1768 - Bracell

[yadayada]

Stock looks very interesting, but tehre are a few reasons to not like it. Trades at 60% discount to peers (probably more since it should be worth more then peers). In an industry with huge barriers of entry. And they are about to steal market share away from RYAM, with virtually no growth capex costs needed to do so since they run at 1/3 capacity in specialty cellulose.

 

Trades at about 6x 2014 earnings, or a about 3.5x EV/EBITDA (peers trade at 7x). Yet it has by far the highest margins, and lowest leverage, and actually has good growth prospects (this is soft of a zero sum game).

 

There is a seeking alpha article on it, that actually describes the situation quite well. They got a low cost advantage on everyone and have lowest levels of leverage. And seem to readily pay out earnings. And from comments of competitors (especially Tembec's Q calls are worth reading) it looks extremely likely they have already stolen market share in acetate business, and will steal a lot more with contracts up for grabs from Tembec and RYAM in the next few years. They now produce about the same quality as RYAM and RYAM's customers are looking to diversify supplier base (not to mention Bracell can produce it a LOT cheaper now then RYAM).

 

Really the only big reason to not like this stock is because 83% of the stock is owned by this guy:

http://www.sukantotanoto.co/my-open-letter-to-sukanto-tanoto/

http://www.chriswrightmedia.com/ifr-sukanto-tanoto-float-shows-asia-appetite-despite-history/

 

It is unlikely he will screw minority shareholders because he would need to own over 90% of the shares to do that. And that would alienate him from capital markets for relatively little gain. But still, he seems shady. Both of these articles are actually pretty damning. But the upside would be huge. Normalized earnings if they would steal away market share, would be like 150-200m USD on a now 385m USD market cap. You would own the low cost provider in a industry with huge barriers of entry and very stable demand.

 

Edit: oh second reason to not like it is, SC market is oversupplied now for the next few years. Should not hurt Bracell too much since their costs are much lower, and margins of competitors are reduced close to zero already. Long term this will not be an issue as this market seems quite rational, and new entrants are unlikely.

 

Thoguhts?

[Spekulatius]

With "this guy" controlling it,  the stock seems in-investable.

[yadayada]

yeah after giving it some thought, Im not touching this one. Better to avoid shady people like that. Maybe if it gets a lot cheaper.

[LC]

holy crap, that "open letter" about how sukanto abused his own family is almost unbelievable. there's no way i want to be anything close to associated with that. screw that guy.