Wednesday, April 14, 2010

A Lot To Like

Imagine a company that doesn't hand out stock options, but where management owns a significant but non-controlling stake in the company. Now imagine that its CEO has been at the helm for almost 25 years, slowly building up his personal wealth by growing the company's stock by double-digits annually, employing little to no leverage in the process.

Such situations are rare, but they do exist. Now imagine that you can buy a stake in such a company at an attractive price, due to the fact that its industry is going through a cyclical downturn.

Consider Jewett Cameron (JCTCF), a company that sells wood, metal, seeds and industrial products to retailers, manufacturers, and builders. Revenues for this company have plunged, as it was exposed to two groups that have been particularly hard-hit by this recession: boat manufacturers and home builders.

But Jewett has shown an uncanny ability to weather the storm, as it remains profitable despite a 30+% drop in revenue. The company was able to reduce its headcount by over 20%, and fold in some of its operations into its owned facilities, thereby reducing leasing costs.

While the company both trades for and has shareholder equity of $18 million, its book value is likely understated due to the value of its land holdings. Most of its land holdings were acquired and built in 1995, and have been carried at cost since then. But the company owns over 18 acres of land, including over 140,000 square feet of office, manufacturing and warehouse space just a 25 minute drive from downtown Portland, Oregon. The fact that the company has been able to derive average returns on equity of 15% over the last five years suggests that either the company is getting more use out of its land than the land carrying value would suggest its worth, or that it has some competitive advantage. After subtracting the company's cash balance, the stock trades with a P/E under 10.

When the incentive structure for an able management is properly set up, the potential for success increases significantly. In the case of Jewett Cameron, management shares with other shareholders both the downside risk that comes with failure, and the upside potential that comes with success. Furthermore, with a strong record of success over the long-term, management has proven its ability. With the current economic situation keeping revenues low, shareholders may currently be offered an opportunity to buy into this company at an attractive price.

Disclosure: None


K2 said...


Looked at CBM at all? 1.3x book, 4.2x ltm ebitda, 120 debt, 127 mkt cap, 52 cash, debt due in 2012. cash flowing, announced bad Q4 earnings, lower rev/profit in 2010.

Description form bbg: Cambrex Corporation supplies health, agriculture, and biotechnology products to
the life sciences industries. The Company also produces specialty chemicals
through its subsidiaries in the United States and Europe. Cambrex's products
include cell culture and endotoxin detection products, pharmaceutical
ingredients, and chemicals used in health, beauty, and food products.

From website, seems like one big prodcut is this "camouflage" coating they sell to generic pharma companies that masks the taste of bad tasting stuff.


hey saj, this co. sure looks awesome! way better than parlux(i know its easy to comment rather than fdind undervalued stocks but hey ! im here to learn)

paul said...

Why did you decide not to puchase any of this? Thanks!

Saj Karsan said...

Hi Paul,

I've actually wanted the price to come down a little more. I might have missed the boat now, though.

Paul said...


Thanks for the insight. it's very much appreciated.

I wanted to pass this along too, but you may have already came across it.

Saj Karsan said...

Ha, you beat my post on the subject by a few hours, Paul:

That release is part of the reason I feel I may have missed the boat.

Dominic Nadeau said...


have you invested in JCTCF finally?
Do you think this company is trying to get private? Managers hold 48% and employee fund around 20% and management has the control of the fund.

Could it be a great catalyst?