Global Ports Investments Plc – GLPR:London

Before I begin, I wanted to let readers know I will be in NYC on November 10 and 11 for a series of meetings. If anyone would like to schedule a meeting or just grab coffee, let me know and I’ll see what I can do. I always enjoy meeting blog readers. They’re a sophisticated set. 

So, who’s interested in buying shares in a leveraged, capital intensive business operating in one of the world’s least attractive geographies and fraught with political risk? What if I also told you that this company’s revenues are down 25% year-over-year and that this weakness may continue for the foreseeable future? If you’re still reading, I suppose I should also tell you this company produces huge and sustainable cash flows, operates with barriers to entry, enjoys the backing of the world’s premier operator in its industry, and benefits from US dollar strength.

This company is Global Ports Investments Plc. True to its name, the company owns and operates 10 different marine terminals, in whole or in part. Despite the ambitious moniker, the terminals are actually clustered in and around St. Petersburg, with two in Finland, one in Estonia, and the final terminal on Russia’s eastern coast.


Global Ports Investments has existed in its current form since late 2013, when the company merged with rival NCC Group to form Eastern Europe’s largest container terminal operator. The resulting firm has 537.2 million shares outstanding, of which 20.5% are publicly floating. Global Ports Investments shares trade as Global Depositary Units on the London Stock Exchange, where one GDR equals three shares. The GDRs are denominated in US Dollars. The remaining 79.5% of Global Ports’ shares are held by various large port and marine terminal operators. Major international terminal operator APM Terminals (part of the A.P. Moller-Maersk empire) owns 30.75%, and Russian transportation group TIHL owns another 30.75%. The remaining 18% is held by the former owners of NCC Group.



St. Petersburg’s proximity to Moscow and Russia’s populated regions makes it the port of choice for Russian imports and exports to the West. In 2014, Global Ports had throughput of 2.7 million container equivalents. This represented 53% of Russia’s total 2014 container volume, which has grown rapidly over the last decade. Unfortunately, Russia’s current woes (slumping commodities prices, the plunging ruble, internationally condemned military actions, crippling social issues, and more!) have taken their toll and the nation’s import and export activity has plunged. Container market volumes are set to finish 2015 at 2008 levels, down 26% from 2014.

CaptureGlobal Ports has not avoided the carnage. The company’s first half 2015 report showed consolidated revenues down 25%. Below is a look at Global Ports’ recent results as reported. I have adjusted EBIT and EBITDA for one-time figures like writedowns, but otherwise I am simply parroting the company’s earnings releases. The presence of minority interests complicates the financial reporting somewhat, but I’ll get to that in a bit. Results are in USD, Global Ports’ operating and reporting currency.


At first glance, things look bleak. Revenues, EBITDA, EBIT, free cash flow, all down. But there’s something extraordinary here, the EBIT margin! In an environment of falling revenues and utilization, Global Ports managed to expand its operating margin by a full 1,240 basis points. That is an extraordinary achievement. The company credits the results to cost control. Indeed, Global Ports’ cash operating costs declined 37% from 2014. The cuts were achieved by heading headcount by 10%, idling 15% of equipment and looking for administrative cost savings. Impressive. Not many companies mount this kind of all-out assault on costs during difficult revenue environments. However, the company also had a very important tailwind: the crash of the ruble. Nearly half of Global Ports’ operating costs are staff-related, and the plunging Russian currency accomplished the company’s goals quite neatly, effectively reducing salaries for Russian employees by 40%.

So that’s how Global Ports has been able to withstand a dramatic decline in revenues: an equally dramatic decline in operating costs. I do expect that trade volumes will recover eventually, and continue their growth path in the long run. I am confident that on the whole, world trade will continue to increase in the decades to come. I also expect the trend toward containerization to increase. It’s simply efficient. Nonetheless, I would not be surprised to see Russia’s shaky economic standing leave traffic at Global Ports’ facilities depressed for quite a while. Assuming no recovery in trade volumes, just what level of profitability and free cash flow can Global Ports sustain?

Figuring that out requires a bit of digging. First, let’s take a look at exactly what Global Ports owns. Below is a listing of the company’s various terminals and their capacities, plus the company’s level of ownership in each.


Global Ports’ share in its Russian terminal holdings equates to 94.3% of the total throughput capacity of these terminals. That’s great, because these operations account for the lion’s share of the company’s profits. The oil terminal, Vopak EOS, is the second largest source of profit. The Finnish ports are only marginally profitable, though they are growing quickly. Global Ports very helpfully provides a high level of disclosure for each of their operating segments. The graphic below shows 2014’s segment results and Global Ports’ ratable share of profits. Though it’s impossible to tell exactly how profitable each particular Russian asset was, I’ll be using the 94.3% capacity ownership figure to estimate Global Ports’ share in profits. It’s the best I can do.


