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Nick Sleep

Zimcem (+2 other Zimbabwe companies)
2002-2013
Industry: Zimbabwe Cement (+Brewery, Construction)
Category: Distressed/Replacement Cost/Political

Context
2nd largest cement producer in Zimbabwe
Business conditions are awful, political unrest, inflation, low product demand

Why the Company is Mispriced
African country, very small stock exchange, extreme political conditions, country is ruled by a fascist

Alternative View
700,000 tons of capacity, replacement cost of 70-100m USD, trading at 1/70th of replacement cost
No debt
Either Zimbabwe will have to go without cement or import it (Zimbabwe is landlocked), which is extremely cost inefficient
"Deep discount to replacement cost with latent pricing power"
Argued that there was little risk of theft, because there is no immediate market for it

Notably, Nomad diversified into 3 sectors to get dilute the nationalisation risk.
This was a cement company, a brewery, and a construction/engineering firm.

Risks
(1) Supply side never improves
(2) Business is nationalized

Comparables
Siam Cement rose 20x in 8 years during the Asian Financial Crisis
Pretoria Portland, which could've been bought at $20/ton of capacity in 1998, and was valued at $180/tons in 2005
A dominant cement company in Zambia (a Northern border relative of Zimbabwe) is valued at a premium to replacement cost following the country's economic recovery

Result
Over the years, the country lived through
a decline in economic activity, hyperinflation, abandonment of the local currency by the central bank,
suspension of the stock exchange, violent forced nationalisation of privately owned farms,
and attempted assassinations of political opponents.
Even despite this, Nomad's investments have risen 3-8x in US dollars
This implies at least a 13-26% CAGR from 2005 to 2013.
Sleep notes that they would be hesitant to repeat this venture again, because they believe they have less stressful opportunities.

Notably
The holding did not take more than a few percent of portfolio

There were a large discrepancy between official exchange rates and street exchange rates
Because of this, Nomad used Nobert's Gambit
This meant that they bought shares in were dual listed in Johannesburg (South Africa) and Harare (Zimbabwe), converted the South African shares to Zimbabwe's, and bought their desire equities