west Posted January 2, 2015 Share Posted January 2, 2015 Metka is a Greek power plant construction firm that's currently trading a ridiculous discount to any estimate of its intrinsic value. I wrote a writeup for it and I figured I should post it here while its still timely. The writeup is attached. Many thanks go to both oddballstocks and Kraven for their help editing it. Any mistakes or bad writing is completely my fault. Here are the Ben Graham-esque stats for the company: Current P/E: Less than 4.5x Current Price-to-Common-Equity: Less than 0.91x Historic ROE: Greater than 20% each year since 2005. Highest ROE was 46% in 2010. There's an investment thesis summary on page 8 for the time-crunched. Enjoy!Metka_Writeup_-_FINAL.pdf Link to comment Share on other sites More sharing options...
lathinker Posted January 3, 2015 Share Posted January 3, 2015 West, thanks for posting and agree this looks ridiculously cheap. I am long Mettka myself. The report looks well-thought and provides a lot of detail. The one area I am a bit concerned about is the backlog. While I agree with you that the risks on their existing backlog appear well-managed, it looks like their backlog has been shrinking for some years. Given the lumpy nature of the business (Metka usually gets 2-4 large orders a year and that's it), it is well possible that Metka may see their backlog shrink further or may need to offer discounts at some point. Other than that, I agree that this is a dirt-cheap company with a very strong balance sheet which has generated extraordinary returns for a long time. On a separate note, have you considered investing in Mytilineos, the family holding company which owns roughly half of Metka? If so, why did you prefer Metka over Mytilineos? Kind regards, lt Link to comment Share on other sites More sharing options...
rmitz Posted January 3, 2015 Share Posted January 3, 2015 Sorry if I missed it and you write up but I didn't see what kind of power plants they are building. Thanks for the good work. Link to comment Share on other sites More sharing options...
Laxputs Posted January 3, 2015 Share Posted January 3, 2015 Can't find this one on Interactive Brokers. Link to comment Share on other sites More sharing options...
west Posted January 3, 2015 Author Share Posted January 3, 2015 Sorry if I missed it and you write up but I didn't see what kind of power plants they are building. Thanks for the good work. Primarily CCGT and upgrades to CCGT. They have all of their projects listed with non-financial details about them on their website. Link to comment Share on other sites More sharing options...
west Posted January 3, 2015 Author Share Posted January 3, 2015 Can't find this one on Interactive Brokers. Unfortunately, I had to open an account with Fidelity to buy in. IBKR doesn't do the Athens exchnage. It was a very expensive buy, but hopefully Metka's return will be big enough to justify the cost. Link to comment Share on other sites More sharing options...
west Posted January 3, 2015 Author Share Posted January 3, 2015 West, thanks for posting and agree this looks ridiculously cheap. I am long Mettka myself. The report looks well-thought and provides a lot of detail. The one area I am a bit concerned about is the backlog. While I agree with you that the risks on their existing backlog appear well-managed, it looks like their backlog has been shrinking for some years. Given the lumpy nature of the business (Metka usually gets 2-4 large orders a year and that's it), it is well possible that Metka may see their backlog shrink further or may need to offer discounts at some point. Other than that, I agree that this is a dirt-cheap company with a very strong balance sheet which has generated extraordinary returns for a long time. On a separate note, have you considered investing in Mytilineos, the family holding company which owns roughly half of Metka? If so, why did you prefer Metka over Mytilineos? Kind regards, lt I don't know how to analyze future backlog potential for Metka unfortunately. If you have any thoughts on how to do so, I'm all ears. I don't have a good reason for why they'd go either up or down, so I'm just assuming the future will be about the same as it's been in the last four years. On Mytilineos: I haven't gotten time to dig into them yet. However, despite my teaser at the end of the writeup, the initial glance at them didn't look as compelling. Most of their other businesses look marginal at best, and Metka looks like the crown gem. Again though, I haven't looked at them practically at all at this point, so there's a chance they could have more upside potential. Link to comment Share on other sites More sharing options...
frommi Posted January 3, 2015 Share Posted January 3, 2015 Valueing this business on earnings, EBITDA or RoE looks a bit stretched for me. There is no recurring revenue and you don`t know if competition will drive down the margins or if they get new contracts. How many power plants does a country need? So you can only value it on NCAV or TBV and hope that its growing further. A lot of value is in the receivables, who are the clients? Is it possible that these are the government of Syria/Iraq? How safe is it that they really pay? Sorry that i am so negative, looks like i don`t like a lot of ideas lately. Link to comment Share on other sites More sharing options...
