Notes
WATERFURNACE RENEWABLE ENERGY (WFIFF.PK WFI.TO)Official blurb:
"With 25 years of geothermal experience, and more than 200,000 units installed, WaterFurnace International is the leading manufacturer of geothermal and water source heating and cooling systems. The Company pioneered the use of "closed loop" geothermal systems to heat, cool, and provide hot water for residential homes and commercial buildings. In fact, WaterFurnace products are recognized as the most efficient HVAC systems offered in today's market. WFI Industries Ltd. has residential, commercial, and global divisions.
"LoopMaster International is a leading geothermal loop contracting firm. LoopMaster began as an information and training resource for contractors learning to install geothermal loops in the field. Now LoopMaster is working with WaterFurnace dealers across the US and abroad to provide turn-key geothermal solutions for residential and commercial applications. LoopMaster offers design and installation expertise for large geothermal earth loops. Since each loop design is somewhat unique, the experts at LoopMaster work hand-in-hand with the project engineer to design the most cost effective loop to meet the performance requirements of the job. LoopMaster provides services for vertical, horizontal, and pond closed loop geothermal installations. For more information about LoopMaster services, visit www.loopmaster.net.
http://www.waterfurnace.com
Source: article at thestreet.com by Brett Arends
http://www.thestreet.com/_yahoo/funds/mutualfundinvesting/10334563.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
This is a pick of the Winslow Green Growth Fund.
http://www.winslowgreen.com/products/index_wggfx.asp
Most sales are in the US, despite being headquartered in Canada; it also gets revenue from Canada, Europe and South Korea.
The stock is registered in Canada and trades on the Toronto exchange as WFI. It is available in the US in the Pink Sheets.
Name change from WFI Industries to Waterfurnance Renewable Energy. Pink sheet symbol changed to WFIFF.PK.
7JUN07 - $22
From the conference call (10 May 07)+ The company recently increased prices, due to strong industry-wide demand. Next quarter's financial statements will reflect the increase.
+ Canada started a $3,500 CDN incentive in April for homeowner installation of geothermal products. CEO predicts it will take several months for that to make a difference to te company's numbers; poorly publicized.
+ Radiant flooring is a big growth area.
+ US 90% of sales (also sells in Korea and England), not much discussion of US housing slowdown.
+CEO defended increasing dividend, due to confidence in organic growth; the company has no need to have a lot of cash sitting around.
From the quarterly report:
Sales growth: +21% (from 2006 1st quarter)
Earnings per share: -20% (from .10 to .08) (from 2006 1st quarter)
Margins shrank: attributed to cost of materials, expenses to accomodate growth, and marketing.
Current ratio: 2.6
Quarterly dividend is $0.16/share, roughly 2.9%
"The Company is able to generate sufficient cash to fund expected growth and development needs. .... The Company is aware of no legal
proceedings or other issues that would have a significant impact on the financial condition of the Company."
"Share Capital
As of May 8, 2007, there were 12,082,432 common shares (authorized: unlimited without
par value) issued and outstanding and 10,000 unexercised stock options."
Thoughts: Good long-term buy! Perhaps not a good short-term play, since it is tied to the US housing market, which is slow right now (but, a significant portion of sales is for retrofitting). The growth is good, the financial strength is good, the story is good, the public appetite for the product is good. The quarterly reduction in earnings is less significant than the long-term yearly growth. Earnings per share increased 38% in 2006 compared to 2005.
19DEC07 - $26
A recent story, expressing long-term enthusiasm, and short-term concern because of the slumping housing market.http://www.theglobeandmail.com/servlet/story/LAC.20071213.REDGE13/TPStory/Business
12APR08 - $21.72
In 2007, the company earned $0.80 per share, giving it a PE ratio of 27 at the current price.Growth was great:
"The Company continued its double digit growth rate for the fourth consecutive year. Net profit for the quarter was up 35% over previous year and sales were at an all time high. Sales for the year were up 13.7%. Energy efficiency and concern over global warming continue to drive consumers and institutions to our geothermal technology.
"The board is very pleased with the Company's strong performance for the quarter and the year despite a very tough residential housing market in the U.S.
25NOV08 - $16.57
Tax credits for installing company's geothermal systems:http://biz.yahoo.com/iw/081007/0441130.html
Company blurb:
"On October 3, 2008, the U.S. government instituted a $2 thousand tax credit for geothermal heating and cooling installations in residential buildings. The law also provides a 10% tax credit for any commercial building that installs a geothermal system. Both provisions are effective through the year 2016. These incentives are expected to spur faster adoption of geothermal heating and cooling in the U.S.
Quarterly report, for period ending SEP 30:
"Consolidated sales for the quarter improved 40.8% versus same quarter last year and were 27.6% higher than the Company's previous sales record, set during the 2nd quarter this year. Equipment sales increased 40.7% versus the year ago period while loop installation sales were up 42.0%.
"Sales in the U.S. were up 40.7% versus Q3 of 2007. U.S. sales were driven by both residential and commercial sales. Despite the tight credit markets and depressed new construction markets, residential sales were robust. The cost of natural gas, propane and fuel oil in northern states and increased electric rates in southern states have opened large new markets for geothermal contractors. Consumer and building owner awareness of the technology and the desire to do the right thing for the environment are also driving sales in the U.S.
"Net Income for the quarter was up 56.4% compared to third quarter last year. Income before income taxes was up 63.3%. Income tax expenses were higher in the quarter due to a payment of $158 thousand for prior years levied during an Internal Revenue Service audit. Gross profit was 36.9% of sales, up from 33.7% in the second quarter and 33.2% in the same quarter last year. Gross margin was driven by a favorable mix of dealer direct sales and improved selling levels in all markets.
I like management that doesn't fear its own balance sheet:
"The Company expects to fund capital expenditures from available cash. The Company has $8.6 million in cash and cash equivalents which can be used for any unanticipated opportunities. At the end of September 2008, the Company retired its $4.0 million bank line of credit. On November 1, 2008, the Company made a principal payment of $895 thousand to retire its economic development revenue bonds.
"The Company manages liquidity risk through cash generated from operations in excess of dividends paid. Management does not foresee material or significant risk of the Company meeting its financial obligations.
Nice skill, and no doubt a little luck, in managing assets:
"The Company has a policy regarding the investment of surplus cash. The policy calls for investments to have maturities of less than one year, slight or no risk of losing the invested principal and access to the principal amount prior to maturity. All investments made must have a high-grade rating and no investments outside the U.S. are allowed without approval from the Board of Directors. Effective September 16, 2008, management and the Board of Directors made the decision that all excess cash was only to be invested in U.S. Treasury bills, money market funds or similar accounts until the banking and credit markets strengthen.
Basic and "diluted" shares are identical (no preferred shares, convertibles, etc.).
Earnings per share for 9 months ended SEP 30:
2008: $ 0.85
2007: $ 0.53
The P/E is a little over 15.
Quarterly dividend is $0.18 or 4.3% annually.
Shareholder's equity: $24 million (Liabilities: $22 million.)
Market cap.: $200 million, giving it a P/B ratio over 8.
Thoughts: Love everything about the company and the stock, except the timing. A PE of 15 and PB ratio of 8 aren't that great for a company that's tightly wedded to the US housing industry, when that industry is at multi-decade lows and getting worse. Hold and buy on dips.
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