Lingotes Especiales SA – Hidden Spanish Champion ?

On my “quest” for small, obscure but interesting “GIPSI” companies, I stumbled upon Lingotes Especiales SA (ISIN ES0158480311) from Spain.

The company produces cast iron parts mostly for the Automobile industry. Fundamentally, the company looks extremely cheap:

Market cap 29 mn EUR
P/E 6.5 (based on 2010 EPS of 0.46 EUR)
P/S 0.4
P/B 0.9 (no intagibles)
EV/EBITDA 3.3
Dividend yield 8.2%

Net debt at 0,66 Cent per share (end of 2010) or 20% of total assets looks managable.

Further checks for the “obscurity” factor of the stock:

– There seems to be no analyst coverage for the stock (positive)
– financial information is only available in spanish (positive)
– shareholders do not include any “famous” names (positive)

A quick glance ar historical figures shows a relatively volatile picture, however the comapny managed to show a profit in each of the last 11 years form 1999-2010:

TRAIL_12M_EPS DVD_SH_12M SALES_PER_SH PROF_MARGIN RETURN_ON_CAP
31.12.1999 0.3413 0.1603 4.4678 7.6385 12.1374
29.12.2000 0.3055 0.1683 5.7244 5.3374 9.4819
31.12.2001 0.234 0.1803 5.9373 3.9405 7.2021
31.12.2002 0.186 0.1803 5.9111 3.1526 6.0903
31.12.2003 0.438 0.1765 7.0747 6.1958 11.029
31.12.2004 0.1853 0.2706 6.9367 2.6716 5.1811
30.12.2005 0.4127 0.1765 7.2769 5.6717 10.0944
29.12.2006 0.1277 0.2706 7.182 1.7785 3.939
31.12.2007 0.349 0.1 7.3892 4.7235 8.3868
31.12.2008 0.3287 0.2439 7.9795 4.1191 7.6808
31.12.2009 0.0715 0.2439 4.745 1.5067 2.309
31.12.2010 0.4602 0.2439 6.7386 6.8286 10.6053

Looking back, the Graham & Dodd P/E (current price / average 10 year earnings) doesn’t look extremely cheap at around 11. However if we check for a “normalized price” calculated as “current sales times avaerage net margin times average P/E” we see a “fair value of around 6,50 EUR.

The current year doesn’t look bad either, based on the Q3 report, Lingotes managed to increase sales significantly, although margins seem to have deteriorated a little. Nevertheless, 9 month profit is already 0.43 EUR a share, 5% more than in 2010.

A very interesting sentence in the Q3 report is the following:

Los riesgos de incremento del precio de la materia prima no son tales, pues los precios de venta del producto terminado están indexados a los de la evolución de aquélla.

Based on my little Spanish and Google translate, this means that increasing costs on the material side are not a problem because sales prices are indexed to this.

Another interesting point from the Q3 report is the fact that 70% of sales are exports outside Spain. I read an interesting post at the highly recommended IBEX salad blog, which showed that Spanish exports aren’t that bad and that they are improving significantly compared to imports.

The stock price chart doesn’t look pretty but one could imply some sort of bottom based on the historic chart:

Summary: A quick and dirty check shows that Lingotes might be one of the cheap overlooked GIPSI equities I have been looking for. A low valuation combined with a high dividend payout might companesate for any missing short term “catalysts”. So I think the stock definitely deserves a closer inspection following the usual methodology.

2 comments

  • Hi MMI!

    Lingotes Especiales looks like a typical cyclical auto supplier to me. Such cyclical companies trade most of the time below book value. So I wouldn’t say they are extremely cheap. It’s rather a normal valuation given that there is some downside risk in the european auto market.
    Like you showed, earnings were volatile in the last ten years but sales were more or less flat around 6,- per share.
    What can be a catalyst for some future growth? If there isn’t any why not better buying a
    corporate bond of them (I don’t know whether they issued those).

    Concerning the spanish-only-disclosure I see the point that Lingotes obviously didn’t need foreign investors for corporate actions in the past (which is positive). But I’d prefer to get reports in english language just to be ready to react in an instant. 😉

    Chiru

    • #chiru,

      thanks for the comment. Yes, Lingotes is a typical autopart supplier. However, based on different multiples, they are at least 50% cheaper than the competitors.

      And don’t forget: Lingotes has almost 100% tangible book value. Howver, I will have to evaluate the company anyhow.

      MMI

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