Ariel International Fund on Komatsu Ltd.
Thesis
Ariel initiated Komatsu because the market appears too focused on its relatively small Indonesian thermal-coal exposure. Strong mining-equipment demand, a large Middle Eastern contract and improving North American construction activity have already supported an earnings beat and higher guidance. The fund expects copper and gold mining and construction to enter an upcycle, while the large aftermarket operation cushions cyclicality. Backlog and repurchases reinforce a growth runway that Ariel believes the stock price understates.
“supports a longer runway for growth than is reflected in the share price.”
Key risks
- Thermal coal exposure in Indonesia remains under pressure
- Cyclicality in mining and construction capital expenditure
- Dependence on a recovery in North American construction and metals demand