Domenic: If you're still checking this thread, here is something of interest. Sorry it's so long.
Subject: **Bidding On Bay Street** May Feature: Stackpal International
Inc.
Date: Sun, 18 May 1997 14:34:26 -0300
I was not looking for another 'micro-cap' stock but this one was recently
sent my way by one of my best contacts and the more I looked into it, the
more interested I became. Cheap & speculative (and this is NOT a
speculators market!) the usual rules apply: buy low or not at all, do not
chase the stock (decide on a price limit before entering a bid) and protect
capital by taking early/partial profits. If you are not an aggressive
investor do not feel under pressure to become one now; always follow your
own discipline/strategies. My favorites in this weak mining market are oil
& gas juniors: Newstar & Sharpe and strong earners (with recently announced
acquisitions): Major Drilling and Goran Capital.
STACKPAL INTERNATIONAL INC.
*******************************
STAX, Cdn. Unlisted: $0.25
21.5 million shares outstanding;
Market Cap: Approx. Cdn. $5.5 million
Tel: 905-206-9909
Contact: John Varghese, CFO
Stackpal International is a very interesting early stage, emerging growth
company in the Material Handling/Packaging market. While the packaging
industry may sound deadly dull, Stackpal's new approach to this old industry
is very promising and projected revenue growth of 2000% in 1997 looks
anything but dull! Management believes the firm has turned the corner in
1997, with its new operating philosophy strictly focused on customer service
and providing innovative product solutions. Marketing and sales efforts are
geared towards direct sales to large volume manufacturing and distribution
organizations with the emphasis on providing return/reuse/recycle product
solutions.
Investment Highlights
****************
**Stackpal is a small emerging player in the growing $100 billion/year
Material Handling/Packaging market. Although this is a highly competitive
industry, Stackpal has achieved a competitive advantage by positioning
itself as a multi-faceted 'solutions provider' of innovative and exclusive
products, to a wide range of blue chip clients.
**Stackpal started 1997 off well with first quarter revenues of $727,000,
double total sales in 1996. Management says it is well on target to achieve
budgeted 1997 sales of $8 million - a whopping 2000% year-over-year increase.
**After a recent restructuring, this company has barely paused to catch its
breath; primarily a marketing company, Stackpal has just added new
exclusive products and five new sales personnel to its staff.
**Stackpal targets large 'blue chip' businesses. Customers now include
General Motors, Consumers Glass, IBM Canada, Nestle Canada, Apotex and
Ontario Hydro.
**New strategic alliances have been established with GeoAmi, CryoVac and
Inteplast which are already beginning to spur revenue growth. More such
alliances are being sought and/or negotiated.
**HDL Capital Corp. and the Canadian Venture Opportunities Fund have, along
with others, made recent capital injections to provide STAX with working
capital (private placement announced March 5/97). They anticipate a good
return on their investment.
**Paul Kavanaugh, responsible for the successful marketing launch of Cantel,
has recently been recruited as senior advisor to Stackpal, providing
strategic and sales development direction.
**Stackpal is currently trading at a reasonable entry level for new
investors. After the recent addition of new management, new capital and new
'industry leading' products, the company is ready to be introduced to the
investment industry.
Key Leadership
************
One factor which may provide a key to Stackpal's future success is the
involvement of Paul Kavanaugh, who recently joined the management team as
Senior Advisor. Kavanaugh is a turnaround/startup specialist who has not
wasted any time since joining the firm as a consultant. HDL Capital (see
below) brought in Kavanaugh citing his "impressive background providing
strategic planning and marketing consulting to early stage growth
companies." Kavanaugh has helped launch 60 companies during his successful
career as a consultant. He has held a number of executive positions,
spanning several years, with large companies that include Canadian General
Electric, Xerox Canada, and Philips/Micom (where he grew a new business
division dramatically in the first year, and was promoted to Vice President,
US operations in Dallas, Texas). Among his other accomplishments, Kavanaugh
was "responsible for the marketing launch of Cantel as the second major
player in the cellular industry."
Upon joining Stackpal, Paul Kavanaugh saw "a staid old industry using staid
old products!" Although initially not too impressed, he did like Stackpal's
proven ability to attract large accounts. The company's success in
achieving Tier I status with a company the size of General Motors was a very
positive sign. Kavanaugh saw an opportunity to "change packaging industry
patterns" with a more focused marketing approach and by introducing
innovative new products. Stackpal had already taken a first step in this
direction with the introduction of plastic pallets. These provide several
advantages over wooden pallets, which have been the mainstay of the
industry for decades. Not only are plastic pallets fully recyclable and
therefore environmentally friendly, they also offer handling advantages,
stackabilty, racking ability etc.
The new company focus is on providing specialized, environmentally friendly
- 'green' - products, many exclusive in Canada, to Stackpal. Kavanaugh has
recently returned from a trip to the US where he found 4 new products which
could enhance Stackpal's current line. There are US firms developing new
products/lines for the packaging industry which do not have the time or
facilities to develop Canadian markets. Stackpal has acquired/is looking to
acquire exclusive Canadian distribution rights to some of these promising
new products.
