KDM - KDM Shipping Public Limited

[Voodooking]

Hi folks...

 

I'm trying to implement a 'Net Net' strategy in my portfolio, and this seems to be one the cheapest decent quality stocks I can find currently.

 

It's a Ukrainian shipping company which is traded on the Warsaw stock exchange in Poland. I'm based in the UK but invest in developed markets worldwide, mostly in Poland, Japan, UK, Canada, US etc.

 

I previously purchased a few shares of at about 22% of NCAV, and today it has fallen further to 16% of NCAV.

 

As this is extremely cheap, I’m looking to take a bigger position. However, I’m worried about the fact that EPS are minus 2.50 PLN.

 

What is the downside here and worst-case scenario? I normally try to concentrate on Net Nets that pay a dividend, but this is so cheap it has my interest. I just want to consider the consequences before I take a bigger position.

 

Thanks

[Voodooking]

I've been digging into this stock a bit further today and increased my position slightly. I've discovered the following. Don't know if this will be any use to anyone, but I'll post here anyway...

 

It’s majority owned (70%) by a family (father and son) who are also the CEO / CFO. Presumably if they have so much of their net worth in the company, they’ll be incentivised to turn things around…?

 

Also, it is currently trading at 1.62 PLN per share, but the cash at bank is 8.52 PLN. Surely this is a huge amount of protection on the downside? (If it’s safe in the Ukraine banks)

 

I’m very new to Net Net investing, I usually prefer to invest in dividend paying Net Nets. I think this looks like a great opportunity, but I could be wrong. I would appreciate any advice from anyone else on anything I may be missing.

 

24% of shares are also held by institutional investors such as Aviva etc. I understand this can be good because they have the possibility of influencing the management if that would be beneficial. That means that only around 6% of the company is held by the general public / retail investors. I don’t know if this is good or bad, but it may be significant.

 

The only thing that I didn’t understand was that the salaries for the last year were detailed as $56k USD, but it said that the “Number of key management personnel, persons” was 21. I’m not sure that quite adds up in my mind. Does that mean the 21 people were only getting paid an average of $2,667 USD p.a.?

 

I have since increased my position in KDM, but just wondered if anyone had anything to add to my (amateur) analysis…

[glorysk87]

My factset doesn't have the financials and I'm too lazy to go manually look them up, so I'm a bit in the dark on this one.

 

The main question I'd ask though is, how fast are they burning cash?  Also what's the compensation structure for the father/son duo? Could see a situation where management sucks the cash out to pay themselves.

[Voodooking]

Here's a link with all the information I can think of:

 

http://markets.ft.com/research/Markets/Tearsheets/Summary?s=KDM:WSE

 

You'll find a tab at the top for the financials if you're not familiar with the site...

 

I think the NCAV burn rate so far is about 5 or 6%, so it doesn't look too bad.

 

Well there are no high salaries coming out that I can see, so I suppose there's a possibility they might be getting paid only via dividends, but that's maybe naive.

[Jurgis]

Personally I wouldn't buy shares in Eastern European company managed by majority shareholders who can pretty much do what they want. Even more so when the company is in Ukraine. You could be looking at 100% loss before you even manage to say "da" (or "net").  ;D IMO if you don't have boots on the ground, these things are not investable.

 

That being said, it's possible that the company is legit, and won't go BK or sell out assets from underneath you, etc. And maybe the price is too negative because of the concerns as above.  I'm just expressing general opinion and I have pretty much zero interest in looking at the details. Good luck and have fun. :)

[Enrico Pallazzo]

Only bumping because I saw some folks mentioning this as a "best pick", so I looked into it briefly.

 

I'd be wary of this one.  I admit I don't know a ton about the ins and outs of the Ukrainian dry bulk market, but I know enough about shipping to be worried.

 

Their fleet is extremely old.  Of the 9 vessels mentioned in their 2013 offering presentation, the build date ranges from 1969-1986.  When doing your analysis, you have to factor in the limited lifetime of these vessels.  Especially when you consider the IMO regulations that will soon take effect, related to ballast water treatment systems and the 0.5% sulfur cap.

 

Even if we get a rebound in the Ukrainian dry cargo market, for how many years are we going to get meaningful profits before these get scrapped?  What is the scrap value of this fleet?  I don't know how much scrap metal is on these ships, but I'd be surprised if it's more than a few million USD total.

 

I'm definitely not saying this can't work out.  But there really are a lot of ways you can go wrong with a $10M market cap, closely held stock in a complex & volatile sector, based in Ukraine / Cyprus, with 30-50 year old equipment.

