Stock Sonar #22 - 8/30/2023

GCC (BMV:GCC) — mrkt cap $3.2B; Price $10.00; trailing P/E 10

PASS. GCC manufactures cement and concrete and although it is headquartered in Mexico, about 80% of earnings are derived from US plants. Cement capacity has been constrained in the US due to regulations limiting CO2 plant emissions. With onshoring trends and the Infrastructure bill, Inflation Reduction act, and CHIPS act in the pipeline, cement and concrete will continue to see increased demand. Cement imports are exempt from Build America Buy America requirements, however, cement plants in landlocked areas will benefit from increased demand. Although GCC is trading at around 10x earnings, they are entering into a heavy capex cycle and are also looking at making a large acquisition. GCC has been contemplating an IPO in the US and it’s likely the acquisition will be done for optical reasons. We are passing for now.

Sinclair inc (NAS:SBGI) — mrkt cap $806mm; Price $12.74; trailing P/E 5.4

PASS. Sinclair Broadcasting is the second largest television station operator in the U.S. They have recently reorganized and are splitting the company into growth assets (Sinclair Ventures) and non-growth assets (Sinclair Broadcast). The non-growth asset is the legacy broadcasting business which is in secular decline. The growth assets will be a separately siloed private investment fund that will buy controlling interests in media related assets. In sum, the firm is transitioning from a media firm to more of an investment firm with owned content. It is most likely losing its legacy media-focused investor base, but with a sustainable yield of ~8% it should attract enough yield seekers to keep the stock buoyed at current levels. Good news for investors is that with an upcoming election cycle, SGBI will likely see a large boost to earnings, the bad news is there is litigation overhang with an unconsolidated subsidiary, Diamond Sports, suing for 1.5B for what it deems to be fraudulent transfers.

EZCORP inc (NAS:EZPW) — mrkt cap $477mm; Price $8.66; trailing P/E 23

PASS. EZCORP is an American pawn shop operator that runs ~1200 pawn shops under different brands across the U.S. and Latin America. Google trends shows search results for “Pawn shop near me” have grown rapidly in the last six months. The business is a beneficiary of costly credit markets and the post-COVID spending spree on product markets. Unfortunately, upon further investigation, the controlling shareholder (owns 100% voting rights) has been using EZPW to receive large advising fees to direct poor acquisitions. Not surprising to see high levels of executive turnover. The valuation is attractive but this is yet another example of a company with potential that we can’t touch because management isn’t aligned with shareholders (there are hundreds if not thousands of these examples).

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