Conduril released their annual report for 2015 yesterday. As usual the report is initially only available in Portuguese, but luckily Google Translate is pretty awesome. Unfortunately Conduril’s results for 2015 are not equally great. While revenue only dropped 6% from €208 million to €196 million net income dropped dramatically from €29.5 million to €6.2 million. The company doesn’t provide a real explanation for this. They spend a lot more this year on “External supplies and services”, but no idea why and whether or not is going to be an onetime issue or a permanent change. In addition the positive effect of currency movements was a lot smaller this year, although that was partly offset by a big reversal in the provision for doubtful accounts. If Conduril didn’t have that reversal reported earnings would have been close to zero.

Besides the poor – and unexplained – earnings I found the following noteworthy:

• Conduril finally started to do some business again in Portugal. In 2015 23% of revenue originated from their homecountry compared to 7% in 2013 and 2014.
• They loaned €20 million to two Portugese companies that they also own a minority stake in, bringing the total balance to €33.8 million. €20.3 million is outstanding to “SPER – Portuguese Society for Construction and Road Exploration, SA” while “Algarve coast routes, SA” has €13.5 million outstanding.
• A huge part of their balance sheet continues to consist of Angolan government bonds, now worth €101.8 million. Unfortunately the credit rating of the country was recently downgraded from B+ to B because of the lower oil price, its main export product.
• In the second half of 2015 the company finally managed to turn some receivables into cash, lowering the “cash conversion cycle” metric from 283 to 223 days.
• Despite the difficult conditions the backlog is holding up reasonable well, dropping from €450 million at the start of the year to €340 at the end of 2015.
• They announced a dividend of €0.50/share, just 25% of the €2/share that it paid last year.

While the 2015 results were not very good I think that the company continues to represent a great deal, although an increasingly risky one because of the large credit exposure to Angola. With the stock at €42 Conduril is trading at 66% of NCAV and that is ignoring the €33.8 million in loans to Portugese companies that are classified as non-current assets. If we would include those in the valuation NCAV/share would jump from €64 to €83/share.

Disclosure

Author is long Conduril