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- 13 February 2006
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Current Price $51.98
Code RIN
Yield 6.3%
Market Capitalization $12412.9 [adjusted]
TCI Price Target $26.50 to $36.35
Investment Sector Cement
Price Earnings Ratio 12.5
Recommendation Watch List
Industry Statistics
Market Capitalization: 64B
Price / Earnings: 15.4
Price / Book: 4.3
Net Profit Margin 8.6%
Price To Free Cash Flow 55.4
Return on Equity: 18.9%
Total Debt / Equity: 0.9
Dividend Yield: 2.3%
The Industry taken as a composite is selling at approximately overall market valuations when measured from a P/E ratio.
RIN at 12.5 is a little lower, but not significantly currently. The dividend yield at 6.3% is more attractive than the Industry average however.
Staying with a direct Industry comparison for the moment, are there more attractive opportunities based on a very superficial examination of some commonly utilized ratio’s?
Price Earnings Ratio
Laggards in P/E Ratio
MONARCH CEMENT CO [MCEM.OB]
8.49
READY MIX INC. [RMX]
9.51
HANSON PLC (HLDG CO) [HAN]
9.53
EAGLE MATERIALS INC [EXP]
10.17
CEMEX SAB DE CV ADR [CX]
10.58
US CONCRETE INC [RMIX]
11.28
FLORIDA ROCK IND INC [FRK]
11.94
RINKER GRP LTD ADR [RIN]
12.46
C R H PLC ADR [CRH]
15.45
TEXAS IND [TXI]
128.29
There are seven companies selling at lower P/E ratios than RIN. Certainly CX, has wide international exposure, originating from Mexico.
Price/Book Ratio
Laggards in P/B Ratio
US CONCRETE INC [RMIX]
0.82
MONARCH CEMENT CO [MCEM.OB]
1.22
READY MIX INC. [RMX]
1.39
CEMEX SAB DE CV ADR [CX]
1.79
HANSON PLC (HLDG CO) [HAN]
1.79
C R H PLC ADR [CRH]
2.26
TEXAS IND [TXI]
2.28
FLORIDA ROCK IND INC [FRK]
2.71
EAGLE MATERIALS INC [EXP]
3.50
RINKER GRP LTD ADR [RIN]
3.53
Again, there are businesses that are selling at currently more attractive prices than RIN.
Profit Margin
Laggards in Net Profit Margin
JAMES HARDIE IND ADR [JHX]
-166.98%
SMITH-MIDLAND CORP [SMID.OB]
-1.37%
US CONCRETE INC [RMIX]
3.82%
READY MIX INC. [RMX]
4.54%
C R H PLC ADR [CRH]
7.53%
HANSON PLC (HLDG CO) [HAN]
8.32%
CEMEX SAB DE CV ADR [CX]
12.55%
MONARCH CEMENT CO [MCEM.OB]
12.60%
RINKER GRP LTD ADR [RIN]
14.12%
TEXAS IND [TXI]
15.85%
In the very important comparison within Profit Margins, again CX, while not the equal of RIN, is not far behind, and based on the cheaper valuation may, provide a superior investment.
CAPITALIZATION
The capitalization structure has been adjusted to reflect the effect of Operational Leases. These have been backed out as detailed information was not available. They would represent a question to management to supply greater detail.
Including the capitalized Operating Leases, the Capital structure of RIN is conservative, and investment grade. Debt represents only 5% of the capitalization.
INCOME STATEMENT
The Income Statement is a strong one, and certainly reflects the strong cycle that the industry has being enjoying over the last couple of years. The margins are excellent and have been expanding. Bond interest has ample coverage, and certainly fulfills investment grade.
One yellow flag is the omission of a line entry detailing Depreciation charges. I again have adjusted and backed out the charge but more on the significance and possible implications later.
Costs have been brought back under control from their expansion in the last analysis. This bodes well as control of costs reflects directly on management efficiency and effectiveness.
BALANCE SHEET
Inventories and Receivables with reserved losses on Receivables seem consistent, and do not draw any undue attention to them.
Cash is also within the aggregate range, and as an acquisition has also been purchased, would again not draw undue concern.
Working Capital when examined on a comparative basis has only grown at a four year compounded rate of 1.29%.
Year on Year it has contracted by 13%., this is odd. With growth in Revenue [18.5%], growth in Cost of Goods [11.1%], growth in Selling General & Administration [18.9%] growth in Operating Income [47.8%] growth in Capital Expenditures [31%] it seems odd that Working Capital has shrunk.
