S A ADVISORY July - August 1999


S.A. Advisory
2274 Arbor Lane #3
Salt Lake City, Utah 84117

Eagle Supply Group, Inc.
Corporate #212-986-6190

The Company was organized to raise capital and acquire, own, integrate and operate seasoned privately-held companies engaged in the wholesale distribution of roofing supplies and related products. During the first quarter of 1999 Eagle Supply Group, Inc., upon successfully funding its recent IPO (raising $11.6 million after expenses and according to final prospectus dated March 12, 1999) successfully acquired Eagle, JEH Eagle and MSI Eagle.

Eagle was founded in Florida in 1905. Eagle is a wholesale distributor of roofing supplies and related products through its own sales force and distribution facilities to roofing supply and related products contractors and sub-contractors in the geographic areas where Eagle has distribution centers. Such contractors and sub-contractors are engaged in commercial and residential roofing repair and the construction of new residential and commercial properties. JEH Co. was founded in 1982 and its business and substantially all of its assets were purchased by JEH Eagle in July of 1997. Similar to Eagle, JEH Eagle is a wholesale distributor of roofing supplies and related products within the geographic areas of its distribution facilities using similar sales methods. JEH Eagle also distributes drywall, plywood, vinyl siding and similar products to contractors, builders, and developers primarily engaged in the construction industry. MSI Co. was founded in 1979, and its business and substantially all of its assets were purchased by MSI Eagle in October of 1998. MSI Eagle is a wholesale distributor of cement, masonry supplies and related products to building contractors and subcontractors through its own sales force and distribution centers. Such contractors and subcontractors are engaged in residential and commercial construction. Eagle, JEH Eagle and MSI Eagle have become wholly-owned subsidiaries of the company and will constitute the only business operations of the Company until and unless the Company consummates additional acquisitions. Although the primary focus of the Company’s expansion and acquisition program will be on seeking suitable acquisition candidates which are engaged in the wholesale distribution of roofing supplies and related products, the Company will consider the purchase of manufacturers or vendors of products which may be distributed through its wholesale distribution business.

The Company plans to seek acquisition candidates primarily in the roofing supplies and related products industry throughout the United States, with greater emphasis on the Southeastern. Midwestern and Western regions and less emphasis on the Northeastern region of the United States. However, the Company may consider acquisition candidates in any of the foregoing regions of the United States if an exceptional opportunity arises.

Principal Products

Eagle and JEH Eagle distribute a variety of roofing supplies and related products and accessories for use in the commercial and residential roofing repair and construction industries.

Residential Roofing Products. Shingles (asphalt, ceramic, slate, concrete, fiberglass and fiberglass combined with asphalt), tiles, felt, insulation, waterproof underlaying, ventilation systems and skylights.

Commercial Roofing Products. Asphalt, cements, tar, other coatings, modified bitumen and roll roofings.

Sheet Metal Products. These products are sold principally by Eagle and include aluminum, copper, galvanized and stainless sheet metal. Drywall/Plywood Products. These products are sold principally by JEH Eagle and include sheet rock and plywood.

Eagle and JEH Eagle also sell accessory products related to each of the foregoing, including, but not limited to, roofing equipment, power and hand tools and fasteners.


MSI Eagle distributes a variety of cement and masonry supplies and related products and accessories for use in the residential and commercial building and masonry industries.

Concrete and Masonry Products. Portland cement for use in housing foundations, laying pavements, walkways and other similar uses. Masonry cement for use in brick and stone masonry. Cement is principally sold by bags of varying weight (approximately 10 pounds to 95 pounds) and is sold in a variety of mixtures such as concrete mixes (portland cement, sand and gravel), sand mixes (portland cement and sand), mortar mixes (masonry mortar cement and masonry sand) and grout (cement and sand). Also sold are sand, gravel, underwater cement, concrete and asphalt “patching” compounds.

Angle Iron. Iron forged at a ninety degree angle which is cut to customer’s specification for use as support above windows and doorways.

Bricks and Stones. Bricks, used bricks, firewall bricks, “cultured” (man-made) stones in a variety of colors and shapes, cinder blocks, glass blocks.

