Wednesday, 25 November 2015

Bought 50 United Guardian, $19.08 - update

I will do a more detailed post on the company over the next few days.

Suffice to say, in brief, the company is a specialty chemical company which appears to have a wide moat product, Lubrajel, used in various end market products, namely; cosmetics, personal care, pharmaceuticals, medical lubricants, healthcare and industrial products.

Lubrajel comprised approximately 86% of revenue in 2014.  The company sort of reminds me of WD40 in this way.  The company's pharmaceutical product, Renacidin, comprised approximately 8.6% of revenue in 2014.

The company has no debt, and has about $3 per share of net cash (just cash + securities less total liabilities).

The CEO owns 30% of the shares and the company pays a variable dividend, currently $.82, so good for a 4.3% yield.

The company trades at just under 16x ttm eps of $1.22 (but ttm are inclusive of a spike in sales due to Yuan devaluation impact).  If I apply a 15 x multiple to eps of $1.22 plus net cash of $3, I get $21.30 per share, about 10% above current.

Important update.  It's likely that forward eps will not be $1.22.  In their Q3 2015 report the company warned of softness for the final quarter as a result of sales to China. As the company has earned .91 for the 9 months ended September 30, 2015, I'm going to assume at least $.91 in eps for fiscal 2015. The company earned $.09 per share in Q4 2014.  Assuming no growth, we get $1 in eps for 2015 if the compamy earns $.09 in Q4 2015. 

Here are the last 5 quarters:

There are some key risks here which need to be addressed:

  • Significant dependency on one product (Lubrajel) and economic dependency on marketing partners to distribute the products
  • Tiny microcap with tiny float, will thus affect liquidity
  • Variable dividend policy as noted above
  • Significant proportion of sales to Asia

I believe that the investment thesis here is a function of possible future cash flows from sales of the company's Renacidin 30ml product (currently under FDA review).

Will chime in on further analysis over the next few days.

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