CBI - Chicago Bridge & Iron

[racemize]

Lots of price action in the last few days (down and then up)--I'm not sure I'm getting what's going on today.  Is the LNG project that significant?  I wouldn't think so, but maybe?

[gfp]

Might just be a short squeeze but it sounds like the just announced plant with Anadarko is a very large project -

 

http://www.bloomberg.com/news/articles/2015-05-15/anadarko-picks-main-firm-to-build-giant-africa-lng-plant

 

Lots of price action in the last few days (down and then up)--I'm not sure I'm getting what's going on today.  Is the LNG project that significant?  I wouldn't think so, but maybe?

[KCLarkin]

Sounds like it would be a huge project. CBI is trading at half its usual multiple so any good news will cause big moves. I doubled my small position.

 

 

 

 

[racemize]

Sounds like it would be a huge project. CBI is trading at half its usual multiple so any good news will cause big moves. I doubled my small position.

 

Oh, that one does look large.  I was looking at the other LNG project they just announced for the Rio Grande:

http://finance.yahoo.com/news/cb-announces-contract-rio-grande-120000163.html

[gokou3]

Might just be a short squeeze but it sounds like the just announced plant with Anadarko is a very large project -

 

http://www.bloomberg.com/news/articles/2015-05-15/anadarko-picks-main-firm-to-build-giant-africa-lng-plant

 

Lots of price action in the last few days (down and then up)--I'm not sure I'm getting what's going on today.  Is the LNG project that significant?  I wouldn't think so, but maybe?

 

This $15B project in Africa is certainly very large compared to their 2014 revenue of $13B.

[KCLarkin]

Einhorn more than doubled CBI to 4.4% of 13F.

[Happy]

Berkshire owns 9.9% of CBI. I'm curious to get any thoughts on whether them not adding after the big drop means that they did not want to add more at the lower price or if they just couldn't or didn't want to go past 10%?

I know reporting is more onerous past 10%, but what exactly does that entail and wouldn't they generally do it if the situation was spectacular?

[KCLarkin]

I don't recall all the details but I believe 10% is a pretty hard limit due foreign ownership restrictions since CBI is a Netherlands based company.

[gfp]

edit - nevermind - it appears the poison pill predates the spinout from Praxair and the 10% limit is specific to tax risks of being deemed a foreign controlled corporation. 

 

"... the Issuer will be

classified as a controlled foreign corporation.  In that event, all U.S.

Holders of 10% or more of the Common Shares will be subject to taxation

under Subpart F of the Code."

 

Basically, if Berkshire were to go above 10% the possibility exists that Berkshire would owe US taxes on their portion of CBI's profits even in the absence of distributions.

[RadMan24]

Berkshire owns 9.9% of CBI. I'm curious to get any thoughts on whether them not adding after the big drop means that they did not want to add more at the lower price or if they just couldn't or didn't want to go past 10%?

I know reporting is more onerous past 10%, but what exactly does that entail and wouldn't they generally do it if the situation was spectacular?

 

As mentioned above, one analyst could make a hypothetical case that Ted/Todd CBI investment is one of their favorite/top ideas, as they are limited to 10% outstanding.  Either way, Einhorn's increased stake also adds weight to the claims off cash flow concerns and accounting conventions are just that, conventions. 

[Happy]

Thanks, guys. That helps.

[dbuch]

 

 

They also mentioned they have an underpinning business that does a fairly recurring $4-$6B of revenues a year. If you assume a 5% margin on this business that is $200M of recurring EBIT. Add the $184M EBIT recurring stream from Lummus and you have a full 40% of EBIT that is fairly consistent and steady.

 

Correction to the above - After talking to IR, underpinning is everything not EPC, mostly fabrication, piping work, cryogenic tanks and tech. So the tech is included in that $4-$6B. This would seem to imply about $200M of recurring EBIT total out of $1B or 20% of EBIT.

 

They did mention they have historically converted more than 1x NI to CFO.

[MaxDC]

Hi, I think CB&I is a balanced company well positioned for outstanding growth in the years to come. Energy demand in Asia, price differentials in energy, especially gas prices and environmental problems will drive further growth for nuclear and lng.

 

The recent slide in the share price is silly. If CB&I was close to breaching the covenants of the lending agreements because of the negative cash flow (us nuclear projects) that would be a problem. The recurring revenue and lummus will shield it, I don't think this is imminent.

