11 Comments
Mar 19Liked by Carsten Mueller

A trading company with negative cash flow from operations year after year. Red flag.

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author

Thanks for commenting. I respectfully disagree. Operating CF has been positive in 2018,2019,2020. It has been negative in 21/22 when the business was growing. From my experience, it is not uncommon for distribution businesses to generate cash when the business slows down and there is no need for working capital investments.

Let's see what the CF will be for 2023 (with a lower business volume than 2022), but I expect it to be positive.

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Hmmm,

just like Enron, no provision of cash flow statements, not even yesterday. Another red flag.

the working capital increase is mostly related to not being able to collect the outstanding bills while being forced to pay early themselves. Their suppliers must have a lot less trust in their solvability. One wonders why.

The irony: this company -with a gigantic trade receivables item on the balance sheet- should USE factoring instead of PROVIDE it to others.

But hey, it's dirt cheap and could be considered a lottery ticket on the hopes that the creditors all cough up the money tied in the working capital, which is like many times bigger than the current market cap. But if they have to write a good chunk of it down....

In case nobody noticed: they issued a profit warning for 2024 yesterday.

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author

I think the comparison with Enron is misplaced. This is a microcap co which preannounced results with selected KPIs and will in 10 days publish their annual report incl. cash flow. The preannouncement did not include P&L and balance sheet either, different from Enron.

There was also no profit warning yesterday since they only established guidance for 2024 which is below their actual 2023 result which I do not like but expected in the light of industry circumstances.

The article mentioned that they take credit risk of their clients and provide factoring and the do see it as part of their business model, even have a subsidiary for it. It is a risk, including a potential inadequate provisioning, but it is also a chance to make money if done well.

I can respect you disliking the company and/or the investment case. If everybody agreed all the time, there would not be a market in the first place.

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Thanks for the writeup, helps to better understand the company and their segments. Should do well in the long run due to prudent management and cheap valuation.

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Mar 17Liked by Carsten Mueller

a well-researched report on a well-managed company.

Still the question remains what is the catalyst for the share price to go up?

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author

As pointed out, I do not see a hard catalyst. There are some you can imagine (takeover by majority shareholder, increased IR activity, higher dividends) but it would be speculation to bank on them. So you may sit on this for a few years without much happening. Really boring stuff...

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Mar 17·edited Mar 18Liked by Carsten Mueller

enjoy reading about these obscure companies have never seen mentioned in my other feeds. sometimes i check and see it in one of my int'l funds. hoping 1 out of 4 you cover could be liquid enough to be considered from my generic broker.

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author

Thanks. It is a bit easier for me to buy with a German broker but I think it is also available on IBKR. However, volume is really low so an institutional fund may take some time to build a position.

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Nordwest reported on 2023 today:

https://www.investor-relations.nordwest.com/websites/nordwest/German/4410/investor-news.html?newsID=2727417

- Results were above guidance and above my posted expectations with an EBIT of 18.9m versus my 18m and an EPS of 3.93 EUR versus my 3.50.

- Dividend is getting raised by 25% to 1.00 EUR

- Company is for the first time mentioned weak construction segment

- 2024 will be a year of investments: (1) Migration of ERP system to S/4 Hana (hopefully no hiccups) and (2) opening of a second warehouse in Alsfeld (close to the existing one in Gießen). Some of the investment will be capitalized and some expensed.

- Nordwest is guiding for a business volume of 5.0b and EBIT of 16.6m EUR in 2024, which I consider decent given weak market conditions, investments and the fact that they tend to guide conservatively.

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Two amendments as pointed out by fellow value investor Johannes Wild on X/Twitter:

(1) there is also a Nordwest Handel Podcastin which they explain their utility to clients (in German). ou can find it here: https://newsroom.nordwest.com/mediathek/

(2) Johannes has heard that the majority sharehoilder Rothenberger Gruppe has increased its shareholding from the 50.03% mentioned above. This is possible since they do not have to file every time they buy shares and the official reports state the shareholding of 50.03% only right after their last filing. On the other hand, a recent factsheet (https://investor-relations.nordwest.com/download/companies/nordwest/factsheet_1194_German.pdf ) still states this shareholding. If someone can clarify this point, Johannes and myself will be interested in the answer.

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