Tuesday, August 21, 2012

More Thoughts About the Conrad Industries ($CNRD) Results

Looking at the numbers more, I'm sort of amazed what a little business we own here.

Their worst year of the past five they had $20 million in EBITDA. They have averaged $30 million annually since 2007. So at the current enterprise value of ~$70 million, shareholders are getting a cash flow yield of 43%. Even assuming another bad year it would be a 28% cash flow yield.

However, the worst year was 2010 when business was hurt by the BP oil spill. The company disclosed in this quarterly report that they may be compensated by BP to some degree for the bad year in 2010 as a result of the DWH spill and ban on drilling. There's an economic damage claims process [pdf] that I have been reading about, trying to figure out how big the DH claim could be. Their 2010 EBITDA was depressed by about $10 million. Maybe they get a buck a share?

Anyway, Conrad has grown shareholder equity from $43 million at YE 2007 to $103 million today. That's compounding shareholder equity at 17 percent annually through a recession! And it would have been easy to improve on that number, if they had bought back shares more aggressively! (Also, the company has almost no debt. ROE would be higher if they used leverage.)

Also, I think that business goes up, not down, as gulf capex and barge shipping go up. Why else would they be spending $15mm on expansion this year? The most they've spent in one year since 2007 is $5.9 million in 2008. They are making a big bet!

Management is very cautious, so I suspect that the capex increase is in response to strengthening business and order trends.

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