Thursday, June 20, 2019

FLSmidth's Underperformance Seems Overdone

I didn’t really like the prospects of FLSmidth (OTCPK:FLIDY) (FLS.KO) as a long-term hold back in September, but I didn’t expect a nearly one-third drop in the share price, nor the significant underperformance relative to other mining-exposed names like Epiroc (OTCPK:EPOKY), Metso (OTCQX:MXCYY), and Weir (OTCPK:WEIGY). In addition to concerns about an early end to the mining capex cycle, I believe the market has sold off FLSmidth on lingering angst over the company’s weak, low-margin cement business.

While the cement business looks like an “is what it is” situation for the foreseeable future, I think the market is too sour on the mining business and the company overall. FLSmidth is well-aligned with the mining industry’s push towards automation and productivity and I believe copper, gold, and coal prices remain supportive for the business. With the shares more than 20% below fair value, this is a name to consider, but the U.S. ADRs have lousy liquidity and if macro weakness spreads, it’ll likely pressure commodity prices and mining names in the near term.

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FLSmidth's Underperformance Seems Overdone

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