ECIC gets another writeup and also shows signs of going higher today.
The volume in NPCT is also picking up as we hear that one is close as
well. First www.billingtons.com and now this party puts out a nice writeup on ECIC.
Here it is:
52 Week Range: $0.375 - $3.50
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We have followed Eagle Capital International, Ltd. (ECIC otc bb) for several months
now. We have been very impressed with the corporate developments in 1999, but the
stock thus far has not responded to reflect these developments. We feel this is about to
change, because the company is taking affirmative steps to realize shareholder value.
Oh, and by the way, the company is selling at a mind-boggling cheap PE of 2.2! Not
twenty-two, but TWO! They can't all be tech stocks or internet plays, sometimes you
just have to settle for hardcore value.
Background
Eagle Capital International will act as the principal resource for equipment capital for
IMSI - Integrated Masonry Systems International, Ltd. IMSI has developed a
revolutionary new insulated masonry construction block system with distinct advantages
over traditional brick and mortar construction. The advantages of the IMSI system are
such that we believe it could be the first choice construction method in many emerging
economies. The focus of Eagle
Capital and IMSI will be underdeveloped economies that need to upgrade the
residential and commercial facilities. Eagle Capital may be a much safer play on the
recovery and long-term growth prospects of countries like India, China, and many Latin
American countries. Rather than investing directly in those economies, we believe the
risk-reward ratio is much better by investing in U.S. companies that are poised to profit
internationally and domestically.
Description and Advantages of the IMSI Construction System
The IMSI Wall System features insulated reinforced masonry that is
mortarless and dry-stacked. The bricks have pockets in which insulation is embedded
within the wall, but it is done without sacrificing structural integrity. The bricks are
stacked without the need for a layer of mortar between bricks, instead IMSI system
utilizes a Structure/Coat Surface Bonding Cement which provides a weather-resistant,
structurally sound, and impermeable surface.
IMSI - Wall System Advantages
1. Cost Competitive
2. Airtight
3. Engineered for seismic conditions
4. Low maintenance costs
5. Environmentally friendly
6. Quick installation
7. Ease of installation- semi skilled workers can be quickly and
easily trained
8. Flexibility of use- commercial, residential, institutional, and
governmental construction
Of these advantages, a few should be given particular attention. Emerging economies
have an over supply of unskilled labor and shortages of high skilled labor. The
mortarless construction method is ideal. It does not require heavily trained, skilled labor.
Unskilled labor can be trained quickly to use the IMSI construction system. This
advantage gives IMSI a very solid strategic position over competitors. Foreign
governments are motivated to keep unskilled labor employed to increase living
standards and reduce potential for political unrest. Many construction contracts are
engineered through government agencies and the IMSI technology will get Eagle
Capital's foot in the door.
Recent News and Developments
On January 12, 1999, Eagle Capital International, Ltd. (ECIC otc bb),
through its controlling interest in Great Wall New Building Systems, Inc.(GWNBS),
entered into a Letter of Intent with the Beijing Shuanlong Cement Group Company. The
deal will be completed by the end of the first quarter.
Production is expected in August of 1999. From projects in place, annual sales of 6.3
million blocks and gross profits of $1.2 million are expected. The company is also in
discussions with numerous other cities, including Changzou, Shanghai, Beijing and
Tianjin. There are an additional three Letters of Intent for joint venture agreements,
which would produce annual sales of approximately 16.4 million blocks.
On Feb. 23, 1999 Eagle Capital International Ltd., signed an agreement to acquire a
controlling interest in a second international building joint venture, Construction
Technologies of India (CT India). CT India has the right to employ the internationally
patented IMSI Building System in India. Together with the previously announced
acquisition of CT China, this acquisition continues Eagle's expansion into international
building markets.
CT India has completed the walls of its first building in the Greater Bombay(India) Area.
This 20,000 square foot facility is the precursor to the signing of a contract to construct
a medium-rise social housing project over the next two years. Production of the IMSI
patented block will be ramped-up to a target of 1 million blocks per month by June
1999 in order to meet the anticipated requirement of 24 million-25 million blocks for
completion of the project. The company expects profits of approximately $3,000,000
($.10-.15 per block) to be generated from this project alone.
