Yahoo Finance
Filing
Nov. 25, 2019
2020 Q2 Data (Year-end: Mar 31)
Price: $0.18 Shares:34m, Cap: $6.1m
1. Business Information
(1) History
This company found by Gennaro Magistrale and maybe some others around 1989 as a paper converter that creates disposable paper or fiber products for healthcare usages like the hospital, clinics,s and nursing homes.
By 1997, it reached sales of 1.5m and became profitable. By 2000, it generated $2.8m in sales and $250k in profit which is its highest income by then. Since 2002, it began producing personal hygiene products like hand towels and tissue, etc. By 2006, it reaches 6.3m in revenue with 2.7m in personal hygiene and 3.2m in health care. However, its profit topped 270k in 2004 with a gross margin of 30%. After that, both margin and profit are going down.
From 2006 to 2015, its margin decreases to around 20% and stay there. Profit usually stays around 100k/year. Revenue is kind of flat between 6m to 7m levels.
In 2015, it invested over 6m, mainly through debt, in a new machine to produce air-laid paper. This created the third product category for it. Also, it helped to increase the margin. By 2019, it reached a revenue of 11m with 3.4m in air-laid paper and each other category around 4m each. Gross margin creased to 21% and net profit around 400k with depreciation close to 690k which is higher than 360k in CapX.
In 2Q 2020, it reached 5.7m in sales with each category counting around 2m. The air-laid paper continued to grow and exceeded the other two categories in Q2 2020. Gross profit is around 22%. Net income is around 260k with the depreciation of 340k vs 340k in CapX.
Starting Sept 2018 which is Q2 2019, it started to pay 0.0025/share of dividend per quarter.
(2) Major business.
1. Hospital &Clinic & Nursery home product: This shows as two categories in its statement. But I think they would be better just as one segment. It has been very stable since the beginning. Now it has around 4m/y sales around 1/3 of the total revenue.
2. Personal hygiene product: Started in 2002, it grew pretty well to 2.7m in revenue in 2006. After that, it stays there until 2015 it exceeded 3m in revenue. Mainly because of the fall of CAD$ to USD$ starting at that time. Currently, it also counts for 1/3 of its revenue at around 4m/y sales.
3. Air-laid paper: Started in 2016. It grew very rapidly to over 3.4m in revenue in 2019. In 2020, it should be over 4m in sales. The growth seems slowed a little bit.
(3) Debt and Credit Facility.
In Q2 2020, it has 2.7m in debt, down from the peak 5m level in 2016 which was used to purchase the new air-laid machine. The interest expense is around 100k/year.
(4) Employee numbers
(5) Industry comparison.
(6) Major events
2. Management
(1) Key person
Gennaro Magistrale is still the CEO. There is not much information about him.
(2) Insider ownership & Compensation
Gennaro Magistrale owns over 7m shares. around 22% of total shares. In 2019 he earned 250k in compensation.
3. Financial data.
4. Valuation and comments
(1) The company is truly a nano-cap. It took over 20 years to reach 10m+ in revenue. However, it is was doing quite well through different periods. For most years, it remains profitable. The 2009 financial crisis seems not affecting it that much. It seems very recession-resistant.
(2) Currently, it is trading around 12 P/E which is quite a fair price if a stable business. However, the air-laid paper product is still growing very well. It has very good potential. Assuming it reaches 15m in sales by 2022, it might be able to generate $1m/year in profit. The share would likely be double by then.
(3) It started to pay a dividend last year which never happened before. It shows some confidence from the management. Currently, it yields over 5% until the share price exceeds 0.20/share.
(4) The new air-laid machine investment seems a success. It increases its margin and makes it more competitive.
5. Risk
(1) The low CAD$ to USD$ rate definitely helps its business. If CAD$ rises again, it will hurt its business. From 2005 to 2015, the CAD was generally much higher than now which coincidently the company was not doing very well.
(2) The paper-laid product might not grow as expected in the future.
(3) Generally, it is a commodity business that is very sensitive to price and the competition is tough.
6. Conclusion
Overall, the company is well-managed. Although historically it is very slow, it might be able to do well in the coming years. The current price is very reasonable.
7. Links
Update
Nov. 25, 2022
Q2 2023 data
Price: $0.25. Shares: 35.6. Cap: $8.9m
(1) The past 3 years turns out quite dramatic for this company. During the pandemic, the company invested around $2m into a new wet-wipe product line and secured a big government contract(Aug. 20 to Jan. 21) for around $6m. At the same time, because of the restaurant's closure, its air-laid paper product sales drop from $4m in fiscal 2020 to just $1.8m in fiscal 2021. Overall, the company still made over $2.6m in fiscal 2021. As a result, the stock skyrocketed to over $1.3 at one point.
(1) The past 3 years turns out quite dramatic for this company. During the pandemic, the company invested around $2m into a new wet-wipe product line and secured a big government contract(Aug. 20 to Jan. 21) for around $6m. At the same time, because of the restaurant's closure, its air-laid paper product sales drop from $4m in fiscal 2020 to just $1.8m in fiscal 2021. Overall, the company still made over $2.6m in fiscal 2021. As a result, the stock skyrocketed to over $1.3 at one point.
(2) However, in fiscal 2022, almost everything reverts back to pre-pandemic. The wet-wipe sales disappeared and the air-laid paper sales recovered and grew to $5.1m. Overall, the company made a similar profit of around $800k in 2022 which is comparable to 2020.
(3) In the first 2Q of fiscal 2023, the company's air-laid paper sales raised to $3.5m. OC is over $1.5m. CapX $200k. Leasing&Interest $200k. It generated over $700k in real earnings in total. It also indicated a labor shortage in Q2 which has been eased lately. The demand for its product remains strong.
(4) Currently, the company is paying $0.005/share dividend/quarter which is 8% based on a $0.25 share price. It also paid down most debt with little debt remaining (<$1m).
(5) Currently, the company is trading less than 10 P/E based on the TTM number. The air-laid product line continues to grow and remains strong. The current price is very attractive and comparable to the $0.18 level it was traded at 3 years ago.
Risk:
Risk:
(1) The top 2 customers account for around over 50% of its sales. The loss of any of these customers will affect the company.
(2) As indicated by the company, the labor shortage has affected the company's results greatly. It is not certain whether this could be solved in the short future.
(3) The air-laid product line might not perform as good I expected.
