A rose by any other name?
I've located another mob who give *advice* in a similar vein
(and probably similar results) to FSS - they call themselves
"Emerging Stock". What's so uncanny is that their
newsletters sounds just like the FSS newsletters
(only different companies).
By way of example, I've enclosed their latest,
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The EmergingStock Newsletter
Featured Stock Pick for May
May 9, 1998
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Welcome to the EmergingStock Newsletter. If you are a new subscriber to
our newsletter, this will begin your free 6-month subscription. The
EmergingStock Newsletter seeks out publicly traded companies that we
feel have the potential for explosive growth. The EmergingStock
Newsletter will only bring you 6 to 8 companies per year. After our
initial profile of a company, EmergingStock will keep you updated via
e-mail whenever there is a significant news release or Buy
Recommendation issued on one of our featured companies.
Over the past 11 months, EmergingStock has only profiled 4 companies.
EmergingStock is extremely critical and only profiles a company when we
feel the stock is undervalued or the company may experience explosive
growth. The first company to be posted on the EmergingStock site was
MPM Technologies Inc. MPM Technologies trades on the NASDAQ and was
posted on the EmergingStock site at $0.34 per share. Since posted, MPM
Technologies traded as high as $1.50 for a 267% gain. Our second posted
company was Byron Preiss Multi Media, which trades on the NASDAQ
market. Byron Preiss was posted at $1.375 per share and has since
traded as high as $2.75 for a 100% gain. Our third company, Dawson
Science, which trades on the OTC or NASD BB market, was posted at $1.25
per share. Over the past few months, Dawson Science has traded as high
as $3.50 for a 180% gain. In March, the EmergingStock Newsletter
profiled our fourth company, Quill Industries. Quill Industries was
profiled at $2.78 per share. Since profiled, Quill Industries has
traded as high as $4.81 for a 73% gain. Today, we are proud to bring
you a little known company that we anticipate will be making headlines
shortly.
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May Stock Pick:
Name of Company: The American Group, Inc.
Ticker Symbol: AMGP
Exchange: OTC (NASD BB)
Current Price: Bid: $3.00 Offer: $3.31
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The EmergingStock Newsletter feels that it has identified a company that
will offer investors tremendous potential. Our May Stock Pick, The
American Group (Ticker: AMGP), is currently experiencing rapid growth in
revenue and estimates that it will be profitable this year. One hour
before the market closed today, The American Group issued a press
release and announced that it had signed a letter of intent to acquire
Lator International, Inc. This is an extremely significant acquisition
for The American Group as it will now have the right to acquire 5,000
acres or 3 trillion cubic feet of sphagnum peat bogs which have an
estimated reserve potential of $450 million.
The American Group is anticipating minimum revenue of $5,300,000 for
1998, revenue of $8,050,000 for 1999 and $13,250,000 for the year 2000.
In addition, The American Group states that it will be profitable this
year. With further financing and additional acquisitions, The American
could potentially raise its earnings and revenue estimates
substantially. We hope to bring you news about additional acquisitions
shortly.
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Price Outlook next 3 to 12 months for AMGP: $7.25 to $8.00 per share
The American Group, Inc. (Ticker symbol: AMGP) last traded at $3.125
per share.
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Approximately two days ago, an extremely favorable research report was
issued on The American Group by Fleetwood Research. That report has
been supplied below:
The American Group, Inc. (AMGP) Price: 3
Bid - Ask 3 - 3 5/16
Shares outstanding* 5.6 mil
52 week range 2 - 5
Float* 3.6
Fiscal year Dec 31
Insider's Holdings* 2.0
Exchange OTC BB
L/T Debt* $1.5 mil
Nasdaq Composite 1834.14
Current ratio* 1.05:1
Date May 7, 1998
BVPS* $0.63
* Post acquisitions
SELECTED ANNUAL DATA
$(000) # 1997 1998 1999 2000
Revenue $3,900.0 $5,350.0 $8,050.0 $13,250.0
Earnings $(220.0) $85.0 $545.0 $1,130.0
EPS nmf $0.02 $0.10 $0.20
P/E nmf nmf 27.5X 13.8X
# Pro forma combined
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The American Group, Inc. (AMGP) has entered into a letter of intent to
acquire Torland (a Canadian harvester and producer of Sphagnum peat
moss) and Lantana Peat and Soil (LPS - a Florida based custom soil
mixing and distribution operation). The combined companies have a
present annualized revenue base of about $5.4 million and will be
profitable this year. Torland owns a peat moss bog which has nearly
$450 million in reserve potential and presently exports the majority of
its production to the United States for sale through LPS. The
acquisition, therefore, has immediate operating synergies and should
result in increasing operating margins during the current fiscal year.
