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Disclaimer: This isn’t funding recommendation, PLEASE DO YOUR OWN RESEARCH !!!!
For all readers that discovered my SFS write-up from February as too thrilling, I’ve excellent news: I’ve discovered a inventory that appears a minimum of as boring as SFS, possibly much more so: Logistec, a maritime terminal operator from Canada.
Background/Intro:
That is the primary funding concept that I initially discovered on Twitter, an enormous Hat tip to Sutje who introduced this up on my radar and naturally to the writer of the unique write-up “Wintergem Shares”. The Wintergem Substack has a 3 half write-up that I can solely suggest to learn first:
Half 1 – Deep Dive Marine Section
Half 2 – Deep Dive Environmental Section
Half 3 – Is Logistec a compounder
Wintergem has additionally a current replace on Logistec’s not too long ago launched 2022 report.
On this publish, I’ll simply deal with facets {that a} discovered particularly fascinating on high of the superb Wintergem write up.
To summarize Logistec’s enterprise in my very own phrases:
Logistec, a Canadian firm based mostly in Toronto, operates two divisions. The bigger one known as “Maritime providers” and primarily includes numerous North American maritime terminals, that function something from containers to bulk and even “break bulk” cargo. In certainly one of their earlier annual reportss they describe the principle cargo varieties as follows: “Cargoes dealt with usually include forest merchandise, metals, dry bulk, fruit, grain and bagged cargoes, containers, basic and challenge cargoes”
The second division which is smaller and in addition much less proitable is Environmental providers, whcih includes a nuber of companies that provide completely different environmental providers like cleansing up hazardous waste or fixing water piping techniques.
“Factsheet”
Listed below are some figures that I discovered fascinating:
Maritime providers:
To my understanding, their ports principally cater to the North American financial system and are much less depending on worldwide commerce (Asia, or Europe) excluding the Tremont Joint Enterprise. Typical cargo varieties are as an illustration wooden pellets, grain (Bulk) or components for wind generators (break Bulk). This can be a image of a typical bulk terminal:
Ports/terminals are thought of to be a really engaging asset class particularly for long run traders corresponding to pension funds. Ports of America, a big, unlisted Port operator as an illustration was purchased in 2021 by a Canadian Pension fund for ~4 bn uSD. The thought behind that is that ports are very sturdy property which have pure moats and are in a position to present protected long run “actual returns” for traders. The maritime providers companies is the core enterprise of Logistec.
Because of the Northern location of most of the ports, the enterprise is seasonal with precise losses within the Winter season (first quarter) when the large Northern inland rivers and arctic waters are frozen. Right here is the map as of 2022 (orange dots are terminals):
One fascinating a part of the Maritime servic is a minority (49%) JV participation in a bigger conatainer terminal in Montreal (“Termont”), extra on this later.
Environmental providers:
This segement is the youthful devision and was construct by means of a collection of acquistions. One in all theri important merchandise can “improve” lead water pipes by coating them from the within. Lead water pipes are an enormous drawback in sure areas of the US. One other fascinating exercise is the elimination of PFAS or “endlessly chemical compounds” from soil. Total, this section has been rising properly prior to now however appears to have extra of a “giant challenge” character which makes it much less predictable.
Long run observe file:
One of many issues that really pulled me in direction of the corporate was the truth that they concern this 54 yr chart of gross sales and earnings on their web site (till 2021):
That development was achieved each, by natural development but additionally through acquisitions. Logistec retains most of their earnings so as to develop their enterprise. Over the previous 10 years, they managed to develop EPS by ~13% p.a.
Wanting again, the decline in revenue in 2016 was primarily attributed to low commodity costs within the mining sector which appears to be a significant component for his or her maritime section.
Share value
What I discover fascinating the long run inventory chart ist the very fact, that for some motive, the share value went up ~4x from 2013 to 2015 and since then went sideways regardless of the very optimistic fundametnal developement:
Buyers who purchased into Logistec in 2014 oder 2015 earned mainly nothing since then because the dividend has been fairly low.
Administration:
Madeleine Paquin, the daughter of the founder joined the corporate in 1984 took over as CEO in 1996 when she was 33 years outdated, so she is now 59 years outdated which implies sooner or later in time, there is perhaps a succession subject. The present administration group reveals no different member of the family as managers, her two sisters are a part of the Supervisory board however have been energetic within the firm earlier than, however in much less senior roles.
Compensation for administration has elevated considerably in 2022 however continues to be OK for a North American firm
Sadly I didn’t discover a extra detailed break up on salaries. I assume, the 9 mn covers the managment group as offered on the internet web page.
Total, I like the mixture of household possession and administration. Ms. Paquin appears to be very competent and underneath her management, the corporate has roughly 10x high line and earnings.
Share construction: A/B construction
Under is an summary of Logistec’s share construction which consists of ~7,4 mn Class A shares and 5,7 mn B shares. The A shares, that are held principally by the three Paquin sisters, have 30 votes, the B-shares nevertheless have a proper to 1,1x the A shares dividend and a tag-along proper within the case of an organization sale-
The B shares do have a dividend desire over the A shares. Sumanic is the holding of the three sisters, every sisters holds 1/3 ofthe shares.
