STRONG BUY REAFFIRMED
Micro-Cap Tech Stock Report
Second Quarter, April 2002
Golden Capital Securities Ltd
Omni-Lite Industries (CDNX-OML)
As a producer of high volume, fine tolerance components for a variety of industries, the recent economic slowdown has not had the effect on Omni-Lite Industries that it has had on many of its competitors. In fact, Omni-Lite is taking the opportunity to expand the number of contracts, purchased more cold-forging machines and further reduced their debt load.
From our recent discussions with management, they indicate that the first quarter of fiscal 2002 is going “exceedingly well”. Two new contracts from Monogram Aerospace and further contracts being bid upon have boosted the high margin business for aerospace components. Demand from the Sports & Recreation and the Automotive segments have also had strong years.
Corporately, the Company is still planning to move to their new, larger facilities in June. By the time they move in, Omni-Lite hopes to have the mortgage on the property very close to, or even completely, paid off. Shortly afterwards, the first 2 of the five newly purchased cold forging machines will be delivered. These recently acquired machines will bring the total up to sixteen and were purchased at very favourable terms.
No activity occurred in the first quarter for the share buy-back program that was announced last summer and at this point we do not expect that any significant number will be acquired during the second quarter given the support that the market is giving the stock price at its current level. Instead, the Company will use its cash to focus on paying down any debt that remains.
Although hit not as heavily as some of its competition from the economic slowdown the financials for fiscal 2001 will be slightly lower than we had expected last quarter. Revenue targets for fiscal 2001 will be the same at $3.7 million, but we are reducing our EPS target from 17¢ to 16¢ per share. However, we are increasing our forecasts for fiscal 2002 to $5 million in revenue and 22¢ per share in net income, from $4.8 and 20¢ respectively.
Over the next six months there are three achievements that we can look for from Omni-Lite Industries. First, additional contracts from manufacturers in a variety of industry verticals, principally Aerospace and Automotive, but further contracts in Commercial and Sports & Recreation could also occur. Secondly, now that Omni-Lite has had several quarters of significant success we might expect that they will attempt a listing on a more senior exchange. Expanded coverage as a result of the listing may help give further support to the stock price. Finally, with the growth of the high margin business, will come improved profitability. Omni-Lite is currently trading at 12 times 2001 earnings, but around only 9 times 2002 earnings for a Company growing its earnings at a projected 37%. We feel that Omni-Lite is significantly undervalued.
Therefore, based on the future contract growth, strong earnings growth and the potential for a listing on a senior stock exchange we are recommending purchase of Omni-Lite Industries with a Strong Buy recommendation. Our twelve month target price of $3.00 will remain in place.
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