CNRD - Conrad Industries

[bookie71]

Watsa,

The folks in Alaska are still waiting on some of Exxon's payments, many (I think 25+) years later.

[watsa_is_a_randian_hero]

some of Exxon's payments

 

I'm not talking about "some" of BPs payments

[bookie71]

some = 92 million

[KJP]

Third quarter report out today:  http://www.otcmarkets.com/financialReportViewer?symbol=CNRD&id=147041

 

Repair revenue continues to be down and had slightly negative gross margin, and backlog at quarter end was down to about $90 million.  But post quarter end, Conrad added $147 million to backlog, largely from one customer.  Tank barge construction is continuing to slow down, as expected, but they appear to be filling their capacity with bigger ships, as was their plan.  Time will tell what the margins on that type of work turn out to be.

 

They're also ramping up the buyback.

[60North Investments]

That $147m that they contracted in the 40 days after the quarter end was interesting. Net margins for the 9 months was 3.5%. In the past years it's been 7.4-9.4%. Anyone have any thoughts on whether building these larger ships (vs. what they used to build) can command a margin of about 8% or not? If yes, then the current backlog is quite encouraging. One other thing that caught my eye was that they're building stuff that they don't yet have a buyer for, in order to keep the production capacity in use. The risk of doing that at the moment didn't seem to be too big, some millions, but if they ramp that up at all then one sure hopes they know what they're doing and get those ships sold (without massive discounts).

[KJP]

That $147m that they contracted in the 40 days after the quarter end was interesting. Net margins for the 9 months was 3.5%. In the past years it's been 7.4-9.4%. Anyone have any thoughts on whether building these larger ships (vs. what they used to build) can command a margin of about 8% or not? If yes, then the current backlog is quite encouraging. One other thing that caught my eye was that they're building stuff that they don't yet have a buyer for, in order to keep the production capacity in use. The risk of doing that at the moment didn't seem to be too big, some millions, but if they ramp that up at all then one sure hopes they know what they're doing and get those ships sold (without massive discounts).

 

Regarding the bigger ships, the margins are an unknown, as you mention, but capital intensity is also an issue.  Bigger ships take longer to build, so you'll have more capital tied up in inventory, unless they get significant progress payments during construction.

[60North Investments]

That $147m that they contracted in the 40 days after the quarter end was interesting. Net margins for the 9 months was 3.5%. In the past years it's been 7.4-9.4%. Anyone have any thoughts on whether building these larger ships (vs. what they used to build) can command a margin of about 8% or not? If yes, then the current backlog is quite encouraging. One other thing that caught my eye was that they're building stuff that they don't yet have a buyer for, in order to keep the production capacity in use. The risk of doing that at the moment didn't seem to be too big, some millions, but if they ramp that up at all then one sure hopes they know what they're doing and get those ships sold (without massive discounts).

 

Regarding the bigger ships, the margins are an unknown, as you mention, but capital intensity is also an issue.  Bigger ships take longer to build, so you'll have more capital tied up in inventory, unless they get significant progress payments during construction.

 

That's true, though I'm not sure how big of a negative that is if it otherwise makes sense to build the bigger ships (i.e. margins are fine). They have had a large cash balance for a long time and I don't think the market has appreciated it fully. So does it make that big of a difference if they tie more of the cash in bank to working capital? I'm not a fan of increases in working capital due to these kind of reasons (who would be), but in this case it might not be that bad?

[KJP]

That $147m that they contracted in the 40 days after the quarter end was interesting. Net margins for the 9 months was 3.5%. In the past years it's been 7.4-9.4%. Anyone have any thoughts on whether building these larger ships (vs. what they used to build) can command a margin of about 8% or not? If yes, then the current backlog is quite encouraging. One other thing that caught my eye was that they're building stuff that they don't yet have a buyer for, in order to keep the production capacity in use. The risk of doing that at the moment didn't seem to be too big, some millions, but if they ramp that up at all then one sure hopes they know what they're doing and get those ships sold (without massive discounts).

 

Regarding the bigger ships, the margins are an unknown, as you mention, but capital intensity is also an issue.  Bigger ships take longer to build, so you'll have more capital tied up in inventory, unless they get significant progress payments during construction.