Paul Kavanaugh originally agreed to a 3 month consulting term with Stackpal.
He now wants to stay, at least to year end, and has been asked to join the
Board. In only a few short months his marketing leadership and creative
vision have made a very positive impact on this firm. Kavanaugh believes
Stackpal is undervalued based on its ability to expand rapidly without large
increases in operating expenses. Recently restructured, "the organization
is lean and mean and margins are improving each month." This is essentially
a marketing firm, without the need for a lot of inventory. Stackpal has
seen margins move from 3-4 percent, when competing in the corrugated
material markets, to approximately 17 percent. Five new sales people have
just been added to the marketing team. Kavanaugh believes revenues of $8
million are very achievable for 1997 and that the company will be cash flow
positive, with margins between 18-20 percent, by year end. Stackpal, like
other high growth companies, should be valued on the basis of future sales
potential rather than current earnings; "exponential growth will ultimately
lead to profits if the margins are there."
The Industry
*********
Stackpal is committed to providing logistic solutions to its target markets.
Management has identified important market trends driving the materials
handling/packaging industry which provide opportunities for service
providers able to satisfy the needs indicated by these trends which include:
**Outsourcing
**'Just in Time' production/delivery systems
**Cost reduction programs turning away from downsizing
**Many companies attempting to utilize single source suppliers
**Globalization forcing/allowing companies to ship product further afield
**New and innovative products and manufacturing systems requiring equally
innovative packaging/logistics solutions
The following industries have been identified as having the largest need for
logistics solutions and as prime targets for Stackpal:
**Automotive
**Pharmaceutical
**Container
**Communications
**Agriculture
**Paper products
**Computer
**Alcohol & Spirits
**Transportation
**Food
**Dairy
**Retail
Stackpal provides material handling/packaging solutions to a wide range of
blue chip clients in several of these diverse industries. Using a
comprehensive 'problem solving' sales approach, containers (boxes, cartons,
etc.), platforms (various pallets, dunnage etc.) and accessories (tier
sheets, packaging filler, etc.) are supplied to customers either as a single
product or bundled as a part of a total solution to their logistics supply
needs. The Logistics Division assists clients with shipping needs including
repackaging, reformatting, shipping and expediting.
'Tool Kit' Solution
**************
Stackpal was launched in 1995 as a single product seller of a unique,
globally patented plastic pallet support leg. The product proved to be an
excellent 'door opener' after being licensed by Sony Corporation of Japan,
but it soon became apparent customers needed updated methods of materials
handling methods and a 'one-stop' supplier who could provide a wider range
of products, services and problem solutions. To satisfy this need Stackpal
has expanded its product line through acquisition, strategic alliances and
distribution agreements into a broad 'Tool Kit' solution. The Kit includes
certain products distributed by Stackpal exclusively in Canada (e.g. GeopaxTM).
Handling and packaging are areas where corporations are now seeking to
increase efficiency and cut costs, at all stages of the business process.
Having identified this trend, Stackpal is finding creative means of
capitalizing on opportunities to provide beneficial solutions to corporate
customers. One of the firm's early goals is to gain increasingly greater
recognition and acceptance in the markets it has addressed.
Innovative 'Green' Products
*********************
This spring Stackpal announced its appointment as the exclusive Canadian
Distributor for GEOPAX products, representing GEOPAX Ltd. of Connecticut
USA, holder of the world-wide patents to the GEOPAX(TM) Packaging System.
The appointment may prove highly significant for Stackpal - a potential
'company maker'!
GEOPAX' protective wrap and void-fill cushioning products are made from 100%
post consumer recycled paper and are themselves 100% recyclable (into a
single waste-stream along with corrugated boxes - no sorting or separate
handling required). They outperform the familiar Styrofoam Peanuts, plastic
Bubble-Wrap, foam sheets etc. used for the protection of goods in handling
and shipping. For the same price, user friendly GEOPAX materials are
approximately 5% the weight of traditional products, provide better
protection, require less handling time, at both the packing and unpacking
end, and decrease the required packaging size. Customers save on shipping
charges, material storage requirements, handling time and loss due to
breakage - all at a net benefit to the environment. The space saving
advantage in material storage and shipping is "a significant incremental
value to customers." Up to 15% of delicate items protected with
traditional packaging materials are damaged during shipment. Where heavy
items tend to compress Bubble-Wrap, GEOPAX products provide a superior
cushioning effect. Major Canadian shippers, who often must repay damage
costs, are beginning to be very interested in what Stackpal has to offer.
In the US, GEOAMI(R) or 'earth friend' products have attracted several
notable customers including major US technology firms, retail and
entertainment companies (Walt Disney World Co., IBM, Hewlett Packard,
Jacobson's Department Stores and Mailboxes etc.) Stackpal's first
GEOPAX/GEOAMI(R) customer was IBM; Apotex Inc., the largest Canadian owned
pharmaceutical company ($350 million in sales) now uses a variety of
Stackpal products including GEOAMI(R).
