OPCO “Diamond-in-the-Rough” Microcap Investor Presentation
On December 1, 2016, OurPet’s Company (OTCQX: OPCO) gave an investor presentation with VirtualInvestorConferences.com (powered by PR Newswire), in which its management team laid out the reasons they feel the company is significantly undervalued, with established and continuing growth in its market and company figures, along with products and technology that nobody else has, making it a diamond-in-the-rough for a microcap investor.
The presentation, given by Scott Mendes (OPCO’s CFO/Treasurer) with follow up by Dean Tsengas (COO and co-founder), covered the company’s strengths in each of the pertinent areas:
- Industry and Markets
- Company Products, Patents
- Channels of Distribution
- Company Financials
- Investment highlights
Key Points
OurPet’s Company, founded in 1995, has been strategically aimed at high-growth categories in the non-food pet market, a strategy that has helped it grow every year. The overall U.S. pet industry is the third largest consumer market, over $77 billion in 2015, and is expected to grow to $96 billion by 2020. About 65% of households own a pet, and it’s considered a recession resistant market, of which about 19% is devoted to pet accessories and treats (nearly $15 billion). OPCO’s particular areas are:
- Interactive cat and dog toys and accessories (a $1 billion per year category)
- Feline waste and odor control solutions ($250 million per year category)
- Healthy feeding and storage systems ($100 million per year category)
OPCO aims strategically at two overall pet owner markets:
- The OurPets premium brand pet products, found at pet specialty retailers
- The PetZone economy brand pet products, found at food/drug/mass retailers
Although the company does accept private label business from major customers, the emphasis has always been to continue building its brands.
The company has a diversified portfolio of approximately 1,000 SKUs of upscale profitable products, backed up by a pipeline of new offerings, with 170 patents issued or pending. OPCO’s strength continues to be its ability to merge the latest material and electronic technologies with a well-researched knowledge of how pets relate to the world, resulting in award-winning products that have a history of attracting pets and pet owners.
The company considers itself clearly ahead of the curve in the industry, and sees this as part of the reason for its strong position with the world’s leading retailers, such as Walmart (NYSE: WMT), PetSmart, Petco, Target (NYSE: TGT), Publix, and Kroger (NYSE: KR), all blue-chip companies that remove the worry of bad debts. In line with this, OPCO is also making ecommerce a primary strategic initiative and is on track to grow revenues to nearly $2 million annually with Amazon (NASDAQ: AMZN).
Approximately 61% of OPCO’s revenue comes from the cat market, mostly toys and accessories together with waste and odor products, while 38% comes from the dog market, mostly feeding and storage products. However, OPCO also sees untouched opportunities in the dog toys area. As with its cat toys, OPCO has put research into the sensations and activities that dogs prefer, not just what humans think they would like, and of course, as with cats, not every dog is the same, so the toys are designed to capture different dogs and different preferences. The result is a line of toy options that dog owners prefer, because they’re toys that their pet dogs really enjoy.
The cat pet market represents roughly $15 million annually for OPCO. Cat owners find their pets entertaining, and similarly enjoy entertaining their pets. To maintain a position of leadership in creative and effective cat toys, the company is constantly researching to determine what works best for both the cat and the owner, toys that keep cats active and engaged. This has translated into over 600 SKUs in the cat toy area alone, including integrated electronic products, one of which, the Catty Whack, won the Best New Cat Toy for 2015 at the national SuperZoo trade show for pet retailers.
The cat waste management market is also significant for OPCO, and an area that is seen as largely underserved with significant potential when approached creatively. OPCO now covers more than the traditional litter box concept, offering advanced fully automatic litter systems, semi-automatic litter boxes, disposable litter boxes and a “kitty potty.” The company is confident in saying that it offers the most complete line of waste management products in the world.
OPCO has also gotten into the growing natural cat litter market, with its just-introduced switchgrass-based litter product. Switchgrass is a hardy grass that grows in North America, and does not require chemical fertilizers or pesticides. It is both flushable and biodegradable. OPCO combines switchgrass with BioChar, a charred pine product, to create a truly environmentally friendly 100% natural litter product. Relating to this, the company recently won an award from Pet Business News as one of the most innovative products of the year.
In fact, both dog and cat waste management has become an environmental issue for many cities around the world. To again stay ahead of the industry, OPCO has now partnered with Israel-based Paulee Cleantec, a waste technology company that has developed a patent protected exothermic oxidation process that converts animal waste into a pathogen and odor-free fertilizer in minutes. Still under final product development, the potential for this alone is seen as unlimited, not only in the U.S. but internationally. (OPCO products are already distributed to about 20 different countries.)
Other examples of the company’s moves to stay in front of the industry include its patent-pending chrome-coated plastic feeder bowls, giving the bowls a dramatic metallic shine, while being chip-resistant, discouraging bacterial growth, and being dishwasher safe. Even more advanced are the company’s line of pet care products that are Bluetooth enabled, Intelligent Pet Care products, including litter and feed/water products, with Internet control capability. These are all first-of-a-kind products.
FINANCIALS SUMMARY
- OPCO’s annual sales have grown steadily, from around $20 million in 2012 to over $25 million today (trailing 12 months). The way the company has built its business base and market is so solid that it is more predictable and not prone to recessions.
- Yearly gross profits have also grown, from about $5.5 million in 2012 to about $8 million today, with gross profit margins around 32%.
- Net income has grown markedly over the past 4 years, from about $200,000 in 2012 to over $1.3 million for the trailing 12 months ended Sept 30, 2016. (Note: OPCO is a “second half” company, and expects to show very strong financial performance for the second half of 2016.)
- For this year to date through Sept 30, 2016, sales are up about 10% over the previous year’s first nine months and upcoming Q4 is looking even better.
- Q3’16 is especially impressive, showing record results, with 21% growth over the previous year’s Q3, and a 21% growth in net income.
OPCO management considers shares as being under-valued. OPCO is a fully reporting OTCQX stock, but, although share price has gone up and is now around the $1 range, its management feels that the P/E ratio is still low. Instead of the 12-14 range, it should be closer to 20, based upon growth and profit figures, with the stock trading closer to the $1.50 range. In addition, they feel that the company can grow significantly, having an ERP system that can handle any scale, along with a new CRM system, and with total logistics management in the warehouse.
For more information, visit the company’s website at www.OurPets.com, and see http://nnw.fm/oB7RM for the company presentation sheet.
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