| CLEMEX (CXG.a, Canadian) | |
| RESEARCH SUMMARY | |
| Report Author: | Shawn Allen, investment-picks.com |
| Author's disclosure of share ownership: | I hold over 20,000 shares |
| Based on financials from: | April 2001 Y.E. + Q3 '02 |
| Last updated: | 28-Mar-02 |
| Current Price: | $0.26 |
| Currency: | $ Canadian |
| Current Rating (Company Rating does not consider the circumstances of any individual investor and is therefore not a recommendation and is not Investment Advice): | Speculative Buy |
| Investment "quality" (speculative vs. investment grade): | speculative |
| RATING: Be aware that this company is very small and the stock has very poor trading liquidity with huge bid/ask spreads. The fundamental valuation is good based on profits in the last three quarters. I expect Q4 to complete the first ever string of four profitable quarters in a row. Sales growth had traditionally been strong but is recently flat. Does reasonably well on Buffett's tenets. And, this is a high tech company that is a world leader in its niche. Sales are being hurt by the decline in the manufacturing sector but profits are up due to cost cutting and capitalizing on past investments. Management is forecasting recent profits to continue. The risk is that profits evaporate again. This stock is speculative but has definite potential. I rate this stock as a Speculative Buy. | |
| WARREN BUFFETT's TENETS: Warren Buffett would not buy this still early stage company. But it does seems to pass most of his tenets (see Robert Hagstrom's book) - not extremely simple to understand but not excessively complex (marginal pass), poor profit history (fail), does have favorable prospects (pass), seems to have rational ethical management but I have not forgiven the 1999 re-pricing of options (marginal pass), high ROE based on last three quarters (pass) , high profits on sales recently (pass), and reasonably low debt ratio (pass) and possibly selling at a substantial discount to intrinsic value (marginal pass). | |
| VALUE AND GROWTH RATIOS: Recent price $0.26. Trading at 2.76 times book value which is not particularly attractive but is not a factor that I place much weight on, compounded sales growth per share is strong at 19% per year but recently suffered a decline. Interim P/E is about 15 but I expect the full year profit to be about double the interim profit since Q4 '2001 was negative but Q4 2002 should be positive. Profits in the last three quarters are up sharply. Interim R.O.E. is strong at 18%. It is possible that earnings will grow both due to higher sales and due to a future higher profit over sales ratio as the company matures. The total market cap does not seem excessive at $4.8 million. Based on the strong ROE and the recent rise in earnings these ratios indicate a Buy. | |
| SUPPORTING RESEARCH AND ANALYSIS | |
| Symbol and Exchange: | CXG.A, Alberta |
| Currency: | Canadian $ |
| Category: | Growth |
| DESCRIPTION OF BUSINESS: "Clemex develops, manufactures and markets image analysis systems and software used by quality control and research microscopy laboratories. ... Its customers span the globe and consist of large manufacturing concerns." | |
| Basis and Limitations of Analysis: The following applies to all the companies that I rate. My conclusions are based largely on achieved earnings, balance sheet strength, earnings growth trend and industry attractiveness. I undertake a relatively detailed analysis of the published financial statements including growth per share trends and my general view of the industry attractiveness and the companies growth prospects. However my analysis is subject to limitations including the following examples. I do not attempt to interpret trends in the share price or volumes traded. I have not necessarily closely studied all of the detailed notes to the financial statements. I have not typically listened to the analyst conference calls. I have not met with management or discussed the long term earnings growth prospects with management. I am not typically able to access insider trade data. I have not reviewed all press releases. I typically have no special expertise or knowledge of the industry. | |
| Contact: | clemf@clemex.com |
| Web-site: | www.clemex.com |
| INVESTMENT-PICKS' ASSESSMENT HISTORY | |
| Price when first featured: | $0.23 |
| Date first featured: | 14-Jun-99 |
| Assessment when first featured: | Buy |
| Price increase since first featured: | 13.0% |
| INCOME AND PRICE / EARNINGS RATIO ANALYSIS | |
| Latest four quarters annual sales $ millions: | $6.0 |
| Latest four quarters annual earnings $ millions: | $0.3 |
| P/E ratio based on latest four quarters earnings: | 15.3 |
| Latest four quarters annual earnings, adjusted, $ millions: | $0.3 |
| BASIS OR SOURCE OF ADJUSTED EARNINGS: No adjustments are made to earnings. | |
| Quality of Earnings Measurement: Reliable, most expenses are cash expenses and the depreciation expense although estimated is not that large. | |
| P/E ratio based on latest four quarters earnings, adjusted | 15.3 |
| Latest fiscal year annual earnings: | $(0.2) |
| P/E ratio based on latest fiscal year earnings: | negative |
| Fiscal earnings adjusted: | $(0.2) |
| P/E ratio for fiscal earnings adjusted: | negative |
| Latest four quarters profit as percent of sales | 5.3% |
| Dividend Yield: | 0.0% |
| Price / Sales Ratio | 0.81 |
| BALANCE SHEET ITEMS | |
| Price to book value ratio: | 2.76 |
| Quality of assets measurement: Good quality, no material intangible assets. R and D costs, previously capitalised were recently re-stated as if expensed. This creates a hidden value. | |
| Number of common shares in millions: | 18.5 |
