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The Company was incorporated in November 1969. Initially, the Company was involved primarily in the rebuilding and repair of web-fed printing presses and related equipment. Shortly after incorporation, the Company undertook the development of a line of printing press equipment of its own design.
While the manufacture of new equipment is now the Company's primary business, it continues to deal in rebuilt and used equipment as an adjunct to its new press sales. The Company also sells parts and service for its new equipment. The sale of new and used presses accounted for approximately 83% and 2%, respectively, of the Company's revenues in 1997. The Company's presses are primarily designed to print on absorbent paper such as newsprint. Products produced by the presses are newspapers (both broadsheet and tabloid sizes), shoppers, advertising inserts, and paperback books.
Web Press Corporation manufactures two basic products, the Web Leader and the Atlas. The Atlas is made in six different models. The principal difference between the Web Leader and the Atlas is that the Atlas is fifty percent faster. Each press is composed of standard modules to unwind, print, cutoff and fold the roll of paper into a finished product. Each is arranged to meet the particular printer's requirements for the number of pages, color, and size of his products. Following are descriptions of these modules:
PERFECTOR. Web's perfector is a rotary offset perfecting printing press unit, consisting of two printing couples running "back-to-back". Each perfector will print four broadsheet-size newspaper pages, in one color, on each revolution of the printing couples. Perfectors can be configured to print up to four colors. They can print up to 32 broadsheet-size pages.
QUADRA-COLOR UNIT. Web's Quadra-Color unit consists of four printing stations mounted around a common impression cylinder. This unit prints four colors on two broadsheet-size pages at a time. It offers better control over color register and thus is capable of greater accuracy in color printing than conventional, unit-to-unit methods for color printing. It is used in conjunction with the Company's other products to provide close register, four-color capability in the printing system.
FOLDER. Web's folder is used in conjunction with perfecting and Quadra-Color units to fold the printed paper into a finished product. The folder cuts the paper off in every plate cylinder revolution and folds it in standard broadsheet-size newspapers, tabloid-size papers, and shopping-flyer or magazine-size products. The Company also produces two folder styles which have the capability of making a second parallel fold to produce "digest"-size signatures which are used in printing some books and pamphlets.
TWO-POSITION ROLL ROLLSTANDS. Web's rollstand supports two, 42 inch diameter rolls of 36-inch wide paper and is used in conjunction with the perfector and Quadra-Color units. The rollstand controls the unwinding of the paper roll and feeds it to the printing units under controlled tension.
Web Press Corporation markets its products through Company employed representatives in the United States and Canada. Foreign sales are made through independent organizations in Latin America, Asia, Europe, and the Middle East.
The Company's presses are sold in a highly competitive world market. Competition is based on a combination of price, service, quality, and the versatility of the equipment. Web's presses are priced competitively with similar products. The Company believes that features incorporated in its presses, as well as the Company's policies of supporting its customers, will allow it to continue to be very competitive. Web Press Corporation is the only manufacturer in the United States producing a Quadra-Color unit for its market.
It is easier to value stocks that have visibility, following and those that are listed on either the NYSE, AMEX or NASDAQ. Most opportunities that fall into the above category are considered within the radar of neophyte as well as the professional money manager or the "like".
S.A. Advisory spends 50% of our research time looking for opportunities that fall below the radar screen and 90% of all investor types.
We would be lying if we considered that the overall market is relatively cheap because in our opinion it is not! In our opinion, the only segment of the market that is extremely cheap is the low priced NASDAQ BB listings.
In our opinion, WEBP falls into that category.
We will first examine PE ration for 1997A and 1998E. The parameters that we will use for PE valuations will be a very conservative value of 10, the current S & P valuation of 25 and 1/2 the actual growth rate (1997) and estimated growth rate for 1998.
During 1997 WEBP earned .11/share - if we assign the value parameters listed above, then our share price could be $1.10, $2.75 and (1997 growth rate over 1996 was 48% - so half of this value equals 24%) $2.64. If we use the same parameters using management's conservative earnings estimates (for 1998), then our share valuation should approach $1.50, $3.75 and (growth rate for 1998 revenues are estimated at 30% - we will use a 15 for our calculation) $2.25.
Food for thought: Upon reviewing the recent Forbes Magazine (dated April 20, 1998), it came to our attention that most companies in the group are trading at 50% over the projected growth rate. If we were to assume this mouth-watering scenario, then based upon our earnings estimates for 1998 and anticipated growth rate of 30%, our share (note 50% above 30% growth rate yields a PE valuation of 45, with earnings of 15ó) price would migrate towards $6.75. If we used the PEG investment tool, that is, PE/G (PE ratio/growth rate) our high stock valuation would be verified. Assume that based upon our estimated earnings of .15 for 1998 and the growth rate of 30% and a current share price of $1.18, our calculation yields us a PE of 7.8 and if we divide the growth rate into that number, we get a PEG valuation of .26 (a PEG with a value of 1 is considered cheap and undervalued). In order to achieve a value of 1 our share price would be 4x the current level or $4.72 based upon 1998 estimates. A far cry from current levels.
Our next investment tool that will be applied to WEBP is PSR (Price to Sales). A value of 1 is considered cheap and undervalued. According to our calculations, 1997A yields a PSR of .37, while 1998E yields a PSR of .28. If we only achieved a value of 1, then WEBP would trade at $3.15 based upon 1997A numbers and a value of $4.15 based upon 1998E numbers. Again, a far cry from its current valuation.
Another investment tool that must be applied to WEBP is, of course, cash flow (net income and D&A). We will apply a very conservative value of 10x and an average of the Forbes 500, that is 17x. Upon applying these parameters to our estimated 1998 cash flow value/share, we calculate a conservative value of $2.20 and using the Forbes 500 as a comparable tool, our share value based upon 17x yields a share estimate of $3.74.
Our last ingredient of fundamental analysis will, of course, be book value or shareholders' equity. At the end of 1997, WEBP has a stated book value of .87 and an estimated 1998 value of $1.02. In our opinion, this ingredient is not as important as PE, P/CF and PSR because true book today can be very deceiving, which, of course, results from changing accounting regulations. We will apply a price to book of 3 to 4x in order to fully value WEBP. Based upon our valuation of this scenario, WEBP would trade at $3.06 to $4.08, based upon our evaluation.
Corporate Telephone Number: 253-395-3343.
Note: We intend to monitor WEBP in our e-mail master and Summer 97 portfolio for percentage gain performance.
Consolidated Statement of Operation
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