What comes to mind when you think of Colombia and investment opportunities?
Nothing? Given Colombia’s history and reputation, “nothing” is an understandable reply.
Any opportunities must surely be nefarious and illegal, and most certainly drug-related.
Yesterday it was so, today not so. The perception fails to jibe with contemporary reality.
The reality is that respectable enterprises are the rule.
Few Colombian enterprises have proven more respectable than Tecnoglass (NASDAQ: TGLS), a leading manufacturer of high-tech architectural glass and windows for residential and commercial construction.
Tecnoglass Dividend Keeps Growing
Tecnoglass, based in Barranquilla, Colombia, resides at the small end of the spectrum, with a $265-million market cap. But within this small package resides a big dividend — one that yields 7%. What’s more, the Tecnoglass dividend grows. It was increased 12.5% with the latest payment.
As for the business that supports the dividend, most of Tecnoglass’ glass and window wares are sold in three countries. If you think Colombia is the lead, think again.
Tecnoglass generates 62% of its $300-plus million in annual revenue in the United States. Colombia slots at the second position, accounting for 32% of revenue, followed by Panama at 3%.
Tecnoglass’ glass-manufacturing expertise provides a business moat. Entry into many of its markets is limited by technical certification requirements. A business moat allows for ready growth. Revenue posted at $311 million for the trailing 12 months — a 57% increase over annual revenue posted three years ago.
A business moat may allow for ready growth, but not necessarily problem-free growth. Tecnoglass shares are down 33% over the past year. The shares trade near $8. They traded near $12 a year ago.
Interest rates in Colombia are a lingering problem. Colombia’s central bank, motivated by rising consumer-price inflation, continually raised interest rates through 2016 and the first half of 2017. New construction ground to a halt due to the high cost of financing.
Inclement weather has been another problem. Work stoppages in the United States related to Hurricanes Irma and Harvey mean that between $5 million and $7 million of revenue will be deferred until 2018.
To account for the hurricane impact, management guided the revenue range lower for 2017. Management now expects revenue to post between $314 million and $324 million this year. Previous guidance called for $320 million to $330 million.
Where many investors see intractable problems, I see fleeting annoyances.
The downgraded range on revenue still allows for year-over-year growth. The midpoint of revenue guidance — $319 million — means revenue will grow 4.5% year over year.
As for Colombia’s interest rates, they are ratcheting lower. Thanks to moderating consumer-price inflation, the central bank has lowered its benchmark rate by 250 basis points since April. The rate is now at an accommodating 4.75%.
As for the U.S. market, bad weather will come and go. The hurricanes are gone, the growth opportunities have come.
Tecnoglass management sees Colombia sales improving 20% to 30% next year. Management expects even stronger sales growth in 2019. Backlog growth buttresses the optimism. Project commitments have increased 22% year over year to a record $488 million.
Revenue should post near $320 million for 2017. Revenue is tipped to grow to $360 million for 2018. That’s 12.5% annualized growth.
EPS for 2017 will likely post at $0.43, below EPS for 2016. A significant recovery is on the way in 2018, with EPS posting at $0.60.
Tecnoglass’ growth return is on sale. Its shares trade at less than 0.9 times current revenue and less than 12 times estimates for 2018 earnings. The Tecnoglass dividend yield, at 7%, is the highest among all U.S. building-products companies. It’s the highest among the broader U.S. industrial sector.
Tecnoglass is one of the better dividend-stock values on the market. I doubt it will remain one of the better values for long.
— Steve Mauzy
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Source: Wyatt Research