Sunday, January 6, 2013

"Good Year For The Barges" ($CNRD)

A correspondent writes in response to our previous post on shipbuilding demand,

"Not sure if you caught this article yet... I especially like the last paragraph, stating that most tank barge use is complementary to rail crude movement, as opposed to competing against rail for traffic. This could mean that the tank barge movement is more sustainable than I originally anticipated, in that rail offers flexibility advantages over building pipelines in many cases. Therefore, crude rail traffic may stay relatively strong even as pipelines come online. As such, tank barge demand would also maintain its niche in the refinery supply chain."
Be sure to read this interesting article. Some highlights:
  • "Capacity utilization rates for small inland tank barges (10-30 MBbl) this year are sky high at 90-95 percent."
  • "Low water levels caused by drought conditions in the Midwest have hampered Mississippi barges but that has not deterred companies from developing new terminal facilities to handle the traffic."
  • "Smaller terminal operators such as GT Logistics at Port Arthur on the Texas Gulf Coast offload crude oil brought by rail from the Bakken and Niobara onto tank barges that can distribute throughout the Gulf Coast region."
  • "[P]rovided you can secure the barges, you acquire greater flexibility by transferring crude from rail onto barges to complete its journey to refineries."
Also read Part One of the barge series (this was part two). Some highlights:
  • "Coastal tank barges are subject to the provisions of the Jones Act [and the Oil Pollution Act] that requires all seaborne vessels be double hulled by the end of 2014. Eight percent of the current fleet is single hull barges that must be decommissioned by the end of 2014."
  • "The coastwise tank barge fleet available to carry crude oil appears to limit capacity available for growth."
Very bullish. I've mentioned previously my theory that the Conrad share market consists of three different groups: the company itself, some dumb money holders that are net sellers (the original IPO investors?), and savvy value investors.

I think, in the main, trading has consisted of the company and value investors slowly buying out the dumb money. At some point, the dumb money (people who think this should trade at under 4x earnings ex-cash) will have sold out, and the float will consist of savvy investors who realize that the company compounded shareholder equity at 20 percent annually, without using leverage, during a 5 year period that contained a depression. At that point, the valuation could quickly re-rate higher.

P.S. American Commercial lines created this nice map of inland waterways of the U.S..


Josh said...

I wouldn't call one group dumb money. I suspect some sellers are lightening up because they are managing their position size.

CP said...

OK, but there are two groups of smart money and then one group of ... that is the only reason it isn't trading much higher (according to my hypothesis).

Josh said...

Some investors cant buy otc stocks. Now that CNRD is bigger perhaps they relist.

Another group of investors cant buy stocks that have low liquidity, a listing would help as well.

Just think your buckets are a little too narrow.

CP said...

Your theories explain why people would be constrained from buying (and they are accurate).

They don't explain why current holders are selling, which is what my hypothesis was addressing.

Josh said...

There really isn't that much liquidity. I don't think there are that many sellers.

I guess my hypothesis is that the discount persists because of the lack of liquidity so that not enough people are interested in buying up the (small) amount of shares offered.

CP said...

There's a fairly large amount of shares trickling out from unknown hands into the coffers of the company and people like us.

Who are these unknown hands?

My hypothesis is people with an availability bias such that the current price seems expensive even though it is historically very cheap relative to fundamentals.