Marines logistics company Mercator Lines is currently trading at attractive valuations after recent correction. This small cap is attracting the attention of mutual funds and brokerage houses in recent times due to its exceptional improvement in the net profit. Except SBI, almost all the major fund houses have significant holdings in Mercator Lines. Mercator wants to become integrated supply and logistics solutions provider for companies especially for power sector. Mercator is betting big on dredging and offshoring businesses to improve margins.
Mercator Lines Stock price analysis:
CMP: 83
P/E: 11.3
EPS: 7
1 year high-low: 185-43.
CMP: 83
P/E: 11.3
EPS: 7
1 year high-low: 185-43.
Mercator Lines Stock target price: (P/E and EPS are estimates) :
In my view, valuations are conservative over 2 year duration. Bull markets and reversal in economy slow down may increase EPS and P/E of the company. Forward P/E for Mercator Lines for FY2010 is around 4.5 which is very lucrative if you consider its expansions and acquisitions.
1 year target: 130-140 (EPS 13-14 and P/E of 10).
2 year bear market target: 220-230 (EPS 22-23 and P/E of 10).
2 year bull market target: 240-260 (EPS 24).
1 year target: 130-140 (EPS 13-14 and P/E of 10).
2 year bear market target: 220-230 (EPS 22-23 and P/E of 10).
2 year bull market target: 240-260 (EPS 24).
Ideal entry price: 70-75.
Why I am recommending Mercator Lines?:
1. Company is an aggressive expansion mode and it already has 12 dry carriers, 4 dredgers and 13 tanks.
2. Dry bulk rates will continue to rise for some time.
3. 72% holding in Singapore subsidiary.
4. Aggressively entering into the high margin off shoring business. Shipping and offshoring are some of the best sectors for long term investors.
5. More than 30% increase in net profit margin in the last quarter.
6. It entered into coal sector by acquiring a block in Mozambique and operations will begin from 2010. It is planning to ship the extracted coal to India to sell it to power plants as it has shipping contracts with power companies like Tata Power and Reliance Power etc. This coal block has 3 million tonnes of coal reserves.
7. Strong management which is expanding the company strategically.
8. More than 50% of revenues is expected to come from non-shipping businesses in the coming years.
9. It has 2 coal mines in Indonesia. Mining earnings will occupy significant slots in the FY2010 earnings.
10. Mercator has clients like Reliance, Tata power, SAIL and Arcelor Mittal etc.
2. Dry bulk rates will continue to rise for some time.
3. 72% holding in Singapore subsidiary.
4. Aggressively entering into the high margin off shoring business. Shipping and offshoring are some of the best sectors for long term investors.
5. More than 30% increase in net profit margin in the last quarter.
6. It entered into coal sector by acquiring a block in Mozambique and operations will begin from 2010. It is planning to ship the extracted coal to India to sell it to power plants as it has shipping contracts with power companies like Tata Power and Reliance Power etc. This coal block has 3 million tonnes of coal reserves.
7. Strong management which is expanding the company strategically.
8. More than 50% of revenues is expected to come from non-shipping businesses in the coming years.
9. It has 2 coal mines in Indonesia. Mining earnings will occupy significant slots in the FY2010 earnings.
10. Mercator has clients like Reliance, Tata power, SAIL and Arcelor Mittal etc.
Final stock analysis:
No one should invest for short to medium term in bear markets. If you can invest and aggressively accumulate Mercator Lines on every fall, you will get very good returns in 1-2 years time. Mercator Lines is one of the best small cap stocks for long term investors with 2 year horizon. All its acquisitions (especially mining) and expansions will yield results in the 2-3 years.
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