The IMSI technology has proved successful in the U.S. and overseas. The IMSI system
has been used in over 1,000 buildings in the US during the past 12 years and has also
been used to build two six-story apartment buildings in Harbin, a city in the industrial
heartland of China.
As a reporting company, Eagle is already subject to full disclosure of its business
developments and financial data and expects to file its Form 10KSB on time, as usual.
Why We Believe the Stock is Undervalued
The announced projects taken together should generate profits to CT India and GWBS
of approximately $6,200,000 over a two-year period. As Eagle has acquired, or has
contracts to acquire, a controlling interest in these joint ventures, profits to Eagle should
approximate $1,600,000 per year, approximately $.80 per share (currently outstanding
1,997,918 common shares), for the next two years. That puts the price-to-earnings
ratio at a miniscule 2.2! At a PE of only 10X, that suggests a price target of $8. A PE of
15X would reflect a price target of $12. That is still roughly a 40% discount to broader
market multiples.
Eagle Capital trades at about $1.75 per share and has 2 million shares
outstanding. That puts a market value of $3.5 million on the company
presently. The company's paper assets are its licensing agreements with IMSI, position
as the provider of equipment capital for IMSI, rights to be sole marketer of IMSI
technology in some international markets, and joint venture partner in other projects. In
addition to the present day value of their relationship with IMSI, Eagle capital has or will
have significant hard assets very shortly.
They have a letter of intent to acquire land in Utah valued at $4.5 million, consisting of
approximately 275 building lots in the city of Lehi, Utah, a suburb of Provo, the home of
Brigham Young University. The development will serve as a pilot project for
construction using IMSI technology. The technology has already been used to build
1,000 buildings in the U.S., so its use is proven. Just the value of that undeveloped land
exceeds the market value of ECIC. Eagle Capital will also add value to land by
developing it.
Eagle Capital will also acquire a minimum of 20 portable block construction plants in
1999 and an additional 50 in year 2000. Eagle Capital International Ltd. announced on
Feb. 2, 1999 that Lone Wolf Energy Inc. has agreed to finance about $60 million for
Eagle to use to lease mobile block plants to construct buildings using the patented IMSI
Insulated Reinforced Masonry System. The financing is a multi year commitment that
will provide Eagle with the necessary resources to complete projects worldwide. The
financing will cover equipment which will include approximately 70 mobile block plants.
Each Mobile Block System costs Eagle $500,000, but these plants have a very high
return on investment. Eagle expects plants to be fully utilized which means the plants pay
for themselves in 5 to 6 months. The plants have a life span of 20 years, which means
19+ years of free cash flow. With plans to have 20 such plants in 1999 and 50 in 2000,
Eagle is looking at millions of dollars of free cash flow.
Each of the 20 plants that Eagle will have at the end of 1999 can on average generate
$46,000 revenues per month on two eight hour shifts. That represents about $11 million
in revenues, much of that free cash flow as plants are financed and/or paid off very
early. On the 70 plants planned by 2000, the revenues just from mobile plants will be in
the neighborhood of $38 million. In addition to Eagle's share of JV revenue, there will
be loads of free cash flow in comparison to the company's market cap of roughly $3.5
million. This should put Eagle in a very solid position to issue dividends in 2000 and buy
back stock.
Management Obviously Agrees The Stock Is Undervalued:
On Feb. 8, 1999, Eagle Capital International, Ltd. President Douglas Alan Dent
announced that shareholders representing over 80% of the company's common stock
(1,997,918 shares outstanding) have consented to a lock up agreement for a period not
to exceed 18 months. It is our understanding that over 1,200,000 shares have been
pulled out of the market thus far and more than 350,000+ will be pulled over the next
week.
This is a significant and aggressive move on the part of Eagle Capital. By taking stock
out of the float, they tighten a noose around the necks of short sellers and they deter
short sellers in the future. When these short sellers cover their shorts, that will provide
marginal additional buying. The lock up period also shows a longer-term commitment to
the company, stock, and shareholders. This kind of move gives us greater confidence
that Eagle Capital's management will do the right thing by shareholders in 2000, by
issuing dividends or buying back stock.
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