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[PMREdmonton]

I was wondering if any of you know much about this company. It has been jumping off the screen in terms of some of my valuation screens lately and I wonder what is wrong with this company.

For starters this company is basically an assembler of sub-components of manufactured goods. Lately most of their work has been to do some assembly work for the local Ford plant. They have been trying to diversify and recently won a contract to do some assembly work for a Dutch company that manufactures wind mills (Vestas Nacelles A/S). The work they are getting from Ford has been pretty regular and can be estimated based on number of vehicles built at the local plant and Ford releases these numbers every month so the orders are still strong there. The windmill stuff will be a long-term contract and they have started working in the new wing that was built for this purpose in Brampton, ON.

So the nuts & bolts of the situation is the company is very profitable right now. They have a market cap of only 35.7M. Now of they have no debt and cash of 14.5M on the balance sheet and about 0.7M of inventory so EV is only about 23.5M.

Now for that EV of 23.5M, EBITDA ttm was 23M so they are trading at EBITDA. P/B is 1. P/E is 2.9 over ttm. They are currently paying a quarterly dividend of 0.06 with a dividend yield of 14% and a payout ratio of only 40%. They have bought back about 23% of all their outstanding shares over the past 3 years. So when you add in stock buybacks over the past 3 years the shareholders are getting something like 20% a year back.

Despite all this good news the stock initially rocketed up last year to about $3 but since has been dropping pretty aggressively over the last few months and bottomed out at about 1.60 and is now hovering around 1.70. The other thing that makes me pause is most of their business had been with Ford but they have now diversified a bit into renewable energies so that is another potential negative for the company should they have a falling out with Ford. The last thing that makes me pause is the corporate directors have been selling lots of stock - but it has mostly been the ex-CEO lately Michael Blair which would make sense for him to diversify now that he is not in that role but it makes me nervous to see him selling and no one buying at these depressed levels.

Fortunately or unfortunately this stock is not followed by any analysts.

So I know some of you go around looking for value - what is wrong with this company for them to be so strong operationally (excellent margins) and financially and yet the stock is tanking.

I see this stock as a big bargain that is only slightly speculative mostly because of the degree of dependence on one company (Ford). They seem to be very shareholder friendly.

I have decided to buy a few shares on dips in my speculative dividend bin.

Any of you have any thoughts on this company that is in the extreme value bin?

[doctrine]

I own shares in this and have been buying over the last few months. They have about $0.75 in cash and make $0.18 a quarter - at $1.75, they could buy themselves out in six quarters if they weren't paying a dividend. They have a contract with Ford until 2014 so they could keep paying the dividend and then buy the company out in 2014. Very little in debt as well.

There were a few big investors that owned 40%+ of the stock as of last year, and from what I gather, they're the ones that have been selling the stock. However, volume has really trickled down in the last month.

There is a huge risk as they essentially rely on a single company for 80% of their revenue. The stock could drop to nearly nothing, or it could double or triple. I like the odds given that they have almost no debt and so much cash. I probably have enough shares, but this could definitely hit $3 again and if they hit another contract, it's possible.

[londoncalling]

Here is my take on the company from the small research I have done. I put this one on my watchlist a few months ago.

Pros

div payout @ 40%
low debt
lots of cash
share buybacks
huge insider and institutional ownership
little analyst coverage (almost none of the bnn talking heads)
great value metrics

Cons

auto industry if the NA auto industry makes a full recovery could be a huge payout
limited income supplies (Ford main and huge % of their revenue)
erratic dividend stream (cancelled from 04-08 then a special then a divvy then an increase)
low volume
cost of labour vs proximity to customers (wages vs. outsourcing)
high dividend rate could mean danger
lack of insider buys

I had forgotten about this stock thanks for the reminder. It is an excellent value play but it is also a riskier one. I would not make it a large holding but if I had some speculative dollars and a long horizon it is a possibility

[PMREdmonton]

LC, I like your list of pros and cons and agree with most of them.

I agree that lack of analyst coverage and the micro nature of the stock make it more likely you can find a huge bargain. The value nature of the stock is not being advertised to the individual investor and the institutional investor is probably not interested in them.

However, on the con section you mention outsourcing but I don't see how it would be easily outsourced to a low-cost district without moving vehicle assembly very far away. So I can appreciate that is a risk for many manufacturing jobs in North America I don't see it affecting them in particular. The major outsourcing concern would be Ford closing their plant and moving elsewhere such as Mexico, but maybe that is what you meant in the first place.

As far as a high div yield suggesting danger you have to remember they have a PE of 3, no debt and a payout ratio of 40%. The only concern is whether they would be a value trap but I don't see that here right now. They should continue to be profitable so long as Ford and other manufacturers contract out these sub-assembly jobs. I also think the fact that they only recently instituted a regular quarterly dividend has kept them off of divy investors screens.

As far as volume, I see that being bigger concern in a less stable business and for an institutional investor who will invest a few million into a single company and then would be unable to buy or sell without major impact costs. For the small individual investor putting up $5-20K I don't think liquidity should be a huge issue.

[londoncalling]

LC, I like your list of pros and cons and agree with most of them.

I agree that lack of analyst coverage and the micro nature of the stock make it more likely you can find a huge bargain. The value nature of the stock is not being advertised to the individual investor and the institutional investor is probably not interested in them.