Looks like in 2014, Global Ports’ share of its segments’ EBIT was about $281 million. That’s really not so far away from the reported figures after all, but it is a difference. Now I will perform the same exercise for the first half of 2015’s figures. I’ll go a step farther and provide some pro forma net income and free cash flow figures for each segment as well. Global Ports’ financial statements have some huge one-time currency-related items and tax effects, which I’ll ignore. Instead, I’ll use the statutory tax rate for each geography.


Again, Global Ports is looking pretty good with $129 million in proportional EBIT in the first half of 2015, and $112 million in pro forma free cash flow. This is not a particularly seasonal business, so assuming no further deterioration in trade volumes, it seems likely that Global Ports will be able to post nearly $258 in annual proportional EBIT and $224 million in free cash flow in 2015.

So what do you have to pay for that kind of EBIT and free cash flow? I could compare that free cash flow with the company’s market cap and show a yield figure (hint: it is high) but I always prefer to evaluate businesses on an enterprise value basis. In order to do that, one more step remains: figuring out the company’s ratable net debt. Fortunately, the company once again provides that level of disclosure.


That wasn’t too tough. On a proportional basis, Global Ports is carrying a cool $1.11 billion of debt. That’s high, but not beyond reason for a capital intensive firm with a toll-taking business model and strong margins. In the depressed environment in which the company is operating, Global Ports has wisely decided to cease paying dividends and to devote excess cash to deleveraging. The company paid down $92 million in debt in the first half of 2015 alone. The upcoming debt maturity profile is prudently staggered, with annual principal payments through 2018 at below trailing operating cash flow.


The average interest rate on the company’s debt is 6.0%. And most importantly, virtually all of the debt is USD-denominated. I can hardly stress enough how important this is. No matter how the Russian ruble may fluctuate, Global Ports debt service requirements will remain constant and matched by USD revenues.

Now back, finally, to what we have to pay for all of this. At present, Global Ports’ market capitalization is $764 million. Add the $1.111 billion in proportional net debt and you get an enterprise value of $1.875 billion. Based on my 2015 projections, Global Ports shares trade at 7.3x current year EBIT, and a massive 29% free cash flow yield. On an unleveraged, fully-taxed basis, the free cash flow to the enterprise yield would be 14.1%.

Those are rock-bottom figures for a business with this competitive position and free cash flow profile. Seems to me that the current valuation reflects excessive pessimism and a myopic focus on near-term results. But before anyone goes out and buys shares in the morning, please read on. There are also real risks to Global Ports Investments shares.

First, there is no getting around the fact that this is a Russian business. Yes, its tax domicile is in Cyprus and it operates in USD, but substantially all the company’s major sources of income are quite literally on Russian soil. Investors in undemocratic societies with weak rule of law always run the risk that their company’s assets, or their own shares, will be “liberated” at a time and valuation not to their liking. After all, why should greedy, hegemonic Westerners profit from the labor of the Russian people? The Motherland, and all that business. It’s a real risk. I do think the involvement of a major European conglomerate (A.P. Moller-Maersk) reduces the risk of anything untoward going down, but at the end of the day, just under half of Global Ports’ shares are owned by Russian billionaires. These guys don’t exactly have a sterling reputation for treating minority interests with fairness.

Second, investing in Global Ports is placing a bet on stabilization and recovery taking place in the Russian economy. Yes, I did say that I believe that global trade has nowhere to go but up in the long run, but that doesn’t mean investors won’t feel quite a lot of pain in the meantime. Every investment one makes comes at the cost of not buying something else, and those waiting for a Russian economic recovery may find themselves waiting for a long time. Nobody really knows when or if commodities prices will bounce back, or if Putin will see fit to end his warmongering and economic sanctions will be rolled back. Things could easily get much worse before they get better.

Finally, I can see one more scenario in which Global Ports shareholders would lose out: one in which shipping volumes are stagnant or decline further, but the ruble climbs. This would reverse the cost-saving effects that Global Ports has enjoyed, and could put a serious crimp on operating margins. The ruble is actually down 13% since June 30, but it’s a volatile currency and it could easily soar. I don’t view this risk as all that likely since shipping volumes and a rising ruble are likely positively correlated, but it is real and difficult to hedge against.