With only a minimal capital investment (about $1.2 million), the
combined operations could grow to over $8.0 million in revenue in 1999
and earnings could grow from under $100,000 in 1998 to $545,000.
Management, however, is planning to secure additional investment capital
in order to significantly increase the growth potential within the next
18 to 24 months.
Highlights
Large production potential - Torland's operations include 5,000 acres of
Sphagnum peat bog which has nearly $450 million in reserve potential.
Torland is located in the heart of one of the most fertile peat moss
regions in the world.
Large potential for high quality peat moss from Canada - Canada remains
the second largest producer of peat moss in the world. The quality of
the product produced is believed to be among the best in the world.
Peatlands cover over 270 million acres of Canada's lands and represent
an estimated three trillion cubic meters of potential peat moss. At
present prices, this equates to $1.4 trillion in potential retail sales.
Cost effective production method - Torland utilizes a "Block Cutting"
method for processing peat moss that allows production and storing of
the product even under inclement weather. While the method has been
successfully used in Europe, it has rarely been employed in Canada and,
therefore, gives the company a significant advantage over many of its
local competitors.
High return on capital investment - The company intends to expand its
operations through capital investments in production facilities. Each
$1 of investment can generate up to $3 in revenue within the first 12
months. With potential pre-tax margins of more than 20%, this equates
to a 100% return on investment in less than two years.
Expanded growth potential through consolidated operations - The
acquisition will combine a growing and profitable production operation
with a well established marketing and distribution operation. This
combination should provide the necessary synergies to allow AMGP to
expand both its revenue and profit margins at a rapid pace.
Large potential market in Florida - At $1.0 billion in sales, Florida
(the major market for Torland's product) is recognized as the largest
market in the world for products (such as peat moss) which are used to
aid in the growing of tropical and ornamental plants and foliage.
Operations
Torland Subsidiary
Torland's harvesting, producing and distribution operations consist of
5,000 acres of Sphagnum peat bogs which has nearly $450 million in
reserve potential. Torland is located in Northern Quebec along the
Saint Lawrence Seaway in the heart of one of the most fertile peat moss
regions in the world. Torland commenced operations in 1995 and has been
profitable every year since.
Torland is well positioned for future growth both because of its
advantageous location at the mouth of the Saint Lawrence and because it
has employed a unique and cost effective block cutting method which has
been used in Europe, but rarely in North America. Traditionally, during
the harvest season in Canada, which runs from late May through
mid-September, producers must first drain the field and then vacuum the
peat moss off the top before sending it to a filtering and bagging
facility. Not only does this require large and expensive machinery, but
production can also be impeded during periods of excessive rain.
The block method, which has been successfully used in Europe and which
Torland uses, involves cutting the peat moss in sections, and then
sending it to an onsite production facility. These sections can also
be stacked which helps the drying process. This method is cost
effective because it allows the harvesting of the peat under inclement
weather conditions and may also allow the peat moss to regenerate in a
shorter period of time than would be possible with the vacuum method.
In addition, the peat moss can be stored for long periods of time giving
the producer better control over production and shipping operations.
The process also produces a longer fiber product which improves the
quality of the peat moss that is ultimately sold to the consumer.
Torland is currently positioned to produce about 45,000 bags (55 cubic
feet per bag) of peat moss annually (approximately 10,000 for sales
through LPS) which could generate about $2.7 million in revenue and
pre-tax income of over $530,000 during the current fiscal year (12/31).
