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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (18428)6/9/2004 1:38:26 PM
From: Bob Rudd  Read Replies (3) of 78519
 
Started STV @ 3.10 based on low multiples EV/EBITDA 2.1 EV/FCF 3.5 and good prospects for primary business - builds sewers and water mains and works on highway paving, bridge, and light rail projects, primarily Houston. Houston is growing and has considerable need to improve sewer system [City is flat and built on a swamp: Hurricane Allison flooded Houston 3 years ago; Some flooding in 2003 as well...usual pushback from conservative taxpayers, but infrastructure needs are there and flooding will continue until sewer system substantially upgraded] There's going to be 'lumpiness' to earnings due to ebbs and flows of construction activity and taxpayer reluctance. They also have an auto parts and non-food pet supplies distribution business that is barely profitable...but has provided $88 million Net Operating Loss to offset taxes for several years. They've carefully structured the business to preserve this tax 'asset'. Directors and managers own 42% so they're in the same boat as shareholders. On the downside, there's some related party transactions and option activity that you'd rather not see but doesn't hit deal killer level...this isn't the simplest company to figure out and I make no claim that I've completely got it nailed, but the multiples appear to provide significant margin of safety.
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sterlingconstructionco.com
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