that debt should have gone significantly down by now, then things are likely to go right (even if oil prices go down yet another time, which would be good news for the majority of my portfolio).

[rolling]

Even if you bought at less than half of book value, the stock never traded above book value.  I'm not saying it's a terrible buy but how much upside is there at current prices...

 

2017 AR has been released, Portuguese only so far. Major news: COSEC guaranteed amount of 83m should have been settled as of March, 21.  Pro-forma balance sheet is more or less debt-free and interest savings should improve profitability significantly in 2018. A friend wrote a small blog post about it here. Still one of the cheapest stocks I know and one of my largest positions.

I finally entered Conduril. At a premium to recent valuations. It is now my 3rd biggest position at a little over 10% (exited Davita for that).

 

The oil price spike played an important role. I had a small hedge on oil (by exposure through Angola) through Ibersol and as I saw oil rising bought another hedge through BPI (well managed portuguese bank with an almost 50% position in an highly profitable Angola bank), but got bought out (they are taking the company under) in 2 weeks at an 18% gain.

 

Even while paying a small premium I still am paying less than half last reported book. Currency devaluation has certainly erase a decent chunk from book but it is still at a discount. If you add that debt should have gone significantly down by now, then things are likely to go right (even if oil prices go down yet another time, which would be good news for the majority of my portfolio).

Ebit

2010- 65.4

2011- 43.8

2012- 54.9

2013- 64.5

2014- 53.7

2015- 24.0

2016- 19.8

2017- 25.1

 

Depression in the construction sector in Portugal up to 2017.

Low oil prices in 2014-2017 in angola severely impacting their activity there.

 

Current market cap 104M

Low debt (after an 83M payment in march)

 

Simply told: a return to business as usual should generate a good return in due time.

[fishwithwings]

Did the company post an interim report for 2018?

[valuedontlie]

I understand the attraction to this name (steadily growing BV, remained profitable for extended period, soon-to-be cash influx, etc.) and it even reminds me of a similar situation that was taken private in 2017 (Canam).

 

It is admittedly cheap with improving fundamentals... but this has been significantly cheaper when fundamentals were even better... why would it necessarily deserve to trade at a premium to those periods?

 

Following the release of 2012 results -- this was a EUR30 stock (54m market cap)... at the time, there was 18m net cash on the B/S, EBITDA was 60m (0.6x EV/EBITDA), and BV was 90/sh (0.33x), with a 2.60/sh dividend that year (~8-9% yield)... Today, revs/EBITDA are half the amount, the B/S needs to see some other assets converted to cash, etc etc

[rolling]

I understand the attraction to this name (steadily growing BV, remained profitable for extended period, soon-to-be cash influx, etc.) and it even reminds me of a similar situation that was taken private in 2017 (Canam).

 

It is admittedly cheap with improving fundamentals... but this has been significantly cheaper when fundamentals were even better... why would it necessarily deserve to trade at a premium to those periods?

 

Following the release of 2012 results -- this was a EUR30 stock (54m market cap)... at the time, there was 18m net cash on the B/S, EBITDA was 60m (0.6x EV/EBITDA), and BV was 90/sh (0.33x), with a 2.60/sh dividend that year (~8-9% yield)... Today, revs/EBITDA are half the amount, the B/S needs to see some other assets converted to cash, etc etc

you could even argue that BV is stable for that period (expect big book value losses this year due to currency devaluation).

 

Value investing is about expecting the market to eventually reflect the fundamentals OR receive that money through dividends.

 

The last 5 years have been very complicated in Conduril's main markets (Portugal and Angola) While the portuguese market is starting to invert (but no yet in Conduril's market), Angola market continues facing difficulties. While the new government seems to be actively working to solve financial and corruption problems (which lead to them beeing able to get IMF financing), Angola is going through a big challenge, especially if oil prices stay down.

Going through this environment without losing money is, by itself, a good result. But it certainly means the company at least seemed to be in better shape 5 years ago, but that was only because we weren't expecting oil prices to be at low levels, let alone for such a prolonged period of time.

 

My bet here is/was in a return to higher profits through improvement in Portugal and expectedly Angola (which served as an hedge to high oil prices that would impact my remaining portfolio).

 

That return to higher profits, together with a safer balance sheet, would eventually drive dividends/stock price up. The bet is on the first one, the second one is why we value invest instead of speculate.

[Foreign Tuffett]

Is Fidelity the only discount brokerage available to US-based investors that can buy this? Anyone know of any others?

[writser]

Consolidated annual report (for now only in Portuguese): link. Looks like a very decent H2 after a horrible H1 (H1 was a 16.5m loss and a 4m FX hit in comprehensive income.). Net income was ~3m for the year but they were hit with a very high (50%) tax bill this year (my Portuguese isn't good enough to figure out what happened) and 2m was reserved to plug a hole in their pension plan. EBIT was 19m for the year. 6m loss in comprehensive income due to the huge fx swings in the Angolan Kwanza, which has stabilized since. E0.50 dividend, 300m backlog ("with good prospects of strengthening it in the short term) and a positive outlook for 2019. They still have the ugly ~E55m in Angolan bonds on the balance sheet but apart from that net debt is now ~E36m down from ~E109m last year.

 

Looks like H2 was helped significantly by a one-off 'benefits from contractual penalties' post of E8m. Also, the asset 'debtors by accrued income' (i.e. unbilled earnings?) doubled to E30m y/y. Something to keep an eye on.

 

All in all I like what I see at first glance. Trading at NCAV, 1/3 book and I expect EBIT and especially net income to be up in 2019, barring any disasters in Angola. Though with Conduril of course there's always another crisis looming somewhere :P .

 

 

[NeverLoseMoney]

Stock is down some more this week. Now shares are offered at €25.00. It's trading at 0.21x BV at that price, which seems pretty extreme even for this company.

 

Does anyone know if they have released an interim report or if there is some other recent negative news?

[writser]

Conduril has the largest backlog in about a decade. Oil prices are on the rise, good for construction business in Africa. After a few years of enormous currency depreciation the Kwanza is actually up for the year. Will 2021 finally be a banner year for Conduril? Not impossible.