Financial Projections
****************
Stackpal's total revenue in 1996 was less than $400,000. Actual revenues
for the first quarter of 1997 were $727,000 and estimated revenues in the
current (2nd) quarter are approx. $1.7 million
(annualized $6.8 million). Management expects to reach (or better) its $8
million revenue target by the end of 1997. This target represents a 2000%
increase over the previous year and would indicate the enormous growth
potential of the company.
Confidence in revenue projections is due to the size of individual customers
- large, blue chip companies which generate large annual orders. For
example Stackpal announced a long term supply agreement November 12 1996
with Consumers Packaging Inc. covering its 7 Canadian operations. "The
agreement initially covers one blanket order for a high volume product with
projected annual volume of several million dollars. The two companies are
exploring the potential for additional opportunities covering a range of
other material handling products, including export consumables and
logistical consulting and expediting services."
Investment Support/New Management
*****************************
Stackpal is being assisted by HDL Capital Corporation, a merchant bank in
Toronto which is committed to aiding in the development of high growth
companies. HDL provides support through capital injection and the
application of management expertise, typically in very early stages of
emerging growth. HDL specializes in taking companies public by way of
reverse take-overs (not the case with Stackpal) and has built up a following
with various individual investors, retail brokers and small cap institutions
along the way. Prior to forming HDL, its principals engineered a financing
of Softkey Software at $1.50 per share, and a management buy out (MBO) of AT
Plastics from its U.K. parent at $210 million, the largest private MBO
closed in Canada at the time. Softkey subsequently traded as high as $70
and AT Plastics is a thriving public company today; both trade on the TSE.
John Varghese has recently been named CFO of Stackpal. He brings extensive
strategic planning and operational experience, particularly in early stage,
high growth companies. Varghese gained significant exposure to the
packaging industry as a Finance Officer in Jim Pattison Industries.
Corporate Objectives
****************
There is evidence of a bold, creative, marketing mind behind Stackpal's
recently restated corporate objectives:
**To provide leading edge solutions to industry specific problems
**To develop deeper relationships with current blue chip clients
**Through the use of technology, to improve the sales team's effectiveness
in establishing a grass roots base of customers across various industries
**To continue to seek out innovative products and companies in order to
establish marketing exclusives, alliances and joint ventures
**To add experienced, committed and creative people to the management team
**To seek out a strategic transaction in order to: a) add to the current
product mix; b) open new market opportunities - all with the objective of
significantly increasing the Company's market capitalization
**To initiate feasibility studies to develop proprietary patents and world
class products
Conclusions and Discussion
*********************
In addition to actual first quarter revenues and total revenue projections
for this year, it is the interest and participation of groups like HDL
Capital and people like Paul Kavanaugh, at this early stage, that most
attracted my attention to Stackpal. The size of target markets and the
notable major customers already obtained are also encouraging. I always
like the idea of 'green' products; the added cost/space/time advantages of
these packaging solutions look hard to resist! The positioning of the firm
as a multifaceted 'solutions provider' should provide a competitive
advantage in securing additional Blue Chip clients.
Stackpal's desire to wake up a sleepy industry with innovative and
competitively superior products looks like it could work. The firm has a
very large selection of industries from which to choose its customers.
Initial concentration on Blue Chip clients, with substantial
handling/packaging needs, allows Stackpal to obtain large orders from a
small customer base; once large customers are won, revenues are relatively
easy to predict.
Stackpal is an interesting story about to be told to the who's who of the
Toronto investment world. HDL Capital will likely introduce the company to
its contacts (individual investors, retail brokers and small cap
institutions ). The current price and market cap appear to offer a
reasonable entry level to speculative investors. I assume if this company
plans to grow quickly, both internally and by acquisition, there will be a
need for further near-term financing; management will want equity financing
to be done at a stock price higher than today's. Retail participants must
be prepared for volatility and should protect capital investments by taking
partial early profits. If ambitious revenue targets for 1997 are met or
exceeded and if the current positive growth outlook continues, Stackpal
could become an interesting longer-term investment. Watch quarterly results
carefully. In the future, if Stackpal is successful in developing its own
proprietary products (with global potential) and/or moves to secure
facilities to manufacture certain products under license within Canada, its
profit potential could increase.
Fair valuation of Stackpal's stock price will be 'in the eye of the
beholder'! We are in a very slow market for speculative stocks. Using
projected 1997 sales per share of $0.36 and considering the very high growth
rate this implies, a target price between $0.75 - $0.80 in the next 12
months does not seem unreasonable. New developments &/or and market
enthusiasm could push the price over $1 - only time will tell.
Not a highly promotional company, Stackpal will issue news releases
primarily to alert investors of newly acquired exclusive distribution rights
for new products and to provide financial results. Interested investors in
the Toronto area may wish to attend the company's AGM in June (tentative
date June 25 or 26 - call the company for more details, an information
circular will be going out soon).
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Bidding On Bay Street (BBS), Copyright 1997, is published by Van Wyck
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