I opened a thread for one of the smaller stock exchange companies on the Helsinki stock exchange with the idea of opening a discussion about the future of Finnish export freight and Nurminen’s logistical opportunities, especially in rail logistics as a growing competitor to air freight.
Nurminen Logistics’ business apparently focuses on providing logistics services for various export products, such as pulp and paper, to domestic operators. My interest in the company was particularly piqued by an article I read in the spring (from Maaseudun Tulevaisuus) about offering rail logistics services to China. The company intends to utilize a rail line, partly supported by the Chinese state administration, from the Nordics to Asia to transport food products in cold containers for the growing middle class.
An article on Yle about the topic. “Container trains between Finland and China have stretched to nearly a kilometer in length, as companies resort to rail transport due to the lack of air freight.”
I couldn’t find the original article, but it was cited in the following news:
Logistics and distribution channels generally sound unappealing and complicated to people, so I believe that gaining information in this area as a competitive advantage should not be difficult.
Of course, an investment decision should not be made by reading just a few articles, but the company is clearly still suitably under the radar, and even positive progress in logistics services in a basic scenario would give impetus to the company’s potential turnaround.
For years I’ve been waiting for this company to go bankrupt and off the stock market. The company’s market value is 10 million, equity is negative, net debt is 40 million, and earnings are permanently negative.
It would be a pretty wild turnaround story if the company still existed in 5 years . The thread starter probably has a more informed guess on how this train will turn around, because I certainly can’t see it.
The company’s balance sheet is in terrible shape, you’re right about that.
However, the business itself doesn’t seem to be that cyclical; there appears to be surprisingly consistent demand for logistics services.
Revenue of 68-75MEUR for the past 4 years, meaning P/S is only around 0.15
EBIT has been negative in recent years, which has surely severely depleted cash
I don’t know much about profitability in the logistics sector yet, but what are the typical margins for rail freight? Could Petri Gostowski answer this? @Petri_Gostowski
In rail logistics, as in many other businesses, volumes play a relatively large role, and reflecting this, the profitability of Nurminen’s historically reported rail logistics operations has varied very strongly. The company does not provide exact figures for its current Baltic operations, but I estimate its profitability has varied at a fairly healthy level of 10-20% (EBIT-%).
If, on the other hand, you consider the potential of the China connection, it is worth noting that operations are carried out with a different model and the role of partners is significant. In addition, to my understanding, the size of trains can vary relatively much, at least for now. Thus, the profitability potential is likely to be lower, and I would estimate the range to be around 5-10%.
Good point about the importance of volume. In practice, this will probably mean making sure freight trains are loaded as full as possible in both directions.
As I understand it, the railway passes through several countries, so local partnerships will certainly be important. On the other hand, if well managed, these could be seen as a competitive advantage
I saw on the company’s website that the half-year report will be released on August 7th, so there’s still time to wait for news from the land of the rising sun.
More highlights from the YLE news report I mentioned earlier (note: published 6.4.2020)
Return train from China brings healthcare supplies, e.g. masks, to Finland
“The return train will bring healthcare supplies, such as protective masks, to Finland. At least for now, healthcare supplies are not taking precedence over other products in train bookings.”
The demand for healthcare supplies in Finland is apparently still strong, and I’ve read that the lack of general mask-wearing guidelines from the Ministry of Social Affairs and Health (STM) is due to doubts about available capacity.
“Accelerating container trains are already competing with air cargo” -YLE 6.4.2020
According to the article, starting in May, a weekly connection has been established on the route, replacing the previous bi-weekly train cargo. The maximum capacity of one train is 50 containers, and if the trains are mostly sold out during peak demand, the impact on results is already more than double.
Here, it’s apparently worth noting the increase in purchased services costs in rail transport due to growth, as noted in @Petri_Gostowski’s extensive report. (page 9, Business Model (1/2))
Finnair has long been stated to have a competitive advantage specifically in Asian traffic and thus also in cargo transport. However, I believe that the cost level of air cargo will not ease in the short or medium term, quite the opposite.
