FLSmidth Looks Undervalued, But Near-Term Recovery Prospects Are Not Strong

 

Sooner or later, mining and cement companies are going to have to invest in upgraded technology to maintain profitability and compliance with increasingly stringent government requirements. Unfortunately for FLSmidth (OTCPK:FLIDY) (FLS.CO), it’s looking more and more like “… or later”, and the company’s heavy reliance on large project-oriented orders is a definite challenge today.

Although FLSmidth’s valuation was not demanding back in December, I thought it was risky to buy these shares going into a cyclical decline. COVID-19 has only magnified the pressures on the company, and the ADRs are down about 20% since then (the local shares have performed a little worse), underperforming peers like Epiroc (OTCPK:EPOKY), Metso (OTCPK:OUKPY), and Weir (OTCPK:WEIGY) pretty meaningfully. I do still see a “value trap” risk here, particularly with the company needing to restructure the cement business, but the valuation is not demanding if the business is indeed bottoming out.

Investors should note that the ADRs are illiquid.

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FLSmidth Looks Undervalued, But Near-Term Recovery Prospects Are Not Strong