Production capacity and revenue growth, however, is a direct function of
the investment in equipment and machinery. Management is currently
exploring opportunities to raise between $5.0 million and $10.0 million
in order to expand capacity.
Lantana Peat and Soil Subsidiary
Lantana Peat and Soil (LPS), is a distributor of high quality custom
soil mixes to wholesale nurseries throughout Florida. Sphagnum peat
moss is one of the main components of these soil mixes and Torland has
been Lantana's main supplier for the last three years.
LPS began operations in 1980, but was experiencing negative growth in
the early 1990s. In late 1994, the current management acquired the
company and proceeded to recapitalize the company and restructure the
operations. As a result, revenue grew from under $500,000 at the time
of the acquisition to its present level of about $2.7 million. LPS has
also become one of the major suppliers to wholesale nurseries in
Florida. The company now processes and delivers over 300 custom blended
products at its 12 acre facility in Southern Florida and sells its
products directly to several hundred nurseries throughout the state.
Florida is recognized as the largest market in the world for the growing
of tropical and ornamental plants and foliage. According to the Florida
Nurserymen and Growers Association, sales by nurseries and allied
suppliers are approximately $1.0 billion.
LPS is in the process of constructing a new state-of-the-art custom
blending mixing plant at another location in Southern Florida.
Management believes that this facility, which will cost about $1.5
million to complete, will be operational by the end of this year. Once
completed, this plant will have the capacity to produce more than $10
million in custom blend soil products.
Market
The market for lawn and garden products, although highly fragmented, has
been one of the fastest growing industries since the early 1980s.
Between 1984 and 1994, the industry nearly tripled to $63 billion in the
U.S. alone. Peat moss remains one of the most important and versatile
products within the lawn and garden industry because it is a natural,
organic soil conditioner that regulates moisture and air around the
roots of plants. Peat can retain up to 20 times its weight in moisture
and releases water slowly as plants need it assuring that these plants
can remain properly hydrated in both heavy rains and extended dry
spells. Peat moss is also used for industrial absorbency and waste
management purposes such as in cleaning up oil spills.
The majority of the world production still comes from the region that
was formerly the U.S.S.R. Canada, however, is the second major
producer of peat moss and has perhaps the largest potential production
in the world. Peatlands cover over 270 million acres of Canada's lands
and represent an estimated three trillion cubic meters of potential peat
moss. At present prices, this equates to a market value of about $1.4
trillion.
Within Canada, the Northeast is considered to be among the most fertile
peatland regions. Peat moss from this region is recognized as among the
best available because of its high absorbency capacity and density.
The peat moss produced in Northeast Canada is preferred by farmers,
homeowners, horticulturist and organizations that maintain specialized
use facilities such as golf courses and natural grass sports fields. In
1995, the Canadian peat moss industry exported over 750,000 tons of peat
representing more than $210 million in sales. Presently, Canada exports
over $240 million of peat moss annually.
Canada generally exports more than 75% of its peat moss to developed
countries around the world with the U.S. and Japan representing the
major customer base. The largest peat moss producer in Canada is
Premier CDN Enterprises (PRB.A - Montreal) which presently is generating
over $90 million in annualized revenue. Clearly, the potential
production and demand for Canadian peat moss is significantly greater
than the current output and represents a very significant opportunity
for companies that have both the land potential and expertise to
capitalize on the opportunity.
Management
Torland is presently run by Louis A. Zanette. Mr. Zanette, has served
as the President of Torland for the last three years and has brought the
company from the development stage to a growing and profitable
operation. Prior to joining Torland, Mr. Zanette was a land developer
in Eastern Canada. Mr. Zanette also serves as the President of AMGP.
Eric W. Deckinger, is the General Manager of LPS. Mr. Deckinger
acquired LPS in late 1994. Under Mr. Deckinger's leadership, LPS grew
from about $500,000 in revenue to nearly $3.0 million in under three
years. Prior to joining LPS, Mr. Deckinger spent 25 years as a
commercial developer of shopping malls, office buildings and hotels.
