Analyzing Bargain Stocks

  Nisso Pronity (‘company’) is a relatively small Japanese operator engaged in the businesses of metal processing (69% of revenues), rubber processing (20%), and construction (11%).   Its metal processing segment is primarily used to manufacture solar cell array support mounts for fireproof panels – thereby benefiting from increasing demand for renewable energy – specifically, the increase in construction of distribution warehouses (which mount solar panels) arising from the expansion of the e-commerce market for merchandise sales.   Sales in this segment fell significantly in the last twelve months due to lack of growth in sales of fireproof panels and decrease in large scale projects. Nevertheless, the orders received and backlog were higher than last year.   Further, the company has increased its ownership of a construction company (now a subsidiary) in the building hardware and metals fitting business as part of management plans to diversify in re...

Stalprodukt (‘company’) is based in Poland and is one of the leading European manufacturers of processed steel products. It sells electrical sheets (23% of revenues), steel profiles (19%), and extracts zinc-lead ores for the production of zinc and lead (50%) along with related activities. About half its revenues are generated in Poland and half is exported (mostly within the EU). It is at a competitive disadvantage to non-EU manufacturers who don’t have to pay as much for CO2 emissions and have lower energy costs. Energy is a substantial component of the cost structure – and currently rising costs will negatively impact operations. Management’s report on the latest quarter almost reads like a plea to the EU to impose anti-dumping duties on foreign manufacturers whilst extolling the importance of the industry. An offsetting factor is currently high (and volatile) prices of its finished goods. The most recent quarter saw large price spikes in all segments though volumes were stable...

Tsaker (‘company’) is engaged in the manufacturing of 1) dye and agricultural intermediates (70% of revenues), 2) pigment intermediates (21%), and 3) battery materials (9%). It also has a small environmental technology consultancy unit, which it intends to spin off soon. It has a prominent position in the first two segments, which contributes all of its profits. Though most of its revenues are generated in China (68% of revenues) and India (9%), it has an established sales network across the world with sales to Indonesia, Brazil, Germany, US, Japan, Taiwan, and Spain among others. The relatively new battery materials segment earned gross profits only in 2021 as the production line achieved sufficient volume. Management intends to almost double capacity in this segment by the end of 2022. The company is a steady and reasonably efficient performer reporting 2021 sales of 1.78b (FY20: 1.28b), ebitda of 438m (FY20: 318m), and net profits of 227m (FY20: 145m). 2021 results included ...

Texhong (‘company’) is engaged in cotton textile manufacturing and is the second largest operator in China by revenues. Its primary products are yarn (78% of revenues), and knitted garment fabrics (20%). It also sells grey fabrics and non-woven fabrics. Its profits are primarily generated in China (49%) and South East Asia (48%), along with the US and others. Tangible assets are primarily located in China (90%) and the rest in South East Asia (mostly Vietnam). Its primary raw material is cotton and is exposed to escalations in prices, which hit decade highs in 2021. Trade payables are denominated mostly in US$. Sales and profits rose in 2021 compared to 2020 to 26.5b rmb and 2.7b rmb respectively (PY: 19.6b and 530m) – primarily due to finished goods pricing increases. Though revenues in the primary yarn segment were up 34%, volumes were up only 9%. The results appear to be a result of abnormally good operating conditions. Taking normal revenues of 22-23b rmb (achieved in 2019) a...

China High Speed Transmission Equipment Group (‘company’) is a leading supplier of wind gear transmission equipment for wind turbine manufacturers. It also supplies industrial gears for the heavy equipment market. This combined segment (‘wind’) contributed 90% of profits. It concentrates on the 2MW-7MW wind turbine market though prototypes for 8MW-15MW are in the pipeline. It supplies the leading manufacturers in China as well as prominent overseas manufacturers such as GE, Siemens, Suzlon, and Doosan (15% export sales). In addition, it manufactures rail transport gear transmission equipment (2% of sales) and started a trading business in 2020 dealing mostly in refined oil, electrolytic copper, and steel products (30% of sales but only 5% of profits). Though sales in the wind segment were up 3.3% over the year, segment profit margins declined from 14.5% to 11%. In addition, operating cash flows were strained with large working capital requirements resulting in outflows of 1.5b rm...

Remak (‘company’) is part of the Zarmen Group listed in Poland and specializes in assembling, installing, and maintaining industrial boilers and other related equipment for power plants. They generate 67% of revenues within Poland and the balance from the rest of Europe – currently Germany, Finland, Malta, and Lithuania. Construction/assembly accounted for 75% of revenues while repairs/maintenance accounted for most of the balance. The company is relatively small in size and generates lumpy revenues as it relies on a handful of long-term contracts with established power plants. However, customer concentration is fairly low and the largest customer doesn’t account for more than 20% of revenues. Recent revenues have slumped primarily as a result of the coronavirus pandemic that has reduced available jobs, exacerbated supply and labour shortages, and delayed cash collections. It generated revenues ranging from 250m-375m zloty since 2018 when it made a fairly substantial acquisitio...

Orca Energy is listed in Canada and its primary asset is a natural gas field in Tanzania, which is governed by a production sharing agreement (PSA) with Tanzania Petroleum Development Corporation (TPDC), the national oil company. The PSA divides the gas reserves as ‘protected’ and ‘additional’. The company operates the wells and gas processing plant for the protected volumes on a ‘no gain/no loss’ basis - but can earn on volumes in excess of that. The PSA also mandates provisions on further revenue sharing arrangements based on daily volumes, cost recoveries, and taxes payable. Gross proved plus probable reserves were certified by independent valuers at 229.5 Bcf (billion cubic feet). At 2020 production volumes of 19.4 Bcf, the company roughly has 12 years of reserves left. The company generates 62% of revenues from the power sector and the balance from the industrial sector. It generates average revenues of $80m and operating cash flows (net of interest expense) of just under ...