 

That's true, though I'm not sure how big of a negative that is if it otherwise makes sense to build the bigger ships (i.e. margins are fine). They have had a large cash balance for a long time and I don't think the market has appreciated it fully. So does it make that big of a difference if they tie more of the cash in bank to working capital? I'm not a fan of increases in working capital due to these kind of reasons (who would be), but in this case it might not be that bad?

 

I agree it may not matter too much, but ROE will likely decline, assuming no progress payments.

 

EDIT:  I should have said "ex-cash" ROE will decline.  As you mention, reported ROE may actually improve.

[mjohn707]

I thought some of the stockholders might find this interesting, pics are from today, they're preparing for the river to flood.

[wachtwoord]

Annual report: http://www.otcmarkets.com/otciq/ajax/showFinancialReportById.pdf?id=151953

[watsa_is_a_randian_hero]

thoughts?  Here are mine:

 

Backlog back up.  They continue to repurchase at a strong clip.  They have repurchased another 3.25% through March 9, 2016 (page 17).  Given the dividend cut, that is very good to see.  I would much rather see the stock repurchased at these prices than the dividend. 

 

It looks like 26% of all volume from 2015 was Conrad repurchases. and 49% of all volume YTD 2016. 

 

With all that said, profitability continues to suffer.  EBIT was basically flat at 0, running barely break-even.  Things could potentially get worse as year progresses. 

 

 

 

[DTEJD1997]

Hety all:

 

Almost 2.5 years since any activity on this board.

 

Anybody still interested/watching CNRD?

 

Looks like they had decent earnings in the last quarter AND they've solved one of their long outstanding problems.

 

Ultra-conservative balance sheet, making money, low P/E, lots of things I like to see.

 

Any thoughts?

[NeverLoseMoney]

I've read the Q2 report. I didn't really see much to like. Take out the $7.5m BP settlement and results don't look good. The good news was that they've now finally completed that LNG barge which caused huge losses. Will they be able to build the next one profitably though after all they've learned from building this one? Or will they just lose less?

 

Some things I didn't like:

 

- Their backlog is down substantially

- High steel prices (tariffs) are hurting their customers

- Their customers require them to provide letters of credit/performance bonds more often than in the past

 

Of course this is a cyclical and the news is always bad at this point of the cycle. I just don't know whether their business will really pick up with oil prices around these levels. I don't want to bet on them returning to profit levels that were reached 5 years ago.

[KJP]

I've read the Q2 report. I didn't really see much to like. Take out the $7.5m BP settlement and results don't look good. The good news was that they've now finally completed that LNG barge which caused huge losses. Will they be able to build the next one profitably though after all they've learned from building this one? Or will they just lose less?

 

Some things I didn't like:

 

- Their backlog is down substantially

- High steel prices (tariffs) are hurting their customers

- Their customers require them to provide letters of credit/performance bonds more often than in the past

 

Of course this is a cyclical and the news is always bad at this point of the cycle. I just don't know whether their business will really pick up with oil prices around these levels. I don't want to bet on them returning to profit levels that were reached 5 years ago.

 

Once you account for the Deepwater Horizon payments and tax refunds due, Conrad's enterprise value appears to have dipped below $50 million.

 

Based on the Q3 report, the backlog appears to be back up and repair/conversion revenue is up, but gross profit on the new construction segment is way down.  Also, the GP declines in the new construction segment appear to extend far beyond the LNG barge that was delivered in August 2018.  The quarterly report only states the obvious that the gross profit declines are being driven by increases in estimated costs of work yet to be completed.  But what is driving those cost increases?  Steel prices?  Did they err in bidding too low to begin with?

[Foreign Tuffett]

Is anyone still following this? I'm not seeing the light at the end of the tunnel yet, as Gulf of Mexico shipbuilding remains slow. Contrary opinions welcome.

[mjohn707]

I bought shares recently, seems cheap if things ever turn around for them.  Also seems like everyone wanted to own it at $40, but it's pretty unpopular at $10

[DTEJD1997]

This stock could be tremendously down if a Democrat wins the presidential election.