The Current Ratio at 1.91 would while strictly failing the investment grade of 2.0, would normally be given the benefit of doubt, however with the question mark over Working Capital; the ratio must fail to pass on investment grade currently. The five year aggregate at 1.78 fails the criteria and provides warning that even in a strong cycle, liquidity is still an issue.
The Revenues generated from Plant Property & Equipment reveals a low profit business. This would indicate that volume of business is an essential component. Fixed costs would by implication be expected to be high, thus in a cyclical downturn, if it were to occur would impact earnings hard.
CASH FLOW STATEMENT
Depreciation as previously mentioned was not given a line entry. This is more than a little strange.
Using adjusted figures we can trace the depreciation charge through cash flows.
Cash flow from operations has been strong and rising certainly year on year as is revealed from reductions in ratios tracking capital spending in a rising year on year within Capital Expenditures.
Here is the first anomaly; with rising Capital Expenditures you would expect to see rising Depreciation. This is not the case; Depreciation is falling by some 11% on aggregate compared with Depreciation charges and some 22% when compared to Capital Expenditures. This can have the effect of bolstering earnings.
Examination of cash flows for hidden cash flow reveals that Selling General & Administration could account for $37.5 million or $0.20 per ADR/share this is 5% of the earnings per share, and could be considered material. This accounts for $20 million from the Depreciation charge and an additional $17.5 million that is unaccounted for. Therefore, rather than bolstering earnings, earnings have in point of fact been depressed by $17.5 million that may have weakened the Working Capital with the other $20 million being potentially diverted from Depreciation.
SUMMARY
RIN is overall a strong business with some unresolved management issues.
Management should be more forthcoming with reasons and or explanations of the business strategy.
In addition at current prices, RIN is still overvalued even though the share price has markedly decreased over the last few months.
I believe that the intrinsic value for RIN resides somewhere between $26.50 & $36.35 per ADR share [$5.30 - $7.27]
At the current price the investor will be paying a premium to this value and thus lacks a quantifiable margin of safety.
I would therefore recommend waiting to see if price falls some fifty percent below intrinsic value before considering a purchase for investment purposes.
jog on
d998
Code RIN
Yield 6.3%
Market Capitalization $12412.9 [adjusted]
TCI Price Target $26.50 to $36.35
Investment Sector Cement
Price Earnings Ratio 12.5
Recommendation Watch List
Industry Statistics
Market Capitalization: 64B
Price / Earnings: 15.4
Price / Book: 4.3
Net Profit Margin 8.6%
Price To Free Cash Flow 55.4
Return on Equity: 18.9%
Total Debt / Equity: 0.9
Dividend Yield: 2.3%
The Industry taken as a composite is selling at approximately overall market valuations when measured from a P/E ratio.
RIN at 12.5 is a little lower, but not significantly currently. The dividend yield at 6.3% is more attractive than the Industry average however.
Staying with a direct Industry comparison for the moment, are there more attractive opportunities based on a very superficial examination of some commonly utilized ratio’s?
Price Earnings Ratio
Laggards in P/E Ratio
MONARCH CEMENT CO [MCEM.OB]
8.49
READY MIX INC. [RMX]
9.51
HANSON PLC (HLDG CO) [HAN]
9.53
EAGLE MATERIALS INC [EXP]
10.17
CEMEX SAB DE CV ADR [CX]
10.58
US CONCRETE INC [RMIX]
11.28
FLORIDA ROCK IND INC [FRK]
11.94
RINKER GRP LTD ADR [RIN]
12.46
C R H PLC ADR [CRH]
15.45
TEXAS IND [TXI]
128.29
There are seven companies selling at lower P/E ratios than RIN. Certainly CX, has wide international exposure, originating from Mexico.
Price/Book Ratio
Laggards in P/B Ratio
US CONCRETE INC [RMIX]
0.82
MONARCH CEMENT CO [MCEM.OB]
1.22
READY MIX INC. [RMX]
1.39
CEMEX SAB DE CV ADR [CX]
1.79
HANSON PLC (HLDG CO) [HAN]
1.79
C R H PLC ADR [CRH]
2.26
TEXAS IND [TXI]
2.28
FLORIDA ROCK IND INC [FRK]
2.71
EAGLE MATERIALS INC [EXP]
3.50
RINKER GRP LTD ADR [RIN]
3.53
Again, there are businesses that are selling at currently more attractive prices than RIN.
