OTCPK:PILBF - Post by User
Post by
teachon Jan 30, 2016 9:34pm
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Post# 24509562
What the market is expecting from Polaris in 2016
What the market is expecting from Polaris in 2016Sales of 3.5 million tons at average price of $15 US
Cost of good sold of $12/ton
SGA of $5 million
Net profit of $4.5 million or .05/share US
If US/CDN exchange stays at 1.40, then we have .07/share profit.
Any significant deviation from this and the share price will change dramatically. The market is not valuing their potential for future growth very much. They will have to earn a higher multiple by delivering better than expected results.
When I looked at Polaris' medium term projections from the May 2015 presentation, they are looking to increase volume to 5 million tons and then to 6 million tons. Prices are projected to increase to $16/ton and then $17/ton.
If they can hit $17/ton at 6 million tons per year, it is easy to see a share price of at least $5. That's with a gross margin of 32%, and operating margin of 23%. Since they have not debt and probably won't have to pay tax for a while, they could actually have a net profit margin at 23%. It seens high but when I looked at Vulcan's margins in 2006/2007, they had similar numbers (not net profit margin because they had to make interest payments and pay taxes). So it is not unrealistic that this could happen.
Over the decade ending 2011, Portland Cement Concrete (PCC) quality aggregates fetched an avearge price of $15-19/ton in San Francisco and $13-16/ton in Los Angeles. We seem to be at the $15 range in San Fran now with expectations of future price hikes.
Los Angeles, I'm not sure about. There seems to be a maximum price before supply from other locations becomes affordable to truck in. I think this will keep a lid on prices (eg. Palmdale which is 65 miles away has had an average price of $10/ton. It costs $4.50/ton to truck in aggregate for every 30 miles, so to bring it to LA will cost $19 ton average. POLB is about 30 miles from downtown LA, so if Polaris charges $15/ton plus an extra $4.50 for trucking, you get parity with a place like Palmdale. Palmdale also has 26 years of aggregate reserves.)
This abundant supply in neighbouring areas is the reason that Polaris is trying to differentiate their product from regular PCC quality aggregate. If they want $17/ton, they need to show their product will mean builders can use less to get more, or there is some other structural benefit that justifies the price. I wonder how many upcoming projects in LA would find it makes financial sense to use the better quality aggregate that Polaris offers.
So many questions!! I wish I knew more about the aggregates and construction business in California.
Can anyone add/remove from my analysis. I'd love to know if I've made some mistakes or missed something.