{ "docId": "019dd923-622c-750b-8b9a-03d18e01476f", "docSlug": "8add3011762c", "documentTitle": "Caesarstone Ltd. (CSTE)", "authorId": "57_Viceroy_Research", "authorName": null, "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2017-06-15 00:00:00", "orientation": "portrait", "aspectRatio": 0.70690596, "pageNumber": 32, "pageCount": 40, "prevPage": 31, "nextPage": 33, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 15, "notes": "The slide uses a cash flow statement extract to highlight a discrepancy in capital expenditure, followed by a qualitative argument regarding maintenance costs and SEC scrutiny.", "elementsJson": [ "paragraph", "data_table", "bullet_list" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b9a-03d18e01476f/32", "deckHref": "/decks/019dd923-622c-750b-8b9a-03d18e01476f", "deckJsonHref": "/decks/019dd923-622c-750b-8b9a-03d18e01476f.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b9a-03d18e01476f#slide-32", "components": [ { "bbox": null, "kind": "callout", "text": "We have no idea how CSTE can spend so little on its CAPEX; but we can hazard a guess. We believe maintenance is down because production is down, either that or CSTE is failing to maintain its machines in good order.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-1ac2-71b6-bf4c-c269db62171a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.76, "x": 0.12, "y": 0.61 }, "kind": "list", "text": "Cost per unit of volume sold in both factories are the roughly the same. Silestone's higher margin suggests less sales volume is required per US$1 of revenue. Silestone's would be expected to require less maintenance costs associated with wear and tear", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c8a8cb84-6da2-414b-9534-b0ebf76911d5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.76, "x": 0.12, "y": 0.47 }, "kind": "list", "text": "CSTE's FY 2016 revenue was US$538m, against US$378m by Silestone in FY 2014. CSTE's gross margin was 39%, compared to Silestone's 57%.", "attrs": null, "subkind": "comparison", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "339719e5-d03a-480d-b4ef-ff67488d3558", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "CAPEX: US$23m", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-1ac2-71b6-bf4c-c6df8350c2f4", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.76, "x": 0.12, "y": 0.84 }, "kind": "paragraph", "text": "We believe the SEC are similarly suspicious on CSTE's incredible margins and low maintenance capex. It issued a letter on 26 September 2016 asking why US production lines and Israel production lines are aggregated into a single reporting segment, reducing visibility on utilisation of each plant", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "05c079f0-b478-46d2-aed5-bcf32fa49875", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.76, "x": 0.12, "y": 0.71 }, "kind": "paragraph", "text": "We note that the suppliers for the equipment are based in the Euro zone, however even the appreciation of the USD does not compensate for this massive discrepancy.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "088d8764-e599-49c0-8a41-07aee896ea3f", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.76, "x": 0.12, "y": 0.09 }, "kind": "paragraph", "text": "In 2016, which was a non-expansionary year for CSTE, it spent a mere US$23m on PPE:", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ab46f741-b7d5-41df-b8e7-bb27f09213d7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.76, "x": 0.12, "y": 0.54 }, "kind": "paragraph", "text": "Given all the machinery and frequent wear and tear parts are provided by, fitted and maintained by a limited number of niche suppliers with limited cost variables, it is reasonable to presume that :", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b47bd005-5761-4f92-9514-4234cdea5af6", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.76, "x": 0.12, "y": 0.76 }, "kind": "paragraph", "text": "We have no idea how CSTE can spend so little on its CAPEX; but we can hazard a guess. We believe maintenance is down because production is down, either that or CSTE is failing to maintain its machines in good order. Both are equally damning.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "cc3f3bd7-c920-4c3b-8cd5-a75fa702e1f8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.76, "x": 0.12, "y": 0.92 }, "kind": "source-note", "text": "https://www.sec.gov/Archives/edgar/data/1504379/00000000016094507/filename1.pdf", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "60bb297c-aceb-44c7-9f95-ed10a3c87c25", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.31, "w": 0.56, "x": 0.22, "y": 0.12 }, "kind": "table", "text": "CSTE FY 2016 Statement of cash flows extract", "attrs": null, "subkind": "data", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e813fcd9-0ccc-4c8e-85c1-043c5445685c", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }