Here ist the Strong Buy recommendation (1/28/97)
VistaQuest, Inc.
Financial Public Relations
Mark Kabbash, Principal Phone: (212)551-7874 Andrew Schamisso, VP
Corporate Fax: (212) 551-7891 January 28, 1997
INTERNATIONAL ABSORBENTS INC.(NASDAQ:IABSF)
ú Patented absorption products for the industrial , oil, packaging and pet-care markets.
STRONG BUY
Recent price(common shares).....$0.625 Common shares outstanding.14,345,150
Float.............12,480,000 shrs.
Market cap..........$8,965,719
Fiscal year (1/31).........1997 1998
Revenues (estimated).........$4.6 million $8 million EPS (estimated) .......$(0.09)* $0.03
* includes write offs
I. OVERVIEW
International Absorbents, Inc. (IAB) takes useless landfill-bound waste-wood pulp from paper mills and treats the waste with various proprietary, patented processes. The end results are such competitively superior products as Spill-SorbTM , an industrial absorbent for factory spills, CatWorksTM and ECOfreshTM kitty litter and CareFreshTM pet bedding among others.
In IAB's industrial market segment more than $450 million per year is spent on clay and clay-like products for the clean up of liquid spills. IAB products are proven to be 50 percent more effective than their clay competitors thereby offering substantial cost savings.
In IAB's animal-care market more than $2 billion per year is spent on pet litter and animal bedding. IAB products have tested to be safer and to control odors much better than competitors' products that are made from clay and wood shavings. Significant revenues are anticipated as new sales outlets are established.
II. MANAGEMENT TRANSFORMATION
Our recommendation is based on a major management transformation. IAB's President/CEO resigned in 1996 and three key upper level management positions were strengthened in the last two reporting quarters. Where prior directionless management limited the company's vision as a "processor of waste wood pulp" , IAB is today quite simply a "seller of superior cost-effective absorbent products." New management personnel that will help bring IAB to the next level are:
Geoffrey Lawrence - (President & CEO) joined the company in October 1996 from Impact Systems, Inc. (NASDAQ:MPAC), a manufacturer of automated equipment for the paper and pulp mill industry. He was central to Impact's growing to $18 million in sales from $500,000.
Jack VonEwegen - (VP of Industrial Marketing) joined the company from the Slikwik Sorbents division of The Anderson's Inc. (NASDAQ:ANDE), a direct competitor of IAB in the industrial sorbents market. While running Slikwik, Mr. VonEwegen built the company from negligible revenues to $8 million in sales. He joined IAB in July 1996. IAB's prior CEO and prior VP of Industrial Marketing both came from totally unrelated industries.
Edward Murchie - (Board Member/Chairman of the Management Committee) was most recently COO of Vernitron Industries (NASDAQ:VRNT; now called Axsys Technologies [NASDAQ:AXYS]) a $70 million revenue generator and was the former CFO and COO of Fairchild Industries ($550 million in revenues). He joined the board in June 1996.
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III. SOAKING UP THE MULTI-BILLION DOLLAR ABSORBENTS MARKET
The new management team has implemented a multi-faceted, cost-effective growth approach which focuses on (i) synergistic investments, (ii) increasing distribution networks both domestically and internationally and (iii) developing new markets through new products. Each of these goals met with success in 1996. For example:
ú With regard to recent investments -- During 1996, the Company purchased a 50 percent interest in Benetech LLC. (Rome, NY), a like company that produces animal bedding and industrial products from waste wood pulp. IAB plans to utilize the manufacturing operations of the plant which will greatly solidify its distributorship network in that part of the country and reduce freight and manufacturing costs. The plant is scheduled to be in full production by February 1997.
_ IAB is expected to soon form a strategic alliance with a second paper mill in the Eastern United States to produce its industrial products. The new facility will eliminate fiber transportation costs and reduce the cost of shipping end products to Eastern U.S. markets enabling IAB's products to be more competitively priced while significantly increasing profit margins. Whereas the company presently can pay $80 per ton in fiber transportation costs to its Bellingham, Washington facility, northeast paper mills typically will pay approximately $20 per ton to dispose of the waste.
ú With regard to domestic/international distribution networks - In addition to many regional distributorships in the United States, IAB has industrial agreements with Phillips Petroleum, Navistar International and Applied Industrial Technologies. Internationally, distribution agreements have recently been signed covering Australia, New Zealand, Japan, Korea, Israel and the European Union. IAB's animal care products can be found at PetCo and Pet Supplies Plus, two of the largest pet superstore retailers in the U.S. New distributor agreements this year have been signed with AJ Buck Co, one of the nation's premier veterinary suppliers and Central Garden & Pet, (NASDAQ:CENT), the country's largest pet-supply distributor. Animal care revenues are currently growing in excess of 10 percent per quarter and Industrial revenues exceed that rate with growth acceleration anticipated with more cost effective east coast manufacturing capabilities.
ú With regard to new markets - The Company has an aggressive goal to implement a minimum of one new market application per year. To that end IAB is in the process of introducing a new animal bedding product for the Bio-Tech market. Initial acceptance is positive and the markups within this sector are in excess of 100 percent.
IV. ADDITIONAL INVESTMENT ATTRIBUTES
IAB's major industrial market competition comes from clay-based sorbents. IAB products are 100 percent recycled, are much more cost-efficient and absorb more than their clay-based competitors. IAB products have no known health risks to either man or animal. They are silica-dust-free, non-abrasive and produce no toxic fumes. Competitive clay-based absorbents contain silica, potentially producing respirable crystalline silica which has been linked to lung disease and is increasingly scrutinized due to EPA workplace environment guidelines (all IAB products meet EPA guidelines.)
Clay products dominate the pet care market as well and can produce the same harmful effects. Also, many competitive animal bedding brands are toxic and contain aromatic oils which have been documented to cause liver disease in small pets. International Absorbents' processes inhibit the formation of ammonia (which cause offensive odors) and create a product that is harmless if ingested, flushable and has no adverse environmental impact.
With these competitive advantages and a management team that knows how to market them, IAB is a company coming out of a long development stage and ready to assert itself.
This report is published solely for informational purposes and is not to be construed as a solicitation of an offer to sell or of an offer to buy any security or options thereon. This report is based on data obtained by sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. VistaQuest, Inc. may or may not have a client relationship and may either have a long or short position in the aforementioned stock which may or may not increase or decrease at any time. |
