KHD strong growth continues
KHD Humboldt Wedag International (KHD: 26.17 +0.17 +0.65%) is probably the most under appreciated stock I know. This is a company in a essential industry, providing their service and products in the fastest growing parts of the world, have a growing backlog of orders and excellent margins. They also sit on a pile of cash that is half the market capitalization. Yet the stock sits near the bottom of the 52 week trading range. Later I will give my thoughts on why the stock is so undervalued. First, a recap of some numbers comparing the 2nd quarter of 2008 with the same quarter of 2007.
- Total revenue: $144 million, down 9%.
- Net income: $19 million, up 88%.
- Income per share: 63¢, up 85%.
- New orders: $320 million, up 105%.
- Order backlog: $1.3 billion, up 96%.
- Cash and cash equivalents: $445 million up $220 million.
Do not worry about the decreased revenue, the company is still well ahead of 2007 for the first 6 months of 2008 and has been able to increase their gross profit margin by over 4% to 19% in the last year.
KHD is an infrastructure company in the business of selling and installing proprietary concrete, coal and mineral processing equipment. The company’s business is focused in the growth areas of Russia, Eastern Europe, the Middle East and Asia. Recent growth initiatives have focused on increasing the range of services they offer their customers. I.E. they design and completely build a concrete plant rather than just selling and installing their own equipment. The companies business lines plus their market area point to an almost endless supply of future business. Management has worked hard to ensure KHD gets their share of the most profitable projects. At this point growth is primarily limited by the company’s ability complete customer projects on a timely basis and they are controlling the addition of new business to not get behind on what they can deliver.
After listening to the conference call, I could write pages on the positive aspects of the management of KHD. The company is conservative in their bookkeeping and aggressive in pursuing new sources of revenue. I see no break in the growth trajectory for years to come.
I promised earlier I would give a few reasons why I think the stock price is lagging in relation to KHD’s growth and prospects:
- Until about two years ago KHD was primarily a merchant bank with a sideline in industrial plant engineering. They have shed most of the financial business lines, but it appears the investing world has not yet discovered the new KHD.
- The company is HQ’d in Hong Kong and does a large amount of business from offices in Europe. There is almost zero western hemisphere exposure besides listing on the NYSE.
- The stock is followed by one reporting analyst who just regurgitates the company’s overly conservative guidance.
- KHD is a small (but very profitable) speck in the very large infrastructure market sector.
- The name: KHD Humboldt Wedag, Ltd.
At this point the company stock is trading at around 13 times 2008 earnings while revenues and earnings are growing at multiples of the multiple. At some point management will put the cash hoard to work to further increase shareholder value. I will be holding my stock until it reaches multiples of the current price. KHD is a component of this site’s Special Opportunities Portfolio.
Note: I currently have a long position in KHD.
New Energy Finance - NEX Weekly Review
Each week I provide a review of the previous week’s performance of the WilderHill New Energy Global Innovation Index, symbol NEX. I figured I had better squeeze this post in between the multiple earnings reports I am trying to keep up with. This information on NEX is provided by New Energy Finance. The NEX consists of about 90 stocks from 20 countries in seven sectors and is the bogey for the PowerShares Global Clean Energy Fund (PBD: 25.02 0.00 0.00%). These results are for the week ending on Friday.
It was an odd week for the NEX as the index fell 0.1% while the broader market rose dramatically. The NASDAQ and S&P 500 were up 6.8% and 4.5% respectively. This was a week where the NEX’s broad international exposure was a detriment as the U.S. market rocketed and other countries did not fair as well. U.S. based companies are less than a third of the weighting of the NEX.
The two largest sectors of the index, wind power and solar power, were both in negative territory pulling the index down. Wind power was the biggest loser, off 3.5% and solar lost 0.7%.
On the positive side, power storage gained 6%, energy efficiency tacked on 4.3% and biofuels and biomass was up 1.6%. Every component of power storage rose led by GS Yuasa of Japan. U.S. based components helped the other gaining sectors.
Here are the winners and loser from the index for the week:
NEX top gainers since 5 Aug 2008
Verenium VRNM + 22.5%
Schmack Biogas SB1 + 20.4%
Echelon ELON + 17.9%
EnerNOC ENOC + 16.7%
Aventine Renewable Energy Holdings AVR + 16.6%
NEX top losers since 5 Aug 2008
American Superconductor AMSC - 26.6%
Xingjiang Goldwind Science & Technology 2202 - 24.3%
5N Plus VNP - 17.0%
Greentech Energy Systems GES - 14.0%
Climate Exchange CLE - 13.6%
Note: I do not have a position in any security listed.
