Keep in mind that management has managed this company well for a good long time. We're just caught in a bad combo of Asian flu and product transition, along with capital expansion. None of this hurts the long-term prospects, and may actually benefit it.
Current problems are startup problems at Cortland. They did not manage the build of that line and the hiring of new employees very well. Sounds like an Abbott and Costello movie, despite the CEO's watered down explanation. However, I think that there are deeper problems than just getting a new line up and running. It is the premature commitment of capital and manpower to a market that is yet to fully unfold. The delay in digital TV has resulted in a relative oversupply situation. Fortunately I think we will see that dissipate within 9 months and the demand will far outstrip the capacity to produce. These types of non-smooth demand situations pose some serious management problems for BMC.
The purchase of Orcolite makes a lot of sense given the products that BMC manufactures at Buckbee-Mears and the aging baby-boomer population bubble. However, I also have some concerns about the price paid for a company with 25-35mm of sales. I would like to hear an explanation from the management as to their financial calculations.
Given all these concerns, I still think the company is getting near to its bottom given the past history of performance, its product niches, and the book value. I don't think that there will be any exhaustion selling, so I think that the volume will remain relatively low for this quiet company. Drifting down to near book is highly unlikely given their historical track record of good management, high visibility in their niche markets, and almost no prospect of reduced demand, even in a recession, for their products. (H)DTV will be the next revolution in the digital electronics revolution of the last 10 years, and BMC will be ready to supply the DTV and monitor masks to both the TV and monitor markets. |
