Wednesday, March 18, 2015

I Double You, G!

A stock I have been buying recently is IWG Technologies (IWG), a producer of aircraft water systems. The company is the "world’s leading provider of flight-certified potable water treatment units, on-demand water heaters, aircraft water pumps, a compact water module, and innovative potable water components", with more than 3000 of its units installed on airplanes worldwide.

But the company does not trade like a leader. It has a P/E (ttm) of just 10 despite a net cash position and expectations for growth. While sales increased 12% last year, income fell as the company had to spend more in anticipation of increased deliveries in 2015. IWG recently launched some new products which it expects will help achieve the company's sales growth rate of 10-15%.

The nature of the company's products is such that there appear to be barriers to entry in this field. Companies with existing contracts with aircraft manufacturers get to spread their fixed costs (design, manufacturing etc) across more units. Furthermore, customers likely don't want to risk dealing with new companies in such a small but important component of the aircraft. As such, IWG competes with few competitors with many of its products.

Another tailwind in IWG's favour is currency-related. Most of the company's costs (along with its financials and share price) are in Canadian dollars, but 4/5ths of its revenues are exports in US dollars. Thanks to some massive US dollar appreciation of late, the company should see some benefit to the bottom line as a result. Note, however, that the company does hedge a portion of its US sales, and so the benefits of the currency moves may not be as pronounced as quickly as one might otherwise expect.

I plan to attend the company's annual meeting on March 25th. Come and say hi if you see me!

Disclosure: Author has a long position in shares of IWG

1 comment:

Anonymous said...


Thanks for the idea.
Had a quick look, but seems the company is not creating any additional value by growing.So I see no scale effects.
Seems also very correlated to overall state of economy.

Sales $4,5m
Net $808k
depr. $ 50k
capex $ 65k-
FCF $793k

Sales $7,4m
Net $970k
depr. $292k
capex $ 526k-
FCF $736k