Professional’s & Cons
Based mostly on the Wintergem write-up and my very own analysis, as all the time a fast abstract of stuff that I like and stuff that I like much less:
I like:
+ household owned, household run + long run development path with two “Platforms” to deploy capital+ low-cost in absolute and relative phrases (“Further asset”).+ further imply reversal potential (margins, a number of)+ Publicity to fascinating secotors (wind business, biomass, endlessly chemical compounds)+ probably good Portfolio diversification (Canada, logistics)
Not so good
capital intensive
debt (not extreme however nonetheless)
cyclical publicity particularly within the Environmental division, commodities publicity within the maritime section
probably much less engaging E&A section
succession subject in 5-10 (?) years
A/B share construction (nevertheless much like Alimentation Couche-Tard)
Why is the inventory low-cost ?
As all the time, it is very important a minimum of strive suppose aboutwhy a inventory is reasonable. That is what I got here up with:
A/B share construction (Tremendous voting) might be a problem for some traders
there’s a sure consequence volatility, particularly within the Environmental section
Capital intensive enterprise
It isn’t a pure play (terminals)
rising Rates of interest (infrastructure)
zero analyst protection
little freefloat, inventory is kind of illiquid
low dividend yield particularly for infrastructure. Typical infrastructure traders need yield, not development
no direct catalyst
P&L not straightforward to learn (JVs, “Further property”)
Total there appear to be fairly just a few the explanation why the inventory low-cost. However in fact, Canada is way away and I might need missed another causes.
Valuation:
Previously, with decrease rates of interest, ports have been valued fairly excessive. This can be a slide that reveals some M&A transaction within the ports sector within the yr 2019 with respective EV/EBITDA mutliples which might be generally used because the valuation measure for infrastructure property:
Again then, valuation ranges for Terminal/port property have been somwhere between 13-20x EV/EBITDA, which might be a, little bit decrease now ith increased rates of interest.
If we take a look at our “reality sheet” once more, we are able to see that Logistec trades far beneath this ranges however has traded a lot increased traditionally:
To be clear: I might not make investments into Logstec simply as a “imply reversion” play, however it reveals that in historic phrases, the present valuation seems to be low-cost.
“Further Asset”: Tremont Terminal
Now we have to lastly deal with the “further Asset”: Logistec owns a 49% stake in a JV known as TERMONT which is a container terminal in Montreal and handles enterprise on a long run contract with the world’s largest container shipper MSC. In 2022, dividend earnings from this JV has been 15 mn USD, the underlying revenue barely decrease. They appear to have doubled the capability over the current years which explains the rise in earnings (from 2,5 mn in 2016 to 13,6 mn in 2022=.
When evaluating Logistec’s valuation at an EV/EBIT or EV/EBITDA foundation, which we did above, this revenue stream is just not included because it solely enters the P&L within the “I” part.
So when making EV/EBITDA comparisons, this worth must be subtracted from the EV. Why ? As a result of on may merely promote this asset for money and EBITDA and EBIT wouldn’t change, however EV would lower by the money acquired.
What’s the JV stake price ? If we use Logistec’s P/E of ~11, we’d give you one thing like 140 mn CAD, which I believe is a really conservative estimate for a container terminal on a long run contract.
That is how valuation seems to be if we regulate this asset:
So based mostly on on the adjustment, EV/EBITDA is a full poin decrease, EV/EBIT nearly 2 factors.
I additionally compiled a listing of world listed port operators, though because the outcomes present, it is a very numerous lot and port property are usually very particular person property:
If I account for the “non pure play standing” and assume ” the common 10xEV/EBITDA valuation of those friends, Logistec must be roughly price 105 CAD per share based mostly on 2022 outcomes, nevertheless as I discussed above, this alone can be not sufficient.
What sort of development may be anticipated ?
Logistec has grown as talked about by 10-15% p.a. over a really very long time, be reinvesting most of its money into natural and inorganic development. Only in the near past, they had been in a position to purchase a considerable competitor known as Federal Marine Terminals which was doing round 116 mn CAD in gross sales in 2022 . This alone will add 11 new Terminals and develop general gross sales by greater than 10%. I don’t know what number of different mid measurement operators in that space exist however to me it seems to be like that they’ve some runway to develop within the maritime sector.
The environmental section is tougher to evaluate, however in concept there must be ample development alternatives too.
Due to this fact I believe it’s honest to imagine the historic development price of 10-15% as a great estimate for the subsequent 5-10 years as properly.
At a present dividend yield of 1%, this might indicate a complete return of 11-16% p.a. with out assuming any a number of enlargement, which I believe is a very good return/danger proposition and a great match for my boring portfolio.
Abstract:
Logistec ticks lots of my test bins, like having a stable however boring enterprise mannequin, a long run orientation, Household possession, good development alternatives and a really reasonable valuation . Though there may be clearly no quick time period catalyst, I do suppose that over a timeframe of 3-5+ years there’s a good probability of an honest return in the event that they proceed to execute like they did prior to now.
As that is Canada, which is way away and I’m not overly aware of the business, I made a decision to purchase “solely” a 3% place at this stage at a median value of 44 CAD/share. To be trustworthy, excluding Alimentation Couche-Tard, my “distant” investments to date haven’t been too profitable and embody just a few “corridor of disgrace” investments like Cras.com and Silver Chef.
The financing comes principally from promoting some extra Meier & Tobler and dividends (Photo voltaic).
Disclaimer: This isn’t funding recommendation. PLEASE DO YOUR OWN RESEARCH.
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