FLSmidth Should See A Sharper Recovery In 2018

Like its peers in the mining capex space, FLSmidth (OTCPK:FLIDY) (FLS.CO) has already seen a sizable recovery in its share price from the worst lows of the cycle, but there should be more in store as orders improve in 2018, and the company benefits from meaningful operating leverage. Although FLSmidth has exposure to a still-challenging cement market that other mining companies like Metso, Outotec, and Weir don't have to contend with, I think it is notable that FLSmidth has management to get this business close to breakeven even at historically weak levels of activity.

The cyclicality of FLSmidth is a major issue when it comes to considering these shares as a long-term holding, but that cyclicality can nevertheless benefit shareholders in the near term. If mining equipment orders and revenue continue to strengthen through 2018, I believe these shares can outperform with 10% or more upside from here in the short term.

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FLSmidth Should See A Sharper Recovery In 2018

Seeking Alpha: FLSmidth Doing Better Than Expected Through The Trough

I may have been right about the serious impending erosion of orders, revenue, and EBITDA at FLSmidth (OTCPK:FLIDY) when I wrote about the company in June of 2013, but I missed the extent to which investors would cheer the company's cost-cutting and return improvement efforts. With the shares up 30% over the past year in U.S. dollars (and about 10% in the local Danish kroner), FLSmidth has handily outperformed most of its mining capex peers like Outotec (OTCPK:OUKPY) and Metso (OTCQX:MXCYY), as well as Joy Global (JOY).

I continue to believe that FLSmidth is looking at some challenging times in its end markets. Mining capex continues to fall and the company is facing more competition and consolidation in its large cement operations. Bold (but achievable) cost-cutting targets lead to me to a higher estimated fair value, but I have my doubts as to the company's ability to offset order declines with lower costs. Should orders continue to come in better than expected, though, and/or if the cycle isn't as bad as feared, FLSmidth's leverage to capex spending could send the shares higher.

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FLSmidth Doing Better Than Expected Through The Trough

Seeking Alpha: Anhui Conch In The Right Markets And Using The Right Approach

Cement demand growth typically goes hand in hand with economic growth, and that has certainly been true in China. As the country's second-largest and most profitable cement maker, Anhui Conch Cement (OTCPK:AHCHY) is one of the best-positioned companies to take advantage of ongoing economic and infrastructure growth in China.

It is not as though investors have forgotten about Anhui Conch, though. The shares are about 10% undervalued on an EV/EBITDA basis, which may strike some readers as an insufficient margin of safety for a company that is highly dependent on economic policies it cannot control. Given its modern plants, cost advantages, and ability to act as a consolidator, though, investors with a longer-term outlook may yet like what Anhui Conch has to offer.

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Anhui Conch In The Right Markets And Using The Right Approach