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, perhaps 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 suggest to learn first:
Half 1 – Deep Dive Marine Phase
Half 2 – Deep Dive Environmental Phase
Half 3 – Is Logistec a compounder
Wintergem has additionally a latest replace on Logistec’s not too long ago launched 2022 report.
On this put up, I’ll simply give attention to facets {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 primarily based in Toronto, operates two divisions. The bigger one is known as “Maritime providers” and primarily includes a lot of North American maritime terminals, that function something from containers to bulk and even “break bulk” cargo. In one in every of their earlier annual reportss they describe the primary cargo varieties as follows: “Cargoes dealt with sometimes include forest merchandise, metals, dry bulk, fruit, grain and bagged cargoes, containers, normal 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 supply 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 largely cater to the North American economic system and are much less depending on worldwide commerce (Asia, or Europe) except for the Tremont Joint Enterprise. Typical cargo varieties are as an example wooden pellets, grain (Bulk) or elements for wind generators (break Bulk). This can be a image of a typical bulk terminal:
Ports/terminals are thought-about to be a really engaging asset class particularly for long run buyers resembling 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 belongings which have pure moats and are capable of present protected long run “actual returns” for buyers. The maritime providers companies is the core enterprise of Logistec.
As a result of 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 every of theri fundamental 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 removing of PFAS or “eternally chemical compounds” from soil. Total, this section has been rising properly previously however appears to have extra of a “massive challenge” character which makes it much less predictable.
Long run observe document:
One of many issues that truly pulled me in the direction of the corporate was the truth that they subject this 54 yr chart of gross sales and income on their web site (till 2021):
That development was achieved each, by natural development but additionally through acquisitions. Logistec retains most of their income 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 the long run inventory chart ist the actual fact, that for some purpose, the share value went up ~4x from 2013 to 2015 and since then went sideways regardless of the very constructive fundametnal developement:
Traders 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 previous, so she is now 59 years previous which suggests in some unspecified time in the future in time, there may be a succession matter. The present administration workforce exhibits no different member of the family as managers, her two sisters are a part of the Supervisory board however have been lively within the firm earlier than, however in much less senior roles.
Compensation for administration has elevated considerably in 2022 however remains to be OK for a North American firm
Sadly I didn’t discover a extra detailed cut up on salaries. I assume, the 9 mn covers the managment workforce as offered on the internet web page.
Total, I like the mix of household possession and administration. Ms. Paquin appears to be very competent and beneath her management, the corporate has roughly 10x prime line and income.
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 largely by the three Paquin sisters, have 30 votes, the B-shares nonetheless 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 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 development path with two “Platforms” to deploy capital
+ low-cost in absolute and relative phrases (“Additional asset”).
+ extra imply reversal potential (margins, a number of)
+ Publicity to fascinating secotors (wind business, biomass, eternally 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 matter in 5-10 (?) years
- A/B share construction (nonetheless much like Alimentation Couche-Tard)
Why is the inventory low-cost ?
As at all times, it is very important a minimum of strive suppose aboutwhy a inventory is affordable. That is what I got here up with:
- A/B share construction (Tremendous voting) might be a problem for some buyers
- there’s a sure outcome 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 sort of illiquid
- low dividend yield particularly for infrastructure. Typical infrastructure buyers need yield, not development
- no direct catalyst
- P&L not simple to learn (JVs, “Additional belongings”)
Total there appear to be fairly just a few the reason why the inventory low-cost. However in fact, Canada is way away and I may need missed another causes.
Valuation:
Prior to now, with decrease rates of interest, ports have been valued fairly excessive. This can be a slide that exhibits 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 belongings:
Again then, valuation ranges for Terminal/port belongings have been somwhere between 13-20x EV/EBITDA, which might be a, little bit decrease now ith increased rates of interest.
If we have a look at our “truth 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, but it surely exhibits that in historic phrases, the present valuation seems low-cost.
“Additional Asset”: Tremont Terminal
Now we have to lastly deal with 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 latest years which explains the rise in income (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 ought to be subtracted from the EV. Why ? As a result of on might 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 primarily based on on the adjustment, EV/EBITDA is a full poin decrease, EV/EBIT virtually 2 factors.
I additionally compiled an inventory of worldwide listed port operators, though because the outcomes present, this can be a very various lot and port belongings are typically very particular person belongings:
If I account for the “non pure play standing” and assume ” the typical 10xEV/EBITDA valuation of those friends, Logistec ought to be roughly price 105 CAD per share primarily based on 2022 outcomes, nonetheless as I discussed above, this alone could be not sufficient.
What sort of development will 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 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 dimension 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 development alternatives too.
Due to this fact I feel it’s honest to imagine the historic development fee of 10-15% as estimate for the subsequent 5-10 years as properly.
At a present dividend yield of 1%, this might suggest a complete return of 11-16% p.a. with out assuming any a number of growth, which I feel is a extremely good return/danger proposition and match for my boring portfolio.
Abstract:
Logistec ticks lots of my verify containers, 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 time-frame of 3-5+ years there’s a good probability of an honest return in the event that they proceed to execute like they did previously.
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 mean value of 44 CAD/share. To be sincere, except for Alimentation Couche-Tard, my “distant” investments to date haven’t been too profitable and embrace just a few “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.
