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KHD


finetrader
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Would like to give my impression on this company's latest financial filing.

 

-The environment have changed dramatically. This a company that was achieving g=20%+ the past 5 years. Now it wants to cut staff by 50%.

-Stock price have follow... from about 30$ down to 7$.

-They are now in a cash preservation mode.

-from the conference call: Excluding reorganization cost that is going to be about 30M$, they think they can break even or have positive operational cash flow in 2009.

-no debt with lots of cash

-The Wabush iron ore royalty revenues are falling substantially

 

At this price It still looks like a good investment to me:

-I estimate 6$/share liquidation value (after reorganization cost) and this is already in cash on the balance sheet, so at this price you almost get the company for free.

-Good business model: engineering company have little fixed cost, and almost no capital expenditure. This world recession has not erased the need for new infrastructure in emerging countries and growth should come back.

-Good management: In my opinion they are taking the right approach by downsizing the firm. Like a good boxer they seems to be able to roll with the punches.

During the boom times and even right now, management objectives are aligned with the shareholders. Before they were focusing on the bottom line, not on the revenue line. Now their focus are on being free cash flow break even.

-For sure the royalty from the Wabush iron mine has fallen substantially but it is still a source of revenue with no expenses associated with it.

-This present environment seems to be the worst case scenario. Can only get better (I know...many things are like that right now)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Does this concern you?

 

I also like when management incentives are aligned with the shareholders. You're are right that management get compensation mostly in cash (don't see much incentives pay). i don't think that their salaries are too high if we compare to other firms. I guess the good thing is that they are not diluting existing shareholders with lots of stock options granting.

 

I've been following this company for about four years now, and I consider they made good decisions (Smith hiring an operational man with experience in J.Busches, focus on bottom line growth, efforts to diversified business(though it will not be possible now)), good execution (I've never heard of a project being out of schedule or not respecting budget). What I have seen is cash accumulation on the balance sheet.

 

 

 

 

 

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