Of course, none of these potential pitfalls could come to fruition, and investors buying at this price could realize a very nice return as the company deleverages and its earnings recover. I view this as the slightly more likely scenario, but I am not quite confident enough in that assessment to take the bait. Still, Global Ports will be a fun one to watch for now.

Alluvial Capital Management, LLC does not hold shares of Global Ports Investments, Plc for client accounts. Alluvial may buy or sell shares of Global Ports Investments, Plc at any time. is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at



Keweenaw Land Association – KEWL


Today’s post concerns one of the more unusual and companies I’ve come across in my research. Keweenaw Land Association has a long and interesting history, stretching back to before the industrial revolution. During America’s great age of canal-building in the second half of the 19th century, Congress made a land grant to a company engaged in building a canal across the Keweenaw Peninsula of Michigan’s Upper Peninsula. The canal would speed travel along the southern coast of Lake Superior. Financial difficulties ensued, and the canal was not completed until 1891, 23 years after it was started. The finished canal was sold to the US government, leaving the company with 400,000 acres of wilderness in its possession. The company went through a few iterations, but was organized as a Michigan partnership in 1908. The company reached its present form in 1999, when it reorganized as a Michigan corporation.

Over the course of the twentieth century, Keweenaw did exactly what one would expect it to do with 400,000 acres of densely forested, sparsely populated land: it sold timber. The lands were heavily logged to support the war efforts during both World Wars, but the company transitioned to a modern model of forest management in the 1960s and continues to manage its forests sustainably today. Modern forestry is focused on optimizing total returns over a forest’s entire life cycle rather than maximizing current income at the expense of future harvests. Over the years, Keweenaw’s lands have produced millions in profits for their owners and will continue to do so for centuries longer.

The company also engaged in leasing its mineral rights to miners and prospectors. The Keweenaw has long been a producer of copper and other minerals, though production of copper actually peaked in 1916. Today, the region produces only token amounts of copper. Still, Keweenaw Land Association still owns the mineral rights underlying all its original lands, even those that have been sold since the founding of the company.

Today Keweenaw Land Association owns just over 167,000 acres in Northern Wisconsin and Michigan, plus the mineral rights to 402,000 acres. Nearly all the company’s land holdings are productive timber assets. The most current map of the company’s properties is below. Keweenaw’s properties are non-contiguous, but concentrated in Gogebic County.


Before I get into the value of Keweenaw’s timber assets, allow me a moment to discuss timber as an asset class. I’m a fan. I think nearly every investor can benefit from exposure to timber. It’s an ideal inflation hedge in a way that other commodities can’t be, because it has a yield. Precious metals and oil are inert. They sit in the ground until they are extracted via expensive, capital intensive processes. Mines and wells are heavily regulated and production can take months or years to scale. Timber, on the other hand, multiplies itself over time and is far easier and cheaper to harvest. Even in non-inflationary times, timber provides an on-going yield with only moderate investment by the owner. The sun and the rain are free, after all. If the prices of logs and land increase, well that’s just a return kicker.

The value of Keweenaw’s timber lands are subject to the fluctuations of timber prices, which vary in anticipation of data like housing starts. Every three years or so, the company hires a consultant to perform a valuation of its timber lands. The results for the last few surveys are presented below.


As Keweenaw is fond of pointing out, the value of the company’s timberland has grown substantially over time, compounding at 5.6% on a per-acre basis from 1998 to 2012. The value of the company’s holdings has grown through good forestry, but also through the company’s policy of selling off less productive lots for recreational and development uses and reinvesting the proceeds in more valuable timber lands. The company is able to defer taxes on these transactions by using 1031 exchanges. Unfortunately for Keweenaw, timber prices have fallen since 2012 because the anticipated increase in new home starts has taken longer than expected to materialize. When the company performs its 2015 timber valuation, I expect to see valuations somewhere between those of 2009 and 2012.

As for the company’s mineral rights, no active mining is taking place on the company’s acreage. There is a fully permitted mining site and Keweenaw has a royalty agreement with Canada’s Highland Copper. However, the prospects of Keweenaw receiving any material royalties are dim. The low price of copper has Highland Copper in a holding pattern, and most of the minerals underlying the company’s land cannot be extracted economically. Should prices for copper and silver double or triple, maybe some mining activity will occur. The company estimates its lands contain nearly three billion pounds of copper and nearly sixteen million ounces of silver. But as is, Keweenaw’s mineral rights do not represent a meaningful source of value for shareholders.

So what does it cost to buy $130-something million worth of timber, with an “out-of-the-money option” in the form of extensive mineral rights? As I type, Keweenaw has an enterprise value of just over $105 million. So right there, the entire company trades at a discount of around 20% to the value of its timber holdings, ignoring the mineral rights entirely.

