For your risk/reward capital, this company represents a compelling investment. The old management, which was unsophisticated, power-mad, and fiscally insane, is gone.
Here is what you can "touch" in this company: Wal Mart loves the relationship with Fry Guy; read this to mean that they apprciate the efforts of Ed Maley, the temporary CEO and current new Chairman of the Board. It is no accident that he has assended to this position!!!
Fry Guy is in 1350 Wal Marts and will be in 1500 by FY (fiscal year) end 1998. This will represent some 1600 machines (some stores have more than one). This is the cash flow engine to propel future FG (Fry Guy) growth. The theaters are very important in that the revenue per portion is over 2x the revenue at WM (Wal Mart) and each thearter has at least two and some with three machines. Good future growth.
Salubre is a disappointment. They are not "rocket scientists" by any stretch of the imagination, but they will generate some growth and will manage the maintenance and service of the machines being installed; this last is their most important role in my opinion.
ALAN also has a manufacturing operation in Neb. that does, mostly, "dust sucking" (an inside joke....metal prefabrication) and generates over $500,000 per year in free cash flow. The old, now displaced management, formally re-invested these funds into this out-dated facility. Current management, on the advice of some very savvy professionals, will "milk" this cash cow and put the money into the much higher growth ("stars") FG and CDSI/China. This funding, hopefully, will mitigate the need for the traditional Reg S Bull (BS) funding of past management. If smart (and they are receiving very sound advice), the current board will milk this cash until the unit is "dust" and divert the funds to better usage.
For those of you holding your breath for CDSI sales in the US, have your relatives send me your burial notices, because this is a pipe-dream...BUT,...China is potentially big time....The latest deal (only 3 "guns") may be the most significant. An import/export firm is buying the units and leasing them to the end buyer...If this is a well researched relationship (i.e. ALANCO has done proper "due dillegence"), then this opens up an enormous market in China for those that have a problem with capital (and especially "hard" capital) and need to satisfy their polution control problems through a lease arrangement rather than an upfront capital outlay (while Alanco avoids the sovereign risk of holding the leases themselves). China, with the need for only 50% SO2 removal standards (vs. US of 90%+) was always a potentially huge market, this makes the risk/reward for Alanco China potentially huge.
NET, DON'T NEED THE US MARKET (which is good since it is a remote possibility anyway).
Both of these main businesses (FG and CDSI/China) are large margin (in excess of 35% pre-tax, potentially) and potentially very high growth. With past management gone, and with most of the idiotic pending mistakes by ALL parties mostly gone (there were no totally right or totally wrong people in this whole sordid episode), this company has some potentially interesting expectations. The current sellers of Alanco shares are uninformed and/or manipulative no-gooders (SOBs) and should be disregarded in my opinion.
For the risk portion of your portfolio, this is a compelling situation...Running an eps model indicates, parenthetically, that the company should and will, turn its first profit ever, in the next reported quarter. This stock should sell at a multiple of at least 10x FY 1999 eps, today. That number could be as high as $.50 per share (indicating a $5 share price). The problem is the complete lack of past management credibility (well deserved I might add), and the difficulty in eps "visibility" (predictibility). The next quarter's report, if I am right in its profitability, should go a long way towards addressing both of these problems (not the least of which is giving the "new" board and the company's management some credibility).
To the extent that the stock languishes, and to the extent that one has done their own due dillegence into the fundamentals and has arrived at the same conclussions that I have, be happy that you can buy into a potentially undervalued situation at less than $1 per share, and if the company executes its plan successfully and with a little luck, you can laugh all the way to the.........(laugh to the place where people put money and earn some interest and write checks on the money and get a passbook...what's it called again?). Oh well, I am just a simple guy, in a complex world, trying to get by...Hi Charles. |