| Controlling Shareholder: President, Clement Forget holds 27%, A fund company owns 14% | |
| Market Capitalization $ millions: | $4.8 |
| Percentage of assets supported by common equity: (remainder is debt or equivalent) | 50% |
| Current assets / current liabilities: | 1.7 |
| Liquidity and capital structure: Fair liquidity at this time, has improved due to recent profitability. | |
| RETURN ON EQUITY AND ON MARKET VALUE | |
| Latest four quarters adjusted net income return on ending equity: | 18.0% |
| Latest fiscal year adjusted net income return on average equity: | -17.5% |
| Adjusted Latest four quarters return on market capitalization: | 6.5% |
| GROWTH RATIOS, OUTLOOK and CALCULATED INTRINSIC VALUE PER SHARE | |
| 5 years compounded growth in sales/shr | 19.0% |
| Volatility of sales growth per share: | Recently declined |
| 5 years compounded growth in earnings/shr | negative past earnings |
| 5 years compounded growth in adjusted earnings per share | n.a. |
| Volatility of earnings growth: | volatile |
| Projected current year earnings $millions: | |
| Projected price to earnings ratio: | |
| Over the last five years, has this been a truly excellent company exhibiting strong and steady growth in revenues per share and in earnings per share? | No |
| Expected growth in EPS based on adjusted fiscal Return on equity times percent of earnings retained: | -17.5% |
| Conservative estimate of compounded growth in earnings per share over next ten years: | 5.0% |
| Optimistic estimate of compounded growth in earnings per share over next ten years: | 10.0% |
| OUTLOOK FOR BUSINESS: They have recently released a new "mass market" $5000 version of their software in a CD format. Recently sold upgrades to existing customers. Projecting higher sales of high margin software upgrades. Recent profit is due to cost cutting and therefore should be sustainable even if sales are flat. | |
| Estimated present value per share: The earnings per share are far too volatile and/or the initial earnings are too low or negative to estimate the value of this company based on its future earnings per share. | |
| ADDITIONAL COMMENTS | |
| GENERAL COMMENTS: A micro cap technology company with an excellent product that has recently reached the profitability stage. The company is becoming more of a software company and less of a hardware company. Expect price volatility. This is an example of a share with very small trading volumes. The bid/ask spread is often over 10 cents and the bid volume is typically very small. This means that investors would typically drive the price down if they tried to sell more than a few thousand shares. Therefore, this stock is definitely not suitable for short term trading. | |
| INDUSTRY ATTRACTIVENESS: (These comments reflect the industry rather than any particular company.) I have not studied the industry but my impression is that this is a high tech industry that has strong growth. I am concerned that industry does not seem to generate repeat sales, this may a one sale per customer industry. There is some ability to sell upgrades to existing customers. Overall, I am unsure of the attractiveness of the industry. | |
| RECENT EVENTS: Has diversified its customer base by selling to new industries and by selling packaged software. | |
| ACCOUNTING AND DISCLOSURE ISSUES: Development costs of new products are expensed in accordance with industry practice (previously were capitalized). To a certain extent the R and D costs are subsidized by tax credits and grants. Expensed Development costs plus the value of the credits and grants can be considered to create a "hidden" asset of the company. | |
| COMMON SHARE STRUCTURE USED: Normal common shares, 1 vote per share. | |
| MANAGEMENT QUALITY: Management are the principal owners and are technically very knowledgeable and experienced. I was disappointed with management's decision in July 99 to re-price its outstanding options from 60 cents to 30 cents. Nevertheless I still have a positive overall opinion of management. | |
| EXECUTIVE COMPENSATION: To date, reported executive compensation has been reasonable. | |
| BOARD OF DIRECTORS: 7 members chaired by CEO and founder, Clement Forget. 4 members hold significant shares. It is disappointing that 3 members hold no personal shares though 2 of these control shares of others through funds they work for. | |
| RISKS: Small company dependent on key staff. Competitors could develop better technology. Future earnings will depend partly on the ability to realize on the investment in product development costs. | |
| DISCLAIMER: The information presented is not a recommendation to buy or sell any security. The author is not a registered investment advisor and the information presented is not to be considered investment advice. The reader should consult a registered investment advisor or registered dealer prior to making any investment decision. The author may at times have a security position in the companies presented. Use the information posted at this site at your own risk. Your use of any information provided here does not constitute any type of contractual relationship between yourself and the provider(s) of this information. We cannot guarantee the accuracy of this information. The information here is not necessarily up to date or all inclusive. Our opinions and analysis may not always be valid. Our judgment is subject to change without notice. We hereby deny all responsibility and liability for all use of any information or "rating" provided here. | |
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Last Updated on 3/28/02
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