. THE NAPEAGUE LETTER
Sunday, May 4, 1997
Editor: Bob Davis rmdavis1@ix.netcom.com
BURKE MILLS, INC. (NASDAQ:BMLS)
NOTE: This is a Summary of the complete BMLS Analysis which can be found
at napeague.com.
As an investment opportunity, Burke Mills can be thought of as a "turn-
around" situation. The Company has taken dramatic steps to improve its
financial performance, an effort which is already very successful, and one
which shows promise of even greater success in the future. However, the
market price of this stock has not yet "caught up" with this dramatic
improvement
Burke Mills is in the business of dyeing and otherwise processing
filament, novelty and spun yarns. Their customers are primarily in the
US domestic knitting and weaving industry, and they in turn serve the
automotive and upholstery industries.
During the second half of 1995 and first half of 1996, Burke Mills
upgraded its manufacturing facilities to "state of the art". This effort
temporarily reduced the Company's profitability, which in turn led to a
decline in the price of its stock from over $7.25 in late 1994 to a low of
$2.00 in late May of 1996. It closed at $2.88 on Friday, May 2nd.
This upgrade is now largely complete and is showing results in terms of (a)
reducing the Company's production costs and (b) raising its manufacturing
capacity. As a result,
- it is now the low-cost producer in its industry, in a market where price
pressures and shifts to lower cost products are reducing manufacturer
margins.
- it has the production capacity to met the resulting increased demand
for its products.
In late 1996, BMLS entered into a joint venture agreement with a Mexican
corporation which will enable the Company to further reduce costs on
domestic sales in the US and also gain distribution in new geographic
areas which are significant textile producers.
This joint venture will manufacture twisted yarns in Mexico, to be dyed
at the Burke Mills facilities in North Carolina. In addition, the joint
venture will market and distribute dyed yarns produced by Burke as its
exclusive distributor in Mexico, Central America and South America.
BMLS has indicated that this JV is generally on-track and is expected
to be operational by mid-summer 1997.
As shown below, there has been a strong increase in revenues in 1996.
What is less apparent is that there has been an equally strong rebound in
net income; the 1996 net income of $587 thousand was generated entirely
in the last half of the year, which can be seen in the complete Analysis
which is at napeague.com.
First Quarter -------- Fiscal Year --------
1997 1996 1996 1995 1994 1993
------ ------ ------ ------ ------ ------
Revenues 10,060 9,905 40,649 34,148 36,194 26,835
Gross Profit 1,000 690 3,762 3,482 5,266 2,544
Net Income 143 ( 41) 587 944 2,509 374
Net Income/Sh 0.05 ( 0.01) 0.21 0.34 0.91 0.14
Gross Margin 10.0% 7.0% 9.3% 10.2% 14.5% 9.5%
Net Margin 1.4% ( 0.4%) 1.5% 2.8% 7.1% 1.4%
The results for the first quarter of 1997 were announced last Monday, April
28th, and they contained both "good news" and "bad news". The bad news
was that revenue growth was limited, as the result of a slowdown in the
upholstered furniture industry. However, the Company had already told us
about this problem in earlier press releases, and there is fairly strong
evidence that this slowdown is ending. The "good news" is that the
improvement in gross margins, to 10.0% from 7.0% in the first quarter of
1996, allowed the Company to continue to be profitable, and to exceed
prior year results.
There are several "intangibles" that I like about Burke Mills:
- The Company is very straightforward in the information that it
releases to investors, and calls "the shots as they see them".
- Burke Mills is managed by professional "textile people", who are
knowledgeable about their industry and their market, and the
Company itself is highly focused on one specific niche.
- There is no possibility of dilution. No additional stock has
been issued in several years, there are no options or warrants
outstanding, and there are no plans for issuing additional stock.
Although BMLS closed on Friday, May 2nd at $2.88 per share, my
analyses indicate that the Company can justify a market valuation as
high as $8.00 per share, and they establish a target price around
$6.00 per share.
Although the Company is not currently followed by any sell-side
securities analysts, it has an adequate number of market-makers. A new
member with strong Wall Street experience is joining the Company's
Board of Directors and may be able to generate additional "street
interest" in the stock. I continue to hold BMLS in my portfolio, and
intend to be a long-term holder.
A complete Analysis of Burke Mills can be found at
napeague.com. This Analysis is made up of a Summary,
linked by HyperText to background materials and notes which cover
various points in the Summary in greater depth. I encourage you to read
the entire Analysis as well as the Company's investor relations information
and its reports to the Securities & Exchange Commission prior to making
any decision to invest in the Company.
NOTICE:
This analysis is based on publicly-available information, and is in no
way warranted by me as to accuracy or completeness. I do not guarantee
to advise you as to any change in this information. I currently am a
stockholder in this Company and may from time to time purchase or sell
this Company's securities. I otherwise have no affiliation with this
Company. If you have any questions or constructive comments, please
E-mail me at rmdavis1@ix.netcom.com. |