 

Several leading candidates have declared their hostility to off shore drilling for O&G.  Several have stated that they would put an end to it entirely.  They have also stated their opposition in general to fossil fuels.

 

If I remember correctly, a HUGE portion of CNRD's business is for oil barges and work related to the O&G industry.

 

So if offshore O&G is severely curtailed OR put an end to, CNRD might not be a viable business entity?

 

Just something to consider...

[mjohn707]

This stock could be tremendously down if a Democrat wins the presidential election.

 

Several leading candidates have declared their hostility to off shore drilling for O&G.  Several have stated that they would put an end to it entirely.  They have also stated their opposition in general to fossil fuels.

 

If I remember correctly, a HUGE portion of CNRD's business is for oil barges and work related to the O&G industry.

 

So if offshore O&G is severely curtailed OR put an end to, CNRD might not be a viable business entity?

 

Just something to consider...

 

Maybe we’ll get lucky and they’ll just ban fracking

[Foreign Tuffett]

This stock could be tremendously down if a Democrat wins the presidential election.

 

Several leading candidates have declared their hostility to off shore drilling for O&G.  Several have stated that they would put an end to it entirely.  They have also stated their opposition in general to fossil fuels.

 

If I remember correctly, a HUGE portion of CNRD's business is for oil barges and work related to the O&G industry.

 

So if offshore O&G is severely curtailed OR put an end to, CNRD might not be a viable business entity?

 

Just something to consider...

 

Maybe we’ll get lucky and they’ll just ban fracking

 

Yeah, then this would probably go back to $30 or $40 as the O&G majors scrambled to pivot back towards GOM deepwater drilling.

 

Company had a ~10 year period of glory as GOM drilling expanded, driving the need for more O&G-related vessels of all types. The oil crash + fracking/shale drilling put an end to the party and now demand for new vessels is episodic. The good news is that they've got enough cash to wait out the cycle, but that doesn't necessarily mean equity holders will do well.

[wabuffo]

To get some industry and competitive background, it pays to follow Arcosa's (ACA) - investor presentations.  Their Inland Barge Division is a competitor to Conrad. Their two facilities are based along the Mississippi River system (hence the name "inland") -- one in Missouri and the other in Tennessee.  I've attached some of snippets from their presentations in 2018 (when their parent Trinity Industries split off parts of its business including Inland Barge).

 

Another interesting website is this website that catalogs US and Canadian shipbuilding activity.  Here's a tab on Inland Barge Deliveries ytd 2019 (Conrad appears as "Conrad" and "Orange", Arcosa appears as "Trinity Industries".  Lots of interesting historical data on this website.

 

http://shipbuildinghistory.com/statistics/activitybarges2019.htm

 

wabuffo

Arcosa_Barge_Division_Overview.pdf

Arcosa_Inland_Barge_Outlook.pdf

[mjohn707]

How has this held up better than the general market?  Someone is going to have to explain this one to me...

[bskptkl]

How has this held up better than the general market?  Someone is going to have to explain this one to me...

Shush - I'm long.

Isn't it 1/3 book value though? They won't go bk.

[mjohn707]

How has this held up better than the general market?  Someone is going to have to explain this one to me...

Shush - I'm long.

Isn't it 1/3 book value though? They won't go bk.

 

I was too, but it seems that the risk/reward here has shifted with oil being absolutely killed, other higher-quality names going down significantly, and this thing somehow maintaining its price.  I think they survive fine, but I’m just not convinced there’s not a more productive use for the same dollar somewhere else at current prices.  Hard to know anything for sure though

[writser]

How has this held up better than the general market?  Someone is going to have to explain this one to me...

Shush - I'm long.

Isn't it 1/3 book value though? They won't go bk.

 

I was too, but it seems that the risk/reward here has shifted with oil being absolutely killed, other higher-quality names going down significantly, and this thing somehow maintaining its price.  I think they survive fine, but I’m just not convinced there’s not a more productive use for the same dollar somewhere else at current prices.  Hard to know anything for sure though

 

I agree 100%.

[wabuffo]

CNRD currently worth more dead than alive ($10.97 in net current assets per share vs $8 last market price) based on year-end annual that was posted by the Company yesterday.

 

So there’s that - FWIW.

 

wabuffo