Now you’ve got me interested, @Value, as to why this particular company has sparked your interest. The CEO was fired a few months ago, and a share issue seems inevitable if the company is to survive at all. Most investors wouldn’t take these shares even if they got them for free
In connection with China, there are quite a few state-owned companies involved. VR in Finland, RZD in Russia, and whatever it is in China. They probably all know how to price their own margin
I can’t say anything about those intentions, but I wouldn’t believe a Finnish state-owned company would have incentives to thwart Finnish export intentions.
A critical perspective is still positive and gives more content for a comprehensive review of the company, just add more justifications! @T3r00 and @Pohjolan_Eka
I know some people buy penny stocks hoping for a few cents increase, which brings huge percentage gains to the investment. Yes, this Nurminen sounds like that kind of a case to me. Even if one believes that the company will survive the coming years and make an incredibly profitable turnaround, is there any good reason to buy the stock right now? Wouldn’t it be more sensible to wait for the share issue to bring down the price and buy only then? At the same time, one avoids the risks of a possible failure of the share issue and the company ending up in liquidation.
This is true. An absolutely “cheap” stock or a small price change can be very strong in one direction or another, but relatively very large.
I am also specifically looking for a catalyst like this that would support the investment case. The initial catalyst, in my opinion, is already the entry into the Chinese market, but evidence of business smoothness in this area is needed. Primarily, in this thread, I am trying to get support and counterarguments for the company’s story that would support or reject my own views.
Have you considered it from this perspective: Ilmarinen owns 20% of the company, and at the same time, Nurminen is a tenant in a hall owned by Ilmarinen in Vuosaari. And the rent probably isn’t cheap.
It seems to be an alliance that is difficult to break. It’s possible that the previous CEOs realized how desperate the situation was and left for this reason.
So you mean that Ilmarinen would have a certain leadership position in the company over the operational management as a result of this?
As a large pension insurance company, Ilmarinen might have some incentive to be involved in the company’s story, for example, as a state owner’s representative in critical railway infrastructure parts. Vuosaari is at least centrally located, and freight is also transported from there to China and from the port to other parts of the world.
As an investor, this doesn’t seem like a very healthy alliance, and for that reason, I wouldn’t invest in it. If Nurminen were to separate from the large cost item of Vuosaari, then the company might have some hope.
That’s exactly what I mean. I don’t believe Ilmarinen would find a tenant for the Vuosaari terminal very easily if Nurminen were to cease operations there. At least not at a very good price.
“Our China freight train as the growth driver in the first half: revenue grew from the previous year and operating loss decreased. Cash flow from operations was positive.”
Nurminen Logistics KEY FIGURES 1.1.-30.6.2020 1.1.-30.6.2020 1.1.-30.6.2019
EUR million
Revenue 36.5 34.5
Reported operating profit -0.5 -1.7
Operating profit margin -1.4 % -5.0 %
Net profit -1.6 -3.2
Earnings per share (€) -0.05 -0.11
Cash flow from operations 3.4 0.1
Outlook:
“Nurminen Logistics estimates that the general economic and market development will continue to slow down due to the effects of the COVID-19 pandemic. We believe that Nurminen Logistics’ China freight train business will continue to grow and the company’s profitability will improve. The demand for the company’s special logistics services remains good thanks to our special expertise.”
*The positive trend seems to be showing signs of strengthening!
“..In June, we signed an agreement with Port of Narvik with the goal of being a significant player in the export of fresh fish to the Chinese market. Deliveries will begin during 2020. We will introduce refrigerated container equipment for our China traffic, which opens up a significant new market and competitive advantage for us in the export of fresh meat and soft drinks to the Chinese market as well.”
Refrigerated containers would thus enable the export of foodstuffs from the Nordic countries to the Chinese market in almost fresh packaging. However, delivery times are likely to be several weeks, so trains require a certain demand capacity to be profitable.
There was no direct mention of the speculated balance sheet strengthening, but the general meeting has the authorization to conduct a share issue of 20 million shares.
“The General Meeting authorized the Board of Directors to decide on share issues and/or the issuance of special rights entitling to shares as referred to in Chapter 10, Section 1 of the Companies Act…”
. The thread starter probably has a more informed guess on how this train will turn around, because I certainly can’t see it.
