Annual results: Conduril, Ming Fai, Retail Holdings & Rella

The last week of March was a busy month with several of my portfolio companies releasing their results for 2014. My biggest position is Conduril, and they released their results for 2014 yesterday. As usual the annual report is at the moment only available in Portuguese, the translated English version should follow in a couple of weeks.


Conduril’s performance for 2014 was satisfactory, but there are a couple of clouds in the sky. Their backlog dropped from €750 million at the end of 2013 to just €450 million at the end of 2014, one of the lowest levels in years. Generating free cash flow also proved a problem in 2014. This wasn’t exactly a surprise since the company announced in their interim report that the Angolan government settled a large outstanding receivable with certificates of public debt. But even when we ignore this item we see that working capital is growing while revenues have been shrinking the past years. The good news is that the company announced that it will pay a €2/share dividend this year and that it is still dirt cheap. It’s trading at a P/E ratio of just 4.2x and of P/B ratio of just 0.6x which is a small discount to NCAV.

An updated summary of their financial performance for the past six years is provided in the table below. A large part of the positive differential between other income and other expenses is caused by foreign exchange gains. Probably repeatable for 2015 given the decline of the euro this year, but of course not sustainable in the long-term:

Historical results Conduril (2014 AR update)

Ming Fai International Holdings

Ming Fai also reported results for 2014. My thesis for the company is based on the fact that the profitability of their core business is ‘hidden’ by two loss-making divisions, but since one of these divisions has been shut down mid-2014 I expected that reported results would soon improve. Reported net income did indeed jump by 67% in 2014 while the dividend was also increased by 29%. While this is, of course, good news there was also some bad news buried in the financials. The profitability of their crown jewel, the amenity segment, decreased while losses in the retail segment only got bigger:

Segment details Ming Fai (2014AR update)

Retail Holdings

Retail Holdings also reported their 2014 results yesterday. Results for 2014 weren’t particularly impressive, but the company continues to trade at a 40% discount to NAV, announced another $1/share dividend while the long-term strategy is still to monetize the value of its assets. It’s for sure taking a long time, but we get paid to wait and intrinsic value can grow in the meantime. The chairman of the company is pretty optimistic:

I remain optimistic about 2015 and later years. I anticipate a marked improvement in Sri Lanka’s performance, reflecting accelerating economic growth, helped by lower oil prices, an improving agriculture picture, an increase in government salaries, and an uptick in consumer confidence, as well as the launch of a major new financial services initiative. In Bangladesh, a lot will depend on political developments, but the Company’s performance should improve in any case, particularly in the second half of the year, as the Company’s new refrigerator factory begins production, and other improvements now under way impact results. Pakistan and Thailand’s performance should also improve as new initiatives impact results. I expect India to continue to grow strongly. Revenue and profits in 2015 and later years will also benefit from the rollout of the new Cambodian business and from the Company’s ongoing investment in new and renovated shops and in new products, brands and services.

The holding company currently consists of the following assets:

Retail Holdings NAV (2014AR update)

What I also found interesting was the following paragraph in the annual report:

During 2014, the Company returned to equity $49,000 of the 2009 distribution, representing unclaimed distributions of non U.S. shareholders; an additional $13,000 was escheated. During 2013, the Company returned to equity $175,000 of the 2008 distribution, representing unclaimed distributions of non U.S. shareholders; an additional $3,000 was escheated.

I’m not familiar with the relevant laws in the US. I’m wondering if shareholders that don’t claim their dividends lose the right to receive them after 5 years? And what will happen if the company eventually liquidates? It appears that approximately 5% of dividends go unclaimed, and if this eventually accrues to other shareholders it could be a nice bonus?

Rella Holding

Since Rella announced that they would sell their stake in Aller and liquidate it doesn’t really matter what the latest results are. Despite that fact, the annual report did contain a couple of interesting items. The company increased the estimated liquidation proceeds from 77DKK/share to 77.5DKK/share. What I also found noteworthy is that the company renewed their share repurchase authorization. I don’t know if they are going to use it, but it would allow Rella to bet on its own liquidation. Could generate a bit of value for remaining shareholders.


Long Conduril, Ming Fai and Retail Holdings. No position in Rella anymore.

7 thoughts on “Annual results: Conduril, Ming Fai, Retail Holdings & Rella

  1. Caute

    I will keep my Rella shares. The spread is currently close to 5%. Assuming we will get paid by end of September, its 12% annualized with close to zero deal risk. And there is a chance that 1) liquidation costs are lower than expected (I calculate 77.8 DKK) and 2) as you mentioned they buy back some more shares which will be of benefit of last holders.

    1. Alpha Vulture Post author

      I managed to exit at a somewhat smaller spread, but the more important consideration is that I don’t want to hold this until liquidation because I’m worried that it could have negative tax consequences for me. And given the illiquid nature of Rella I think there is a high probability that a sizable spread will exist until the very end. If I didn’t have to worry about taxes I wouldn’t have sold.

  2. Dan

    Good analysis on RHDGF. Recently the Sri Lanka business was restructured and the effect was a $1.07 cash to RHDGF holders. The SL business is booming and so is their Indian business. If Bangladesh can start to grow again which I believe they will this is a $45-$50 stock. Management finally is starting to monetize the assets so I expect companies to be floated individually in the next 6-12 months.

  3. Investor

    Given oil prices remaining on low levels and, e.g. Mota Engil Africa not doing very well (business and stock price) I wonder if there is any update on CDU’s H1 2015 figures?

    Furthermore, Angola seems to face headwinds given the commdities slump (possibly triggering cuts in construction) and the currency which devalued somewhat. This will probably reverse FX gains CDU saw last year at least to some degree. Up to now the CDU share price (which actually never was near to even slightly overvalued) was quite stable in the mid-60 EUR range.

    What do you think?

    1. Alpha Vulture Post author

      Angola is not doing well (as expected), but they have been getting some new work in Gabon and Portugal. I’d say they are still doing alright and are still very cheap. The lack of cash flow is still a bit concerning though and the amount of receivables is going up once again…

  4. Shareholder

    Meanwhile it does not seem that conditions necessarily improved against the backdrop of falling crude prices. Assuming that a substantial share of Conduril’s business is still taking place in Angola, the following developments come to my mind:

    – high share of Angola’s revenue depending on crude where Brent fell from USD 110+ to below 30
    – Angolan currency depreciated notably against USD and EUR
    – yields on Angolan USD bonds increased substantially during the last months (is the note on the balance sheet in local currency or USD, is mark to market necessary?)
    – unknown if there is more/increasing competition from established players in the region as well as new entrants (China?)

    Of course Conduril was always cheap, however, it will probably be less so giving deteriorating fundamentals. The question is of course by how much.
    Not sure if this already a good point to think about buying.

    1. Alpha Vulture Post author

      The note on the balance sheet is in USD, and mark to market accounting is necessary in both cases because Conduril reports in EUR.

      And certainly agree that fundamentals have deteriorated (but that isn’t news, that’s why I sold a large part of my position last year!), but also think that it is still pretty cheap.


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