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 creator of the unique write-up “Wintergem Shares”. The Wintergem Substack has a 3 half write-up that I can solely advocate 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 lately launched 2022 report.
On this put up, I’ll simply give attention to points {that a} discovered particularly fascinating on prime of the wonderful 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 contains a lot of North American maritime terminals, that function something from containers to bulk and even “break bulk” cargo. In considered one of their earlier annual reportss they describe the primary cargo sorts as follows: “Cargoes dealt with sometimes encompass forest merchandise, metals, dry bulk, fruit, grain and bagged cargoes, containers, basic and mission cargoes”
The second division which is smaller and likewise much less proitable is Environmental providers, whcih contains a nuber of companies that provide completely different environmental providers like cleansing up hazardous waste or fixing water piping programs.
“Factsheet”
Listed below are some figures that I discovered fascinating:
Maritime providers:
To my understanding, their ports largely cater to the North American economic system and are much less depending on worldwide commerce (Asia, or Europe) excluding the Tremont Joint Enterprise. Typical cargo sorts are as an example wooden pellets, grain (Bulk) or elements for wind generators (break Bulk). It is a image of a typical bulk terminal:
Ports/terminals are thought-about to be a really engaging asset class particularly for long run buyers reminiscent of pension funds. Ports of America, a big, unlisted Port operator as an example 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 capable of present secure long run “actual returns” for buyers. The maritime providers companies is the core enterprise of Logistec.
As a result of Northern location of lots 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 among theri predominant merchandise can “improve” lead water pipes by coating them from the within. Lead water pipes are an enormous downside in sure areas of the US. One other fascinating exercise is the removing of PFAS or “ceaselessly chemical substances” from soil. General, this section has been rising properly up to now however appears to have extra of a “massive mission” character which makes it much less predictable.
Long run observe document:
One of many issues that truly pulled me in direction of the corporate was the truth that they subject this 54 yr chart of gross sales and earnings on their web site (till 2021):
That progress was achieved each, by natural progress but in addition through acquisitions. Logistec retains most of their earnings as a way 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 factor for his or her maritime section.
Share value
What I discover fascinating taking a look at the long run inventory chart ist the very fact, that for some cause, the share value went up ~4x from 2013 to 2015 and since then went sideways regardless of the very constructive 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 likely to be a succession matter. The present administration staff exhibits 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 staff as offered on the net web page.
General, I like the mixture of household possession and administration. Ms. Paquin appears to be very competent and below her management, the corporate has roughly 10x prime line and earnings.
Share construction: A/B construction
Beneath is an outline 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 largely 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 choice 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 at all times a fast abstract of stuff that I like and stuff that I like much less:
I like:
+ household owned, household run
+ long run progress path with two “Platforms” to deploy capital
+ low-cost in absolute and relative phrases (“Further asset”).
+ extra imply reversal potential (margins, a number of)
+ Publicity to fascinating secotors (wind trade, biomass, ceaselessly chemical substances)
+ doubtlessly 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
- doubtlessly much less engaging E&A section
- succession matter in 5-10 (?) years
- A/B share construction (nevertheless much like Alimentation Couche-Tard)
Why is the inventory low-cost ?
As at all times, it is very important a minimum of attempt suppose aboutwhy a inventory is affordable. That is what I got here up with:
- A/B share construction (Tremendous voting) might be a difficulty for some buyers
- there’s a sure end result volatility, particularly within the Environmental section
- Capital intensive enterprise
- It’s not a pure play (terminals)
- rising Rates of interest (infrastructure)
- zero analyst protection
- little freefloat, inventory is sort of illiquid
- low dividend yield particularly for infrastructure. Typical infrastructure buyers need yield, not progress
- no direct catalyst
- P&L not straightforward to learn (JVs, “Further property”)
General there appear to be fairly a couple of explanation why the inventory low-cost. However after all, Canada is way away and I might need missed another causes.
Valuation:
Previously, with decrease rates of interest, ports have been valued fairly excessive. It is a slide that exhibits some M&A transaction within the ports sector within the yr 2019 with respective EV/EBITDA mutliples which are 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 larger rates of interest.
If we take a look at our “truth sheet” once more, we will see that Logistec trades far beneath this ranges however has traded a lot larger traditionally:
To be clear: I might not make investments into Logstec simply as a “imply reversion” play, however it exhibits that in historic phrases, the present valuation seems low-cost.
“Further Asset”: Tremont Terminal
Now we have to lastly sort out the “additional Asset”: Logistec owns a 49% stake in a JV referred to 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 revenue 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 isn’t included because it solely enters the P&L within the “I” part.
So when making EV/EBITDA comparisons, this worth ought to 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 might give you one thing like 140 mn CAD, which I feel is a really conservative estimate for a container terminal on a long run contract.
That is how valuation seems if we regulate this asset:
So based mostly on on the adjustment, EV/EBITDA is a full poin decrease, EV/EBIT virtually 2 factors.
I additionally compiled an inventory of world listed port operators, though because the outcomes present, this can be a very various 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 ought to 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 progress 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 progress. Only recently, they had been capable of purchase a considerable competitor referred to 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 total 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 like that they’ve some runway to develop within the maritime sector.
The environmental section is tougher to evaluate, however in concept there ought to be ample progress alternatives too.
Subsequently I feel it’s truthful to imagine the historic progress price of 10-15% as a superb estimate for the subsequent 5-10 years as nicely.
At a present dividend yield of 1%, this may indicate a complete return of 11-16% p.a. with out assuming any a number of enlargement, which I feel is a very good return/danger proposition and a superb match for my boring portfolio.
Abstract:
Logistec ticks a lot of my verify packing containers, like having a strong however boring enterprise mannequin, a long run orientation, Household possession, good progress 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 likelihood of an honest return in the event that they proceed to execute like they did up to now.
As that is Canada, which is way away and I’m not overly acquainted with the trade, I made a decision to purchase “solely” a 3% place at this stage at a median value of 44 CAD/share. To be sincere, excluding Alimentation Couche-Tard, my “distant” investments up to now haven’t been too profitable and embrace a couple of “corridor of disgrace” investments like Cras.com and Silver Chef.
The financing comes largely from promoting some extra Meier & Tobler and dividends (Photo voltaic).
Disclaimer: This isn’t funding recommendation. PLEASE DO YOUR OWN RESEARCH.