Tuesday, April 26, 2011

International Baler: Still a value (even when it trades at a dollar a share)

Now that International Baler has gone to $1.00 a share (even if it is only on a handful of shares), since my original write up at .50/share let's review some things, as I have not written on the company in a while.

In the most recent quarterly filing from International Baler, we can see that the company has done a tremendous job in the past few years...

Year over year, the company's sales backlog has more than doubled, going from a nicely profitable $1.59 million to an astounding $3.295 million (more than what was recently the company's market cap)! Additionally, the company has generated some nice amounts of cash, as is a result of said backlog and customer deposits. I would imagine that the large order would be a relatively high margin, niche type of baler, such as the larger synthetic rubber balers that the company has sold all around the world; to places such as China, Russia, and the like.

Presently, their income stream has been rather nice, with the company having a P/E of ~16. While that isn't super low, it isn't bad, considering that over half of the company's market cap consists of cash. Remember, the company is still debt free.

With the glut of cash on the balance sheet, I wouldn't be suprised if the company would instate a dividend, or even spend some money to expand and improve their facility. When I went to Jacksonville to see the facility, I was skeptical that I would actually be in favor of such a project (which has been mentioned in previous annual reports), however, once I saw the efficiencies that having new cranes, more covered space, and the like would have, I was immediately won over. If the company would be able to not store things outside, where they generate surface rust, which needs to be cleaned, that alone would make the facility run more smoothly and profitably (take a look at the facility on Google Maps).

As another option, the company could always be taken private by the controlling shareholder. In that event, I am sure that there is no way that the company could ever be taken private below book value; additionally, as long as the company is earning money (which, historically, it does a great job of doing) they will have to be taken out at a nice premium to book.

There is presently an outstanding lawsuit, however, it has been turned over to the company's insurer, which, should protect the company from any significant losses.

I am not shocked one bit at the recent developments. The company is top notch, with a great product and wonderful management. I am happy to own shares in the company, as even at a dollar a piece, they are still undervalued. Stay tuned for more developments from these guys, as it will be really fun to see what revenue and profitability are in the coming quarters!

Lastly, there is a book called "The Goal" talks a lot about smartly making things efficient, which, is along the same lines of the type that the company is going for. As an example, making a machine in a production line 35% more efficient, can quite often make no improvement to production, if the process taking place afterwards has no room for better performance. Thanks go out to my brother for telling me about the book.

Disclosure: I am long IBAL. This is not advice of any kind. Always do a ton of your own research when even thinking about anything that I do, say, write, or so much as think about.


Saj Karsan said...

Good call on this one!

Axster said...

For Int'l Baler's business to really improve, the Executive Management need their compensation to be partially tied to results. Until that happens there is little incentive for senior management to step on the gas and to take some reasonable risks that could pay off for all shareholders. Only the CFO has skin in the game after exercising his 250,000 options. The CEO and Head of Sales currently have little apparent personal incentive to step it up.
The controlling shareholder, Mrs. LaRita Boren (Rest In Peace), recently passed away. At the April shareholder's meeting her son, Lael Boren, was elected to replace his mother on the Board by virtue of her husband's majority vote. I don't know Lael but I can only hope this younger generation of the Boren family will be more willing to encourage/allow IBAL management to take the necessary risks to build this company (which will require the aforementioned responsible incentive "carrot").
Thank you, Jeff, for expressing your views on this potential gem of a company, of which I am a long term shareholder.