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No. of Recommendations: 8
Conrad started to struggle in a service role to a cyclical industry when the oil market bottom fell out. They are a cyclical company, and they struggled through the '08-'09 crisis, but rallied hard into 2014, and now are struggling again. However, "struggle" is a relative term. Conrad is well capitalized, wisely managed. Founding family controls it and own >40% of the stock. Conrad management also has a strong history of buying back shares wisely, and allocating capital judiciously during downturns and making smart acquisitions.

From time to time I look at Conrad and from time to time I decide not to invest :)

Ben, I appreciate your writeup and generally agree with your analysis. Perhaps it should be mentioned for the benefit of CNRD virgins that the company benefits from the Jones Act. The Jones Act restricts "the carriage of goods and passengers between US ports to vehicles built and flagged the US and predominantly crewed by Americans" as the uniquely named Grassroots Institute of Hawaii eloquently puts it.

Great management, cyclical business as BenHacker noted. Although I have to ding management for this expensive LNG project which has rung up $30 MM in losses to date (on a $100 MM market cap!). Hopefully future (profitable?) LNG barges will make the investment worthwhile. The company has also made investments in excess of depreciation in recent years in the midst of a cyclical downturn - something that always warms the cockles (not!) of the deep value FCF types who invest in these types of stocks.

But again, as Ben notes, the FCF picture is changing for the better as growth capex recedes.

From 2007 through 2014 this company annually generated between 23 and 48 MM of EBITDA a year (average of 36). Since then partly due to LNG losses and partly due to a business downturn, results have been Captain Picard What the ???? meme quality.

So what might Capt. Picard say if you spiked his Earl Grey?

1) Even over the cycle CNRD might not be a very good business. And not very good businesses don't deserve much of a premium. With 117 MM in shareholder equity can this business even earn 12% (much less 15%) ROE over the cycle?

If not then you're left with the typical "buy mediocrity on the cheap" value play that often disappoints because getting a fair price on a mediocre asset takes longer than you think. Time is not your friend with the mediocre firm. You can get seasick waiting for this barge to dock profitably.

2) Sure, it's conservatively financed and well run but that just means it won't blow up. It also means that it's even more difficult to earn a strong ROE because management conservatively manages the balance sheet. Book value may be a floor but ceiling might also be quite low.

3) I can't answer these questions: why has the vessel construction cycle been bad for a few years and why will it get better? Maybe the economics or the business has fundamentally changed. What is the alternative to barges and has the competitive situation changed?

ET
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