[frommi]

Only bumping because I saw some folks mentioning this as a "best pick", so I looked into it briefly.

 

I'd be wary of this one.  I admit I don't know a ton about the ins and outs of the Ukrainian dry bulk market, but I know enough about shipping to be worried.

 

Their fleet is extremely old.  Of the 9 vessels mentioned in their 2013 offering presentation, the build date ranges from 1969-1986.  When doing your analysis, you have to factor in the limited lifetime of these vessels.  Especially when you consider the IMO regulations that will soon take effect, related to ballast water treatment systems and the 0.5% sulfur cap.

 

Even if we get a rebound in the Ukrainian dry cargo market, for how many years are we going to get meaningful profits before these get scrapped?  What is the scrap value of this fleet?  I don't know how much scrap metal is on these ships, but I'd be surprised if it's more than a few million USD total.

 

I'm definitely not saying this can't work out.  But there really are a lot of ways you can go wrong with a $10M market cap, closely held stock in a complex & volatile sector, based in Ukraine / Cyprus, with 30-50 year old equipment.

 

Since it trades below net cash, you get all their ships for free. For me its just a "quant" position based on the numbers, but i don`t see a reason why any stock should trade below NCAV if it doesn`t burn money like weed.

[rukawa]

Hi folks...

 

I'm trying to implement a 'Net Net' strategy in my portfolio, and this seems to be one the cheapest decent quality stocks I can find currently.

 

It's a Ukrainian shipping company which is traded on the Warsaw stock exchange in Poland. I'm based in the UK but invest in developed markets worldwide, mostly in Poland, Japan, UK, Canada, US etc.

 

I previously purchased a few shares of at about 22% of NCAV, and today it has fallen further to 16% of NCAV.

 

As this is extremely cheap, I’m looking to take a bigger position. However, I’m worried about the fact that EPS are minus 2.50 PLN.

 

What is the downside here and worst-case scenario? I normally try to concentrate on Net Nets that pay a dividend, but this is so cheap it has my interest. I just want to consider the consequences before I take a bigger position.

 

Thanks

 

I'm doing a net net portfolio as well. In fact the top 3 postings right now in the Investment section are all net-nets and I own all of them including this one.

 

I haven't posted a single idea on here though. And the reason for that is that I don't think the over-analysis I find on this forum will help my net-net returns. The questions I ask are straight forward

 

1) Is it a fraud...this one isn't

2) Are they raising capital....this one again isn't.

3) Do they have lots of cash and few financial liabilities....yes.

 

Everything else is noise. You don't concentrate on a position like this...its a basket approach. Over-analyzing will only lower returns.

[frommi]

Finally they posted results of the last half year: http://kdmshipping.com/index.php?obj=content&task=downloadDoc&id=471d1781904be1eda87adebec991bbc1

 

They god rid of a subsidiary with a 2 million bank loan, so the balance sheet looks cleaner now. Capital controls in the ukraine are easing und business is picking up, maybe it finally helps the stock price. Net cash is still 6 PLN, NCAV 8 PLN and the current price is at 1.5 PLN with bids at 1.6 PLN.

[johnny]

Since it trades below net cash, you get all their ships for free.

 

If the fleet is indeed so old, it's probably more accurate to say that you get the old fleet for free, and the replacement fleet at a discount. Does anybody here have an opinion of the shrewdness of their prior vessel acquisitions or capital allocation choices generally?

[Scunny Bunny]

Don't forget there are issues which could make ships worthless which is the move to sulphur free fuel & the need to retrofit scrubbers in many cases, which cost $6m a pop. The whole shipping industry irrespective of segment - bulk, tanker, ro-ro, container etc - all at big discounts to NTA(and EV to assets when you adjust for debt).  I am long Maersk, DHT and Wilhelmsen Holdings. 

[frommi]

Since it trades below net cash, you get all their ships for free.

 

If the fleet is indeed so old, it's probably more accurate to say that you get the old fleet for free, and the replacement fleet at a discount. Does anybody here have an opinion of the shrewdness of their prior vessel acquisitions or capital allocation choices generally?

 

You buy 1$+old ships for 0,28$. Who knows if they ever buy new ships again? They wrote that they chartered 4 vessels from other ship owners in the past half year.

[Foreign Tuffett]

Anyone else notice the CFO's massive insider selling earlier this year? Since he and his father are the only two board members (!), one wonders if there are some shenanigans going on here......