Conduril reports 2015 results

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.

The Algarve coast


Author is long Conduril

16 thoughts on “Conduril reports 2015 results

  1. PSDFinancier

    Alpha, many thanks for this writeup! Have followed Conduril for the last few years and have found the situation to be quite interesting.

    Have you taken a look at Eastern Platinum (TSE:ELR)? Platinum/palladium miner that’s trading at net cash of CAD$0.77/share with no debt and the market valuing its assets at nothing. The company had a bid on the table for its platinum assets that valued the entire company north of CAD$3/share last year, but infighting amongst the buyer group caused the deal to be scuttled. Activist hedge fund Harrington Global owns 20% of the stock and received a board seat last fall presumably to oversee operations and, from discussions on, to look for another buyer. Would love to get your take on what seems to be a very cheap stock with a built-in catalyst in the form of the activist.

    1. Alpha Vulture Post author

      Not familiair with Eastern Platinum, but sounds like it could be potentially interesting. Would depend a lot on how much cash they are burning though, if I take a super quick look that # seems to be significant.

  2. PSDFinancier

    My estimate was that they had enough cash to handle 4-6 years at the current burn rate, but that burn rate was also under prior management…looks like Harrington pushed out the prior CEO in February of this year after getting involved in 2015, and you’d think that they’d be very incentivized to limit cash burn further (possibly by putting a full stop to their existing mines rather than the soft close they’re currently in) given their large stake.

  3. Gonca

    Angola just formally asked for IMF’s support – let’s hope they do not demand a haircut on govt bonds.

      1. Matt jones

        I worked in angola for a short bit in the oil field. We were only able to get really short term visas, 2 or 3 weeks IIRC, and we didn’t get out of angola in time. So they took our passports when we came in off the boat and wouldnt’ return them till the next morning. Maybe I’m overly cynical but I think this is all by design. They also woudln’t let you leave the country with any angolan currency so I’d estimate my effective commission rate on the currency conversion was about 98%. I didn’t get much chance to spend anything, since after I saw a little of Luanda I decided to hide in the hotel. When you walked down the street kids would pull out cell phones and a few minutes later you’d be hounded by people trying to sell you stuff. Some of my co-workers narrowly escaped what was almost surely going to be a mugging from one of these guys. Keep in mind this was during the prosperous times when oil was high.

        While I was there I was told that angola has a lot of good farmland lying fallow because it is full of land mines leftover from a multi-decade civil war. Would probably be nice if they could export something besides oil right now. Anyway, conduril looks cheap but I’d want to look carefully at what might happen to them if oil stays low for a long time.

        1. Alpha Vulture Post author

          Thanks for the additional color on Angola. I never thought it would be a nice place for a visit and that certainly hasn’t changed now… With Conduril I’m mainly worried about whether or not the Angolan government is going to pay for the work already done, at the current prices I don’t think it would be a disaster if the business there dries up.

  4. Matt Jones

    How’d you get the report to translate? I’ve been trying different ways and none of them are working right

    1. Matt jones

      IB didn’t have access to the lisbon exchange back around 2011, I know this because I tried to buy Semapa back then and couldn’t. I see IB now has access to Portugal, but there are only 5 stocks listed, conduril not being among them. It also not listed on their product listings under pink sheets or the swiss exchange.

      YMMV. I think IB may have different levels of access. I’ve seen some people able to buy things on there I couldn’t.

      Fidelity has more foreign access, including lisbon.

  5. camiro13

    Hi alpha, one thing you don´t mention in your analysis is how the “financing obtained” position is increasing (since 2014), which is worsening the risk profile in my opinion. Plus there are high guarantess (91 Mio€ outstanding) mentioned in the annual report. Do you consider them as an off-balance sheet liabiliy or how do you value those guarantees? Hope you can put some light on those topics. Best regards

    1. Alpha Vulture Post author

      The financing obtained position is certainly increasing the risk factor, but is basically another form of increased exposure to the credit of Angola. They obtained most of this financing when Angola started paying in bonds instead of cash. And to be honest, I sort of ignore these guarantees even though they are obviously a risk factor. But don’t think you should threat €90M of guarantees as a €90M liability, because hopefully most of these guarantees are never called upon.


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