First of all, I think even with the recent drawdowns, the market may fall much more. As a reminder, have a look at the “Buffet indicator”:
And the USD in circulation:
Currently we have a lot of headwinds. Increasing interrest rates, inflation, supply chain disruptions, energy shortages, and so on. But this also creates some opportunities. One company that seems cheap is Heidelberg Cement. How can this be cheap, you may wonder. It consumes a lot of energy, and releases a lot of pollutants.
First of all, due to the weight of cement, the maximum transportation lenght from factory to consumer is about 200 km. Longer than this, and it does not make economic sense. Now, imagine a cement factory. It is big, noisy, dirty and not something you want as a neighbor. Therefore it requires a government approval to operate. Also you do not want several of these nearby. Hence this buisness usually operates as either a monopoly or duopoly. This resembles something like a “toll bridge moat”, does it not? If you want their product, you’ll have to buy from them.
Heidelberg Cement is the worlds 3. largest cement producer. And since the worlds population is still growing, they have the megatrend of urbanisation pushing the demand for cement ever upwards.
They are focused on reducing their carbon footprint, and I believe that they will be able to charge more for their product, as it is enviromentally more “friendly”. Furthermore I will not be surpriced if European governments starts to require this type of product to be used in public building projects. In actual numbers, this is what they specified in their latest investor presentation:
They even threw in a joke in this slide 😉 2018 – 2022 their focus was on debt reduction. Going forward they claim to focus on shareholder returns. They plan on incremental dividend increases, and even has a flexible share buyback program.
This is all well, but how has the business performed, and whats the price in relation to the value?
In the market you can now buy this top 3 company in their market for less than 50 cents on the euro. It is however a capital intensive business, so their ROE and ROIC aren’t that great, but I think it is too cheap to ignore.
From earlier posts I have mentioned my effort to try to build a meaningful possition in Elopak. I failed in this, since the price went up too fast, and I was not interrested in chasing it. So I have now completely exited this company. Not because I no longer believe in it, but to free up cash for Heidelberg and other opportunities. I made a small profit around 10 – 11 % on this.
My investment in Electrolux turns out to be a complete disaster at the moment. Here I made an error of judgement, and I have learned something from this as well. My investment in Unum keeps going the right way. It is now up above 80% in less than a year, and somewhat offset the decline in other stocks.
Going forward I am looking forward to the news flow from my oil companies. Panoro is a part owner of the Gazania-1 exploration well in SA. Spud is next month, and it drilling operations is expected to conclude a month later. Panoro has a 12.5% stake here, and a confirmation of the expected reservoir size will add significant value to the company. Also in Africa, BW Energy continues to build their infrastructure to increase production from the Hibiscus and Ruche fields in Gabon. Rumor has it that BW Mabomo (Hibiscus aplha) has arrived on site. I expect the news flow from BW Energy the next 6 months to be very positive.
valueinvestor 