Profit Margin
Laggards in Net Profit Margin
JAMES HARDIE IND ADR [JHX]
-166.98%
SMITH-MIDLAND CORP [SMID.OB]
-1.37%
US CONCRETE INC [RMIX]
3.82%
READY MIX INC. [RMX]
4.54%
C R H PLC ADR [CRH]
7.53%
HANSON PLC (HLDG CO) [HAN]
8.32%
CEMEX SAB DE CV ADR [CX]
12.55%
MONARCH CEMENT CO [MCEM.OB]
12.60%
RINKER GRP LTD ADR [RIN]
14.12%
TEXAS IND [TXI]
15.85%
In the very important comparison within Profit Margins, again CX, while not the equal of RIN, is not far behind, and based on the cheaper valuation may, provide a superior investment.
CAPITALIZATION
The capitalization structure has been adjusted to reflect the effect of Operational Leases. These have been backed out as detailed information was not available. They would represent a question to management to supply greater detail.
Including the capitalized Operating Leases, the Capital structure of RIN is conservative, and investment grade. Debt represents only 5% of the capitalization.
INCOME STATEMENT
The Income Statement is a strong one, and certainly reflects the strong cycle that the industry has being enjoying over the last couple of years. The margins are excellent and have been expanding. Bond interest has ample coverage, and certainly fulfills investment grade.
One yellow flag is the omission of a line entry detailing Depreciation charges. I again have adjusted and backed out the charge but more on the significance and possible implications later.
Costs have been brought back under control from their expansion in the last analysis. This bodes well as control of costs reflects directly on management efficiency and effectiveness.
BALANCE SHEET
Inventories and Receivables with reserved losses on Receivables seem consistent, and do not draw any undue attention to them.
Cash is also within the aggregate range, and as an acquisition has also been purchased, would again not draw undue concern.
Working Capital when examined on a comparative basis has only grown at a four year compounded rate of 1.29%.
Year on Year it has contracted by 13%., this is odd. With growth in Revenue [18.5%], growth in Cost of Goods [11.1%], growth in Selling General & Administration [18.9%] growth in Operating Income [47.8%] growth in Capital Expenditures [31%] it seems odd that Working Capital has shrunk.
The Current Ratio at 1.91 would while strictly failing the investment grade of 2.0, would normally be given the benefit of doubt, however with the question mark over Working Capital; the ratio must fail to pass on investment grade currently. The five year aggregate at 1.78 fails the criteria and provides warning that even in a strong cycle, liquidity is still an issue.
The Revenues generated from Plant Property & Equipment reveals a low profit business. This would indicate that volume of business is an essential component. Fixed costs would by implication be expected to be high, thus in a cyclical downturn, if it were to occur would impact earnings hard.
CASH FLOW STATEMENT
Depreciation as previously mentioned was not given a line entry. This is more than a little strange.
Using adjusted figures we can trace the depreciation charge through cash flows.
Cash flow from operations has been strong and rising certainly year on year as is revealed from reductions in ratios tracking capital spending in a rising year on year within Capital Expenditures.
Here is the first anomaly; with rising Capital Expenditures you would expect to see rising Depreciation. This is not the case; Depreciation is falling by some 11% on aggregate compared with Depreciation charges and some 22% when compared to Capital Expenditures. This can have the effect of bolstering earnings.
Examination of cash flows for hidden cash flow reveals that Selling General & Administration could account for $37.5 million or $0.20 per ADR/share this is 5% of the earnings per share, and could be considered material. This accounts for $20 million from the Depreciation charge and an additional $17.5 million that is unaccounted for. Therefore, rather than bolstering earnings, earnings have in point of fact been depressed by $17.5 million that may have weakened the Working Capital with the other $20 million being potentially diverted from Depreciation.
SUMMARY
RIN is overall a strong business with some unresolved management issues.
Management should be more forthcoming with reasons and or explanations of the business strategy.
In addition at current prices, RIN is still overvalued even though the share price has markedly decreased over the last few months.
I believe that the intrinsic value for RIN resides somewhere between $26.50 & $36.35 per ADR share [$5.30 - $7.27]
At the current price the investor will be paying a premium to this value and thus lacks a quantifiable margin of safety.
I would therefore recommend waiting to see if price falls some fifty percent below intrinsic value before considering a purchase for investment purposes.
jog on
d998
