VIN - Vianini Industria

[oddballstocks]

I think this is a classic value investment Ben Graham style..

 

Vianini Industria is an Italian cement company that has a large family shareholder.  The company supplies railroad ties to the Rome Metro and are now working on a new power plant.

 

So we have a controlled Italian company that relies on gov funding for business...yes it's cheap

 

Market cap is €38m

Cash €32m

Securities €26m (two public Italian companies)

PP&E €55m

Debt 0

Liabilities €7m

Also receivables and inventory of €17m

 

The company is basically operating at break even, most of earnings come from dividends in the equity holdings.  They have a 1.5 year backlog of business and enough cash on hand to survive 5 years of operating expenses.

 

I went into a bit more detail on my blog, but this is the basics of the investment.  This is a cheap net-net stock, large liquid margin of safety.

 

http://oddballstocks.blogspot.com/2011/11/what-was-cheap-gets-cheaper.html

 

Thoughts?  Comments?

[Guest Hester]

I would bet the market is discounting the cash, maybe heavily. I dont know the company, just read your writeup, but if they are going to invest in a "huge solar power plant" the cash isn't safe. Especially considering the current operations burn cash, the company's recent track record isn't good when it comes to making money from operations.

 

Also

 

"The question I asked when looking at Vianini Industria is do I think that cement production will completely halt in Europe for five years?  That's my worst case scenario, and the scenario where this is a losing investment.  I don't think that will happen..."

 

I think this is probably a bear argument straw man. I highly doubt that cement production would have to completely halt for this to lose money. Since the operations already burn cash, what would cash flow look like if cement production slowed 10%, or 20%, or 50%? I bet it wouldn't be good. What's the cost structure of this business, is it scalable? I would probably try to answer those questions as those scenarios are all a possibility and the first two may even be a probability given Europe's woes.

[oddballstocks]

Hester,

 

Thanks for the comment, I appreciate it, you have some great points that I've been thinking about this afternoon.

 

So for the easy response first, the company is actually cash flow positive not including any dividends from investments.  So from an operational perspective at this point they've been able to scale their operations down.  I agree that the company's investments haven't been the wisest considering the poor return on invested capital.

 

That leads to the next question which is how far could production drop?  I think this is the key question, when I setup my no sales for five years argument I took out COGS and just straight lined operating expenses and personnel costs.  What's rough in figuring sales is trying to decipher where the sales come from.  A sister company with the same parent Vianini Lavori is the general contractor on the Rome Metro Line C project, and Vianini Industria is supplying the cement ties, and blocks for the tunnels.  In the reports this doesn't appear to be part of the backlog, the backlog appears to be outside clients only.  So the related question is how is Vianini Lavori doing, and are their sales going to decrease anytime soon?

 

So I dug into Vianini Lavori and it seems that business has been going well for them, they're busy building a few other subways across Italy and some freeways, HY results were up 10% YoY.  I don't know how exactly this translates to Vianini Industria, but it's not a negative, which I'm happy about.

 

Finally with regards to the market discounting the cash due to the energy plant.  I'm not sure if it should be classified as "huge", it looks like it'll be a 5MW solar plant, so roughly the same output as five windmills running at peak.  I tried to find out how much these cost to build, there are a few going up in the US.  What I could find is a school district is planning on powering their 18 buildings from this plant.  Given this I don't expect the energy plant to be a very large investment, or to consume all of the cash, but it's a risk.

 

Thanks for the comments, you've given me a lot to think about.