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Quick Take: Hamburger Hafen and Logistik

March 29, 2013 | About:
Chandan Dubey

Chandan Dubey

97 followers
The idea of this series is to look at interesting companies which are near their 52-week low. I will do a quick analysis to see if the company deserves an in-depth review. Hopefully, the readers will be able to pick a few of these companies for their watch list and may be as investments.

HHLA is a logistic and transportation company. It discharges/loads the ships coming on the Hamburg port and then delivers them to the destination using trains (67% freight volume) and trucks (37% freight volume). The company was partially privatized in November 2007, but the state still owns 68% of the shares.

HHLA competes with other ports in the region. In Hamburg though it has no competition and hence an increase in the importance of Hamburg will increase the revenue of the company. Following are a few key figures from the 2012 annual report.

Shares: 72.7 m (70m class A shares and 2.7 class S shares)

Price: €17

Dividend: €0.65 (- 26.375% withholding tax)

Revenue: €1.12 bn

Profit: €111.8 mn

The company trades for €17 a share and the 52-week range is €16.77 to €26.8.

The company has a dividend policy of paying at least 50% of its profits in dividend. The company cut its dividend in 2009 from €1 to €0.4, which gradually increased to €0.65 in 2011 and has stayed the same in 2012. The payout ratio has remained a bit above 50%.

The company has €384 million in pension liabilities, €314 million in long-term debts and €138 million in short-term debt. It also has €230 million in cash. This adds up to a net debt of €606 million. Interestingly, the book value has remained €560 million since 2007 (not a good sign).

The interest cover has been above 4. In 2012 the company had EBIT of €186 million and interest expense of €39 million. The company has never been in loss in the last six years and in the best year (2008) it had profit of €217 million and dividend of €1.

The debt has remained high for the company since it went public. The capex in 2012 was €153 million and FCF was €57 million. In 2011 they were €132 million and €134 million, respectively. The company had positive FCF since 2007, generating €700 million in the last six years, for an average of €116.6 million a year.

At the current price of €17 the company has a market cap of €1.26 billion and an EV of €1.86 billion. Although I like the company, it is not cheap yet.

About the author:

Chandan Dubey
I invest because I want to be free by the time I reach 40 years of age i.e., 2025. My investment style is to find a small number of bets with large margins of safety. I pay a lot of attention to management and their incentive. Ideally, I like to buy owner operator businesses. I am fortunate to have a strong inclination towards studying. I aid my financial understanding by extensive reading in psychology, economic, social sciences etc.

Rating: 3.4/5 (11 votes)

Comments

Cornelius Chan
Cornelius Chan - 1 year ago
Invest in Germany. I like it.
Cornelius Chan
Cornelius Chan - 1 year ago
"HHLA competes with other ports in the region. In Hamburg though it has no competition and hence an increase in the importance of Hamburg will increase the revenue of the company."

Sounds like a no-brainer.

Just looked at company fundamentals: besides dip in 2008 due to financial crisis, steady revenues and earnings. Good cash flow. Excellent balance sheet: 1/5 debt-to-assets. All this and an economic moat? Very good.

I am guessing by the time the shipping companies' stock starts to go up, HHLA will be well on its way upward, back to its earnings trend line?

cdubey
Cdubey premium member - 1 year ago
Probably. The company is selling at a multiyear low. I still feel that it is a bit expensive though. I would much prefer paying 12 for it - a 30% discount to the current price.

I am not so hot on the balance sheet. Good business though.
Cornelius Chan
Cornelius Chan - 1 year ago
Good points Cdubey. I truly understand your comfort in the margin of safety a 12 price offers. Here's hoping it goes there! This is the beauty of not caring to swing at any particular company until it is priced right. I just had a new meaning for that U.S.A. TV show "The Price Is Right". LOL!!

BTW, I made a mistake when looking at the balance sheet. FT's default display for balance sheet under the Financials tab is the Total Assets and Total Debt... yes? Well, I mistook that for Total Assets and Total Liabilities. I guess that is why I am an amateur, a novice and a part-timer stock market investor. *more laughs*

Well, going into the Full Balance Sheet shows total liabilities to total assets of 1,171/1,812. This is a very mediocre ratio... and expected because operating a port must necessarily be an extremely heavy cap ex-heavy business yes?

I am looking forward to more of your quick-look analyses.

basil2000
Basil2000 - 1 year ago
As someone who lives in Hamburg, I might add a bit of first-hand information: The main problem with the harbor in Hamburg is the depth of the river Elbe. The new generation of panmax ships can't reach the harbor anymore. Dredging the river is a huge political and environmental issue for Hamburg for many years, especially because dredging it more would increase the risk of a flood in the city considerably now. Therefore there are political - and practical - issues, and they already narrow the moat: nearby - in Wilhelmshaven - is another port built, which opend just recently (with no limitations on the size of the ships), the JadeWeserPort. Hamburg nevertheless still has a huge moat as the infrastructure is literally built into the city: It is the hub for big parts of Europe only comparable to Rotterdam in the north. The freight can be transported extremely fast and efficient because of the unique connectivity between the harbor, the traintracks, the roads and all the companies with their headquarters around the harbor. The harbor is also state of the art and extremely efficient.

But: There are threats to the moat and the possibilities to expand further are limited.

Cornelius Chan
Cornelius Chan - 1 year ago
Here is a link to an article from Port Technology International magazine examining the forecast for 2012. Yes it is already dated, but an interesting read to get up to speed on some aspects of the container terminal operator industry.

http://www.porttechnology.org/technical_papers/global_container_terminal_operators_forecast_2012/

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