JCTCF -- First Look

Initially attracted to this stock for the following reasons:
-substantial EBITDA and earnings growth but still low multiple
-recently strong ROE without much leverage
-very thinly traded (roughly 5K shares per day) and very large insider ownership
-extreme stock volatility over last 18 months despite steady earnings growth

Share Price…….$8.17
Market Value …..$20M
Enterprise Value: ….$24M
Investment Type: …..Hidden Assets


Jewett Cameron Trading Co. Ltd (JCTCF) has four business lines with Greenwood and JCLC accounting for 90% of 2006 sales.

Business Lines

Industrial Wood Products (aka Greenwood) essentially sells treated lumber and other wood products to OEMs in the transportation and recreational boating industry. In the latest 10K the company tries to make the case that these are “value added” products with a lot of customization but based on margins and the recent financial performance of this business and management’s comments this is still largely a commodity business. Also, not only is this business a commodity business a large part of the unit sales (34%, 41%, and 39% in 2006, 2005, and 2004 respectively) came from the recreational boating industry which is highly leveraged to the economy.

Lumber, Building Materials & Other (JCLC) is made up of “wood” and “non-wood” products. The wood products are all pure commodity products with the final users being the residential remodeling or DIY market. The products are sold either at the company’s distribution center and home improvement retailers/center. The “non-wood” products are sold primarily by home improvement retailers and include dog kennels, greenhouses, gates, etc. The company has been expanding the number of “non-wood” products in its lineup and has increased the number of stores that sell these products. I will talk at length about this segment of the JCTCF’s business in further posts as I believe it’s the key to the investment thesis.

Seed Processing and Sales (JCSC) is in the business of taking raw seeds and processing them into marketable products to be sold to farmers.

Industrial Tools and Clamps (MSI) imports and distributes pneumatic air tools and industrial clamps. MSI owns the brand names while the manufacturing is done in Asia. In the lastest 10K, the company estimates that the pneumatic air market at $1B in annual sales with many competitors. The industrial clamps market is estimated at $400M in annual sales with fewer competitors and where JCTCF feels they can take market share.

As always, in the following posts I will outline the Bear and Bull cases for the stock and conclude by deciding if this stock will be added to the Best Ideas or Watch List portfolio.

* DISCLOSURE: I or accounts I manage may be long or short any and/or all stocks mentioned in this post. This is not a recommendation to buy or sell any security. For informational and educational purposes only.