SwingTrade Member Forum

[MikeDDKing]

Here is my OLNCF/OML.V DD....

Omni-Lite is a manufacturer of precision metal components for a variety of markets such as automotive, commercial, aerospace, and military markets. You can read more about what they do here: http://www.omni-lite.com/profile.php

Omni-Lite is a Canadian issuer but they are located in the United States in California. It is important to note that they report their financials in USD. Because of this, as a US investor I don't need to be concerned with exchange rates. Omni-Lite trades in Canada as OML.V and in the US as OLNCF.

Here is a summary of my investment thesis:

1. They have received new orders that point to significantly increased revenue and earnings going forward. In fact, I estimate Q1'15 earnings at USD$0.06/share.
2. The facts suggest that this new level of revenue is sustainable going forward. Furthermore, they may be able to grow revenue from this level.
3. They have a rock solid balance sheet. The current stock price is less than the book value.
4. They have a stock buyback in place.

New Orders
Over a little more than three months, the company has issued press releases that indicate orders of approximately USD$7.0M. To put this in perspective, they have USD$6.0M in revenue for trailing the trailing twelve months. The details of these orders are listed below:

10/27/14 USD$0.792M orders - http://finance.yahoo.com/news/omni-lite-industries-receives-military-134700650.html

11/27/14 USD$2.471M orders - http://finance.yahoo.com/news/omni-lite-announces-record-contract-163000840.html

01/12/15 USD$2.8M order - http://finance.yahoo.com/news/omni-lite-receives-2-8-133000422.html

02/04/15 USD$0.919M orders - http://finance.yahoo.com/news/omni-lite-sees-revenue-margin-172000470.html

Financial Impact of New Orders
Each of the press releases above points to increased revenue and earnings. However, it is the most recent press release that really hits one over the head with the impact. In this press release they indicate that January 2015 revenue is up 78% from January 2014 revenue and that gross margin increased by 890 basis points. Furthermore, they state: "It is expected that these promising metrics will continue as the Company delivers on the military and automotive contracts announced in the last two months. These results also are being buoyed by a steady increase in the Company's aerospace business, as the main airframe manufacturers continue record production."

Based upon the statements in all of the press releases above, I think that January performance is indicative of what we can expect for Q1'15. In Q1'14 they had revenue of sales of $1,373,328 and GM of 59.5%. So, I'm estimating that revenue in Q1'15 increases by 78% and is somewhere around $2.45M. Likewise, GM should be around 68.4%. Operating expenses for the past seven quarters have been between $0.724M and $0.771M despite the fact that revenue fluctuated between $1.1M and $1.8M. So, I think a conservative estimate is that operating expenses are $0.9M. Using a diluted share count of 12.5M shares and no taxes, that translates to EPS of $0.062/share. I'll leave it as a reader exercise to assign a multiple and valuation.

Sustainability of Revenue and Growth
There are a few items that suggest that the new level of revenue is sustainable. First of all, the two large orders above are long term in nature. One order is spread over one year and the second order is spread over two years. Both programs sound to me like they have the potential to be extended longer term.

One item of particular interest in the 01/12/15 PR regarding the $2.8M order is the following statement: "This product will be utilized in approximately 30% of the cars manufactured in North America annually," stated Allen W. Maxin , President. "As a result, future projections by our customer show further increases in demand, which Omni-Lite is well prepared to meet." So there is upside in this order.

The company has published a plan they call the “Vision 2015 Plan.” It is disclosed in their MD&A. One of the tenants of this plan is “Sales Growth of 20 percent to 25 percent per year.” Many of the other tenants of this plan seem seem to be building blocks that will enable them to realize their sales growth. I really like it when a company has concrete plans for the future.

Finally, in the Q3'14 MD&A they indicate that they are purchasing some new equipment. I don't know the details of this equipment as I haven't had a chance to contact management. At a minimum this new equipment improves their capabilities. I further suspect that it increases capacity. They are expecting this new equipment to be delivered in Q3'15.

Balance Sheet
The balance sheet has a book value of USD$1.52/share, a tangible book value of USD$1.52/share, and cash of USD$0.17/share. Furthermore, they have no debt.

Stock Buyback
In May of 2014 they initiated a stock buyback via a Normal Course Issuer Bid. The Company may repurchase for cancellation up to 604,000 common shares of the Company which is equal to approximately 5 percent of the 12,096,932 issued and outstanding shares. As of the Q3'14 report they indicated that they had repurchased and canceled 392,000 shares in 2014. You can see further evidence that they are actually buying shares by looking at the following link:
https://www.canadianinsider.com/node/7?menu_tickersearch=OML+%7C+Omni-Lite+Industries+Can

I will also point out that a 10% shareholder has been selling a bit. This holder is not a member of management or the BOD.

Disclosure: I'm long Omni-Lite shares and they are a major holding for me.