Conrad Industries Reports Q3 2013 Results ($CNRD)

Conrad Industries has posted its third quarter 2013 results (second quarter here). Here are the highlights that I see:

• Board of Directors has declared a special cash dividend of $2.00, payable on December 17, 2013 to shareholders of record on December 3, 2013.
• Net income for Q3 of $6.5 million [up 48%] and EPS of $1.09 compared to net income of $4.4 million and EPS of $0.74 during the third quarter of 2012. Net income of $18.5 million [up 43%] and EPS of $3.10 for the nine months ended September 30, 2013 compared to net income of $12.9 million and EPS of $2.13 for the nine months ended September 30, 2012.
• For YTD 2013, Conrad added $185.6 million of backlog to its new construction segment compared to $183.5 million added to backlog during the first nine months of 2012. Backlog at September 30, 2013 was $152.3 million compared to $104.4 million at September 30, 2012, $120.7 million at December 31, 2012, and $181.8 million at June 30, 2013. The Company has signed $36.0 million of new contracts since September 30, 2013.
• Book value is $119.8 million, up from $101 million at the beginning of the year. As we've discussed before, the high ROE is a sign or management efficiency but also of understated book value. The carrying values of the shipyards and equipment (land at cost and depreciated equipment) are much lower than the market or replacement values.
• Speaking of book value, it is worth noting that the company now trades at 1.84x book
• Selling, general, and administrative expense only increased $148,000 over the prior year's quarter despite revenue increasing by $20 million. Very disciplined spending control!
• The company has spent $10.2 million on capex year to date. 
• "During the first nine months of 2013 and for the year ended December 31, 2012, we received approximately 27.9% and 16.2%, respectively, of our total revenues from customers in the offshore oil and gas industry." As we've often predicted and hoped, increased activity in the Gulf is increasing revenue and margins in the repair segment.
• Offshore oil and gas related business is up, as we'd hoped: "during the first six months of 2013 and for the year ended December 31, 2012, we received approximately 27.0% and 16.2%, respectively, of our total revenues from customers in the offshore oil and gas industry."
• "During the quarter ended September 30, 2013, the Company entered into an agreement to purchase for $1.3 million the fixed assets (primarily land and buildings located on the grounds of the Company’s Morgan City shipyard) of Johnny’s Propeller Shop, which is owned indirectly by the Company’s President and Chief Executive Officer and members of his immediate family."
• Still no share buybacks! The last repurchases were in Q3 2012 at $15 per share, although the company did approve an increase in the repurchase program in February 2013. They seem to have firmly decided to distribute cash via dividends rather than share repurchases. I wonder whether that's because of valuation or because the family wants cash?

Current Enterprise Valuation

Best estimate of the enterprise value situation right now. I'm pretty much giving up on the BP settlement; they have been running lots of full page ads in the Wall Street Journal decrying the unfair requests for cash from Gulf Coast businesses. So that this reflects an almost total (90%) discount to the settlement. The confidence interval around the enterprise valuation is probably $165-175 million, up from ~$135 million last quarter. This year's EBITDA looks like it will be around $40 million, so the EV multiple is about 4, or a 25% EBITDA yield.

Valuation
We have written in the past: "Say that the new normalized EBITDA after expansion is now $35 million [up from the trailing $30 million five year average that included the great recession] and it should trade at a 5x multiple and there is currently $25 million in excess cash. The market capitalization should be $200 million [$175 EV plus $25mm cash] which is $34."

After Q2 this year, we wrote, "Given that same assumption of $35 million normalized EBITDA and a 5x multiple, for a $175 million enterprise value, you would now add back ~$50 million excess cash to get a market capitalization of $225 million, which is $37.80 per share."