by Roel Aerts
Greystone Logistics (GLGI) designs and manufactures plastic pallets for the logistics business. They use recycled plastic which might in any other case be destined for landfill. They grind and pelletize the plastic in home. Injection molding and proprietary resin mix is used to fabricate the pallets.
Greystone is headquartered in Oklahoma and has its manufacturing plant in Iowa.
Latest outcomes and Financials
· The corporate had invested closely in manufacturing tools a number of years in the past, that loaded them with fairly some debt. During the last years they labored on a large discount in debt. In 2 years they diminished it from 21.6M$ to 9.4M$ presently (debt minus money).
· Very excessive free money move technology in fiscal 2021, 12M$. At this tempo they theoretically may very well be debt free finish 2022 in the event that they select to be.
· Gross margins of ~17% or larger from 2020 onwards (excluding final quarter). This was the impact of the investments in manufacturing tools. With out being a subject skilled, that seems like a really excessive margin for a pallet, a commodity to me.
· Excessive development, 20% compounded development in gross sales and gross margin from 2016 until 2020, 35% compounded development in earnings. Shrinking numbers in FY2021. Can they decide up the expansion path?
· Potential for diminished bills in calendar yr 2022, near 1,000,000 in curiosity funds vs. 2021 ought to they repay nearly all of debt, and several other 100k$ in leases that run at decrease lease value of their final yr.
· Final reported quarter, ending August 31 2021, was weaker than earlier ones. Administration attributes this to scarcity of personnel within the COVID restoration and downtime on manufacturing machines. Driving down margins as properly.
Outlook, development alternatives
· Can they decide up the expansion path from 2016 to 2020? Their excessive free cashflow ought to give them room to put money into development. Development stagnated and fell again in FY2021 and first quarter of FY2022. International pallet market is forecasted to develop ~5% CAGR within the subsequent years, nevertheless, Greystones development potential is in clients that transfer from the omnipresent wood pallets to plastics pallets. That development charge may very well be, must be, a lot larger.
· Doable beneficiary of a inexperienced tailwind the place clients need reusable, recycled options, typically pushed by shopper demand. Rising automation by pallet customers may very well be development driver as properly
· “Greystone believes that the demand for its pallets is growing which is primarily anticipated to have a constructive impression on operations over the past half of the present fiscal yr in addition to future years.” (Quarterly report Oct 2021)
Administration, board and buyers
· Numerous pores and skin within the recreation, CEO owns greater than 34% of frequent inventory.
· Second largest shareholder is a Director, along with CEO they every personal 50% of the popular shares, they management the board.
Wonderful multiples (TTM):
· P/S 0.4
· P/E 4.2
· P/FCF 2.5
Dangers
· Nano-cap, solely 24M$ valuation, with corresponding dangers related
· Excessive buyer focus, lower than 5 clients account for greater than 80% of income. There was gradual enchancment over the previous years. Dangers related to most small-caps.
· Management of the board by 2 individuals. Are their pursuits aligned with frequent shareholders? Excessive insider possession is often a superb factor; for micro-caps, complete management by insiders is one thing to look at. How to make certain they don’t use the corporate as their personal financial institution? (cf. Leases and loans administrators have excellent to the corporate; however these appear honest valued and restricted in time, no indicators this danger is materializing.)
Questions
· At what capability stage are they operating?
Conclusion
This appears to be like like a price play from the FY2021 numbers, but it surely may very well be an rising development story in the event that they go attempt to decide up the expansion path they have been on in 2016-2020.
DISCLOSURE: Lengthy GLGI
Concerning the writer:
Roel Aerts is a retail investor with a concentrate on renewables and clear know-how. Insights and analyses above are written for his personal functions and are shared to assist others kind an opinion and to collect suggestions. It’s not meant as funding recommendation and Roel isn’t an funding advisor. Roel holds a grasp’s diploma in Electrical Engineering and in Industrial Administration.
