Tuesday, June 2, 2015


Logicamms (LCM) is a small-cap operating in the hated mining sector. Excluding its strong net-cash balance of $20 million, it has a P/E of less than 5, as its share price has fallen 60% from its 2013 high!

Logicamms is not a miner, but rather a consultant to miners. This may not seem like an important distinction; after-all, there just isn't a whole lot of money flowing through the sector right now so doesn't that hurt everybody? I would argue that while Logicamms' top line may be at risk, it has a much more flexible cost structure than your typical capex heavy company in this industry. When revenue declines, the company can adjust its labour pool and its labour expenses accordingly, unlike a company that needs to purchase/maintain/operate heavy machinery and the labour to operate it even when the prices of its products fall.

Furthermore, Logicamms focuses not on new (greenfield) developments/projects, but rather on improving processes at brownfield operations. In an environment where not a lot of new development takes place, this again protects Logicamms on the downside.

At the current price, the upside probably takes care of itself, even if the company's revenues were to decline. But they are not declining currently! Last week, management guided to revenue of $140 million, EBITDA margins between 8-10%, and a net cash position of $20 million. Since depreciation and amortization is a small part of the expense structure (about $2 million last year), this looks like net profit somewhere around $8 million, against a market cap of just $50 million!

When industries are awash with cash and valuations are thus high, it's common to see companies buy back shares; when conditions become difficult, these same companies then hoard cash when it is actually the most opportune time to repurchase shares. Logicamms appears to buck this unfortunate behaviour, as management has taken advantage of the poor share price to gobble up about 4% of the company's shares over the last six months. Those in charge also aim to pay out about half of the profits every year as dividends.

I love finding good companies in hated industries - diamonds in the rough. Logicamms looks to fit the bill, as it has a cost structure that can shrink should that be required, with a compelling valuation and capital allocators that are shareholder-friendly.

Disclosure: Author has a long position in shares of LCM


Anonymous said...

I have also looked into Logicamms after reading about it on cornerofberkshireandfairfax. Looks quite interesting. If you haven't already then you should take a look in Decmil Group and Boom Logistics. Both looks equally cheap in their own way.

Stevan Dinu said...

Dear Barel,

What broker do you use for buying stocks outside US?
I tried IBKR but they charge me some 10$ for not using every month.
By value considerations I would not like to pay for the time spent waiting.

Saj Karsan said...

Hi Stevan,

I'm in Canada so my situation will not apply. From what I have heard, however, IBKR is as good as it gets for the US.

Anonymous said...


Which broker do you use in Canada? Most do not allow trading on non-US exchanges.



Saj Karsan said...

Hi Anon,

Yes there are very few. I don't recommend mine. Google for a list of options.

ChevalierdAven said...

Hi, the stock has tanked after the recent H1 2016 results showing a drop in margin to 5% and cut in dividend....is your thesis impaired or is the market overreacting? Cheers

Saj Karsan said...

Hi Chevalierd,

The results were disappointing. However, my thesis is that despite being in a commodity industry where there is the risk of significant revenue shocks, this type of company has a flexible cost structure. As such, once they adapt to the new revenue level (as a result of cost-cutting), their normalized margins should return. These cuts are discussed by the company in its results, as well as a target of reaching normal margins next year. Were that to occur the stock is very cheap. I bought more on the weakness.

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