However, on the con section you mention outsourcing but I don't see how it would be easily outsourced to a low-cost district without moving vehicle assembly very far away. So I can appreciate that is a risk for many manufacturing jobs in North America I don't see it affecting them in particular. The major outsourcing concern would be Ford closing their plant and moving elsewhere such as Mexico, but maybe that is what you meant in the first place.

That is exactly what I was thinking.

As far as a high div yield suggesting danger you have to remember they have a PE of 3, no debt and a payout ratio of 40%. The only concern is whether they would be a value trap but I don't see that here right now. They should continue to be profitable so long as Ford and other manufacturers contract out these sub-assembly jobs. I also think the fact that they only recently instituted a regular quarterly dividend has kept them off of divy investors screens.

I am more concerned with the erratic div flow on again off again then the yield itself. Although the payout is safe there is a greater possibility that they could decide to cut it out entirely as they have done in the past. They do not have a long history of payouts so they have no div record to sustain. I agree that this accounts for the stock missing this type of screen. and is my biggest concern.

As far as volume, I see that being bigger concern in a less stable business and for an institutional investor who will invest a few million into a single company and then would be unable to buy or sell without major impact costs. For the small individual investor putting up $5-20K I don't think liquidity should be a huge issue.

volume can be a concern but as mentioned less so for a small investor.

If I had more cash to allocate I would probably be in but I am trying to stockpile some $ for some bigger and lisky risky plays by fall. Who knows If I do get an itchy trigger finger before the next divvy I may jump in.

[doctrine]

No surprise, these guys announced a share buyback.

http://www.stockhouse.com/News/Canad...aspx?n=8580924

Stock has been below $2, when they have about $0.80 in cash and earn $0.18 a quarter. This stock is so undervalued, the whole buyback of up to 10% of the public float is only about $0.13 a share - they were essentially able to cover off the 6 cent dividend plus a 10% buyback in a single quarter.

I've purchased recently at $1.77 and $1.73. Although risky, it's one of my favorite stocks to follow and would buy more if it wasn't my biggest position already.

[PMREdmonton]

No surprise, these guys announced a share buyback.

http://www.stockhouse.com/News/Canad...aspx?n=8580924

Stock has been below $2, when they have about $0.80 in cash and earn $0.18 a quarter. This stock is so undervalued, the whole buyback of up to 10% of the public float is only about $0.13 a share - they were essentially able to cover off the 6 cent dividend plus a 10% buyback in a single quarter.

I've purchased recently at $1.77 and $1.73. Although risky, it's one of my favorite stocks to follow and would buy more if it wasn't my biggest position already.

I bought some at around 1.65 or so. Then I bought some more at 1.75. I've been thinking about increasing them to a 5% weighting but for now have stopped at 2.5%. They are just such a screaming value right now. Based on their earnings I could easily see this being a $4-5 stock. The biggest overhang for them is negotiating an extension with Ford and hopefully diversifying their customer base a bit. Otherwise they seem to be extremely well run and are bleeding so much cash that they weren't sure what to do with all of it. Their ev/ebitda is 1 - I have never seen that before. Their PE is 3. Their dividend was 14% with a 40% payout ratio. Those are metrics that you just don't see in a company that is running well and not about to fall off of a cliff. I do think part of the issue in the fall of the stock was all the shares Blair was selling but he stopped in early July and then stock has taken off about 25% since he stopped.

I do think the divy and the share buybacks will be catalysts for this stock to appreciate. An extension with Ford probably means this stock doubles within a year. I do understand negotiations are ongoing but don't know of a timetable for an announcement. In the mean time you get to collect a very safe double digit dividend and watch the share count dwindle.

[Spidey]

Amazing coincidence that this thread appeared as I have been just checking out this stock after it appeared on a screen I put together. The one thing that worries me is that Ford appears to be their only client. I'll probably continue watching at this point but many of the fundamentals look very good.

[londoncalling]

Depending on the results of the next quarterly I may finally dip my toe in.

[PMREdmonton]

If Ford re-signs they are basically de-risked and you can expect a pretty rapid appreciation. The one thing that gives you hope about catching it before a big spike up is that there is very little institutional interest and there is no analyst coverage because their market cap is so small ($35M) and EV is even smaller ($23M). If anyone tried to buy up a big block of stock it would sky rocket in value so it just isn't feasible for these firms with Billions of AUM to take a stake here.

However, Ford isn't their only client They signed up with a wind power company to do some assembly jobs for them (read further upthread). However, the vast majority of their work is with Ford. I'm sure Ford doesn't mind dong business with sub-contractors since it is less unionized employees for them to deal with. I think the big issue is offshoring the production but the move recently has been manufacturing coming back to North America because of issues with IP, shipping costs, delays and poor quality control. It is also bad politics right now after Canadian and US citizens stepped up to bail out GM and Chrysler. While we didn't bail out Ford, they were able to use new terms negotiated for auto workers to win concessions from their own employees which have benefitted their bottom line - so I wouldn't expect any outsourcing for awhile but that doesn't guarantee they extend AM either.

So there is defnitely risk with this company but why else could you buy a company having enough EBITDA to buy themselves out in a single year.