Yahoo Finance
Filing
Oct. 01, 2019
2019 Q2 Data
Price: $0.44 Shares:46m, Cap: $20m, 3.3m options at $0.43. 5.2m warrants at $0.60
1.Business Information
(1) History
The company was founded by Hadi Abassi in 1999 as a roof truss manufacturer in BC. Like many others, roof truss manufacturers are small companies scattered across the country because it is uneconomic to transport to long distances over 500km away.
In 2017, the company achieved $8m in revenue and close to $1m in income. Also, as many owners looking for retirement lately, Abassi saw the opportunity to consolidate those small businesses. So he took the company public in late 2017 and started acquiring others.
By now, it had acquired 5 different small truss and window manufacturers all across Canada and had an annual run rate close to $50m in revenue.
In late 2018, the company hired Dirk Maritz who had previously managed bigger scaled companies as the new CEO. Abassi now is EVP and still seems very actively involved.
(2) Major business.
Roof trusses: Roof truss is mainly used in residential houses. Its size is relatively large and uneasy to transport. The manufacturing of roof truss is not fully automatic. There is quite some labor involved and there is room to reduce cost and improve efficiency. Currently, roof truss counts 75% of its total revenue.
Floor truss, wall panel & windows etc: 25% of total revenue.
Generally, the company's Q1 revenue is the lowest and Q3 revenue is the strongest.
(3) Debt and Credit Facility.
Around $9m in debt and $500k in annual interest expense which is 5% to 6%.
(4) Employee numbers
(5) Industry comparison.
The structured building components industry is not very large. In the US, there are some big players. In Canada, there are mainly small companies that generate an average of $3m in revenue.
Stark Truss: A eastern us truss company that has 12 locations currently. Founded in 1964. It might have around $150m in revenue.
There are some machine and plate suppliers to this industry:
Mitek: Major supplier of truss manufacturing equipment, plate, roof truss design software, etc. Its design software seems most famous. The company is partnering with Mitek to improve its efficiency.
Alpine: Blongs to ITW (Illinois Tool Works). A Fortune 500 company.
Randek: The company developed some more automatic systems. However, it doesn't seem been widely used.
(6) Major events
2. Management
(1) Key person
Dirk Maritz: current CEO. Previously he worked for SMS equipment for 6 years. There is not much about his previous experience, but it was told that he was managing 2000+ employees. Overall, he seems pretty energetic and genuinely intelligent. He seems did quite a good job consolidating all the manufactures.
Hadi Abassi: Founder and current executive VP. He seems still actively involved in certain aspects of the business.
(2) Insider ownership & Compensation
On Dec. 2018, Founder Abassi holds around 7.4m shares which were 17% of total shares by then.
CEO Maritz didn't hold any shares at the end of 2018 since he is new.
Insiders own 16m shares in total. Around 35%.
3. Financial data.
As of Q2 2019, the company generated $9m in revenue and around $1.5m in EBITDA. It generated a small profit in Q2 and the first half of 2019.
4. Valuation and comments
(1) For the full year 2019, it is expected to generate around $40-$45m in revenue and around $5m to $6m in EBITDA.
(2) Assume by 2022, it can achieve $100m in revenue and $17m in EBITDA. Assuming $20m in debt, 100m shares, $170m EV. It can support a $1.5 share price by then.
5. Risk
(1) The slow down of the housing market will likely have big impact on the company's revenue.
(2) The consolidation of new companies that been acquired might not going well.
(3) The debt used for acquisition might cause issues if not controlled well.
6. Conclusion
The company was managed quite well so far. It does have very good potential to grow very well. However, it is still very early and it remains to see whether the management can deliver their promises. The current price is very acceptable as long as the company can remain profitable.
7.Links
