| September -
NEW BUY RECOMMENDATION - Champion Parts
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2274 Arbor Lane #3
Salt Lake City, Utah 84117
|NEW BUY RECOMMENDATION|
|(OTC-BB-CREB) Current Price $1.00|
Champion Parts remanufactures fuel system components, front wheel drive assemblies, and underhood electrical and mechanical products for the passenger car, agricultural, heavy duty truck and marine parts aftermarket.
Most recent press release, dated August 13,1999, says it all:
The chief executive also noted that the companys continued cost reduction efforts are working. Despite higher direct labor costs incurred to meet shipping demands, the bottom line is improving. The company plans to finalize relocation of its corporate office to its Hope, Arkansas, facility before year-end, which should yield additional cost savings and synergies.
The company also reported a strong working capital improvement. Net working capital at June 27,1999 was a positive $983,000, compared to a negative $896,000 at the end of 1998, and a negative $6,188,000 for June 28, 1998. The improvement in working capital over the first half of 1998 is principally a result of reclassifying the new four-year loan under long-term debt, as compared to current maturities of long-term debt for the prior facility, which was in default. Debt reclassification includes $ 1.0 million of the Hope, Arkansas $1.3 million industrial revenue bond, subsequent to resolving cross-default issues.
Carburetor sales were 74.3% and 73.6% of net sales in the first six months of 1999 and 1998, respectively. While overall carburetor sales are declining in the U.S. market, the Company continues to be a significant supplier of carburetors in the aftermarket. Although new vehicles sold in the United States and Canada are no longer equipped with carburetors, the Company continues to sell replacement units for older vehicles, many of which use carburetors.
The anticipated decline in sales from the profitable carburetor product line over the long term will impact future results. The Company intends to offset the impacts through development of niche product markets, new product development, improvements in its manufacturing processes and cost containment with a strong focus on capacity utilization. There is no assurance that the Companys efforts will be successful.
CREB, in our opinion, is a very cheap investment opportunity. The fundamentals of the company continue to improve dramatically. Reading the latest press release is extremely encouraging. When we look at what we get for $1/share, it really demonstrates a very attractive mini-micro investment opportunity.
From all indications, revenue and earnings are ramping up. It looks like CREB should have sales of at least $30 - 35 million and .40 - .60 net income/share for year ending December, 1999. (Note: Estimates are not managements. We assumed their numbers from recent developments and actual revenue and earnings).
If CREB continues to grow at around 20% (Note: six months growth 9% - 2nd quarter by 31%) and earns .40 for the year, and we assigned a growth rate PE of 20 and a conservative PE of 10, then our share price would equal $8 and $4, respectively - a far cry from current levels of $1/share. Even if we assigned a super conservative PE of 5 with estimated earnings of .40, we get a share price of $2.00. Anyway you slice it, CREB is a very undervalued investment opportunity. At present the PSR (price to sales ratio) is a tiny .10 of sales. If CREB was to trade at 1x sales, CREBs share price would be around $8.00. Again, a far cry from current levels.
Obviously, CREB is an obscure mini-micro that has no following or little following. It appears that a turn-around has definitely taken hold. The fundamentals of CREB look very appealing and the price displays limited downside risk and very attractive upside potential. (Note: Third quarter is typically the weakest quarter, while the fourth is the second strongest. Recently received a major agreement with Advanced Auto to supply their 600 stores with CREB products).
We intend to monitor CREB in our portfolio for percentage gain performance. We informed our E-mailers on August 16, 1999 @ .75.
Broker contact: Mike Chesler @ 1-800-890-1629. Corporate Number 1-630-942-8317.
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