 

I think 3 issues are especially important for the share performance and would be happy if anyone has additional information on that:

 

1. in the US the prospects for new nuclear constructions are lets say not bright. Does anybody have information on any upcoming nuclear projects in China (resulting from the agreements with 2 China state's company)?? Is CB&I working on similar agreements in India?

 

2. LNG projects are taking off right now. I know about the Cameron LNG expansion which I think CB&I will contract. Will it also get a piece of the Alaska LNG project? Are there others to be contracted besides Anadarko??

 

3. In the earnings call, Asherman talked about 70 gas fired power plants to be built in the US in the upcoming years? How come no news about any awards/projects?

 

Last but not least: Since CB&I is a Dutch company, how come that they have such a small footprint there? LNG import facilities are being constructed in the Netherlands (Rotterdam),Lithuania and Poland but without participation of CB&I. Vinci did LNG Tanks in Rotterdam, a canadian company the polish facility. As less dependence from russian gas is at least a long term goal, there should be demand across europe. Does anybody see any share in the UK nuclear projects??

 

I know a lot of points, but I start to love this company.

 

Thanks for any replies.

[wachtwoord]

Arent they Dutch for tax purposes only? There are so many Core labs (CLB) Schlumberger (SLB) and Fiat-Chrysler (FCAU) immediately come to mind.

[mttddd]

Arent they Dutch for tax purposes only? There are so many Core labs (CLB) Schlumberger (SLB) and Fiat-Chrysler (FCAU) immediately come to mind.

 

Yep they moved the official headquarters from Houston to the Netherlands when Texas instituted a franchise tax.

[RadMan24]

Hi, I think CB&I is a balanced company well positioned for outstanding growth in the years to come. Energy demand in Asia, price differentials in energy, especially gas prices and environmental problems will drive further growth for nuclear and lng.

 

The recent slide in the share price is silly. If CB&I was close to breaching the covenants of the lending agreements because of the negative cash flow (us nuclear projects) that would be a problem. The recurring revenue and lummus will shield it, I don't think this is imminent.

 

I think 3 issues are especially important for the share performance and would be happy if anyone has additional information on that:

 

1. in the US the prospects for new nuclear constructions are lets say not bright. Does anybody have information on any upcoming nuclear projects in China (resulting from the agreements with 2 China state's company)?? Is CB&I working on similar agreements in India?

 

2. LNG projects are taking off right now. I know about the Cameron LNG expansion which I think CB&I will contract. Will it also get a piece of the Alaska LNG project? Are there others to be contracted besides Anadarko??

 

3. In the earnings call, Asherman talked about 70 gas fired power plants to be built in the US in the upcoming years? How come no news about any awards/projects?

 

Last but not least: Since CB&I is a Dutch company, how come that they have such a small footprint there? LNG import facilities are being constructed in the Netherlands (Rotterdam),Lithuania and Poland but without participation of CB&I. Vinci did LNG Tanks in Rotterdam, a canadian company the polish facility. As less dependence from russian gas is at least a long term goal, there should be demand across europe. Does anybody see any share in the UK nuclear projects??

 

I know a lot of points, but I start to love this company.

 

Thanks for any replies.

 

As for #1:

 

You are right, Nuclear will be uneconomical as nat gas is below $6. Flip side is decommissions in coal and nuclear power plants in the U.S. will be increasing, potentially material if volume is sufficient. However, else where in the world is where expected demand is going to come from, notably China. If they are able to get a slice of that pie, then they'll be able to grow that business. Management has been able to execute and win some bids, as we have seen with the LNG projects. So, if they can execute on a similar basis for future Nuclear awards, along with ironing out the design implementation and construction costs from the current work in the U.S., then they should be in a good spot. Nuclear is a long-term model, I think those awards will fill the gap after LNG projects start to level off or cool down (future talk, take with a grain of salt). All in all, the company's Lummus division adds a layer of valuation that no other competitor appears to have. Therefore, its reasonable to expect CB&I to be opportunistic throughout the full business cycle, pardoning worse case scenarios, which will require all available liquidity.

 

 

[bbarberayr]

CBI taking a big hit with the fall in the oil price again.  They've stated many times that the price of oil does not have a major impact on their business and are at an 8 p/e on 2015 earnings.

 

Probably not a bad time to buy now unless the price of oil continues down and drags it down further, but definitely one of the cheapest stocks in the market still.

