OT: For those who like to speculate.....
You want eye-popping growth? Check. You want a unique business in an explosive field, practically without competition? Check. You want an unstoppable roll-up strategy. Check. You want an acquisition target that will not come cheap to the buyer? Check. You want a nearly $300M revenue generator bringing 8% to the bottom line that has a market cap of $46M, or 1/6th of sales? Check. You want all that in a $2 stock you've never heard of, trading at book value? Check.
Houston-based Synagro Technologies (SYGR, 2.43, Nas) is the fastest-growing company focused exclusively on organic residuals management, with operations located throughout the country. The company makes money through beneficial reuse of organic materials, transportation and monitoring of biosolids, and the marketing of end products from the treatment of such materials. With triple-digit internal growth plus acquisitions, the company is positioning itself as the national provider of biosolid services to municipalities and wastewater privatization projects throughout North America - what's commonly known as "waste-to-energy" SYNAGRO.
For the best news, let's start at the end of their recent earnings release: "the Company's year-to-date results include the effects of seasonally low volumes and revenues in the first quarter due to weather conditions that prevent the Company's land application operations from hauling and processing customer materials in several geographic markets." Here is what the low season looks like:
- Revenues up 137% to $66M
- Operating income up 151% to $12.3M, or 18.6% of sales.
- Net income up 170% to $5.3 million or 8.0% of sales.
- EPS up 200% to 11c per share.
Makes you kind of look forward to the high season, right? Synagro is THE leader in the residuals management business - a nationwide organization with operations in 40 states with over 1000 employees, with clients such as Anheuser-Busch and the cities of Knoxville, TN and Winston-Salem, NC. Between 1998 and 2000, Synagro acquired 16 companies, including its largest competitor, Bio Gro, from Waste Management. SYGR has a market cap of $41M, with 19.4M shares O/S and a float of 6.8M.
In Friday's news, the Inland Empire Utilities Agency (IEUA), a wastewater treatment and water agency serving 700,000 customers in San Bernardino County, CA awarded Synagro a $4.5M contract to design and build an anaerobic digester pilot facility that will process the daily manure generated by approximately 3,750 dairy cows. "IEUA will use a portion of the biogas (methane) produced from the digester as supplementary fuel to run two generators powering the Chino Basin Desalter Facility. The remaining methane gas will be used to run four Capstone microturbines for the demonstration of electricity generation on site. Robert Feenstra, executive director of the Milk Producers Council, noted, "M.P.C. is in full support of the IEUA/Synagro/AnAerobics dairy manure digester project. Innovative technologies, such as the digestion of dairy manure, are essential if the dairy community is to continue to operate in an environmentally sound manner." Synagro's CEO Ross Patten added, "This project will demonstrate the enormous opportunities that exist in the area of manure management. Not only will we be able to better protect the air quality and groundwater in the region, we will also demonstrate how AnAerobics' technology can cost effectively convert methane gas into a clean, renewable energy source.
These are their Q2 financial results: revenue for the quarter increased 137% to $65.8M from $27.8M last year, partly due to acquisitions closed last year. Gross profit for the quarter increased 123% to $18.5M (a whopping 28% of revenue) from $8.3M. G&A expense as a percentage of revenue decreased from 9.1% in Q2 of last year to 7.6% this year, "as the company realized cost savings from integrating acquisitions and leveraged its infrastructure over significantly higher revenues." Operating income for the quarter increased 151% to $12.3M (18.7% of revenues) from $4.9M last year. Pre-tax income for the quarter increased 170% to $5.3M (8.0% of revenues) from $2.0M (7.1% of revenues) in the comparable quarter last year. Q2'01 EPS increased to 11c per share from a loss per share of 11c in 2000. Commenting on the results, Synagro's CEO Ross Patten said, "Our results for the second quarter represent record levels of revenues and earnings for our company that met our internal expectations, but are higher than our external guidance. During the first six months of 2001 our operating cash flow was $14.9M and we have retired $10.8M of debt. Our industry fundamentals remain strong and we continue to see significant opportunities for long-term growth, most notably with the facilities operations and management services that we provide. Our focus remains on internal revenue and earnings growth, operating cash flow and debt reduction." On a six month revenue growth of 169%, EPS before noncash charges increased to 7c per share in 2001,from a loss of 3c per share in 2000. The sole analyst estimate on Yahoo shows EPS of 35c for 2001, giving the stock a miserly current PE of less than 7. Cheap, real cheap.
SYGR spiiked up to almost 3 in early June, on several days of 100,000+ volume, then it drfited down to 2.00 by the end of July, forming a nice double bottom. The stock is coming alive again, with big volume last week. The MACD (Moving Average Cionvergence/Divergence) is moving into positive territory again and the fast stochastics are also giving a buy signal. The stock needs to take out the June closing high of 2.75 and, after that, the October high of 3.60, but it sports a beautiful long-term saucer pattern. Try to use limit orders to buy the stock, but you'll want to own this screaming bargain for the longer haul, i.e. the 8-9 month horizon. By next year, SYGR may well revisit its 1999 highs of 7.00 or so, unless it gets bought out sooner.
