Kemira Recording Heavy Insider Buying
In this weekends edition of Barrons magazine, Thomas Shrager and Robert Wycoff of Tweedy Browne (Trades, Portfolio) International discussed several positions in their portfolio. What caught my interest was Finland-based specialty chemical manufacturer Kemira Oyj (KOYJF). Kemira provides chemicals for water companies. According to the Barrons article, Shrager and Wycoff like the stock because insiders have been buying and think the intrinsic value is 17 euors ($17.72).
The stock trades for 12.12 euros, there are 153.4 million shares and the market cap is 1.86 billion euros. Trailing 12-month earnings per share are 0.71 euros and the stock trades at a price-earnings ratio of 17. Thats pretty cheap in todays expensive markets. The dividend is 0.58 euros and the dividend yield is 4.78%, which is very nice.
Sales have been kind of flat but rising recently. Sales were 2.6 billion euros in 2018 and 2.5 billion euros in 2020, but have trended higher to 2.8 billion euros for the trailing 12 months. Net income has been about 110 million euros a year for the last few years. Kemira has been profitable every year. Free cash flow has ranged between 50 million euros and 180 million euros over the last few years.
The balance sheet isnt bad. Kemira has 154 million euros in cash and 530 million euros in receivables. This is compared to 624 million euros in payables and 1.05 billion euros in debt.
In the most recent quarter, revenue increased 27% to 761 million euros, while Ebitda increased 15% to 120 million euros. Management has decided to stop selling to Russia and Belarus. Russia accounts for 3% of sales. Even with this loss, management expects revenue to rise for 2022.
The two main segments are Pulp & Paper (58%) and Industry & Water (42%). Kemira provides chemicals to sewage treatment plants and the oil and gas industry. Both industries are doing well and providing growth. The Pulp & Paper division provides bleach and other chemicals used in the preparation of paper. Chemicals are also used to treat oil sands tailings. Management lumps every region into only three places: the Americas account for 38% of sales, Asia 11% and Europe, the Middle East and Africa 51%.
Fortunately, there are no dual-share voting classes. In many Finish and Scandinavian countries (Finland is technically part of the Baltics), insiders control a class of shares with more votes. I didnt recognize a single major shareholder, which is rare. There is no Blackrock, Vanguard or American Funds. A Finland-based manufacturer of water faucets named Oras owns 20.6% of shares. The second-largest shareholder is state-owned Solidium with 10.2% of shares. As noted in the Barrons article, insiders have indeed been buying shares.
I looked at the ADR listed in the U.S. and, sure enough, volume is next to nothing. Youd be better off buying in Finland. I like insiders buying shares. What is unknown is how long the war with Ukraine is going to last. This could certainly weigh on the stock. Though management is bullish on sales, I know nothing about the paper and pulp chemical industry. It would be outside of what Warren Buffett (Trades, Portfolio) calls my "circle of competence." I am tempted to buy shares. I think there are some great companies on sale in that part of the world and I doubt Russia bothers Finland or any other countries in the region.
This article first appeared on GuruFocus.
