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Is Bell Equipment a buy? There's many reasons to consider this stock

by , 14 July 2022
Is Bell Equipment a buy? There's many reasons to consider this stock
After rallying 373% from its pandemic lows, Bell Equipment (JSE: BEL) stock is sitting at a six month low. As recently as March 2022 the stock traded at R17.50 - yet it's at R11.84 now.

During the pandemic the agricultural and mining equipment supplier saw a big recovery in demand as commodity prices soared. As a result, demand recovered and the company had a big recovery.

For example, in March 2022 the company announced headline earnings jumped from a loss in 2020 to a 294cps profit for 2021!

Investors fears of a recession are rising, and Bell stock, together with most of the market has been pummelled. Right now, it is down 32% since 1 March 2022.

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Why this sector benefits from high inflation
The mining equipment market is set for astronomical growth. According to Market Watch the global mining equipment industry was US$125 billion in 2020. It is forecast to reach $182 billion by 2030.

Mining equipment is employed to dig and carry large and bulky materials. Drill rigs, excavators, crawlers, crushing and processing equipment, graders, mixers, dumpers, finishing equipment, loaders, trucks, trenchers, and dozers all come under the umbrella of mining equipment.

High inflation, like we’re experiencing now, goes hand in hand with high commodity prices. And high prices mean investment from mining firms.

The new era of automation is expected to fuel the chances of growth in the coming years. Since 1990, the cost of industrial robotics has decreased by 50%. Moreover, mining activities such as excavating and hauling are now completely mechanized. Operators are already experiencing the benefits of automation due to increased productivity and safety.

The growing demand for electronic mining equipment is expected to generate promising opportunities for the market players going forward.

Bell is investing in automation – and poised to profit from the trend

A focus on improving ease of operation to provide more efficient and safer
Articulated Dump Trucks (ADTs) Bell Equipment says has consistently kept it at the forefront of innovation. The global ADT specialist is now achieving success with autonomous vehicle operation.

According to Bell Equipment ADT Product Marketing Manager, Brad Castle, “providing autonomous-ready machines will be a part of our core business in the future but in terms of sensing and guidance systems it makes sense to partner with market leaders and innovators, as we do with drivetrain, hydraulics and electronics technologies in our trucks.”

At the moment the company is partnering with a systems provider that has a modular automation system which can be moved and replaced from its trucks.
So, they can be automated or operated manually. This also gives mining contractors more flexibility.

The company also has a fleet management system that can give clients data on idle time and productivity of equipment – which with current high fuel prices is a massive benefit.

Pent up demand following the Covid Pandemic
For more than two years of the pandemic there’s been pent up demand from companies. Most didn’t invest as much in new plant and equipment as in the past. The global supply chain crunch has also put a damper on this.

That means there’s pent up demand. And the same goes for new projects – most companies put off start up of new projects for the past two years, and are starting them up again now. Same goes for construction projects, maintenance to roads and so forth…

Why international competitors might be very interested in Bell
Bell is one of a handful of manufacturers worldwide that can produce articulated dump trucks (ADT) – which are trucks that work alongside excavators in the mining and construction industries.

Many of its largest competitors DO NOT produce 30 ton+ ADTs, but would like to. This includes companies like Hitachi, JCB and Kobelco.

So, buying Bell for its ADT technology might already be worth it. According to the company’s chairman just the ADT technology is worth R25 a share to a competitor. That’s DOUBLE the current share price.

Why Bell stock is worth considering right now
But here’s the thing… Bell is also a highly profitable company.
It took a dip during last year’s pandemic lockdowns. But with the mining industry booming again it is doing really well.

The company is currently on a PE ratio of around 4.

Looking at international competitors like Caterpillar (14.64), John Deere (15.44), Komatsu (12.2) and the like – they trade on average at an PE ratio of 14.1. That’s more than THREE times Bell’s valuation. That means these kind of companies could acquire it for double its current price and still add massive value to their bottom line…

Firstly it shows the company is dirt cheap.

Secondly – it suggests huge upside potential if the company’s share price simply rises to reflect the valuation of its cheapest competitor.

An analysis of competitors shows the company could actually be worth between R57 and R86 according to Shipyard Capital, an activist investor that’s invested in Bell.

Or consider the fact that Bell shares have a net asset value of R40 each – again that’s more than three times the current share price…

Simply put – a recession might be a bump in the road. But the world wide trend of investing in mining, construction and agricultural equipment isn’t disappearing. That makes a stock like Bell immensely attractive at these levels…

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Is Bell Equipment a buy? There's many reasons to consider this stock
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