Tuesday, August 28, 2012

Other Value Bloggers Write About Conrad ($CNRD)

Alpha Vulture has written about Conrad. Here's a thought about how book value is understated because the property and plant was purchased so long ago.

"the land the company bought adjacent to the Conrad Deepwater facility. They own 52 acres, bought in 2000, with a book value of 1.3 million and bought an additional 50 acres for 5.5 million in 2011. Other facilities are even older, the original Morgan City shipyard was founded in 1948, Conrad Aluminium was bought in 1996 (16 acres, 1 million) and Orange Texas was founded in 1974 (the shipyard was bought by Conrad in 1997, but the land is still carried at the original cost while the goodwill related to this acquisition has been written down to zero). So it’s fair to assume that the replacement value of the business is a bit higher than the current book value."
Understated book value would also drive a higher return on equity figure. On the other hand, there are two factors that are causing the Conrad ROE to be understated, as a different blogger points out,
"CNRD virtually doesn't use any debt and it has ~$7 cash per share on the book. Both penalize CNRD's headline ROE. In other words, CNRD's real ROE is actually much higher."
And also reflects on the company's big capex expansion for 2012,
"The current management has been prudent in their capital allocation and operation. It's highly likely their decision on the expansion is opportunistic. The expansion includes buying a piece of land right next to one of their existing shipyard. How often can you buy your neighbour's house?"
I wonder what management isn't telling us yet about the BP/DWH settlement? Is it possible that BP is going to be essentially paying for some or all of the capex this year?

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