So What is it worth? Carbo Ceramics (CRR)


 The consensus (bull case): The power of psychology is overwhelming, and investor sentiment indicates that asset prices are being driven higher by QE and Zirp, that the Fed can be trusted, and that we should not worry too much about the unintended consequences, because the Fed will be able to follow a path to normalization and a soft landing. In any event, America is now a safe haven and always will be a safe haven. Moreover, goes the case, we may be at the sweet spot of the economic cycle. It has taken a long time to get here, but finally we are getting sustainable growth, and we can expect more of the same, Interest rates are completely under control, in fact, long-term rates are in a secular decline, which is not nearly at its bottom. Inflation is virtually impossible, and we really ought to be worrying about deflation instead. If we focus on getting inflation higher, then growth will follow. The currency is also under control, goes this line of thinking, In fact, what could the dollar fall against? The competition is in much worse shape. Banks are in far better financial condition than in 2008 and will gradually bleed off any remaining toxic assets that they own. If anything starts to go wrong, the government will step in to fix it. Pushing investors out on the risk curve in search of yield is a good idea and a clever way to encourage them to do what they should be doing on their own (i.e., taking risks to help the ecobnomy grow).  We should not worry, because things will be okay. We can even trust the representative branches of government, because elected officials will not have to do much that is unplatable or challending–the central bankers have it all covered. Above all, trust the Fed.  –Paul Singer

Do the Lessons of History Apply?

So what’s it worth?

Carbo VL

Carbo 2013

Carbo Presentation Sept 2014

Please do a “down and dirty” valuation giving your assumptions within twenty minutes.  I will post mine tomorrow!



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12 responses to “So What is it worth? Carbo Ceramics (CRR)

  1. Reviewing the materials clearly the company faces a difficult competitive environment given the prevalence of a less expensive, substitute product sold by Chinese competitors. With no ability to judge whether the substitute product does the job in a cost-effective way, I cannot even attempt to value CRR.

    • So there is NO price at which you would buy shares? What would you offer for the whole business?

      Forget what the company does–what assets and cash flow does it have? What if the company made CAT FOOD?

      Can anyone tell me why Southeastern AM owned CRR as of 30/June? I certainly don’t know.

  2. A few thoughts on CRR. Nice balance sheet, ok capital returns (10% trailing ROE with negligible net debt). Valuation is ok, but not that cheap (1.5x book, 7x trailing EBITDA). As a potential long idea, love that
    24% of shares outstanding are short. I think the price, at $50, is ok, but for a bargain hunter (like me) to get interested enough to dig in and try to understand the completive threat issues, I would guess it would have to be more like $30 – $35 / share.

  3. I’m showing Southern Sun has/had a position as of 6/30, but nothing on Southeastern….

    • SOUTHERNSUN ASSET MANAGEMENT, LLC 1,130,281 $ 174,199,000 3.17% 3.69% 14 208,309
      That is what they owned as of 30/June 2014.

      I am not saying Southeastern (WHOOPS–Misread, NOT Southeastern AM–sorry Mason Hawkins!) is a reason to like this company–only, what would be the reason to hold at $150 per share?

  4. CRR is selling close to its 52w low and at more than 50% discount to the price insiders paid last summer.

  5. A couple of thoughts:

    (1) Per their latest 10Q their northern white sand represents 40% of proppant sales volumes — up from less than 5% for the same quarter last year. Fair to say CRR isn’t getting credit for growing its white sand proppant sales?

    (2) Street seems to have concluded that ceramic proppants aren’t needed based on comments by ROSE and PXD, but is there indeed a consensus among operators in the Permain and Eagle Ford that ceramics aren’t needed? For example, what have the likes of COP and OXY concluded? [ I might have missed it, but I haven’t seen anything yet, so am anxious to hear. ]

    (3) Does CRR’s ceramics related intellectual property have little or no value?

    (4) Agreed with some of the comments above, especially regarding the strong balance sheet, however gross margin, operating margin, return on capital, etc, etc. are lower than SLCA (sometimes considerably). So, is CRR being punished for being too financially conservative in addition to being punished for lower demand for ceramic proppants?

    Based on twenty minutes of looking, however, I’d consider CRR a buy. And I’d continue to be interested so long as it sells at a price to sales much lower than its competitors such as SLCA. If more operators disclose their move away from ceramics in the Permian and Eagle Ford I’d have to reevaluate — although by then CRR might have grown its sand business even more aggressively.

  6. Earning Power Value at 10% WACC and 30% long-term, sustainable Op margin on 700m of sustainable Revenues: $60-65/share. At current price of 50.5 there’s a 20%-ish MOS. Not a lot of cushion given potential risks. I’d keep an eye on it.

  7. Ruben: So WHAT is it worth?
    Chris: you present a rational reply. The price you are willing to pay is a function of YOUR personal choice/required return. You are a cheapie since the price you mention ($30 to $35) is cutting into tangible book value with no value for patents/human capital organization, etc.

    Insiders own 14.6% and keep a clean balance sheet, so I like that. Thanks for your contribution to this discussion.

  8. Understanding supply and demand in the gold market

  9. Pingback: Esco Electronics: An Exercise in Securities Valuation With Seth Klarman | Hurricane Capital

  10. The lowest price someone (Chris) wanted is here already… Amazing to think how low can it go and it has reached.

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