LVT, the "Louis Vuitton" of tournarounds.
The turnaround is firmly in place and I was told earnings should nearly double in 2008 vs. 2007 which would mean LVT is now the cheapest, highest growth stock in my universe.
LVT (2.18) remains a buy and in my model portfolio. Today I want this clearly stated as in the recent past I hesitated a bit only due to its price appreciation since viewing this selection favorably mid last year at 1.46. LVT was my last year clear turnaround selection and it moved up 50% since.
However upon a recent revisit with the President and a senior consultant late last week, I remain firmly enthused by the earnings momentum forward roll for LVT.
At LVT the orders on hand, the back-log and earnings are soaring forward into 2008. Its all very positive... The company is doing better then expected and earnings will/should near double this year -from a formidable recovery in 2007.
For year 2007 I see some 85-100 mill. in net profits or around 0.42 Baht per share. So its at a trailing p/e of 5.2 just now at 2.18. With 2008 likely to see at least 150 mill. net profit, that is the guidance I was giving. The 2008 forward p/e is at 3.2 with 0.68 Baht per share expected. Or EPS expected of 0.50 for 2008, fully dilluted. This still comes to an undemanding dilluted forward p/e of 4.36.
There will be 1/3 dilution due to all the 105 mill.warrants outstanding expiring in Feb. 2009. Still the company will get over 130 mill. in new equity from the warrants conversion, allowing their fast expansion. So this is a good thing as new equity money comes at the right time.
You can see my original LVT write up at this link: /index.php?module=Pagesetter&func=viewpub&tid=1&pid=780 
The past 4 months LVT has seen many new orders come in. There is a 1.8 Billion Baht of orders on the books just now, or a 1.5 Bill. back log. Compare this to around 300 mill. in the 2Q of last year. The Indian subsidiary is doing exceptionally well but large orders from Russia are coming on top.
LVT owns 50% of the very profitable Indian subsidiary. I would not be surprised if they get listed on the Indian stock exchange in the next couple of years. This would result in a substantial capital gain for LVT.
The price of producing cement in Russia has increased some ten fold over the past 10 years. There so is huge demand for energy and capacity increases which LVT products deliver. LVT is making major inroads into that market.
Remember LVT produces energy savings devices on cement production facilities. The energy savings often have pay back periods of less then 2 years. And energy saving means at the same time room expansion production.
The company of late is selling much of the standard products, which have the highest margins. So profit margins are likely to remain strong. And global oil prices are high so LVT's devices offer higher savings. LVT benefits from stronger global oil prices and cement producers are ever more concerned about energy costs. The highest cost component in cement production is energy.
Here is a bit of the breakdown of their sales around the world, just now:
1) Peru (almost 1/3 of total sales in the near future.)
2) Middle East (booming with Oil revenues and expanding cement production regardless of USA troubles)
3) Iran a strong new contender with solid inroads established.
4) Asia, where Malaysia and others are coming on well. A huge potential project in pending in Malaysia, but this is still a wild card and by no means included in my projections. Look for some possible very good news coming out of Malaysia this year.
LVT has hired an impressive new team of engineers and sales professionals, doubling from a year ago. It plans to add another 20 or so over the next 12-18 months. Currently it is reviewing over 40 applicants..
Contracts are only announced through their press releases to the MAI stock exchange once LCD (letters of credits) have been issued by the banks in the respective countries. Sometimes these LCD's drag on due to many details which need addressed to the very last word. But the record shows that over 90% of signed contracts do result in LCD's and so the management is very confident most orders on hand will result in realized and paid sales. I expect in the near future LVT to regularly announce to the MAI exchange new company contract awardings.
The company has a stated policy of paying 40 to 60% in dividends out of their profits. So surely this April/May a dividend will be announced for year 2007. My own guestimate is that LVT will announce a 0.18 Baht dividend, so delivering an 8.25% dividend yield. AT the low p/e and this high dividend, LVT has among the cheapest valuation along with the dividend highest yield.
Hence despite the handsome price increase of this stock since my original report, I still dare rate it today with a strong buy view, and of course firmly include it in my latest model portfolio of strong buys.
Some of the risks are multiple canceled contracts or one of the emerging countries they sell to, lapsing into anarchy or a full blown banking crisis etc..so preventing the orders from being paid. Remember though the company only books orders once a LCD guarantee has been issued by a major bank, and LVT learned their lesson on this in though times now the past.
Another risk, is the premature death or resignation of some of their key personel. But this is unlikely as these key insiders own already (and have been accumulating more) of the LVT stock and warrants. One risk would be collapsing oil prices to below 50 $ a barrel, very unlikely.
While a world depression surely would also have some affect, a US recession would not make much difference as the company is not active there. FX exchange rates has a minor effect but an ever stronger Baht vs. the US$ could in time affect margins a bit. The company every 30 days reviews its pricing.
LVT headquarters pays a bargain rent of 250 Baht per sq meter, per month so no chance of buying a new corporate headquarters' building and I was told there are no expansion plans, beyond what they now do best. Perhaps in 2009 LVT will consider adding another product line as by then this company will have a problem on hand: way too much cash.
Best Regards,
Paul A. Renaud.
