CECE

[David Randolph]

It's very nice to have the 10-K form Se7en, we'll work around it for days to come. As for today (I don't have much time, I have personal businesses to solve this morning), I would like to highlight this part of the 10-K form, for those, like myself, that were somewhat worried about the recurrence of revenues:

«Diversified End Markets and Customer Base. The diversity of our end markets and customer base provides us with multiple growth opportunities. As of December 31, 2006, we had a diversified customer base of more than 2,300 active customers across a range of industries. Our customers represent some of the largest aerospace, automotive, foundry, ethanol, power and metals companies in the U.S. Our blue-chip customer base includes General Electric, General Motors, Procter & Gamble, Nissan, Honda, Boeing, Corning, Toyota, Babcock & Wilcox and Alcoa. In addition, we believe that the diversity of our customers and end markets mitigates our risk of a potential fluctuation or downturn in demand from any individual industry or particular client. We believe we have the resources and capabilities to meet the operating needs of our customers as they upgrade and expand domestically as well as into new international markets. Once systems have been installed and a relationship has been established with the customer, we often win repetitive service and maintenance business as the customers' processes change and modifications or additions to systems become necessary.»

This news:

EPA wins case on power-plant pollution

... looks like great news for CECE Se7en, nice finding

This is one of the things I like about this holding. The law creates and protects its market, and it will be even more so in the future, as the environment is one of the major worries of modern society. CECE has a lot of room to grow in a worldwide growing industry.

I'll continue holding CECE.

[David Randolph]

I've studied the first 8 pages of the 10-K form filed yesterday, and so far, so good (the report has about 100 pages).

It seems they have a foot in China:

«Representative customers include General Electric, General Motors, Procter & Gamble, Nissan, Honda, Toyota, Boeing, Lafarge, Corning, RR Donnelley, and Alcoa. North America is the principal market served. We have, at times, supplied equipment and engineering services in certain overseas markets. We have completed several major contracts in Mexico and are currently executing large projects in China.»

I'll keep studying this extensive report as I keep holding CECE, nice comeback yesterday.

[Dory99]

More Orders for CECE!

CECO Environmental Announces Three New Orders Totaling $1.7 Million
Wednesday April 4, 8:15 am ET
New Subsidiary Books $2.9 Million In First Month
Bookings For The First Quarter Total $46.2 Million

NEW YORK, April 4 /PRNewswire-FirstCall/ -- CECO Environmental Corp. (Nasdaq: CECE - News), a leading provider of air pollution control and industrial ventilation systems, announced today that it has received three new orders totaling $1.7 million.

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Rick Blum, President and Chief Operating Officer, stated, "These three orders come from the aluminum, the acid, and the wastepaper recycling industries. The first project is in Russia, the second in South Africa, and the third in the southeastern United States. They were booked by our Busch International, CECO Filters India, and Kirk & Blum subsidiaries. The order secured by our operation in India is the second largest in its history.

"We are very encouraged with the performance of our newest subsidiary, Effox. In their first month as part of the CECO Environmental family they booked over $2.9 million worth of new business. We are also pleased to report that almost $500,000 of this new business came from other CECO Environmental companies. This is business that was being placed elsewhere prior to the acquisition so it is new business for Effox."

Phillip DeZwirek, Chairman and Chief Executive Officer of CECO, stated, "Our bookings for the first quarter were approximately $46.2 million. First quarter bookings last year were approximately $35.3 million. This represents more than a 30% increase over last year's new order rate."

[David Randolph]

Thanks for posting the good news Dory99

Phillip DeZwirek, Chairman and Chief Executive Officer of CECO, stated, "Our bookings for the first quarter were approximately $46.2 million. First quarter bookings last year were approximately $35.3 million. This represents more than a 30% increase over last year's new order rate."

So, I see 30% revenue growth, and I was estimating just 25% long term revenue CAGR.

I watched the initial video analysis again and put CECE's fundamentals on my new valuation model. Here are the results:



The four variables of the model are:

1) Dilution factor

I put 1,05, which means an average annual dilution rate of 5%. The historical average has been 3.55%, but now there are convertible debentures outstanding that point to a 5% rate.

2) Revenue CAGR

I put 1,3, which means 30% revenue CAGR. That's what we're getting from yesterday's news, in terms of new bookings when compared to the same period in 2006. But revenue growth in 2007 will probably be more than 30%, due to the big orders the company got in Q1 2007, like those big two orders with a $55 M value, announced on January 3, 2007 (the revenue recognition of these orders will probably be spread throughout several quarters).

3) Final net profit margin estimate

I inserted 5%, and maybe this is optimistic, but as we've seen, without the increase in the tax rate in Q4 2006, the net profit margin for that quarter would have been 3.81%. And in Q2 2006 it was 4.92%. I don't think it is unrealistic to consider 5% net profit margin, especially if we consider the 30% revenue CAGR.

