KHD Humboldt Wedag Showing Strong Growth
KHD Humboldt Wedag Int. (KHD) released 2007 year end results today, and their growth appears to have stayed on pace. I will cover this in 3 steps: First the numbers for 2007 and the 4th quarter, next the company’s plans for future growth, then a few personal thoughts. The get things started, here are the numbers:
Revenues for the company grew 44% from 2006 to 2007 to $580.4
million and net earnings were up 49% to $1.68 per share. My math shows
4th quarter earnings (the number was not broken out in the press
release) were 39¢ per share, compared to 34¢ for Q4, 2006. Order intake
for 2007 was $818 million and the end of year order backlog was $919
million up 38% over 12/31/2006. The company ended the year with $370
million in cash and securities or approximately 1/2 of its current
market capitalization.
In 2007 KHD completed the spin off of its real estate holding in the form of an Austrian REIT to focus 100% on their infrastructure business. Over the last few months they have hired a new cement division president and formed a construction division and hired a president for that division. The goal of the new construction division is to be able to build entire plants with their equipment, rather than just selling the equipment for others to build the plants around. Controlling the complete plant construction process should significantly increase the company’s revenues and profit margins.
Today the CEO, Jim Busche, announced the company’s Build, Operate and Own [BOO] initiative for 2008. The purpose of the initiative is to combine the above mentioned cash and new construction division to form strategic partnerships in their markets to form partnerships to build, operate and own cement plants with KHD’s cement processing equipment. From the press release:
KHD, in addition to being a passive minority equity partner, will design, fabricate, erect, commission and operate these cement plants. Investment banks will arrange and assist in structuring and arranging debt financing. We anticipate that we will have the opportunity to generate earnings on the engineering and equipment supply, as well as on plant operations and on the downstream sale of the commodity. KHD believes that the revenue stream from production would be constant and predictable.
My thoughts on the company and stock: First, the stock may take a hit today; the 39¢ for the 4th quarter is well below the 45¢ predicted by the single analyst following the stock. However, the same analyst is forecasting $1.87 for 2008. The company released guidance of $2.05-$2.15, not including any of the new business included above. These number translate into 25% earnings growth for a stock with a 2008 PE of 12. I expect revenues and orders to continue to grow at the 40% rate as the new initiatives and business areas pick up steam.
KHD is a company doing infrastructure business in growth areas of the globe. Their current order backlog is 33% Middle East, 29% emerging Asia/Pacific, 24% Russia and Eastern Europe, 6% Europe and 6% Americas. The company has a huge cash position and plans to put the cash to work. Finally, it has almost zero following by the Wall Street herd. A few years of quiet growth could turn this into a $100 stock. I remain very positive on KHD.
Note: I currently have a long position in KHD.
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This article has 3 comments:
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the chief
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1 Comment
Mar 31 04:50 PM-
GyZmOjO
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Mar 31 05:45 PM-
gyzmojo33
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Mar 31 07:40 PM