One of the annual reports I anticipated most was the Conduril one for 2016, and that it finally arrived yesterday. The results are a bit of a mixed story, but offer some basis to be cautiously optimistic. Last year the company saw revenues drop with more than 25%, but remained profitable with €29.1M in EBITDA (down 18.0%) and €4.2M in net income (down 31.1%). Next year is probably going to be better though since the backlog is up to €385 million from €340 million last year. As long as Conduril remains profitable I’m happy, since at this point in time the most important part of the investment thesis is the large discount of 57% to net current asset value (I’m including non-current financial assets in this number as well).
On the balance side of the equation it’s nice to see that a net debt position of €24.6 million was turned in a net cash position of €36.9 million. This number nets the debt at Conduril with assets held for trading (Angolan government bonds) and other financial assets (guaranteed by the Portuguese state), so it’s not yet true cash. This is a bit disappointing since in the latest interim report the €83 million receivable with a guarantee of the Portuguese state was already on the balance sheet, and I expected that it would have been settled for cash by now. Instead the promise that it will be settled soon is the same language as six months ago. Note 18.4:
As of December 31, 2016, this caption falls under the “Convention on the Exportation of Equipment and Services Portuguese Origin, for the Republic of Angola “that benefits from the Portuguese State Guarantee. It will be settled by a Financial institution in the national territory in the short term
This was translated by Google, so it might miss some meaning. While we apparently have to wait a bit longer to get cold hard cash, I’m happy that Conduril has shifted some of its credit exposure from Angola to Portugal during the year. Given the large discount between the current market cap, and its net current asset value I think Conduril remains a very attractive idea. Especially considering that it remains profitable in this challenging environment.
Portugal | Subconcessão do Baixo Alentejo
Disclosure
Author is long Conduril
Main risk for such companies would be a bribery investigation to end up the way of Odebrecht.
It’s I guess indeed a risk. Isn’t my main concern though…
Well… without the positive net FX impact of €24m (I guess comming from receivables in USD), the results would not have been positive.
I am a Portuguese native speaker, and don’t think you missed any meaning. I believe the €83m with a Portuguese guarantee is relatively safe since it is COSEC insured, but I am worried about the €73m of Angolan bonds and the Angolan share of receivables remaining…
I think not all of the FX impart is coming from receivables in USD. Conduril reports in EUR and in 2016 the EUR/USD didn’t change that much. But since Conduril does business mostly in Africa, and presumably pays employees/suppliers in local currency, and also often gets paid in local currency there is a lot of working capital that incurs FX gains or losses. Especially when the exchange rate in Angola went down with 20% and Mozambique with 35%. So my guess would be that the gain is mostly because Conduril pays a lot of stuff in local currency, while actually getting paid in USD or EUR.
They do have some hard currency expenses also: Conduril states in footnote 13.4 to its 2016 financial statements that “contracts are celebrated in USD/EUR, whenever possible”. Presumably they use USD to make it rain at the signing party. Moreover, models may not accept, or even have space for, local currencies in their thongs.
Thanks for the update.
Unrelated: Zedge traded yesterday well below where Jonas has bought shares in the past. Do you find that situation interesting?
Appreciate any thoughts.
Not really. I remember looking at the name a while back, but only remember I wasn’t interested. Don’t even know what the company does anymore…
Hi Alpha,
do you know anything about the shareholder structure/ownership of Conduril? I were not able to find anything about it in the annual report. Don´t the Martins or Mendes Clan have a big chunk of shares?
Have a nice weekend
You can find it in the older annual reports.
Thanks for the answer, but how do you know that the ownership hasn´t changed? According to Thomson Reuters none of the family is holding any shares…..but that might be because of the lack of current information.
The changes compared to previous years are disclosed in the annual reports.
Hi Alpha,
do you know if Conduril is still publishing half year results?
Cheers
Yes, they still do.
Do you know if it is already available? Where do they publish the half year results? Thanks for your answer