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Great article! You probably know this already that Holcim plans to spin-off their North American division: https://fortune.com/2024/01/28/cement-giant-holcim-to-spin-off-north-america-unit-construction-boom/#:~:text=Holcim%20Ltd.%2C%20the%20world's%20largest,Gutovic%2C%20as%20chief%20executive%20officer.

One more peer to look into, although with a shorter history.

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Thanks for the feedback I appreciate this. Yes I believe Holcim is #1 cement in NA. One Lafarge cement plant is 15min from my home. Issue is the spin off - as a foreign investor in a European company - the spin off os likely to be treated as direct income. As such I have to wait for the spin off to take place before I invest - if I invest. As you said it will be interesting to see the valuation they would get when listed. There might be an opportunity on the first days of listing. On the watch list.

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As a shareholder in Monarch for about 18 months I very much appreciate your write ups on the company and its industry. They are excellent. You have expanded my knowledge considerably.

Several points to add from my perspective.

Monarch is a multi generational founder led company. i suspect they will continue to stay that way. That means they have a long term perspective in all of their actions and relationships. They indicate a win, win , win attitude in their business. Which i like. This begs the question though have you or any other readers met their leadership team? And if so what are your impressions?

Also what are the senior leadership team employment packages including incentives?

They have a sizeable share investment portfolio How skilled are they over time at investing shareholders surplus capital in the equity markets? Or should they be giving it back to shareholders through dividends ?

Thanks

Geoff

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Congrats on your timely purchase 18mo ago. The Wulf family - current chairman - owns about 10% and the Radcliff family another 12%. I like large insider holding. I actually have a preference towards management owning a large stake but still a minority holding. For example, the Yamada family owning 30% but below 50%. When management owns more than 50% or close to - I worry. I was forced to sell out with Logistec as the Paquin had a majority voting and decided to sell. Bollore is my opinion is shit show.... sorry for the cult members but he makes very bad decision for short term gain - selling jewels like the ports in Africa, selling universal music, activision, selling bollore logistics.. he is definitely not thinking long term and this is clashing with my philosophy. I am slowly moving out of all stocks with more than 50% voting for this reason. The only exception being TFF.

I am planning to attend the next assembly next year for the reasons you mentioned now that this is significant position for me.

One big problem they have is that they are generating too much money and dont know what to do with it. The solar plant is really a nice to have. If they had more opportunity they would have never invested in this. I think acquiring a cement plant nearby would be a fantastic. The ash grove owned by CRH is closeby. There is another one in Kansas city. As for equity investment, it is mostly in cement co and building materials, so they have the deep knowledge but again this equity holding is due to lack of other investment opportunity. They used to buy a lot of ready mixed business, but they thankfully stop doing this as these are sub-performing business. I think until the stock rerate to its true value, it will be difficult for them to make major buyback.

Honestly if I was in their shoe I would do a major dutch auction to buyback 10% or 20% of the share using the proceeds from the equity holding. They are probably holding in their equity the same name mention in my article which are trading at twice the evaluation of Monarch. Why not purchasing 10-20% of your share by buying your own shares at 50% premium? If I meet with them in 2025 this is what I will propose. A rerate is very likely. This is one of the reason I publish this. When I purchased a lot of Logistec in 2022 - doubling my position. valuation made no sense and the stock was highly illiquid. I decided to start this blog to point this to the investment community - Logistec was my first post.. I met with management etc based on my conversation with management, they felt the same frustration. Similar to Logistec.. I hope to contribute in a small way to the valuation rerating of monarch cement which will allow them to buy back more stocks. The dutch auction is one way.. the stock going to 20x earnings is another way to increase liquidity.

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WinterGems, thanks for writing this very comprehensive note on Monarch Cement.   A decade ago, when they deregistered, I tried to convince them to buy ALL the <600 share lots at $30/share, but they refused.  It would have been an excellent use of capital, especially since their portfolio of building stocks was significantly more expensive than their own stock. 

I bought a slew of 599-share lots in many family accounts at less than $30/share, as it seemed like a slam dunk to scalp a few dollars in the arb.  Surely the company would recognize that buying as many shares as possible at $30/share was a fantastic use of capital, but incredibly they did not.   So, for me it was a special situation that morphed into a long-term holding because I did NOT make the same mistake as the company because I knew a bargain when I saw one and retained all these very cheap shares. In fact, I added even more shares after the ''going dark' arb failed. 

In December of 2014, I wrote the following to others playing this special situation.