Fireplace Products. Fireboxes, dampers, flues, facings, insulations, fireplace tools and accessories. Swimming Pool Products. Cements and molds used in pool construction.

MSI Eagle also sells a variety of products related to the foregoing, including cement mixers, rulers, levels, trowels, and other tools, cleaning solvents, patching compounds, supports and fasteners.

Eagle Supply, Inc. distributes roofing supplies to over 2,400 customers in Florida, Alabama and Mississippi.

JEH/Eagle Supply, Inc. distributes roofing supplies to 2,700 customers in Texas, Colorado, Indiana, Minnesota and Virginia.

MSI/Eagle Supply, Inc. distributes masonry and building supplies to 1,700 customers in Texas.

As the nation’s fifth largest wholesale distributor in this industry, Eagle operates a network of 34 wholesale distribution centers in eight states: Florida (11), Texas (10, including 4 masonry supply distribution centers), Colorado (5), Alabama (4) and one each in Minnesota, Mississippi, Indiana and Virginia.

In our opinion, (Box A) the quickest as well as easiest way to analyze EEGL is to look at the PE estimates for fiscal 2000 without and 2000 with an acquisition. Revenue growth will balloon by 80% with an acquisition or 29% without. Earnings/share growth will surge by 50% over 1999E with an acquisition of 20% without.

Before we assign a PE valuation for EEGL, we should first review the nine month numbers, that is, EEGL has already earned .36/share from generated revenues of 114 million, with management’s guidance fiscal 99, which has already ended, should look like 155 million in sales and .50/share based upon fully diluted shares outstanding of 8.4 million.

We believe that without comparing EEGL to any peer companies that are in similar business models and formulating a conservative PE valuation that fairly represents EEGL without hyping or misleading potential investors, that a PE valuation of 18 fairly represents what EEGL should trade at. Using this number and applying our earnings/share estimates, EEGL could trade at $9, $10.8 and $13.50, respectively, when we look at fiscal 1999, 2000 and 2000+. A far cry from EEGL’s current $4.50 share price.

Upon review of Box B, it is easy to conclude that the group of stocks mentioned indicate an industrial segment that is underowned and that the group’s PE multiple has lagged the overall market. (GWW is more fairly valued - offers greater liquidity, which many institutions favor in this current market environment). In our opinion, EEGL, WLMR and BNTT all look attractive at current levels, but EEGL and BNTT are standouts! We believe that EEGL really offers the greatest potential because the corporate strategy is one of rapid growth via acquisition. If we take in account EEGL’s revenue and earnings estimate for 2000E, including planned acquisitions, which ramps the revenue up to $280 million and the earnings up to .75, it most certainly offers the greatest upside potential. It is in our opinion that a $10.00 share price will result if corporate goals are met. The overall fundamental picture offers investors relative safety; that is, EEGL has around $1.00/share in cash, book value of $1.75, has an estimated PSR of .25 for fiscal 99 ending June 30th and below .20 for estimated fiscal 2000. The EBITDA (earnings before interest, taxes, depreciation and amortization) for the past 9 months based upon the fully diluted shares outstanding of 8.4 is also very attractive, that is, .71/share. The company has a large debt load, which is a negative, but the huge cash flow has and will accommodate it with little problem. The debt was acquired via a recent acquisition.

In our opinion, a market that has many segments that are still trading at extremes; EEGL offers above average return during the next 12 months with little downside risk. When you consider the strength in housing starts, repair due to weather and, of course, maintenance to existing homes, the future for EEGL looks very promising. The roofing and masonry supply distribution businesses are a $25 billion plus industry, highly fragmented, with great opportunities for consolidation. EEGL has recently proven that it can raise money and successfully acquire companies that fit within its corporate strategy. At current levels we rate EEGL with a BUY recommendation for less risk oriented investors looking for solid returns during the next 12 months. We intend to monitor EEGL in our current portfolio for percentage gain performance. Broker contact: Karl Birkenfeld at 1-888-454-1998

Note: We were hired as a consultant by the company during April/May, 1999 only. Our consulting fee equalled $6,500.

Back to top | Back to Newsletter | View Disclaimer

Copyright © 1998 S.A. Advisory