When a company trades below its net tangible asset value, let alone a profitable, dividend-paying one with a 90yr history, it feels too good to be true. And maybe it is? The market can do some dumb things at times, but it is not often that dumb. So while I think Capral is interesting in a lot of ways, it is something my spidey senses say I should approach carefully.

I am certainly not trying to frame it in a negative light. It really could be a great buy at current prices. I am just very curious as to what is so bad about it that the market does not like. Because if the market is being overly pessimistic, maybe there's an opportunity here.

In a lot of ways, the answer seems somewhat obvious. It is capital heavy, low margin, cyclical, and exposed to commodity and FX price fluctuations. It competes against players that benefit from much lower costs and carries negative ESG connotations given the carbon intensity of its sector. Oh, and as Tony said, the company very nearly went bankrupt 17 years ago thanks to some poor decisions.

But in a way, it is because those are all so obvious that you start to wonder not if the negatives are real, but if they have been accounted for too much.

The counter-argument could be that the board has learned its lesson, has built a fortress balance sheet, and is making productivity-enhancing investments that will strengthen its footing. This should allow it to ride out any near-term headwinds such that it can benefit from an inevitable, but hard to time, building boom to address the property shortfall. Because of tax losses, they also will not be paying any tax for another four to five years.

Also, the trailing PE is in the single digits and shares have a bit of a bid under them in a thinly traded market thanks to the buyback program.

It's a tough one. Keen to hear what otehrs think.

Transcript is here: Capral transcript.pdf

Just some quick thoughts following today's meeting.

Capral is in a tough business -- cyclical, capital intensive, and facing pressure from 'irrational' competitors in SE Asia that have been prone to dumping product here at below cost (effectively as a means to get capital out of their local jurisdiction -- Tony seemed to suggest it was then funnelled into residential housing investment, but let's not go there).

All that being said. During Tony's 11 year tenure, he's improved the efficiency and profitability of the business and grown revenues. The balance sheet is in excellent condition (zero debt, $60m in cash) and due to prior tax losses (a result of a loss-making expansion from 15 years ago, before Tony's time) the company wont have any tax liability for about 8 more years.

Some other points:

• Contracts with major customers (about 70% of the total) are repriced regularly, allowing the company to pass on increasing Aluminium costs
• Investments in value-added products and distribution have been a key part of the company's strategy, and has shown good results.
• Government regulation and legislation has reduced the impact of dumping.
• Not as dependent on residential construction as it was historically (was 50% now 30%), although Tony expecting good demand for construction materials given the current housing supply shortages.
• Look for 2-4 year payback on investments. Half their CAPEX is maintenance capex.
• The company's near death experience not long ago, a result of their failed Bremer venture, has made the company one that is very conservatively managed.

In a lot of ways, it's not the kind of business that would get me too excited. But my inner value investor can see some potential when you consider the PE of 6, a yield (unfranked) of 5.8% and the company below NTA -- a figure that tony thinks is understated due to lease provisioning (he seemed to think it was around $11.50/share).

These measures can, however, move around quickly -- a deeper dive may suggest a drop in profit or some asset write-downs are on the horizon (although nothing obvious from what i can see). But you can bet the company will be a lumpy performer.

Still, it seems cheap. What do others think?