Copa Holdings has profitable 1st quarter

Friday May 9, 2008 • Leave a Comment

With oil prices going through the roof, it is nice to see an airline generate some decent profits. Copa Holdings (CPA: 35.80 -0.03 -0.08%) is the parent of Panama based Copa Airlines and Columbia based Aero Republica. Earnings for Q1, 2008 were 91¢ per share compared to $1.12 for the same quarter a year ago. As one could easily guess, higher fuel prices put a dent in the earnings, with average fuel costs 35% higher for the quarter. Other revenue numbers showed some nice growth (all of the numbers are YoY quarter growth):

Total revenue increased 21.9%.
Revenue passenger miles increased 13.5%
Yield per passenger mile increased 7.2%
Load factor increased 1.6% to 78%
Operating cost per seat mile increased 20.7% (see fuel cost increase above)
Liquitidy (available cash & investments) equaled 33% of last 12 months revenues
An annual dividend of 37¢ was declared

As a rule, airline stocks scare me, double scare me when fuel prices are rapidly rising. However, Copa is maintaining decent profitability in spite of increasing costs. The airline appears to be very well run (I have flown on Copa Airlines several times). The have a young (less than 4 years average age) fleet and serve the growing Latin America market.

CPA shares trade at around 10 time projected 2008 earnings. If they get any relief on fuel prices, owning this stock could be a nice place to be. I have CPA as a component of my Special Situations Portfolio and would be looking for buying opportunities if the stock pulled back into the low $30’s.

Note: I currently do not have a position in CPA.

Portfolio name change

Sunday May 4, 2008 • Leave a Comment

I keep thinking and this blog keeps evolving, I hope for the better! Last fall, when I decided to start tracking a portfolio of stocks I was interested in, I set up a 20 Stock Portfolio of companies I believed would be good investment prospects. After about 7 months of building up and tracking the 20 Stock Portfolio, I felt my interests were naturally divided into two areas, and thus I split my portfolio into two: an Income Portfolio and a Growth Portfolio. I started tracking the separate portfolios for the 2nd quarter of 2007.

I have come to think the Growth Portfolio was severely misnamed. Although there are some pure growth stocks in the portfolio, it is far from a 100% strict “growth” orientation. In my research I am trying to find stocks that I believe have a good chance to double or better over the next few years. Also, I have some particular interests such as South American stocks and markets. This means the stocks in the portfolio could fit in a wide range of categories: growth, value, turn around, international, cyclical. I have my own criteria and methods to evaluate whether I think a company and it’s stock are a good investment, and I do not stock to any particluar discipline.

One general criteria I have is market cap. For U.S. companies (and most foreign) I try to stick to those in the $2 billion or less market cap range. I believe an individual investor and researcher like myself can find an edge in smaller companies vs. the well researched and over-analyzed large cap companies.

The result of all of this deep thinking is a decision to change the name of my Growth Portfolio to Special Situations Portfolio. For now the portfolio itself is the same and the old links to the Growth Portfolio still work. As of now, the stocks are still tracked on a equal dollar, quarterly basis with no buying and selling. Hopefully, more advanced portfolio tracking is the next step for my evolution here.

China agrees to let banks buy U.S. stocks and mutual funds

Monday April 7, 2008 • Leave a Comment

China agrees to let banks buy U.S. stocks and mutual funds - MarketWatch

This can be nothing but good news for U.S. stocks. The article gives the impression there may not be much demand for U.S. stocks from the Chinese, but I disagree!

KHD Humboldt Wedag International continues strong growth

Monday March 31, 2008 • 2 Comments

KHD Humboldt Wedag Int. (KHD: 31.1699 +0.2799 +0.91%) released 2007 year end results today, and their growth appears to have stayed on pace. I will cover this in 3 steps: First the numbers for 2007 and the 4th quarter, next the company’s plans for future growth, then a few personal thoughts. The get things started, here are the numbers:

Revenues for the company grew 44% from 2006 to 2007 to $580.4 million and net earnings were up 49% to $1.68 per share. My math shows 4th quarter earnings (the number was not broken out in the press release) were 39¢ per share, compared to 34¢ for Q4, 2006. Order intake for 2007 was $818 million and the end of year order backlog was $919 million up 38% over 12/31/2006. The company ended the year with $370 million in cash and securities or approximately 1/2 of its current market capitalization.

In 2007 KHD completed the spin off of its real estate holding in the form of an Austrian REIT to focus 100% on their infrastructure business. Over the last few months they have hired a new cement division president and formed a construction division and hired a president for that division. The goal of the new construction division is to be able to build entire plants with their equipment, rather than just selling the equipment for others to build the plants around. Controlling the complete plant construction process should significantly increase the company’s revenues and profit margins.

Today the CEO, Jim Busche, announced the company’s Build, Operate and Own (BOO) initiative for 2008. The purpose of the initiative is to combine the above mentioned cash and new construction division to form strategic partnerships in their markets to form partnerships to build, operate and own cement plants with KHD’s cement processing equipment. From the press release:

KHD, in addition to being a passive minority equity partner, will design, fabricate, erect, commission and operate these cement plants. Investment banks will arrange and assist in structuring and arranging debt financing. We anticipate that we will have the opportunity to generate earnings on the engineering and equipment supply, as well as on plant operations and on the downstream sale of the commodity. KHD believes that the revenue stream from production would be constant and predictable.