[AzCactus]

Even if oil drops in the short run this still looks cheap to me. 

[InsecurityAnalysis]

Gotten beaten up again today, like it was 6th grade.

Getting ready to add to my position at this point.

[MrB]

Hi, I think CB&I is a balanced company well positioned for outstanding growth in the years to come. Energy demand in Asia, price differentials in energy, especially gas prices and environmental problems will drive further growth for nuclear and lng.

 

The recent slide in the share price is silly. If CB&I was close to breaching the covenants of the lending agreements because of the negative cash flow (us nuclear projects) that would be a problem. The recurring revenue and lummus will shield it, I don't think this is imminent.

 

I think 3 issues are especially important for the share performance and would be happy if anyone has additional information on that:

 

1. in the US the prospects for new nuclear constructions are lets say not bright. Does anybody have information on any upcoming nuclear projects in China (resulting from the agreements with 2 China state's company)?? Is CB&I working on similar agreements in India?

 

2. LNG projects are taking off right now. I know about the Cameron LNG expansion which I think CB&I will contract. Will it also get a piece of the Alaska LNG project? Are there others to be contracted besides Anadarko??

 

3. In the earnings call, Asherman talked about 70 gas fired power plants to be built in the US in the upcoming years? How come no news about any awards/projects?

 

Last but not least: Since CB&I is a Dutch company, how come that they have such a small footprint there? LNG import facilities are being constructed in the Netherlands (Rotterdam),Lithuania and Poland but without participation of CB&I. Vinci did LNG Tanks in Rotterdam, a canadian company the polish facility. As less dependence from russian gas is at least a long term goal, there should be demand across europe. Does anybody see any share in the UK nuclear projects??

 

I know a lot of points, but I start to love this company.

 

Thanks for any replies.

 

As for #1:

 

You are right, Nuclear will be uneconomical as nat gas is below $6. Flip side is decommissions in coal and nuclear power plants in the U.S. will be increasing, potentially material if volume is sufficient. However, else where in the world is where expected demand is going to come from, notably China. If they are able to get a slice of that pie, then they'll be able to grow that business. Management has been able to execute and win some bids, as we have seen with the LNG projects. So, if they can execute on a similar basis for future Nuclear awards, along with ironing out the design implementation and construction costs from the current work in the U.S., then they should be in a good spot. Nuclear is a long-term model, I think those awards will fill the gap after LNG projects start to level off or cool down (future talk, take with a grain of salt). All in all, the company's Lummus division adds a layer of valuation that no other competitor appears to have. Therefore, its reasonable to expect CB&I to be opportunistic throughout the full business cycle, pardoning worse case scenarios, which will require all available liquidity.

 

 

 

“Distinctions drawn by the mind are not necessarily equivalent to distinctions in reality.” –Thomas Aquinas

 

http://www.nrc.gov/reactors/new-reactors.html

http://www.nrc.gov/reactors/new-reactors/new-licensing-files/new-rx-licensing-app-legend.pdf

http://www.nrc.gov/reactors/new-reactors/col/new-reactor-map.html

http://energy.gov/articles/department-energy-issues-draft-loan-guarantee-solicitation-advanced-nuclear-energy-projects

http://www.world-nuclear.org/info/Facts-and-Figures/World-Nuclear-Power-Reactors-and-Uranium-Requirements/

 

Not exactly a dying industry

 

Gas or nuclear? An exhibit to Lynch's testimony on the Jenkinsville facility (note that Lynch will be biased)

https://dms.psc.sc.gov/Attachments/Matter/D5D00F30-155D-141F-232B1FC66639F4A6

 

Tip: The testimonies are well worth a read to understand the CBI dispute better, especially the Byrne testimony.

See https://dms.psc.sc.gov/Web/Dockets/Detail/115413 click on "Matters" and skip to ID 256748 on 5/26/2015

[MaxDC]

Hi, I think CB&I is a balanced company well positioned for outstanding growth in the years to come. Energy demand in Asia, price differentials in energy, especially gas prices and environmental problems will drive further growth for nuclear and lng.

 

The recent slide in the share price is silly. If CB&I was close to breaching the covenants of the lending agreements because of the negative cash flow (us nuclear projects) that would be a problem. The recurring revenue and lummus will shield it, I don't think this is imminent.

