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Tara
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« on: July 03, 2010, 11:47:01 AM » |
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Perlite Canada (PCI.v): 0.10$ 2010-07-03
Q2 EPS = +.005$/share
• Raw materials and products sold are non-perishable, not subject to fashion changes or upgrades like the electronics world.
• The machinery is long lasting and the process is fairly simple, using ovens and conveyors.
• The process is quite automated and not labour intensive.
• A substantial portion of their sales respond to primary needs (agriculture ie. growing fruits and vegetables).
• The products sold offer very few alternatives, if any.
• Sales are recurring, with very little marketing efforts/staff required to maintain a stable backlog.
• The business model is simple with decades of proven history.
Costs are kept under control and management has demonstrated over the years that this public entity is self sustaining when acquisition is not a factor. Having doubled their sales going forward with the VIL integration, the restructuring (Baie-du-Febvre plant closure and head office lease termination) now returns staffing to pre-acquisition level. By digging into historical financial statements on SEDAR, gross margin of 25% stands out as a representative figure. With this order of magnitude, gross margin should cover the underlying loan, while providing meaningful net earnings and depict and undervalued state.
To better illustrate, here is a draft of the overall picture:
- before VIL acquisition, Perlite had about 30 active employees, 2 plants, product sales were hovering around 3.5 to 4M$;
- once VIL was acquired, Perlite had 3 running plants to sustain(fixed costs), about 45 employees, with expected sales level in the 7 to 10M$;
- with restructuring efforts announced, Perlite once again has 2 plants(reduced fixed costs), about 35 employees, but double the sales level, excluding new ventures and organic growth attempts;
- Baie-du-Febvre plant was powered using oil (high energy costs), whereas Lachine and St-Pacome are mainly powered by natural gas. Therefore, on a go forward basis, raw material processing should provide energy savings on the bottom line;
- The company now exhibits a logistical advantage (product distribution), with access to railroad directly behind the VIL plant, increased buying power from the business combination, making it the largest player in Eastern Canada.
- Starting this month, the formerly separate head office will be closed and relocated into the VIL Lachine plant, reducing overhead one notch further on a go forward basis.
Management has done an excellent job in the crisis, doubling sales and eliminating their strongest competitor while avoiding dilution; the company has recently offered an appetizer of the return to profitability mode. Final stages of the asset/manpower combination are happening and as depicted in the annual presentation, the company has infrastructure for sale which should serve to reduce the debt absorbed for the VIL acquisition, and further enhance profitability and cash generation going forward.
The above is only my personal interpretation, not to be confused with that of company officials. It is simply my personal understanding and not to be construed as investment advice. I’m not a broker, promoter, director, manager or employee of the aforementioned company, just a shareholder. Some typos could have occurred. Do your own due diligence.
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