west Posted January 3, 2015 Author Share Posted January 3, 2015 Valueing this business on earnings, EBITDA or RoE looks a bit stretched for me. There is no recurring revenue and you don`t know if competition will drive down the margins or if they get new contracts. How many power plants does a country need? So you can only value it on NCAV or TBV and hope that its growing further. A lot of value is in the receivables, who are the clients? Is it possible that these are the government of Syria/Iraq? How safe is it that they really pay? Sorry that i am so negative, looks like i don`t like a lot of ideas lately. frommi, On valuing this company using Earnings/EBITDA/etc, my thinking was very similar to yours when I was first starting out. What really helped solidify my process/thinking when it comes to valuing companies like Metka was taking a proper, higher-than-undergraduate level valuation course. Damodaran has probably the best class in existence, and he gives away the class for free. You can see his Spring 2014 class videos, homework, solutions, projects, etc. here: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqspr14.htm I can't recommend going through this highly enough. You don't even need to buy one of his books for it, and he mentions this pretty early one. On the receivables, who is on the other end of them is covered pretty extensively in the report. Suffice it to say, they probably shouldn't be considered high risk. Link to comment Share on other sites More sharing options...
frommi Posted January 3, 2015 Share Posted January 3, 2015 On valuing this company using Earnings/EBITDA/etc, my thinking was very similar to yours when I was first starting out. What really helped solidify my process/thinking when it comes to valuing companies like Metka was taking a proper, higher-than-undergraduate level valuation course. Ok thanks i am reading one of his books currently. Can you tell me what exactly has changed your mind or on what part of the course you refer to? Link to comment Share on other sites More sharing options...
west Posted January 3, 2015 Author Share Posted January 3, 2015 On valuing this company using Earnings/EBITDA/etc, my thinking was very similar to yours when I was first starting out. What really helped solidify my process/thinking when it comes to valuing companies like Metka was taking a proper, higher-than-undergraduate level valuation course. Ok thanks i am reading one of his books currently. Can you tell me what exactly has changed your mind or on what part of the course you refer to? It gives you a framework to think about value in regards to probabilities. Metka's earnings have been pretty stable in the past. Without being able to tie/correlate this to a stable external factor and project sales/earnings into the future based on that stable factor, assume a probability that things will continue like they have in the past and use a discount rate or scenario analysis to come up with a value based on your qualitatively assessed probabilities. Valuation isn't always about having a perfect answer. Almost no investment's perfect, and there will always be some risk involved. Value investing is about getting more reward for less risk, with the understanding that there's still risk. I would skip on the books and watch the videos myself. The books (even the big one) kind of miss a lot of his softer thinking, which he does a good job of fleshing out in his class. Link to comment Share on other sites More sharing options...
frommi Posted January 4, 2015 Share Posted January 4, 2015 It gives you a framework to think about value in regards to probabilities. Metka's earnings have been pretty stable in the past. Without being able to tie/correlate this to a stable external factor and project sales/earnings into the future based on that stable factor, assume a probability that things will continue like they have in the past and use a discount rate or scenario analysis to come up with a value based on your qualitatively assessed probabilities. Valuation isn't always about having a perfect answer. Almost no investment's perfect, and there will always be some risk involved. Value investing is about getting more reward for less risk, with the understanding that there's still risk. I would skip on the books and watch the videos myself. The books (even the big one) kind of miss a lot of his softer thinking, which he does a good job of fleshing out in his class. Now i am really sorry, somehow i missed your valuation page or skipped over it very fast. The valuation looks pretty solid, so i can agree that 700-800 million € is probably fair value here. Still no screaming buy for me at the current price, perhaps below 6€. :) Link to comment Share on other sites More sharing options...
MrB Posted January 5, 2015 Share Posted January 5, 2015 I had a look at this recently in conjunction with CB&I. I recall over 90% of their backlog being two projects in Syria. One of those projects is stalled as it is located in an area controlled by ISIS. So it could be argued they have no backlog to speak of, depending on your view of Syria? Link to comment Share on other sites More sharing options...
west Posted January 5, 2015 Author Share Posted January 5, 2015 I had a look at this recently in conjunction with CB&I. I recall over 90% of their backlog being two projects in Syria. One of those projects is stalled as it is located in an area controlled by ISIS. So it could be argued they have no backlog to speak of, depending on your view of Syria? The report covers this. Link to comment Share on other sites More sharing options...
MrB Posted January 6, 2015 Share Posted January 6, 2015 I had a look at this recently in conjunction with CB&I. I recall over 90% of their backlog being two projects in Syria. One of those projects is stalled as it is located in an area controlled by ISIS. So it could be argued they have no backlog to speak of, depending on your view of Syria? The report covers this. Fair enough West. Had a quick read through it last night. Decent report; thanks for sharing. Which brokers' reports do you have? Link to comment Share on other sites More sharing options...
west Posted January 7, 2015 Author Share Posted January 7, 2015 Just the ones available for free on Mytilineos's website: http://www.mytilineos.gr/en-us/analyst-coverage/list-and-files To be fair, other than one from 2011 with a beautiful breakdown of backlog (whose format I copied for the backlog breakdown in my report) I didn't much out of them. Mostly I used Metka's website, which has a lot of good data, Metka's filings on the Hellenic Exchange website, and their earnings calls. Link to comment Share on other sites More sharing options...
constala Posted April 25, 2015 Share Posted April 25, 2015 quality analysis and discussion with fresh information on Syria, Ghana, and the backlog http://frenzel-herzing.com/metka-s-a-one-of-the-cheapest-companies-in-the-world/ Link to comment Share on other sites More sharing options...
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