 

I think 3 issues are especially important for the share performance and would be happy if anyone has additional information on that:

 

1. in the US the prospects for new nuclear constructions are lets say not bright. Does anybody have information on any upcoming nuclear projects in China (resulting from the agreements with 2 China state's company)?? Is CB&I working on similar agreements in India?

 

2. LNG projects are taking off right now. I know about the Cameron LNG expansion which I think CB&I will contract. Will it also get a piece of the Alaska LNG project? Are there others to be contracted besides Anadarko??

 

3. In the earnings call, Asherman talked about 70 gas fired power plants to be built in the US in the upcoming years? How come no news about any awards/projects?

 

Last but not least: Since CB&I is a Dutch company, how come that they have such a small footprint there? LNG import facilities are being constructed in the Netherlands (Rotterdam),Lithuania and Poland but without participation of CB&I. Vinci did LNG Tanks in Rotterdam, a canadian company the polish facility. As less dependence from russian gas is at least a long term goal, there should be demand across europe. Does anybody see any share in the UK nuclear projects??

 

I know a lot of points, but I start to love this company.

 

Thanks for any replies.

 

As for #1:

 

You are right, Nuclear will be uneconomical as nat gas is below $6. Flip side is decommissions in coal and nuclear power plants in the U.S. will be increasing, potentially material if volume is sufficient. However, else where in the world is where expected demand is going to come from, notably China. If they are able to get a slice of that pie, then they'll be able to grow that business. Management has been able to execute and win some bids, as we have seen with the LNG projects. So, if they can execute on a similar basis for future Nuclear awards, along with ironing out the design implementation and construction costs from the current work in the U.S., then they should be in a good spot. Nuclear is a long-term model, I think those awards will fill the gap after LNG projects start to level off or cool down (future talk, take with a grain of salt). All in all, the company's Lummus division adds a layer of valuation that no other competitor appears to have. Therefore, its reasonable to expect CB&I to be opportunistic throughout the full business cycle, pardoning worse case scenarios, which will require all available liquidity.

 

 

 

“Distinctions drawn by the mind are not necessarily equivalent to distinctions in reality.” –Thomas Aquinas

 

http://www.nrc.gov/reactors/new-reactors.html

http://www.nrc.gov/reactors/new-reactors/new-licensing-files/new-rx-licensing-app-legend.pdf

http://www.nrc.gov/reactors/new-reactors/col/new-reactor-map.html

http://energy.gov/articles/department-energy-issues-draft-loan-guarantee-solicitation-advanced-nuclear-energy-projects

http://www.world-nuclear.org/info/Facts-and-Figures/World-Nuclear-Power-Reactors-and-Uranium-Requirements/

 

Not exactly a dying industry

 

Gas or nuclear? An exhibit to Lynch's testimony on the Jenkinsville facility (note that Lynch will be biased)

https://dms.psc.sc.gov/Attachments/Matter/D5D00F30-155D-141F-232B1FC66639F4A6

 

Tip: The testimonies are well worth a read to understand the CBI dispute better, especially the Byrne testimony.

See https://dms.psc.sc.gov/Web/Dockets/Detail/115413 click on "Matters" and skip to ID 256748 on 5/26/2015

 

Thank you for providing these information. Apparently nuclear is not dead. I understand that CBI has an exclusive agreement with Westinghouse for the construction of AP1000s in the US. How about GE / Hitachi models or other reactors? Will CBI participate in construction??

 

Yesterday I read a presentation that formerly Shaw employes the vast majority of nuclear engineers in the US (attachment p.18). They at least have the assets to do so.

 

I am more and more confident about the Shaw acquisition as the leveraging of maintenance capabilities from power plants to petrochemical facilities is gaining momentum. This is something that will add continuous income stream and hopefully an ever growing one.

 

 

Other information:

I dug in on the Alaska LNG project. It seems to be in the pre pre-feed stage, but presentations reveal that CBI is in for the LNG and GTP facilities.

Hopefully it will be built, politicians seem to back it.

 

 

Last but not least: I missed an award of a gas power plant lately. How about these? Are there any information about the project pipeline?

