RE: CommentsThere sure has been a whack of messages on this company the last few days. It is difficult to keep up with them all and all the good points raised.
First, I would like to say that after listening to the CC, I am turning more positive about the recent share issue as I can see some very good reasons for needing more capital when viewing the potential expansion plans and business opportunities moving forward. I still think the warrants were terribly under priced which is not fair to the long term retail investors.
I certainly do think, as I mentioned previously that there needs to be some polishing in the CC presentations, question responses and guidance given for future purposes. I also think there needs to be notes provided in the quarterly reporting. Notes that explain in detail such inherent risk or considerations as the effect of currency fluctuations on the business. We need to be informed and we shouldn't have to kill ourselves seeking this information. Some companies do an excellent job of providing full disclosure to shareholders in every quarterly report, take a look at BWT as an example. Bennett falls short on this issue.
Relating to the comments by whgumby on the shortfall in revenues. If the US$ revenue also went up by 50% on a straight up exchange method and the exchange rate declined 20% then the net result is an increase of only 20%. $1.00 X 1.50 X .80= $1.20
Paul and Lr7 mentioned some good considerations but other factors are higher fuel cost & the fact that each contract is individually priced in advance and some include transportation and others do not. From past experience I do not think there is much mark up in transportation cost. Bennett has indicated in the past that it is more of a flow through charge. I am not even sure if it is included in the company rev's. Does anyone know for sure? There are also other parts of the business that are coming into play here such as MRR, the soil brokerage and as Paul mentioned the consulting management fees.
While the guidance for FY2004 is for net margins of 28%, it seems unlikely that this business can keep providing those lofty levels indefinitely. I expect as the business becomes more diversified that those margins will trend lower but as long as they can keep growing the EPS at a high rate then I will be a happy camper. There are very few companies in existence that can boast 28% net margins.
The issue of JB shifting his role is positive. He can do what he does best and hopefully a new CEO can provide the polishing I spoke of earlier to this business. Certainly an area for improvement would be to produce better investor communications by the entire management team. They are often very unclear in the CC's.
The forex issue is of concern moving forward and this may prove to be the biggest threat to maintaining the net margins although considering the massive downward shift in the US$ yoy for Q4 they still achieved net margins in that Q of 29%. However if you remove the one time item from IT corp of $1.3M from both rev & net earnings, you would get a new NM of 24.7%. Ultimately future NM's will depend on things such as product mix, forex, fuel cost and pricing power.
The issue of soil in the storage facility is a question mark. I do not see how they could have processed 14K tons in 42 days in Q1 when they processed 24K tons in 92 days in Q4 running at a record capacity utilization. It does not add up to me. If the provided numbers of 8K remaining are correct and I am not convinced they are then it is possible they could run out of soil but this is a short term concern. Investors in this company are too focused on micro issues IMO.
The backlog issue is a perfect example of confusion around this stock and poor investor communications. On Nov 6, 2003 they reported the following in an update to investors "Currently the Company is in possession of approximately $260 M Cdn ($195M US) of contracts that are expected to ship into our facilities by the end of 2005."
Now they tell us on Feb 12, 2004 that they have $160M in "signed PO's". Clearly there is a difference in the backlog between "signed PO's" and "contract's". The backlog did not decline by $100M Cdn in 3 months. If they lost a major contract that they had previously recorded then that is material and would have to be disclosed immediately upon confirmation. Clearly GE is putting a muzzle on BEV and making it somewhat ackward for them. However I think much of what Bennett is doing moving forward these days is guided by what works for the GE business and possibly other potential contracts such as that with GE. I am very comfortable over the backlog issue.
I posted a message on the Yahoo board this morning that contained the following comments;
I am not sure what the fair valuation multiple is for BEV/BEL. It is not 45 despite the growth rate but it is also not 20 or less. At Friday's close of $25 Cdn and ttm "basic" earnings of $1.15, the multiple is 21.7. IMO this is too low for a company with ttm net margins of 26.8%, ROE of 32.9%, no net debt, L/E of only 0.29, ROA of 25.6% & forward 12 month EPS growth of about 40%.
I could argue that they may well be able to attain average annual EPS growth of 40% or better for the next 3-4 years. How? They pretty much have it locked up for the next 2 years with Belldune and other expansion parts of their business. The Sydney Tar ponds should come to bid over the next year. I do not think anyone else can competitively bid against Bennett for that business for too many reasons to list here. This will almost certainly bring another plant on stream. Then there is Kirkland Lake, if the new Ontario government moves ahead on the proposed legislation changes then Bennett will immediately proceed with another submission for a facility at KL. There are other sources of new revenue that they are working on as explained in the CC.
Cheers!!!