KHD Humboldt Wedag Ltd. continues strong growth
I always have to look up the spelling of the names in this company, from here forward it will be KHD (KHD: 14.45 +0.20 +1.40%). It has not been long since the company released year end results, and now 1st quarter numbers are out. They have one glitch (scientific term) in the number, which I will attempt to explain away, but the rest is all good.
KHD’s primary business is to manufacture cement plant equipment. They sell the majority of their cement plants where the infrastructure needs more cement: Russia, the Middle East and Asia. The main thrust is the manufacturing of the equipment of a cement plant, which they install and sell spare parts for. They are expanding their business model to set up partnerships to build, own and operate cement plants.
The important fact is that business is good and growing. A few numbers from the first quarter results compared to Q1, 2007:
- Revenues: $136.8 million, up 28%
- Order intake: $288.4 million, up 91%. 61% of new orders from Russia and Eastern Europe. 29% from emerging Asia.
- Order backlog: $1.1 billion, up 74%.
- Order backlog by region: 36% from Russia and Eastern Europe, 28% from the Middle East and 27% from Asia.
- Pro-forma earnings per share: 43¢, up 54%.
An important point on the earnings per share: The net earnings per share were 28¢ due to a non-cash charge of $5.4 million. The charge was the result of the company having U.S. $100 million in banks where the primary currency is not dollars. The company was forced to take the (non-cash) charge because the dollar fell in value against the local currency (euros) in the 1st quarter. The $100 million is still fully intact and being held for investment opportunities. The money will most likely be invested as dollars (the reason for being held as dollars) so no real charge will ever be taken. Thus, the pro-forma earnings are, IMHO, a better indication of the 1st quarter results.
Analysts (both of them!) estimates for the 1st quarter were 31¢ per share, so of course the market is knocking down the stock price today on the “miss”. KHD management has given earnings guidance for the year of $2.05 to $2.15 and the analysts “concur”. I see a company growing it’s order backlog at 40-50% per year trading at 15 times projected 2008 earnings.
In my last post on KHD I covered of the KHD’s initiatives to focus and grow their revenues. This quarter they announced the formation of an environmental group. This unit will offer equipment and services to their customers to recover and recycle energy, water and waste in their facilities. Definitely a money-maker in their markets and today’s environmentally conscious world.
KHD is a component of this site’s Special Opportunities Portfolio. I believe the stock is an emerging market infrastructure play that is not well known and has a tremendous future. Think $3 in earnings trading at a 30 multiple in 2009! Just a SWAG! ($10 in the PayPal of the 1st commenter to define SWAG correctly)
Notes: I have a long position in KHD. I have sole discretion on definition payout, no quibbling.
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