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: 31.1699 +0.2799 +0.91%). 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.
How smart guys get rich
Forbes.com: Digital Rules By Rich Karlgaard
Rich Karlgaard’s latest post at Forbes.com on his conversation with Peter Theil, co-founder of PayPal and now president of the hedge fund Clariam. I think this quote from the post pretty much sums up the process of finding market beating stock investments:
Much of what Peter told me yesterday was off the record. But he did share his deceptively simple investment map. Draw two circles that overlap a little bit. Call once circle “great businesses.” Call the other circle “businesses nobody likes.” The overlap is where you’ll find great investment opportunities.
The post is quite short and linked above. Go over and read it for further background. I am also going to follow the link to some of Clarium’s holdings to see if there are any nuggets that fit my investing style, such as it is.
Nordic American Tanker nice dividend boost
Nordic American Tanker (NAT: 39.46 +0.56 +1.44%) is out with their first quarter results and the boosted the dividend 136% from Q3 and Q4 of 2007. Nordic American runs a fleet of 12 Suezmax tankers all in the spot market. The first quarter results are good news and the company indicated the 2nd quarter of 2008 is off to a great start.
The revenues for NAT are entirely derived from spot market rentals of their oil tankers. The company has a policy to pay out all of a quarter’s free cash flow as dividends. Dividends fluctuate tremendously as do spot market rates for their ships. Nordic American believes the spot market will give the best returns on their tankers over time. Investors have to live with the fluctuating dividends, although the stock has historically yielded over 10%. Here are couple of notes from the press release:
- The declared dividend for the first quarter will be $1.18. This is compared to 50¢ for the previous two quarters.
- The company has now paid a dividend for 43 consecutive quarters.
- Average charter rate for the first quarter was $46,600 /day/tanker. This compares to $27,000 in Q4, 2007.
- Average charter rate for the 2nd quarter, 2008 is exceeding the first quarter.
- Of the 360 worldwide Suezmax tankers, 46 are single hulled and will be out of service by 2010. New building has slowed, reducing the chances of a tanker over supply in the next few years.
- NAT has 2 new tankers on order to be delivered in 2009 and 2010.
I like NAT in the tanker space for it’s strong dividend policy, which is related to their low cost structure. NAT’s daily expenses per tanker are less than half those of larger fleets like Frontline (FRO: 62.59 +1.03 +1.67%). This allows the company to keep paying a dividend when spot rates are low, and really boost the payout when charter rates are good. NAT is a component of my Income Portfolio.
Note: I have a long position in NAT
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