I feel good about this company. They are expanding their product line to move beyond the go-fast market where they've been doing about $50M yearly. It would appear they can double this with their new line of fast cruiser boats, the first of which is 65'. There is minimal competition in this area (I can only think of Wellcraft's 45' Xcalibur with approx. 12' beam and 50 MPH+ speed; but Riveriea, the Ausssie boat builder makes the hulls and you have to wonder how committed Wellcraft is to the fast cruiser market; Magnum makes a fast cruiser but they are small potatoes in the marketplace). Maybe that's because it's a thin market, but Fountain appears to be small enough to tackle a small segment.
They have built a new building for the 65'. They can build approx. one per month. I'll estimate that works out to 10.5 per year at $1,300,000 net each (admittedly a rough guess), about $14M yearly increase in sales. Their CFO, Joe Schemenauer says they'll be able to sell out each year. Six dealers have requested boats (these are not firm orders). The cost of the new facility is being written off in last quarters results announced last Friday.
The write-off is about $2.5M and includes the closing of the racing program. This will save them a lot in the future and I see this write-off as a positive.
The cruiser line will have another addition at next winter's shows. A 40'+ hull is finished and a new building will be built to produce it. This boat will have amuch broader market than the 65'. Let's guess they can sell 50 yearly at a net of $500,000 each. That's another $25M in sales. They will add a 50'+ boat, too. It would seem that $100M yearly sales is easily achievable. Joe S. assures me the craftsmen are available in North Carolina to build the new cruisers.
Another positive is that 1 - 2 years ago Fountain hired a Brunswick executive, Tony Romersa, (Brunswick owns several large boat companies) to be COO. A very wise move. Reggie Fountain is the creative boat guy but who wants him running a $100M company on a day-to-day basis? Not even Reggie, apparently, much to his credit. They also hired Joe Schemenauer to be CFO. This bodes well for the future.
Joe insists the company has changed quite a bit the last few years. I asked about Reggie selling boats direct and cutting his dealers out of sales. Joe says that ended two years ago or more. Dealers are now required to register customer name and location. If the customer is in their defined marketing area, they get a bonus commission. If the boat goes into another dealer's area, the other dealer gets the commission. The dealers need this protection badly as the go-fast boats are easily trailered to anywhere in the country, unlike wide, heavy boats.
The float on this company is pretty thin, about 2.5M. Total shares are 4.7M and Reggie owns about 2.2M and has options on more (not sure how that works in this case, but he hasn't excercised them). When sales start popping, the stock price should move nicely. In late 1997 it was at $16 and slowly faded to current level.
You also have to wonder if Reggie might sell out if the cruiser line is successful. 2.5M shares (including options..approx.) times $15 to $20 a share is a lot of money. Many boat companies are now owned by outfits like Brunswick. Why not Fountain?
Let's hear it, SI members...what do you think? |
