Sunday, December 20, 2015

Analysis of Horsehead

Horsehead, an American Zinc producer

Company: Horsehead

ISIN US4406943054 | WKN A0MSW0

Business: An American Zinc producer. They are standing on two legs from what I can could see and those are: Zinc Production (will everything that follows such as Zinc oxide for paints or that it is used in galvanization process to protect steel from corroding and is 60% of the market. Zinc is often used as sacrificial anode meaning that it gets oxidized before and instead of the steel) and secondly Recycling (for instance of batteries etc that contains plenty of Zinc. Batteries is probably one reason for why many investors are involved as an attempt to benefit from the growing use of electrical cars).

Active: Production is the US and I assume they make world wide sales since they are the world leader in zinc production.

P/E: -6.3 (P/E5 will not be any better since they have kept loosing money)

This company was analysed due to a request from Rafy over twitter.

contrarian values of P/E, P/B, ROE as well as dividend for Horsehead

The P/E for Horsehead is very bad with -6.3 and the only good thing is the P/B that is 0.2. Still we get a no go from Graham. The earnings to sales as well as the ROE of course turns out to be negative as well. The book to debt ratio is ok with 0.8 but still for an american company I find it to be low.
In the last five years their revenue has grown with 3.5% which I find to be good and this then gives us a motivated P/E of around 10 to 15 on normal earnings but they have not really had that for some years so... Based on P/B one can at least say they are undervalued.
They pay no dividends which I do not like at all.
I also took a look at Horsehedge sorry Horsehead running year and yeah... also 2015 will go down in history as year of major losses and a big juicy one is coming from hedging.
The major reason for their increase in revenue is due to acquisitions so either they are trying to massively profit from the downside in the commodity cycle by taking over competitors or they have a CEO that wants to build an Empire. That their credit rating got downgraded will probably not help the CEO no matter what the agenda is.

Conclusion: Graham says no to Horsehead and so do I even though Mr. Pabrai as well as Mr Spier are both heavily involved in this company. Yeah, one could make an investment due to the low P/B but I am not so sure that it will remain where it is. I also found it very strange that their tangibles... Well... in 2013 they had around 197 MUSD in machinery etc. and 547 MUSD as construction in progress to 2014 with 737 MUSD in machinery and 33 MUSD as construction in progress. I find things like that weird and it simply gives me a bad feeling. I will not invest in Horsehead.

If this analysis is outdated then you can request a new one.

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