Jewett Cameron – simple business, clear results

Since I started writing articles on this site, some stocks traveled with me along the way. Some came in my “pretorian tent” and stayed in. Some just passed by. Three of the elite stocks that came under my attention and stayed in are Fortress Paper, Gencor Industries and Jewett-Cameron. The last one of them released its fiscal year 2011 annual report earlier this month. Is the original evaluation fair or am I misunderstanding some key information?

Description

Company

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 revenue with tools distribution. New products launched in 2007.
  • Results are somewhat mitigated. The recession surely did not help but….

Lawn, Garden, Pet and Other – JCLC

  • Operate from owned land/building of 5.6 acre.
  • Wholesaler of wood and manufacturer of specialty metal products (contractually linked to subcontractors)
  • Business is seasonal. High season from february to august. (3rd/4th quarters)
  • Some patents differentiate JCLC from competitors in metal products for fencing.
  • Sales are almost thriving but margin is it by higher material and transportation costs. This division created almost all the profit for JCTCF in 2011!

Seed Processing and sales – Jewett-Cameron Seed Company (JCSC)

  • Operate from owned land/building of 13 acres.
  • Selling seeds (regular through year) and cleaning seeds (august with high profitability)
  • Better year in 2011. Higher grain selling price provided a new type of crop for farmers and some switched to grain crops. Cleaning sales were higher.

Industrial wood products – Greenwood Products, Inc.

  • Operates from JCTCF other offices to reduce expenses.
  • Very sensitive to downturn in US economy.
  • Inventory is stocked in non-owned warehouses throughout US.
  • Shipped to customer on a just-in-time basis.
  • During fiscal 2011 dropped to 10% from 2010 which was the worst year in history for Greenwood.

Management

Ownership

  • 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: 52%! I cannot say they’re note personally involved in the business or that they have no incentive for shareholder returns!

Management fees

  • Total management compensation is at an healthy 360k total.  I do not foresee any issues concerning those management fees.

Financials

Current price 8.02
Number of available shares 1,908,457
Market cap 15,305,825.14

Balance sheet

Measurement

Value (m)

Per share

Price to value

Net Cash

3.7

1.95

4.1

Net Current Asset Value

14.9

7.84

1.02

Net Tangible book value

16.97

8.90

0.90

Revenues

Measurement

2011

2010

5y average

Estimated

Diluted Earnings (million)

0.902

1.983

1.874

2.3

Earnings per share

0.44*

1.03

0.97

1.2**

P/E

18.2

7.7

8.18

6.69

* Including extraordinary charges of 1.4M. ** Excluding share buyback.

 

 

Cashflow

Measurement

2011

2010

5y average

Estimated

Cashflow from operation (millions)

1.63*

2.67

2.85

3

Cashflow from operation pershare

0.85*

1.39

1.48

1.56

P/FCF from operations

9.43

5.77

5.41

5.14

* Including extraordinary charges of 1.4M.

Estimates

Future profitability

  • Sales growth at 0%
  • Share repurchase at 0

Company estimated value

  • The estimated company value is calculated from a 0 growth perspective.  The lower end of the expected share price does not include any share buyback while the higher end of the estimation is an « ex-cash » price (cash is added to P/E ratio to determine enterprise value).
  • The margin of safety is mostly comprised of net current asset value (representing 25% of the share price) and fixed asset value (underestimated related to amortization of old buildings accounted at purchase price).

P/E of 8 without share repurchase: 9.6$/share P/E of 8 ex-cash : 11.52$/share

Expected profitability on investment: 1.58$ (20%) to 3.50$(43%)

 

Disclosure: Author is Long JCTCF

 

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