CBI_and_the_Shaw_Acquisition_110912.pdf

[MrB]

Hallelujah!! CA01 is in.

https://www.scana.com/docs/librariesprovider15/pdfs/press-releases/07232015-sceg-sets-2-4-million-pound-module-with-world-39-s-largest-crane.pdf?sfvrsn=0

 

 

[gokou3]

I read the CC tr6anscript and the following comments from management were notable to me:

 

- Still very optimistic about future bookings.  Sounds like some project approvals got pushed out to H2 or early 2016.  They are especially excited about prospects in East Africa, saying there will be opportunities there for the next decadeS.  Also optimistic about NG power plants and LNG terminals.  Look forward to increase back logs into 2016.

- Bought 4M shares in the first couple weeks of July.  They used an automatic purchase plan (10b5-1) to be able to buy throughout the blackout period.  The plan buys shares when prices got below the 200-day moving average.. so probably these shares were bought in the mid-$40s.

- Share repurchases are limited by the existing loan terms limiting the max debt/ebitda to 1.5.  They have refinanced various debts in Q2 with easier terms but some more need to be done before this limit is eliminated

- Expect FY2015 OCF to match net income of ~$500-600M.  This is pretty impressive considering they are at negative ~$200M OCF for H1.  This means $700-800M of cash will come in in H2.  Hope they can use some of it to repurchases shares that are currently at a $5B market cap

- Not much update on the nuclear project claims.  They actually got about $500M of additional work.

 

 

 

[RadMan24]

I read the CC tr6anscript and the following comments from management were notable to me:

 

- Still very optimistic about future bookings.  Sounds like some project approvals got pushed out to H2 or early 2016.  They are especially excited about prospects in East Africa, saying there will be opportunities there for the next decadeS.  Also optimistic about NG power plants and LNG terminals.  Look forward to increase back logs into 2016.

- Bought 4M shares in the first couple weeks of July.  They used an automatic purchase plan (10b5-1) to be able to buy throughout the blackout period.  The plan buys shares when prices got below the 200-day moving average.. so probably these shares were bought in the mid-$40s.

- Share repurchases are limited by the existing loan terms limiting the max debt/ebitda to 1.5.  They have refinanced various debts in Q2 with easier terms but some more need to be done before this limit is eliminated

- Expect FY2015 OCF to match net income of ~$500-600M.  This is pretty impressive considering they are at negative ~$200M OCF for H1.  This means $700-800M of cash will come in in H2.  Hope they can use some of it to repurchases shares that are currently at a $5B market cap

- Not much update on the nuclear project claims.  They actually got about $500M of additional work.

 

 

Only thing I noticed as a negative were fabrication business unit margins below expectations and technology growth rate is slowing down a little, predicted into 2016.

 

[MrB]

I read the CC tr6anscript and the following comments from management were notable to me:

 

- Still very optimistic about future bookings.  Sounds like some project approvals got pushed out to H2 or early 2016.  They are especially excited about prospects in East Africa, saying there will be opportunities there for the next decadeS.  Also optimistic about NG power plants and LNG terminals.  Look forward to increase back logs into 2016.

- Bought 4M shares in the first couple weeks of July.  They used an automatic purchase plan (10b5-1) to be able to buy throughout the blackout period.  The plan buys shares when prices got below the 200-day moving average.. so probably these shares were bought in the mid-$40s.

- Share repurchases are limited by the existing loan terms limiting the max debt/ebitda to 1.5.  They have refinanced various debts in Q2 with easier terms but some more need to be done before this limit is eliminated

- Expect FY2015 OCF to match net income of ~$500-600M.  This is pretty impressive considering they are at negative ~$200M OCF for H1.  This means $700-800M of cash will come in in H2.  Hope they can use some of it to repurchases shares that are currently at a $5B market cap

- Not much update on the nuclear project claims.  They actually got about $500M of additional work.

 

Philip K. Asherman - President, CEO & Member-Supervisory Board

Well, it's a work in progress. Again, there's no denying there's a tremendous number of commercial disputes that we're working with. It's a balance between appropriately dealing with those disputes and still trying to get these projects built. So all the above in terms of the licensees and the technology providers and the consortium are working hard to do that. I can't give you a timeline. There's no judgments or any other final decrees that would – that I could tell you that things would be determined. But we're trying to get this through settlement, not through the courts, but – so I really don't have an answer.

 

But we freely admit that that certainly is one of the overhanging issues affecting certainly our share price and the narrative around these projects, and we would love to find a conclusion of that. And we certainly are investigating several pathways to get there, but at a minimum, we want to keep these things cash-neutral and would hope that by the end of the year we've got this situation stabilized.