re : SPOP (Spectrum Organic Products) - OTC/BB : $0.37
Profile: biz.yahoo.com
40m shares out, Revenues $40-50m, Gross margin around 30%, company generates around 800k per quarter recently, Price / Sales around 0.40.
I recently discovered an interesting company - SPOP.OB - people should know I am not certainly a tree hugger but their offering (organics and premium oils & fats) make a
compelling business case. They are growing this biz 15%-20% per year in revenues. A rather small company, around $0.38 - low PSR, nice gross margin, paying back debt significatnly recently, improving coverage. The quoted revenue figures do not reflect that - because they sold one unprofitable division in 2002 whichi accounted for 20% of sales. The rest can be grown more than 15% year on year. This is a "tiny HAIN" but quarterly sales are rather meaningful - around $10m. In fact, this size makes it comparable to a great performing smallcap in the personal care segment (CCA Indsutries - Amex: CAW)
I also talked to their their CFO, Mr. Bob Fowles. I obtained the impression that predecessor managmenet conducted a failed merger many years ago and last year they decided to undo the effects of that, selling that underperforming noncore division for cash the fruits, industrial food) and deleveraging the rest by paying back debt.
He also indicated that 15% sales growth last quarter vs. previous year's (comparable net sales) was low end because of a supply problem (at that time) on organic flax oil. That is remedied by now and sales growth should be even stronger going forward (more towards 20%).
Looking at their cashflow statement. SPOP was generating operating cashflow of 800k the last quarter. He told me they are trying to stay at that level or improve from there.
I also adressed the large float (40m shares) hanging around, which he acknowledged and hinted this might change in the current year (looks like an upcoming Reverse Split to me) - should be a topic to be discussed at the shareholder meeting. The company contemplates moving to the AMEX or the upcoming BBX to improve the bid ask spread.. (the RS could do wonders to get to the AMEX, since the net tangible asset requirement is already satisfied)
Some furhter info on the recent "technology acquisition" which was conducted last quarter (it's outlined in the 10Q). This is actually a cost saver - it's actually not a new technology but they had been using that production method all along (oil extraction) but had to pay royalties per goods sold. So they settled for a lump-sum payment of $500k and won't be bothered by that anymore - should further improve gross margin. Plus they are going to outsource bottling operations: reason - others can do it cheaper AND provide better service. I see MAJOR GROSS MARGIN expansion, maybe more than 500basepoints from the already high margins (which are close to 30%) over the midterm.
Finally he hinted major revenue driver now going on: ubiquitous distribution. For dairy, spread and other parts of the market, organic food can now be bought in better sorted ORDINARY GROCERY OUTLETS, not just in specialty stores as in the past.
I recently added a first stake of mine in SPOP and I'll be adding it to the thread portfolio of stocks to watch.
rgrds
CROSSY |