In a May 2015 presentation, management touts the company’s long-term returns, showing its 20 year compounded annual return at 9.87% compared to 7.12% for the S&P 500. But this is inaccurate. The S&P 500’s total return was actually in the mid 9% range for the period. The company conveniently ignores the index’s dividends. So while Keweenaw did outperform, it was only by a slight margin. The short-term picture is much worse, however. From 2005 to 2015, Keweenaw returned only 3.54% annually, compared to over 8% for the S&P 500. Year to date, shares are down 17%.

The main reason for Keweenaw’s lackluster recent performance is timber prices. The housing boom of the mid-2000s pushed up lumber prices and with them, the value of timber-producing land. Despite a substantial rally from 2009 to 2013, lumber prices remain nearly 30% below 2006 levels. That explains the low rate of appreciation in Keweenaw’s lands since 2006. Management has been successful in controlling costs and earning higher margins from its timber sales, earning a gross profit of $46 per cord-equivalent compared to just $24 in 2010.

While management’s cost control and forest management are certainly positives, I do wish they would be more aggressive in attempting to create value for shareholders. Management seems content to harvest only a tiny portion of the company’s lands each year, and canceled shareholder dividends in 2010. There doesn’t seem to be any serious consideration of soliciting offers for the company’s holdings or failing that, taking on a modest amount of leverage in order to increase returns. For a number of years a dissident shareholder tried to persuade the company to pursue all manner of potentially lucrative actions, like undergoing a REIT conversion or exploring wind production. But each time the shareholder was rebuffed and eventually gave up.

Just recently, Keweenaw added a new member to its board of directors, a Mr. James Mai. Mr. Mai is the single largest Keweenaw shareholder at 26%, and the head of Cornwall Capital, a family office founded to manage the Mai family fortune. It’s not at all surprising that a family office would invest extensively in timber, which promises attractive long-term returns and even better, tax deferral. I expect the company will continue to operate profitably under Mr. Mai’s watchful eye.

There are more opportunistic and aggressive timber companies out there, but probably none that offers cheaper timber than Keweenaw Land. For investors looking for a long-term diversifier like timber, Keweenaw may be worth a look. Short-term results may be volatile as timber prices rise and fall, but long-term results should be solid, especially if and when inflation comes around.

Alluvial Capital Management, LLC does not hold shares of Keweenaw Land Association, Ltd. for client accounts. Alluvial may buy or sell shares of Keweenaw Land Association, Ltd. at any time. is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at

Brief Updates: Client Letter, Conference, and More

Just a brief news post today. First, have a look at Alluvial Capital Management’s investing thoughts by reading Alluvial’s third quarter letter to clients.

Alluvial Capital Management Third Quarter 2015 Letter to Clients

In the quarter, all Alluvial strategies outpaced their benchmarks by healthy margins. Alluvial offers separately-managed accounts with a focus on micro-caps, thinly-traded securities and special situations. I welcome feedback and inquiries from potential clients or those who simply wish to shoot the breeze about Alluvial’s holdings and strategy.

Second, there is still time to register for The MicroCap Conference, taking place in Philadelphia on November 5. Plenty of interesting companies and speakers and practitioners are on the agenda. Industry groups represented include energy, pharmaceuticals, manufacturing, social media, and many more.

Finally, I was recently the subject of a detailed article written by Nadav Manham at The Private Investment Brief. The PIB profiles little-known but up-and-coming investment managers, and provides other excellent investment commentary. It’s an invaluable resource for capital allocators. I cannot share the profile here, but I highly recommend contacting Mr. Manham if you are interested in learning more about his publication.

I’ll be back later this week with another post on my favorite kind of company: old, obscure, and successful. is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see

A Trio of French Bargains

Six years into a bull market in nearly all productive assets, “traditional” value stocks are a rare breed. By traditional, I mean obvious opportunities like profitable businesses with solid balance sheets trading at very low multiples of earnings and cash flows. Most of the value opportunities still out there require some real digging to discover. However, there is one market where I still routinely find perfectly good companies trading at 4-7 times earnings: France. I am not exactly sure why so many small French companies trade at these tiny multiples. It does seem that continental investors are loathe to invest beyond large, well-known companies, and the liquidity of many French micro-caps is extremely limited. The resulting neglect may be responsible for the plethora of value opportunities. Today I’d like to present brief profiles of three of these companies.

Docks Petroles D’Ambes: DPAM

“Docks” has operated a storage terminal at the port of Bordeaux on the west coast of France since 1934. The location and function of the terminal have long been considered strategic; the RAF bombed the facility in 1944 to hamper the Nazi supply chain.