During this time, he served as President of Leonard L. Farber,
Incorporated, a privately held national developer, and was responsible
for managing the development of over one dozen major construction
projects worth more than $400 million.
Strategy
The overall strategy of the company is to consolidate two complementary
operations and create the financial and operational infrastructure to
expand production and capitalize on a growing demand for high quality
peat moss products.
The company's objective is to expand the rate of growth as rapidly as
possible over the next several years, and still maintain pre-tax margins
in excess of 20%. Management has also identified other complementary
acquisition opportunities both in production and distribution operations
which could add to both revenue and earnings.
Financial information
This year, Torland's management believes that the company can produce
nearly 35,000 bags of peat moss for sale as compared to about 16,000 in
1997. At this level, assuming a sale price of about $75 per bag,
Torland could generate about $2.7 million in revenue. Torland has been
able to maintain pre-tax margins in excess of 20% which would suggest
pre-tax income of about $530,000. LPS will probably experience a slight
decline in revenue but report a reduced loss of about $400,000. Hence,
we project combined revenue for AMGP of $5.4 million and a modest profit
of $85,000, or $0.02 per share.
In 1999, Torland plans to add a second bagging facility which will
represent about a $300,000 capital investment. With this expanded
capacity, Torland could produce about 54,000 bags for sale which would
represent about $4.1 million in revenue and pre-tax income of about
$910,000. LPS should be able capitalize on a full year of revenue from
its new facility and expand its revenue base to $4.0 million with a
profit of about $100,000. Combined revenue should, therefore grow by
about 50% to $8.1 million with fully taxed earnings of $545,000, or
$0.10 per share. It should be noted that the company will more than
likely be able to utilize a tax loss carryforward which could reduce the
tax burden and consequently raise earnings above these projections.
In late 1999, the company has projected opening up a second harvesting
area and production facility at Torland, which represents about a $1.2
million investment but could significantly expand production, revenue
and income. With the expanded production operations, Torland could
approach the $7.3 million revenue level with pre-tax earnings in the
$1.5 million range in 2000. LPS should also be able to capitalize on
the growth of its new production facility and the increasing supply
produced in Canada. We, therefore, project revenue growth at LPS to
$6.0 million which would give the combined operations a $13.3 million
revenue base with earnings of about $0.20 per share. Our consolidated
projected income statement is presented in Table I.
Table I. The American Group, Inc., Consolidated Pro-forma statement of
Operations. FY 12/31 ($000)
Revenue 1997 1998 1999 2000
LPS 2,700.0 2,700.0 4,000.0 6,000.0
Torland 1,200.0 2,650.0 4,050.0 7,250.0
Total $3,900.0 $5,350.0 $8,050.0 $13,250.0
Pre-tax income
LPS ( 500.0 ) ( 400.0 ) 100.0 300.0
Torland 280.0 530.0 810.0 1,450.0
Total ( 220.0 ) 130.0 910.0 1,750.0
Net Income ( 220.0 ) 85.0 545.0 1,130.0
EPS nmf $0.02 $0.10 $0.20
Average shares nmf 5,600.0 5,600.0 5,600.0
Source: Company documents and Fleetwood estimates.
Production capacity and revenue growth, however, is a direct function of
the investment in equipment and machinery. A capital investment of
about $1.0 million generates about $2.8 to $3.0 million in revenue and
pre-tax income of $600,000 to $700,000; a 100% return on investment in
less than two years. Pro - forma projections for 1999, assuming
capital investments of $1.2 million, $5.0 million and $10.0 million at
the end of the current fiscal year are presented in Table II.
Table II. Revenue and pre-tax earnings scenarios for Torland in 1999
(assuming investment in Q4 1998)
Investment $ (000) 1,200 5,000 10,000
Revenue 4,050 16,000 33,000
Pre-tax income 810 3,700 7,600
Source: Company documents and Fleetwood estimates.
Present Capitalization
Once the acquisition is completed, The American Group will have $4.0
million in assets, $62,000 in working capital and total debt of $1.5
million. There will be approximately 5.6 million shares outstanding.