My thoughts on the company and stock: First, the stock may take a hit today; the 39¢ for the 4th quarter is well below the 45¢ predicted by the single analyst following the stock. However, the same analyst is forecasting $1.87 for 2008. The company released guidance of $2.05-$2.15, not including any of the new business included above. These number translate into 25% earnings growth for a stock with a 2008 PE of 12. I expect revenues and orders to continue to grow at the 40% rate as the new initiatives and business areas pick up steam.

KHD is a company doing infrastructure business in growth areas of the globe. Their current order backlog is 33% Middle East, 29% emerging Asia/Pacific, 24% Russia and Eastern Europe, 6% Europe and 6% Americas. The company has a huge cash position and plans to put the cash to work. Finally, it has almost zero following by the Wall Street herd. A few years of quiet growth could turn this into a $100 stock. I remain very positive on KHD.

Note: I currently have a long position in KHD.

3 Latin America stocks with great potential

Wednesday March 26, 2008 • Leave a Comment

I was taking a scan through my Watchlist, checking recent news, and several Latin America based companies caught my attention. Here is some information on each:

Banco Latinoamerica de Exportaciones SA (BLX: 17.68 +0.04 +0.23%), more commonly known as BLADEX. This Panama based financial institution facilitates trade throughout Latin America. The following quote from Carlos Yap, CFO during the most recent earnings conference call sums up the company’s growth prospects:

I would like to highlight the strong financial performance of the bank not only in 2007, but also during the last three years, which have validated our advanced business model and solid business strategy. Operating income increased 83% during 2007. From 2005 through 2007, operating income grew 58% per annum, driving operating ROE from 4.6% in 2005 to almost 12% in 2007. As Jaime mentioned, increasing our ROE remains the focus of our company. This operating earning’s growth was ruined by the steady increase of our commercial portfolio of close to 20% per annum, as seen as a strong demand and the expanded client based mostly in the corporate sector produced better spreads than lending to banks.

Gafisa S.A. (GFA: 44.17 +1.68 +3.95%) This Brazilian home-builder is growing revenue at 80% per year, “new launches” at 120% per year and has an EBITA margin of 16%. This is in a market with a housing deficit of 8 million homes growing by 2 million per year. The company builds homes for all economic sectors and future growth looks promising. The limiting factor to their growth seems to be a commensurate growth of available mortgage solutions.

Mercadolibre, Inc. (MELI: 54.70 +0.21 +0.39%) Argentina based on-line auction site is showing exponential growth throughout Latin America. They benefit from the trends of growing Internet access and affluence throughout the region. The stock price has gotten somewhat ahead of revenue and profitability but the stock will be very attractive when the PE (about 110) is lower than the ongoing growth rate (about 80). Growing profitability or a lower stock price (preferably both) will bring this about. The stock raced to $80 a few months ago as the bandwagon filled up. A little more stagnation in the stock price would not surprise me, until stronger earnings start showing.

These are three Latin America stocks that I am keeping an eye on. Any general pullback by Latin America ADRs could make these very attractive investments.

Note: I currently do not have any position in BLX, GFA or MELI

Companhia Paranaense de Energia - year end results

Tuesday March 18, 2008 • Leave a Comment

The company listed above, more commonly called COPEL (ELP: 18.51 +0.95 +5.41%) released 4th quarter and 2007 year end results yesterday. I have not seen anything yet on Yahoo Finance, so I went to the website and dug out the earnings report press release. Fortunately, they have an English version, unfortunately all results are in Brazilian Reals, so the only numbers that make a lot of sense are the percentage changes.

As background, COPEL is the power company for the Brazilian state of Parana, in the southern part of the country. The state government owns 58% of the common stock. This company is an infrastructure play on a growing area of Brazil. Past growth has been explosive, but the company seems to be settling into a more stable growth pattern.

Here are some of the figures I pulled from the earnings press release:

Net operating revenue (total revenue minus a bunch of acronyms) was up 10.9% for the year. Q4, 2007 was up slightly over Q3.
Total energy consumption for 2007 was up 6.8% over 2006, driven by an official 6.6% employment increase in the state.
Net income for the year fell 10.9% due to a 16% increase in operating expenses, primarily due to a 13.3% increase in depreciation and a 26.4% increase in “financial compensation for the use of water resources and concession charges – Aneel grant.” ANEEL is the national electric energy agency.
Net income in the 4th quarter was up 15.7% over Q3 and 0.6% higher than Q4, 2006.
The net per share for the year was R$4.0, giving a trailing PE of 7.3 based on today’s Brazilian market price of R$29.50.
The proposed dividend works out to 24% of net income, or 3.2% of the current share price. The dividend will be submitted to the shareholder in April 2008.

COPEL is happy to point out in the news release that the share price increased 29.5% (NYSE) for 2007. I believe this is a steady way to partake in any growth in the Brazilian economy.

Note: I currently do not have a position in ELP.