In 1896 Pieter Smidt van Gelder set up a mill for newsprint in Velsen, on the then recently excavated North Sea Canal. Paper pulp came in by sea and was offloaded directly at the companies docks.

In december of 1981 the newspaper business sent CVG into bankruptcy. In january of 1983 the company emerged with significant assets. Since then it produces and sells specialty paper grades for transactional print, envelopes and other stationery, direct mail, books and manuals, packaging materials and tailor-made face and base paper customer solutions. The company employs about 300 people and operates two paper machines.

Crown Van Gelder N.V. is listed on NYSE Euronext/Amsterdam. All corporate info is available in English.

[markets.ft.com]
[www.cvg.nl]

Investment thesis
The equity of CVG is available at a discount to its liquidation value.

The opportunity exists because
* Earnings are depressed due to rising pulp prices.
* The company is managed with many interests in mind; just one of which is the interest of shareholders.
* This is perceived to be a commodity business with no opportunity for differentiation.

Valuation of Assets and liabilities (numbers in EUR)
* Current assets (mostly inventory at cost and receivables) => 50m* PP&E (two paper mills, a modern gas fired power plant and a harbour) => 65m
* Total liabilities => 30m
* A 50% stake in IFO BV. A growing logistics company that pays a 1m dividend.

1) Market cap is 30m so the fixed assets with a book value of 65m, are available for say.... 15m net. This is one of the cheapest publicly traded companies in the Netherlands.

2) A similar mill, just not so strategically placed, (Stora Enso; Berghuizer paper) was closed down in 2008. The land and the gas fired power plant were sold to (among others) Morgan Stanley for about 20m. [www.propertyeu.info]

3) In the last 5 years, CvG spent about 50m on its power plant and other facilities.

Earnings power
Basically, CvG imports paper pulp by sea, makes paper and ships the product all over western europe by barge. Costs are Pulp and natural gas. Barriers to entry are in transportation cost. You will not find a lot of paper in europe produced in China or the US. CVG is perfectly located for maximum profitability in this terrible business.

CVG managed about 5% net margin over the past decade (excluding 2009 and 2010). The huge losses in recent years were mainly write downs of the assets; CVG is not bleeding cash.

As we have seen, a lot of capacity was permanently taken out. CVG has done better than most and has a strong book.

3% net margin over a full cycle => 5m.

Management
Management is compensated for ROIC. That is hard in this business, but it's a good thing for shareholders. I suspect this is one of the reasons they have been happy to mark down the assets.

Management frequently speaks about enviromental issues and their responsibility to the local community and they have a good record in this regard. The company is well managed, just not always in the best interest of shareholders.

Insider ownership ..... no.

The dividend policy is clear though. The company’s policy is to pay an average annual cash dividend of 60% of its net profit, while aiming to prevent major fluctuations in dividend payments. It now yields 7%.

Opportunities
CVG is a takeover target.

Risks
* Global Pulp prices continue to rise. This leaves CVG playing catch up raising prices for the paper.
* The dollar continues to rise against the euro. CVG pays for pulp with dollars and sells its product in euros..... this leaves the company playing ...
* The other 497382 risks I haven't thought of.

A reversal of these trends obviously leads to easy profits.

Any and all questions and comments welcome as usual.

For Geoff -No stock or country is too small.- Gannon. [www.gannononinvesting.com]

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