Jewett-Cameron Trading Company Ltd. is the holding company for Jewett-Cameron Lumber Corporation (JCLC).
The four segments of business are :
Industrial tools and clamps – MSI-PRO Co. (MSI)
- Operate from rent space.
- Products sold to retailers under brand name « Avengers Products ».
- Use current customer base to enlarge revenu with tools distribution. New products launched in 2007. Still new division.
- Efforts are very succesfull, increase of 81% in sales for 2010.
Lawn, Garden, Pet and Other – JCLC
- Operate from owned land/building of 5.6 acre.
- Wholesaler of wood and manufacturer of specialty metal products (contrually linked to subcontractor)
- Business seasonal. High season from feb to august. (3rd/4th quarters)
- Some patents differenciate JCLC from competitors in metal products for fencing.
- Sales are almost flat (3% increase) but margin is alot higher due to good cost control (growth in operating income of 35%). This division cost reduction created almost all the profit for JCTCF in 2010!
Seed Processing and sales – Jewett-Cameron Seed Company (JCSC)
- Operate from owned land/building of 13 acres.
- Selling seeds (regular throught year) and cleaning seeds (august with high profitability)
- Not a good year in 2010. Flat sales from 2009.
Industrial wood products – Greenwood Products, Inc.
- Operate from rent space
- Sensitive to downturn in US economy.
- Inventory in non-owned warehouses throughtout US.
- Shiped to customer on a just-in-time basis.
- During fiscal 2010 droped to 11% (2010) from 24% (2009) of total segment sales.
Likewise, Greenwood’s total sales for fiscal 2010 and 2009 were 22% and 27% respectively of total Company sales.
Current assets of 18.95 M$ against a total liability of 1.6M$. Out of which cash is accountable for 8.71 M$. In fixed asset most of the assets are made of land and building in North Plain, Oregon. There are over 18 acres of land owned and written in books at purchase price. This land is probably (if not surely) worth more than book price.
Top ten customers are accountable for over 58% of total sales. These customers are loyal but this increase the risk on profitability. Top custom accounts for 18%.
The company have a flexible cost structure since it does not manufacturate its products but have subcontractors do the job. 2 out of 4 divisions run from rented spaces. Employee count stops at 47 for revenues of over 12M$ a quarter. That is a good revenu by head!
Current CEO and corporate secretary are with the company since its original purchase in 1984.
CEO – Donald Boone (27% of the stock)
Corporate Secretary – MICHAEL L. NASSER (11%)
Employee fund – (17% of the stock)
Total in-house ownership : 55%! Cannot say they’re note personally involved in the business or that they have no incentive for shareholder returns!
High customer concentration.
It has no clear barriers to entry except for speacitly metal products
The business is seasonal in 2 divisions (feb to august, august being the higher month).
The interest of the CEO/CFO may diverge from stockholders interest but history proves against it.
No dividend have ever been given and stock may be issued for purchase of other company at discretion of CEO/CFO without shareholders approval.
The opportunity exists because
It is unclear what management plans to do with the mountain of excess liquid assets that have been on the balance sheet since 2005.
The company intends to buy back shares under 7$. No special or regular dividend is planned.
Revenues were low last year but up 25% this year.
Small cap without trading volumes keeps most of high venture capitals out of this stock.
- Stock at current price (9.30) gives a market cap of 21M$ for full company which is about book value.
- The company has always been profitable.
- Cash is a security but will not be given back in form of dividends.
- Average EPS for the last 4 years was 0.89$ so the company is sold at 9.5 times historical profit per share. With this company out of recession in a year, divisions generating debts going back to null profit will raise full company profit up to at least 1$ per share. Full potential price should be around 10-12 times the profit per share at around 10 to 12$. Potential capital growth of 0.70 to 2.70$ per share (9% to 29% ) in an horizon of 1 year to 2 years max.
Disclosure : author have a position in JCTCF.