American Eco (ECGOF, ECX on Toronto exchange)
American Eco is a leading provider of single source construction,project
management, maintenance, demolition, dismantlement and environmental remediation
services in the refining, petrochemical, government, commercial, manufacturing
and utility industries.
americaneco.com
Stock Price 7 5/16
P/E 8.5
14.4 million shares
PEG on estimated 48% growth in 1997 = .18
Earnings Revenues
1993 $0.07 $7.6 million
1994 $0.15 $35 million
1995 $0.40 $47 million
1996 $0.81 $120 million
1997est $1.20 $240 million
1997 Q1 25 cents
President & CEO - Michael E. McGinnis
Chairman of the board - Mark White - (Former Governor of Texas)
The CEO has stated numerous times that they are comfortable with
$1.20 in earnings in 1997 and over $200 million in revenues. By the
year 2000, McGinnis wants to see $1 billion in revenues and believes
this can be achieved. The company has grown both through internal
growth (25%-30%) and through aquisitions. However, without the stock
price higher than it is now, acquisitions become difficult. It is
therefore in both the interest of the company and the shareholder to
see a higher share price.
According to First Call, the company has had earnings growth that
has averaged 87% over the last 5 years. The average P/E of the
industry is around 18, while the average growth of the industry is
only 11%. In other words, the company has grown at about 8 times
the average of the industry but trading at half the P/E.
The CEO and First Call state that they will be able to earn $1.20
in 1997 - 48% growth. If the company were to trade at a P/E of 20 and
earn $1.20, then by the end of the year the stock will be trading
$24 / share.
According to First Call the average PEG (ratio of P/E to growth)
in the industry is 1.3. If the company earns $1.20, then to trade at
the average PEG of the industry the stock would need to trade at
$1.20 x 48 * 1.3 = $ 75 /share
Why is this stock so undervalued?
1. The CFO resigned in October of last year for health reasons but
partly due to poor handling of the media, rumours spread regarding
possible mishandling of the financials. Independent auditors were
brought in to go over the books and given the ok, but some misgivings
still remain.
2. The American Eco story is not easily accessible by investors or
brokers. Although about 95% of the business is in the U.S., the
company is Canadian registered (partly due to tax reasons associated
with their Canadian components). However, because of this, there are
no filings with the SEC. The lack of filings means that many
computer databases of company info are blank, out of date, or filled
with errors.
The Company's response to the current undervaluation
1. Fall 1996 - CEO purchases 300,000 shares at a price of over $2.5
million (a price higher than the current price)- part of this is
borrowed money. Company announces that senior management plans to
purchase up to 1 million shares by 8/97
2. April 1997 - Company hires a PR firm to get the American Eco story
out. This includes broker teleconferences and ads in major airline
magazines and other publications (e.g., Worth)
stockup.com
3. Company agrees to begin filing yearly (10k) and quarterly (10Q)
statements with the SEC beginning with the 10k for 1996 to be filed
in late April.
4. Pending approval at the May shareholder meeting, the company
proposes to switch to one of the `Big 6' auditing firms
5. Company begins discussion of moving `domicile' to the US from
Canada allowing the removal of the `f' from ECGOF
6. CEO begins presentations at a number of `growth stock' conferences
and other media events.
Other Web locations for further research:
fool.yahoo.com
www2.marketguide.com
stocksmart.com
Report by Analyst William Block from Meyerson - June 1996
mhmeyerson.com
The MSNBC interview with McGinnis is available via Real Audio at
msnbc.nasdaq.com
There is also an excellent folder in the Motley Fool |
