KHD Humboldt Wedag International Limited (KHD)

Overwhelming presence in emerging markets will propel this infrastructure pay forward

Will fly, despite all the Motley Fool fans!

International growth. Healthy balance sheet, conservative management. Should get a boost over next twelve months as stimulus monies are put to work.

Tons of cash, very little debt, low P/E

going for a value play, selling at 9.30 with 11.00 something cash per share

good margins in normal times. unusal times - unusual cheap.

Joel Greenblatt Pick

KHD represents value with more cash in the bank per share than the current stock price. When construction picks up, profits go directly to the bottom line.

This account tracks the less exciting stocks from my watch list - companies that are easy to understand with clean balance sheets and good track records in relatively straight-forward industries.

The bull thesis on this one is simple. KHD sells for less than the cash on its books, and has a long history of strong cash generation (albeit currently burning cash.) Buy it now, and you are buying dollars for less than 90 cents, plus you get the business for free.

Going with the MF flow in this one. Great to buy these solid, well-liked companies on dips.

Tons of potential when the world economy picks up.

Construction activities in the developing will resume.

I like KHD as a classic Benjamin Graham-type investment. Market value is less than net cash on the balance sheet. Management has a good capital allocation record. They are disciplined and will only spend cash on projects that yield a satisfactory return on invested capital.

Last, but not least, KHD is rated 5 stars.

I agree, KHD is one of the best stocks out there for the energy materials processing sector, and is in the top 10 for industrial equipment manufacturing. A solid investment for those who know what they are looking at. I have listed it as one of my top picks, which I reserve for companies that are near the top of their game and still have tons of room to grow.

KHD $8.00
Market Cap (intraday)5:245.09M
Price/Sales (ttm):0.40
Price/Book (mrq):0.96 (* lots of depreciated assets with value)
Total Cash (mrq):369.10M
Total Cash Per Share (mrq):12.092
Total Debt (mrq):10.78M
Book Value Per Share (mrq):8.302
Operating Cash Flow (ttm):23.11M

This one is a little tricky – as the company gets cash up front for orders. Thus you have to back out a large portion of the cash position.
The annual numbers are also tricky – as the company took very decisive action to shore up the balance sheet at the cost of short term damage to the stock price.
IMO – the sheer difficulty of understanding how to correctly value KHD presents a wonderful opportunity for patient investors with a longer term horizon.
From most recent earnings release:
KHD's balance sheet remains strong - as of March 31, 2009, our cash and cash equivalents and short-term deposits totaled $366.0 million; working capital was $271.4 million; and shareholders' equity was $253.4 million. KHD's current ratio was 1.69 and its long-term debt-to-equity ratio was 0.04.
KHD Humboldt Wedag International Ltd. operates as an industrial plant engineering and equipment supply company. The company supplies technologies, equipment, and engineering services for cement and coal and minerals processing industries.
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More specific product diversity:
products and services for the cement industry include plant design, equipment design and development, engineering services, and automation services; grinding technologies for use in raw material, clinker and finished cement grinding; and pyro-process equipment comprising pre-heaters, kilns, burners, and clinker coolers. Its product and services for the coal and minerals processing industries consist of jigs, centrifuges, float cells, and flocculant products; equipment and plant components for crushing, grinding, and separation of ore and minerals; chemicals for sorting materials by floatation; and coal floatation reagents

Operations:
India, China, Russia, Germany, the Middle East, Australia, South Africa, and the United States.
From recent earnings release:
"In order to improve our ability to offer our customers cost-effective and well-executed solutions, we implemented a substantial restructuring of our internal reporting functions. Our new structure, effective May 1, 2009, has four Customer Service Centers ("CSC"): the Americas based in Atlanta; South Asia based in New Delhi; Russia and the CIS based both in Moscow and Dessau; Europe, the Middle East and Africa, currently based in Cologne. Customers will be directly served and supported from the CSC in their regions. Each CSC will exploit the strength of KHD's knowledge, technologies and experience in delivering quality products and services to our customers. KHD Central, operating in Vienna and Cologne, will manage and support the Customer Service Centers in implementing KHD operating strategies."

Valuation:
KHD is currently trading below liquidation value by my assessment. Over time, I feel the business will be very profitable and the current valuation presents a large amount of upside. Buying the company below asset value should pay off well for shareholders.
Margins – from most recent earnings report:
Our margins for the first quarter of 2009 were 17.2% versus 18.4% in the first quarter of 2008.

Management has been very quick and proactive to shore up balance sheet issues surrounding previous acquisitions and preferred securities associated with the acquisition. I trust they are taking the correct steps in positioning the company to succeed when emerging markets once again increase production of modernization.

once the recession ends

A lot of cash on balance sheet and a play on engineering services industry overseas.

Safe international exposure!