Wednesday, February 17, 2016

Biorem

I have been accumulating shares of Biorem over the past couple of months, as I believe it to be an undervalued company.

Biorem designs and makes equipment to eliminate pollution. It uses bacteria to break down the pollutant naturally, and is therefore a pretty green-friendly company.

The company recently installed new management, and has since cut overhead to become profitable. On a trailing-twelve-month basis, the company has generated operating income of $2 million.

Under previous management, the company operated at a loss and needed cash injections. As a result, there are warrants and convertible debt outstanding. Assuming exercise and conversion, the company would have 38 million shares outstanding, which give it a market cap of $11 million.

Note, however, that conversion would wipe out most of the debt, and that the exercise of the warrants will result in a higher net cash balance.

As an added bonus, because of the aforementioned losses in previous years, the company has tax loss carryforwards. As such, it has not had to pay taxes and won't have to for a while.

Putting it all together, the company appears to trade at an ex-cash P/E of around 5. Considering backlog has been increasing in recent quarters (currently at $17 million, versus $14 million in the year-ago period) and the company continues to generate cash, I believe the company to be rather cheap!

Author has a long position in shares of BRM

1 comment:

Dominic Nadeau said...

Really like this one. I've came in small right away on your blog post. I'll dig in today but already the stock has ran up.
Thanks.

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