Gigamedia growth on track
Gigamedia Ltd (GIGM: 11.96 +0.47 +4.09%), purveyor of online gambling and games, has reported reasonable earnings growth for the historically slow 2nd quarter. The quarter’s results came in a little below the record 1st quarter but were up nicely from Q2 of 2007. First a quick recap of the year over (YoY) year results:
- Revenues up 31%.
- Net income up 11% to 19¢ per share, handily beating the consensus estimate of 17¢.
- Flagship Everest Poker up 26%.
- Everest Casino software up 34% and 10% QoQ.
- Asian games up 67%.
The Europe oriented Everest Poker was slower in Q2 vs. Q1 due too the traditional summer season slowdown combined with competition from the very popular Euro Cup soccer tournament. The 3rd quarter is also part of the summer season and management is not expecting revenues and profits to really take off again until the 4th quarter of 2008.
There are a couple of very positive developments in the short term window. Gigamedia has found a technical partner to help them set up sports betting in Europe. This new line of business should kick off in the 4th quarter, this year. The company also launched their Asian real money games at the end of the just completed 2nd quarter. This first wave is aimed at Japanese gamblers and has been extremely well received. I was impressed to hear that some of the most active players are playing Pachinko up to 6 hours per day. Next up is pending approval to launch EA’s NBA Street game in mainland China. Basketball is very popular in China and Gigamedia management expects NBA Street to become the top online game there.
GIGM share price has come under severe pressure over the last 10 months and is now trading at around 18 times trailing 12 months earnings. This is a no debt, high cash flow business that will get back to 40-50% annualized revenue and earnings growth soon. Over the next 3 to 5 years I expect GIGM to become a multi-billion dollar market cap company from its present $700 million.
Note: I have a long position in GIGM.
VeraSun Energy blows out earnings estimates
VeraSun Energy (VSE: 5.69 +0.16 +2.89%), the country’s largest ethanol producer managed to handily beat the analyst’s estimates for the 2nd quarter of 2008. Estimates for the quarter’s per share earnings ranged from a -7¢ to a positive 12¢, with the average of 18 analysts at 2¢ earnings. Actual earnings came in at 15¢ per share, well above the average and handily beating the most optimistic. The 15¢ per share also almost doubles the 8¢ earned in Q1, 2008. VSE’s total revenues of $1.015 billion also exceeded the average estimate of $924 million.
The most interesting point of the press release is that VeraSun sold 330 million gallons of ethanol to their customers which included 83.4 million gallons they purchased from other producers to resell. There is obviously plenty of demand for the company’s future increasing production. Company management has stated they have very little margin in the resold fuel, but want to keep their customers supplied and satisfied.
I look forward to the conference call to compare average corn and ethanol prices to those reported by Pacific Ethanol (PEIX: 2.03 +0.02 +1.00%) leading to their quarterly loss. With revenues growing strongly and earnings per share doubling for each of the last two quarters, I believe VSE is a growth stock reborn.
Note: Analyst information from Yahoo Finance.
Note: I have a long position in VSE.
Las Vegas home sales up for 7th straight month
ReviewJournal.com - Business - Las Vegas home sales climb higher in July.
Las Vegas continues its climb out of the real estate meltdown with existing home sales increasing for the 7th straight month. Home buyers are obviously sensing bargains in the market and sales are brisk. The market is nowhere near normal conditions yet, as 50-60% of sales are foreclosure properties. Here are a few of the more interesting figures and quotes:
- Median sales price of $220,000 was 25% below July 2007 and 2% lower than June 2008.
- Available inventory equals a 9 month supply down from 13 months at the end of June.
- A significant portion of listed homes are short sales but only 9% of the actual sales for July were short sales.
(Realtor Robin) Camacho’s research showed 40 percent to 50 percent of listings as short sales, yet only one in five escrow closings was a short sale.
“I don’t show them and I know many other agents don’t either,” Camacho said. “I will list them occasionally, but it is such a struggle to get them approved that I really can’t devote a lot of time to this. It’s really just a service to some of my clients.”
It appears the real estate market in Las Vegas is working to work off foreclosed inventory. There will be little chance of price increases until foreclosures are a small portion of overall sales. Result for Sacramento should be available next week and give us a picture of how the market is recovering there.
I write about the Sacramento and Las Vegas markets because I am familiar with them and they seem to be leading the real estate recovery, just as they were the poster children for the previous excesses.
