free kick at capral?

Capral produces and distributes aluminium extrusion products thoughout Australia with an emphasis on the residential building sector. It has been a disaster for investors including the major shareholder GPG but at current prices it just seems like a free kick as we await the interim report. The company had a massive capital raising at 25c a share in November 2009 and the shares are selling as I write at 14.5c. The net tangible asset backing is 38.2c a share.

Capral has not put out an early warning forecast yet the shares sell at record lows right now. Boral and Fletcher Building in their preliminary annual reports released this week have both indicated that conditions have improved in the building sector particularly in residential building and thanks to the government stimulus for schools.

Besides the huge discount of the share price compared to NTA, Capral's market capitalisation is approximately 15 percent of its annual revenues. Boral and Fletcher which are hardly booming in share price have market caps at around two thirds of their revenues. For Capral to return to average figures on either of these measures, its share price would have to go up three to five times the current price.

Normally a stock so neglected by investors has huge debt or a problem balance sheet but Capral's balance sheet, thanks to the recent capital raising, is in very good shape. Total debt at December 2009 was $27m compared to net assets of $151.6m. Total intangibles were $3.3m so there is no likelihood of any goodwill writedowns. They have all been done.

The company is due to report its six monthly results within the next two weeks. Par for the course would be a break even result and if they achieve that or better it is hard to see them remaining so low in price given that companies in the sector are predicting a continuing recovery.

The company is awaiting a result on an Australian Custom's investigation into alleged dumping of aluminium extrusions from China and any positive result there would give the share price a huge boost. Although Chinese aluminium production hit all time highs in June, there are signs of China cutting back on aluminium production because of high energy costs, low prices and greenhouse gas emission concerns. China is the world's largest producer of Aluminium and energy represents as much as half the cost of production. If China is serious about cutting down its greenhouse gas emissions then the aluminium industry is one in which it may choose to restrain production down to predominantly internal usage.

GPASAS