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Avram Fisher, Founder & Portfolio Manager of Long Cast Advisers, is a former equity analyst at CSFB and BMO covering industrials and business services. He has prior experience in private equity; as a corporate governance analyst; as a writer; reporter and private investigator; and as a lifeguard and busboy (I still clear plates when my kids don't). This blog is an open book of ideas about patient investing and about starting up a small-cap focused RIA. It is part decision-diary, part investment observations and part general musings. Nothing on this blog is a solicitation for business nor a recommendation to buy or sell securities. It is simply a way to organize and share thoughts with an expanding audience of independent, patient and talented small cap investors. www.longcastadvisers.com

Tuesday, June 17, 2014

ESWW: Financial information to follow up my prior post

I previously wrote about Environmental Services Worldwide. To summarize the attributes that make it appropriate for a patient investor ... 

very small share count, just 125,000 shares outstanding 
very small market cap, less than $10M depending on bid / ask 
strong balance sheet, about 1/3rd of the market cap is net cash 
low valuation, less 1x EV / EBITDA
growing sales / EBITDA / margins 
a real industrial business, manufacturing diesel particulate filters with verification from California Air Resources Board 
shareholders and board dominated by sophisticated institutional investors from Apollo Group (the PE) and Apollo Investment Management (the BDC)

I don't want to overlook the real risk of dilution here; the company's outstanding debt plus recent subscription rights plan can convert to an additional 153,000 shares of stock valued at up to $80 / share when it comes due in 2018. This would essentially double the share count. But even assuming full dilution, and the resulting doubling of valuation, it still remains attractive. Furthermore, since the conversion price maxes out at $80 / share, buying below that aligns shareholders with debtholders interests. 

Here are the company's quarterly financials, courtesy of FactSet: 


1 comment:

  1. i'm told: "Donaldson estimates the Heavy Duty Engine/Mobile filtration market at $8 billion." I reckon that includes many more categories than just the DPF market but it offers a spend on the overall market. it's not small.

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