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Remak Energomontaz SA

Remak (‘company’) is part of the Zarmen Group listed in Poland and specializes in assembling, installing, and maintaining industrial boilers and other related equipment for power plants.

They generate 67% of revenues within Poland and the balance from the rest of Europe – currently Germany, Finland, Malta, and Lithuania.

Construction/assembly accounted for 75% of revenues while repairs/maintenance accounted for most of the balance.

The company is relatively small in size and generates lumpy revenues as it relies on a handful of long-term contracts with established power plants. However, customer concentration is fairly low and the largest customer doesn’t account for more than 20% of revenues.

Recent revenues have slumped primarily as a result of the coronavirus pandemic that has reduced available jobs, exacerbated supply and labour shortages, and delayed cash collections.

It generated revenues ranging from 250m-375m zloty since 2018 when it made a fairly substantial acquisition in the field to widen its offerings. Apart from a spike in profits in 2020, which included a 7m zloty profit on sale of real estate to obtain cost efficiencies, average profits and cash generated from operations amounted to about 13m zloty/year.

The balance sheet is strong with net cash of 31m zloty and undrawn borrowing facilities of 35m zloty.

Management haven’t paid dividends or bought back stock.

The equity sells for just over 50m zloty, which is ~4x earnings and 1.5x earnings net of cash.

This is a small player with lumpy revenues and relatively low negotiating power, which is subject to severe price competition. It is, however, fairly efficient and generates healthy returns on tangible assets of ~20%. These returns could become more valuable as management expects increased revenues derived from power plants adjusting their thermal energy output to rigorous environmental standards.

Combined with the net cash that should tide it through near-term adversities, the current price appears to offer good value for the investor’s money.

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