JCTCF -- Final Thoughts

I can’t believe it has been a month since I wrote my first post on JCTCF.

In that time the stock is up 12% after hitting an intraday high of $12.10 which represented a 48% upward move. Also, the company reported quarterly earnings that once again confirmed the potential of the non-wood business to drive earnings going forward.

While the strong earnings in the latest quarter are nice to see they do not negate the fact that JCTCF still gets most of it revenue and profits from selling commodity wood products. Revenues and profitability of this business fluctuate wildly and JCTCF is currently facing headwinds from the slowing housing market.

Despite these very real negatives, it seems that the current valuation and the continued growth of the non-wood products business make the stock attractive. The company announced several store wins for its high end dog kennel line and other non-wood products. This is and example of how JCTCF expects to grow its non-wood products, by getting shelf space from its current customers in the DYI market and from new customers. It looks like another sales channel was opened as the company announced today that they will distributing their dog kennels in Europe. http://biz.yahoo.com/prnews/070807/cltu055.html?.v=101

So how do I look at valuation?

Well, I look at valuation the same way I look at the company -- to me JCTCF at this point is the non-wood business and everything else. The problem is that the company does not break out how much of “Lumber, building materials & other” is attributed to wood and non-wood products so we can only come up with ball park figures.

Based on the latest 10Q (filled on 7/11/07), here is the net income for the last 3 quarters breakdown for each business segment:

JCLC ..................... …......…. $1.531M

Greenwood…......………………$0.79M
Seed Processing ….................$0.220M
Industrial Tools.. ……………..$0.01M
Corporate Expenses………….$(0.99)
Total Excluding JCLC ….$0.912


Estimated net income for non-JCLC businesses in fy Q4 = $0.304 ($0.912 / 3)
Estimated net income for JCLC in Q4 $0.461 (assumes JCLC has same net income as in the previous quarter)

Full Year NI for non-JCLC businesses = $1.22M
Apply multiple of 7.5x (half of SPX current multiple) = $9.12M

Full Year NI for JCLC = $1.99M
Apply multiple of 15x = $29.88M

Total Estimated Market Value = $39M
Estimated fair value per share = $16.38 / share
Apply 40% margin of safety = $9.83 / share

Keep in mind that the company filled an S-1 saying that they are willing to sell shares at $13.33 (this is the $20 price adjusted for the 3:2 split). This is in the ballpark with my rough estimated fair value of $16.4.

I think that at current prices the company provides very good value and substantial potential upside from continued growth in the non-wood product segment. This company has no debt and due to large insider ownership by active management I have confidence that it is less likely to do stupid things. I will adding JCTCF as a full position (8%) to the Best Ideas Marketocracy portfolio.

Going forward, I will be watching the growth and profitability of the JCLC business like a hawk. I will also be watching the extent of the deterioration in the Greenwood business.


* 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.