I bought my first shares in Conduril in 2012 for €22/share, and now, almost 7 years later we are roughly back to where I started with shares trading at €25. It hasn’t been a total dud though, because in that period the company did payout a total of €9.50/share in dividends. I was also lucky enough to sell a large part of my position in 2014 and 2015 between €65 and €80/share when I saw deteriorating results appearing on the horizon. It has been a while since I wrote about Conduril, and with the publication of the 2019 interim results I thought it was a good idea to publish a quick update, starting with an updated overview of the historical financials below:

When I bought my first shares on Conduril the company was doing pretty well, earning in some years more than €20/share, but the past years the results have been more modest. Last year the company reported €1.69/share in earnings which was actually a small miracle considering that they lost €9.15/share in the first half of the year. The first half of 2019 was also pretty bad with a loss of €4.52/share, but based on the language in the interim report the company is confident that this year will be better than last year. Given that the backlog has increased from €300 million at the end of the year to €600 million now, that might be a fair assumption. In the period between 2009 and 2014 Conduril was on average earning €16.70/share per year while the average backlog was €618 million. So it could be on the edge of turning things around.

While things seem to be turning around for the construction business itself, there is also a balance sheet aspect to the story. Conduril is at the moment a classic net-net with NCAV/share of €28.70 versus the current €25.00 share price. This number is excluding €89.8 million in “other financial assets” that are recorded as non-current assets on the balance sheet. Adding this to the NCAV would result in a value of €78.58/share. So besides the stock currently trading at a 4x P/E-ratio there is also a good amount of asset backing.

Unfortunately, there are some potentially losses hiding in the “other financial assets” that erode to some extent the asset backing that this stock has. Conduril has made a €13.2 million investment in the “Rotas do Algarve Litoral, S.A.” and a €20.3 million investment in “SPER, S.A.”, two toll roads in Portugal. The “Rotas do Algarve Litoral, S.A.” is facing legal troubles because the “Tribunal da Contas” declared the original contract invalid, and “SPER, S.A.” is possible facing the same. “Rotas do Algarve Litoral, S.A.” is seeking the recover the full amount of the investments from “Infrarastruras de Portugal”, the party that seems to responsible for this mess, but of course, what the outcome will be is highly uncertain and could take a long time. Writing down both Conduril’s investments to zero would leave us with an adjusted NCAV of €59.80/share.

Conduril has one of the rare companies where I have always been enthusiastic about its valuation. Sure, things haven’t gone great the past few years, but at the current price it is just really cheap. Even without factoring in that things look to be turning around it is trading at a 4x P/E-ratio, 0.22x book and a sizable discount to (adjusted) NCAV. But who knows, after seven years I could also just be wrong about this…

Disclosure

Author is long Conduril