Conduril reports excellent results & massive insider buying

I just discovered that Conduril released their 2012 annual report in Portuguese a couple of weeks ago. Conduril is probably the cheapest company I own: earning €12.98/share while it’s currently trading around €32.50/share. Free cash flow per share is even more impressive this year, but this is because the amount of earnings that were converted to cash was low the previous years. Conduril is active in big construction projects that take multiple years to complete. Earnings are recognized based on how far the project is completed, but most of the cash only arrives when the project is finished. The historical financials below show how erratic the cash flows are compared to the earnings:

Historical results Conduril

Think it’s pretty obvious that Conduril is extremely cheap, and what’s very interesting is that insiders account for the majority of buying volume last year. Since Conduril is extremely illiquid it was easy to get an overview of all transactions in 2012, and match this with the reported insider activity. Blue rows in the table below represent insider purchases:

Insider activity CondurilIt must be pretty unique to have insiders account for such a big part of the market. The total trading volume in 2012 was 73,730 shares and insiders bought 54,711 of those shares: that’s 75% of the total volume! I’m obviously pretty happy to be part of the remaining 25% :).


Author is long Conduril

14 thoughts on “Conduril reports excellent results & massive insider buying

  1. Charles Hang

    Just to let you know, your average FCF number didn’t update to take into account 2012. This may be true of some of your other numbers too; I didn’t check.

  2. Batbeer

    Beste Gier,

    Thanks for sharing this idea. Since you asked, I would like to point out a risk.

    Receivables and payables are huge in relation to the rest of the balance sheet. That makes sense. A lot of work in progress and suppliers get paid when the client pays Conduril.

    One risk though is that a client doesn’t pay. Governments in Africa are not always stable. With a major client, that would wipe out the equity in one fell swoop. Unless they “isolate” their projects. Meaning the suppliers of that project don’t get paid if the client defaults. Management seems highly competent and I would assume they do that. But…. I would have to know for sure to sleep well owning this stock.


    1. Alpha Vulture Post author

      I don’t know exactly how they have structured their liabilities, but my base case is that liabilities will not disappear when there is trouble in paradise. But most of their work is done for local governments, mainly Angola. They have a BB- credit rating which is reasonable solid for a frontier market. I don’t think their credit risk is so extreme that it warrants a huge discount. Good idea by they way to try to figure out how much, if any, of their liabilities are non-recourse to the parent company.

  3. Charles Hang

    I know it’s been a while, but I just noticed that your FCF/share number is also not updated for 2012. That may also be true for other numbers.

    On a more important note, I was wondering where you got the 7.511 million in long term debt. I’m looking at the company’s 2012 Annual Report in English, and there seems to be 6.866 million in “financing obtained” under non-current liabilities. Incidentally, the number I see for current liabilities also seems to be a bit different from yours, which throws off the total liabilities number.

    Anyway, none of this significantly changes the thesis for investing in Conduril, but I thought you might want to know.

    1. Alpha Vulture Post author

      I know, you already pointed out that the FCF/share number wasn’t correct ;). Your observation about the difference in long term debt is interesting. Just looking at the English AR, and I think they quietly restated some numbers. Basically every single number that I have in the above spreadsheet isn’t an exact match anymore with the latest published financials. Revenue, earnings, short term debt, long term debt, cash flow: everything is slightly changed.

      1. Charles Hang

        I was actually referring to the total free cash flow number last time, as opposed to the per share number. Don’t worry, I’m not actually so obsessive about this sort of thing as to post twice about it. 🙂

        Anyway, your comment about a restatement makes sense, though do you know why the company might have done so? I’ve never seen anything like this with an American company, though it’s possible I just haven’t noticed. In any case, the restatement is obviously not major, but I do find it curious.


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