The pro-forma projected balance sheet is presented in Table III.
Table III - Pro Forma consolidated balance sheet summary ($000) -
12/31/97
ASSETS
Cash $75.8
Accounts receivable and other current assets 1,192.3
Total current assets 1,268.1
Other assets 2,261.9
TOTAL ASSETS $ 3,530.0
LIABILITIES AND EQUITY
Total current liabilities 1,206.1
Long term debt 1,455.6
Total shareholder's equity 868.3
TOTAL LIABILITIES AND EQUITY $ 3,530.0
Source: Company documents.
Risk Factors
While both Torland and LPS have been in operation for several years, and
have been growing, there is no assurance that the combined operations
will be as successful.
In addition, significant growth in the combined operations is dependent
on raising additional capital in order to expand production capacity.
While management believes that it can access the necessary capital at
favorable rates, and has already identified several potential sources,
there is no assurance that the company can raise the amount of funds
needed in order to insure growing profitability within the projected
time frame. Even if the capital can be raised quickly, there is no
assurance that it will not result in substantial dilution to existing
shareholders.
Finally, the stock continues to trade on the OTC Bulletin Board and has
the potential to fluctuate substantially. Liquidity, therefore will
remain a concern until the volume of trading increases and the company
becomes listed on a major exchange.
Summary
With the completion of this acquisition, The American Group will be well
positioned for significant growth in the next several years and will
have the production expertise, geographic advantage, and marketing
infrastructure, to allow it to expand rapidly. With the addition of
Torland, the company has extensive reserves, easier access to capital
for growth, and the ability to acquire additional complementary
reserves, production capacity and distribution capabilities. The
proposed structure of the operation will also result in a profitable
revenue base of nearly $5.4 million. Potential average revenue growth
of about 60%, and earnings potentially increasing 10 fold over the next
three years, with only modest capital expenditures, should attract the
interest of long term investors and help expand the valuation of the
stock.
Peter G. Mintz
Fleetwood Research, a division of Fleetwood Associates, Inc.,
(hereinafter referred to as "Fleetwood") is an independent research firm
that produces investment research reports. This report is based on
Fleetwood's independent analysis and judgment but relies on material
supplied by the subject company and other sources believed to be
reliable; except as otherwise indicated, Fleetwood has made no
independent verification and does not guarantee the information's
accuracy or completeness. The information contained in this report is
subject to change without notice, and Fleetwood assumes no
responsibility to update the information contained in this report. The
information contained in this report is not intended to be, and shall
not constitute, an offer to sell nor solicitation of any offer to buy
any security. Investors are advised to consult their personal broker or
investment advisor before making any investment decision concerning the
subject company. Fleetwood has received a fee for the preparation
and/or distribution of this report. Fleetwood and/or its shareholders,
officers, employees, and/or members of their families may hold a
position in and/or engage in transactions with respect to securities
mentioned herein. )Fleetwood Associates, Inc. 1998. All rights
reserved. Additional information is available upon request.
Fleetwood Associates, Inc.
309 Packman Avenue
Mount Vernon, NY 10552
Tel: (914) 663-9510
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Please be advised that small and micro-cap stocks are high risk and that
a portion or all of investment dollars can be lost. Please consult a
professional investment advisor before purchasing any stock. All
opinions expressed in this newsletter are the opinions of
EmergingStock. All information is received directly from the profiled
Company and/or outside interviews held by EmergingStock staff.
EmergingStock assumes all information to be factual; however,
EmergingStock does not warrant or guarantee the accuracy of this
information. EmergingStock is not offering securities for sale or
solicitation of any offer to buy or sell securities. An offer to buy or
sell can be made only with the accompanying disclosure documents and
only in the states and provinces for which they are approved.
EmergingStock may have positions in the securities mentioned or profiled
in this newsletter. EmergingStock may receive compensation for the
dissemination of information and may have financial dealings with the
companies profiled. EmergingStock received two hundred thousand dollars
for the dissemination of this report and other services provided. This
newsletter may be quoted, in context, with proper credit given to
EmergingStock.
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