Actual mission photo. Bombers from the RAF’s No. 514 Squadron attack the oil storage depot at Bec d’Ambes on August 4, 1944.

The business model is as simple as it sounds. The company collects fees for storing hydrocarbons, plus grain and wood products. Docks links refineries with consumers in the region. Docks also owns a petroleum pipeline. Results do vary somewhat as storage volumes change, but the company is consistently profitable and carries only modest debt. Docks generates a solid return on capital, but unfortunately its opportunities for reinvestment are quite limited. More than half of Docks’ shares outstanding are owned by a larger petroleum storage company, Entrepots Petroliers Regionaux. Another 30% are owned by various refiners and pipeline companies, leaving only 12% of the shares in the public float.

Docks has a market capitalization of Eur 23 million. At a share price of Eur 235, Docks’ P/E is 7.0 and its dividend yield is 6.4%. The high dividend yield is actually a drawback for many foreign investors, because France withholds dividend payments at a 30% rate. It is unlikely that Docks Petroles d’Ambes will experience any significant earnings growth, but it could be an attractive holding for those looking for a low-risk income stream.

Installux SA: STAL

Installux manufactures metal building components. Working mostly in aluminum, the company produces pieces for use in windows, doors, awnings and many other structural elements. Installux’s results depend on the level of construction activity, and on the prices of its aluminum and steel inputs. 50% of the company’s shares are owned by CEO Christian Canty, with another 15% owned by the respected French value investing firm Amiral Gestion.

Installux is not a fast growing company, but it has managed to increase revenues and profits at a modest pace. Nearly all of the company’s revenues are earned in France. Installux’s balance sheet is strongly over-capitalized, to the point where 27% of assets are cash and the current ratio is 3.5.

Installux’s market capitalization is Eur 74 million. The P/E ratio is 9.0. But, the company carries over Eur 20 million in excess cash. Net of that cash, the company’s P/E is just 6.0. Installux shares last changed hands at Eur 244, and the company has a dividend yield of 3.3%. While Installux’s core business is profitable, stable, and efficient, future returns will be strongly influenced by the company’s use of its huge cash reserves.

Graines Voltz SA: GRVO

Graines Voltz is a grower and distributor of seeds, mainly bulk ornamental flower seeds, but also some fruit and vegetable seeds. The company sells its seeds in continental Europe, plus the Middle East and Asia. The company offers hundreds of different varieties, many suitable for mass planting in public parks and landscaping.

As an agricultural business, Graines Voltz experiences large swings in its margins. Unpredictable factors like weather, pests and disease will always influence results. But the company has managed to increase its revenues at a respectable pace, from Eur 46.4 million in 2009 to Eur 73.1 million in 2014, a growth rate of 9.5%. Earnings per share reached a record Eur 4.22 for the twelve months ended March 31, 2015, up dramatically from Eur 0.95 per share in 2009.

The company’s striking success makes its valuation that much more of a shock. At a share price of Eur 16.40 and a market capitalization of Eur 22.5 million, Grain Voltz’s P/E is just 3.9. Its price to book value ratio is 0.8. The company does carry debt, but the majority is low-cost seasonal borrowing used to finance inventory. 2014 EBIT was over six times interest expense in 2014, and greater for the trailing twelve months. Return on equity has exceeded 15% each year since 2010.

It’s possible that Graines Voltz’s results are unsustainable, the result of temporarily decreased competition or unusually benign growing conditions. But I suspect the actual causes of Graines Voltz’s extraordinarily low valuation are its tiny float and practically non-existent liquidity. As of 2013, 10% of the company’s shares are owned by American grower Ball Horticultural, another 10% for European grower Florensis, and 64% by Voltz family members and company employees. In all, only 16% of Grain Voltz shares with a market value of Eur 3.6 million are freely-floating. Average trading volume rarely exceeds a few hundred shares per day, making accumulating a worthwhile position a difficult feat.

While I view each of these companies as distinctly undervalued, please be aware that my French is rudimentary and I made heavy use of translation services in evaluating their financial statements and press releases. It is entirely possible that I have missed some important bit of information that is material to the value of these companies. As always, please do your own in-depth research if you are considering purchasing any of these stocks.

Alluvial Capital Management, LLC does not hold shares of Docks Petroles d’Ambes, Installux SA, or Graines Voltz for client accounts or those of principals. Alluvial may buy or sell shares of Docks Petroles d’Ambes, Installux SA, or Graines Voltz  at any time. is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at