Thursday, November 1, 2012

Conrad Industries Valuation Thoughts ($CNRD)

This is what the last 10 quarters of EBITDA and net income for Conrad have looked like.

The results go "up and to the right"; things are continuing to improve sequentially. Conrad's EV/EBITDA for the trailing twelve months is currently 2.6x and its P/E ex-cash for the same trailing period is 4.5x.

I put together a table showing what the share price would be for a range of EBITDA and EVx multiple combinations. (All these enterprise value assumptions assume there is roughly $24mm extra cash on the books out of the ~$60mm or so in working capital.)
The thesis for Conrad is that earnings are probably going to continue to improve and the EVx multiple should expand.

Earnings improvement should come from improving industry fundamentals, especially for the offshore petroleum industry and secondarily from tank barges needed for shipments of liquid petroleum products over inland waterways. Other builders report that the industry is operating at capacity and is booked solid - which should drive higher revenues and margins.

The $37.5mm in EBITDA that the table maxes out at should not be a stretch at all - the company did $39.5mm in EBITDA in 2008. And of course the 2.6x EBITDA multiple is unbelievably low for a company like this. If you assume they do $37.5mm - not even their best year - and a 3.5x multiple, it's worth $25.50 (42% upside). 

By the way, a table like this is really good for informing Kelly fraction calculations.


Phil said...

I'm long CNRD too. Just a technical point, I hope you used the "data table" function in excel - that's a great way to put together 2 dimensional sensitivity analysis tables.

If you didn't, google around - it'll make things like this much easier.

CP said...

I just write a formula in the top left cell and then autofill the rest. Seems like the best way.