4) EPS multiple estimate

I inserted 35, and the Pollution & Treatment Controls industry average is 43.5 now. It seems reasonable.

Given all this I get a share price CAGR of 49.5%, and an estimated share price of $45.13 by the end of 2009. This means I should only consider selling the stock now if it were trading at $28.9 (the optimal selling price), because, beyond $28.9 without any improvement in the long term fundamental picture the stock would start returning less than 16% on our investment, and therefore should be replaced by a more promising holding.

I'll keep holding CECE.

[Se7en]

CECE mentioned on page 5 ...

http://www.thestreet.com/_yahoo/newsanalysis/investing/10348756.html

And finally, for a microcap with a lot of potential, consider CECO Environmental (CECE - Cramer's Take - Stockpickr - Rating), which makes the most popular brand of air-filtering equipment for all the new ethanol plants being built. It's trading at 14 times earnings and growing at about an 18% clip

[David Randolph]

Even I am a bit surprised by the way CECE is coming back after that horrible one day sell off. Today I'm going to change my model a bit for CECE, considering, instead of a 5% net profit margin, just 4%, and instead of an earnings multiple of 35, I'll insert the Pollution & Treatment Controls industry average of 44.36:



The optimal selling price stayed basically the same, rising just a bit from $28.9 to $29.32. So we can see just 1 percentage point in net profit margin has more or less as much impact as almost a 10 point change in the estimated earnings multiple.

Hmmm, this makes me think about two ways I could improve the new valuation model further:

a) I should know the exact sensitivity of the share price CAGR and optimal selling price to a change in each of the four working variables of the model;
b) I could improve my forecast of the net profit margin, if I estimated gross margin, SG&A costs, R&D costs, interest costs and taxes to derive that net profit margin.

I'll work to make these improvements to the model.

CECE is quite attractive, I'll keep holding the stock.

[David Randolph]

The Effox acquisition cost was about $7.7 M:

«The Company completed the Asset Purchase on February 28, 2007, pursuant to the terms of the APA, by which Acquisition purchased substantially all of the assets of Effox, including the design, manufacture, and sale of its damper and expansion joint products and the furnishing of installation services to customers and any goodwill associated therewith. Acquisition paid $7,004,960, which is $6,775,000 plus or minus the Estimated Adjustment Amount, as defined in the APA, plus an additional $725,000 which was placed in escrow. Acquistion also agreed to pay a three year earn out payment. The earn out payment is not to exceed $1.0 million and is based on the amount by which annual fiscal year gross profits of the purchased operations of Effox exceed $5,833,333 for the first period of March 1, 2007 through December 31, 2007 and exceed $7.0 million for each of 2008 and 2009 fiscal years.»

And yesterday CECE released financial details of Effox:

Effox financial statements

Effox had revenues of $28.6 M and net income of $1,112,464 in 2006, so the PER ratio of Effox is just 6.92. There's a reason why the company was so cheap: there's a lot of debt and Effox's balance sheet is quite weak as you can see above. Anyway, I believe it was a nice acquisition.

I maintain the four estimates I had, with that information the optimal selling price is just $29.32, I'll continue holding CECE.

[David Randolph]

Believe it or not CECE was up 32% since the low made 6 trading days ago, so the 5% decline yesterday should be considered as "normal market behavior".

CECE will still have to work around current levels, as the technical picture isn't pretty, but I'm positive that sound fundamentals will take it to new all time highs before 2007 closes.

I'll keep holding CECE.

[David Randolph]

It seems the Italians like CECE, Unicredito Italiano just revealed a 5.2% stake:

Form SC 13G CECO Environment Corp   Filed by: Unicredito Italiano SPA (10K)

[kenmann]

Dow Jones just reported that CECE has filed to sell 3.35 million shares. 

[Se7en]

Dow Jones just reported that CECE has filed to sell 3.35 million shares. 

Link?


Edit: nevermind, found it!

http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001193125%2D07%2D078970%2Etxt&FilePath=%5C2007%5C04%5C11%5C&CoName=CECO+ENVIRONMENTAL+CORP&FormType=S%2D3&RcvdDate=4%2F11%2F2007&pdf=

[DragonAMG]

so we can expect a price drop from here, right?

[JKN]

Looks like they are paying off a substantial portion of their debt. They will repay a 5.9M loan to Green Diamond.  It appears that they will use the remainder to repay a portion of a 19.1M debt.

[DragonAMG]

Can someone shed some light on this...

Currently CECE shares are as follows:
Shares Outstanding: 11.50M
Float: 4.52M

Does this mean that the float will now increase to ~ 7.7 mil shares and shares outstanding will increase to 14.2mil?  If so, won't the murder the stock price?  Or, will they trickle it into the public slowly so that it won't cause a decrease in price?

[lancefur]

Guess nobody likes the news on this....down 8% in after hours. Yuck!