"There is an army of 599-lot shareholders, so in a thinly traded stock, look out below. I actually like this stock a lot and hope it sells off. Unfortunately, management hasn't yet developed capital allocation skills because $30/share is a bargained price buyback. Monarch owns much higher priced cement stocks in their stock portfolio, so the sensible thing to do was to sell those stocks and buy all these lots from the arbs. That would have produced an even more valuable stock. This stock will now be getting even cheaper, as most arbs will be heading for the exits at the same time."

I wrote to the company at that time and received the following email response:

"At our December 5, 2014 stockholders meeting, stockholders approved a Reverse/Forward Stock Split in which each stockholder owning of record fewer than 600 shares of either class of stock before the split would have the shares of such class cancelled and converted into the right to receive $30.00 for each share of such class held of record prior to the split rather than receiving a fractional post-split share of such class. Although we initially had anticipated that stockholders holding their shares through a broker in "street name" might participate in the split, the Company ultimately determined that doing so would not be in the best interests of the Company and its stockholders. Doing so would have resulted in more stockholders being cashed out than was necessary to achieve the "going private" objective and would have significantly increased the cost of the Reverse/Forward Stock Split beyond what was anticipated and thereby diverting funds away from business purposes that benefit our continuing stockholders.

Under SEC rules, shares held in brokerage accounts are not counted in determining whether the Company may cease being an SEC reporting company. Rather than terminating the Reverse/Forward Stock Split (which the Board had the authority to do), the Company proceeded with the split without applying it to those who hold shares in a brokerage account. As a result, stockholders who hold their shares through a brokerage account - such as yourself - are not being cashed out in the Reverse/Forward Stock Split (unless the broker itself holds fewer than 600 shares) and remain Monarch stockholders. We appreciate your continued support as a stockholder of Monarch."

I eventually ended up increasing my position to 12K shares because the more I looked at this company the more shares I wanted to own. Even though the shares have done very well, I still think they are too cheap to sell. Like its neighbor Ash Grove Cement, which I also owned in size, I believe Monarch Cement will be sold at some point, and if it's soon, I will not be surprised if it's a 3-digit number starting with a 3. If they continue to remain a stand-alone independent for a few more years, the take-out number will start with a 4 or 5. So I'm actually in no rush to see this sold (if ever).

I rarely hold a stock for a decade because it usually gets fairly valued at some point, but I have not seen that happen with MCEM. In fact, in the last decade, I've only added to it whenever it hit an air pocket and sold off a bit. It's a deep cyclical, so the economy meaningfully affects such companies, although when you look at a 10-year chart, it doesn't look like that is the case (26% annualized, so $10K is now worth $102K with divvy reinvested).

I'd obviously like to own more stocks like MCEM. Monarch Cement wasn't actually a great long-term investment prior to 2014. They were founded in 1908 and were trading at <$30/share in 2014, so most of the stock gains were in the last decade, not the prior century. They found religion, as they now do regular dividends, special dividends, buybacks, and tenders.    Unfortunately, it's extremely rare to find a great operator AND a great capital allocator in one company and have the ability to buy that company inexpensively. If we can find a cheap well-run company though at a 'smart capital allocation' inflection point, a lot of money can be made.

The 2 stocks in my portfolio that remind me of Monarch Cement are E-L Financial (ELFIF) and Bank of Utica (BKUTK). They are at different points in the process though in being both cheap and good capital allocators. I've owned token positions in both for years but made ELFIF a very large position 4 years ago because they finally recognized how meaningful capital allocation can be when a stock is incredibly cheap. ELFIF was always cheap at 50% of NAV but did nothing with dividends and buybacks for many years. In the past 4 years though, capital allocation greatly improved with dividends, buybacks, and tenders, and the stock price has responded accordingly.

BKUTK however is a work in progress because they still haven't learned the capitalization allocation playbook, but it's just too cheap to not own in size, so I bought a lot of stock this year. While it's a bank trading at <50% P/TBV and 5x earnings, the investment thesis is more like buying ELFIF, which is buying assets (stocks and bonds) very cheaply. I don't know when things will change at Bank of Utica, but I consider it a coiled spring in the right hands. At 25% TE/TA, we are nearing an inflection point where larger dividend payouts and buybacks just make too much sense to ignore.

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What do you think of the trend towards using and producing recycling concrete? I think regulations will go more and more in that direction, look at the netherlands.

Investments in that direction could BE expansive.

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