RE:RE:Potential Growth Story? I was very impressed by their top and bottom line.
My caution continues to be the asbestos claims. In Q1-21, they settled 63 claims for $4.2m which is an average of $67k per claim which is more than double the average of $30k per claim in each of the 4 quarters in 2020.
In Q2-21, you'll have to piece some info together, but in the MD&A, they say they resolved/settled 116 claims in the 6 month period. Subtract the 63 settled in Q1-21 and you have 53 settled in Q2-21.
At a total settlment cost of $2.5m for the quarter, you have an average claim cost of $46k. Down from Q1-21 but still 50% higher than in each quarter in 2020.
With only 53 claims settled in the quarter, this is the lowest amount of claims settled in a quarter since I've kept track since Q1-18. Q2-21 was the second lowest settled so there is a declining trend of settled cases which is only delaying the expenses to future periods (and improving profits in the short-term).
With the receipt of new claims, the total outstanding claims is almost 2,000. With an average settlement cost of $46k, there is a potential unrecorded liability of over $90m.
Pure speculation here, but they could easily not have achieved the $10m EBITDA quarter if they settled more claims. And with the average cost of the claim increasing, the increasing amount of new claims and increasing balance of unsettled claims, I'm choosing to be on the sidelines but very intersted as to how the next few quarters will unfold. I wouldn't be surprised if they continue to release great results for the rest of the year, collect fat bonuses and use the next fiscal year to take a bath and push through as many claims as they can.
Whatever enterprise value you're assigning to the company, I'd take an easy $100m - $150m off because of the claims and if the oustanding amount continues to increase, lookout.
If anyone has money in this, it would be wise to ask managment on their call as to why the average claim cost is increasing and when they expect the o/s claim number to decline. There's no end in sight based on what the public knows.