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Three Growing Companies Worth a Second Look

October 09, 2013 | About:
I threw together a quick screen today using the GuruFocus.com “All-in-one-Screener.” I found a few interesting companies that may be worth further research based on their business models and modest valuation. When constructing the screener I used a P/E ratio of under 15x as well as a P/S ratio of under 1x.

Personally, I love micro and small caps so I elected to use companies with 50 million to 1 billion in annual revenue. I further reduced the potential companies by requiring they have a current ratio greater than 1.2 as well as a modest debt to equity ratio under 1. Some other variables I used for the screen were:

· Over 10% Return on Capital

· 30% Gross Margin or greater

· 10% Operating Margin or greater

· 10 Year Average Revenue Growth Rate Greater Than 7%

PLPC - Preformed Line Products Company

Founded in 1947, Preformed Line Products (PLP) serves four distinct core markets: communications, energy, special industries and solar. PLP is an international designer, manufacturer and supplier of high quality cable anchoring and control hardware and systems, fiber optic and copper splice closures, high-speed cross-connect devices and hardware for the solar industry. Its principal products include cable anchoring, control hardware and splice enclosures, which are sold primarily to customers in North and South America, Europe, South Africa and Asia Pacific. The principal raw materials used by the Company are galvanized wire, stainless steel; aluminum covered steel wire, aluminum rod, plastic resins, glass-filled plastic compounds, neoprene rubbers and aluminum castings. The company also uses certain other materials such as fasteners, packaging materials and communications cable. The company reports its segments in four geographic regions: PLP-USA, The Americas, Europe, Middle East & Africa and Asia-Pacific. The company's products include: Formed Wire and Related Hardware products; Protective Closures; Data Communication Cabinets; Plastic products and other products. The demand for the company's products comes primarily from new, maintenance and repair construction for the energy including solar, telecommunication, data communication and special industries. Its customers use many of the company's products, including formed wire products, to revitalize the aging outside plant infrastructure.

Over the last 10 years revenue has experienced average annual gains of 13% while the return on capital, on a normalized basis, would likely be in the range of 15-18% using a 10-year average. I also noticed that both Joel Greenblatt and Howard Marks held equity positions as of June 30, 2013.

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The gross margins, business leverage and operating margins all look reasonable at first glance. The valuation is moderate and is by no means a "steal of a deal" at current prices but it may be worth further researching looking for hidden value and adding it to the personal wish list if it makes the cut. The dividend has plenty of room to grow with a yield of 0.9% and a payout ratio of 8.5%.

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OFIX - Orthofix International

Orthofix International N.V. is a limited liability company operating under the laws of Curacao. Founded in 1980, Orthofix has provided surgeons and patients with innovative solutions for trauma and spine fusion. The Orthopedics and Spine divisions offer innovative treatment options for adult and pediatric deformity correction; internal and external fracture fixation, biologics, regenerative stimulation, interbody fusion and MIS. Today, their expanded product offerings include:

• Internal systems to lengthen bone

• Plating systems to reconstruct a deformity

• Soft tissue management for rehabilitation

• Cold therapy for post-surgical pain management

Over the past 10 years Orthofix has managed to grow revenues at roughly 7.5% on a 10-year average annual basis. In the same time, return on capital had a 10-year average of over 15% and debt has been dramatically reduced in the most recent years.

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The gross margins, business leverage and operating margins all look reasonable and worth a second glance. Again, this is not a hot bargain that we may have seen just over two years ago (or the robbery prices of late 2008 early 2009) but it is reasonably priced with a fairly predictable revenue model that is growing at a reasonable rate.



TGS - Transportadora de Gas del Sur
Transportadora de Gas del Sur S.A. was incorporated under Argentine law on Dec. 1, 1992. The Company is engaged in the transportation of natural gas, as well as production and commercialization of natural gas liquids primarily in Argentina. The segments of the company are: Regulated Natural Gas Transportation Segment., Liquids Production and Commercialization Segment, & Other Services which include midstream and telecommunications services.It currently delivers approximately 61% of the total gas transported in Argentina, through 5,671 miles of pipeline, of which it owns 4,744 miles.

Substantially all of its transportation capacity, approximately 2.9 Bcf/d in 2012, is subscribed for under firm long-term transportation contracts. Its system connects major gas fields in southern and western Argentina with both distributors and large consumers of gas in those regions as well as in the greater Buenos Aires area. It also serves the more rural provinces of western and southern Argentina. Its service area contains approximately 5.7 million end-users, including approximately 3.5 million in greater Buenos Aires.

Over the past 10 years revenue has grown at an impressive rate of over 10% annually while net margins have compressed slightly. Return on capital deployed by the firm on a normalized basis hovers around 10%.

There is moderate leverage deployed with 1.5x interest coverage based on TTM operating income, but using a three-year rolling basis of 2008 to 2010 as a "stress test" the interest coverage would be roughly 0.8x, which could lead to problems. The dividend yield is 3.3% at a payout ratio just north of 50%, meaning if interest coverage became an issue, the dividend would be the first to go. I do not believe the gas industry to be as vulnerable to economic swings, people need to heat and cool their houses. The company trades at roughly 1x book value and personally I believe it is worth a more in depth analysis, based on basic valuation of assets and growth of the business. Looks cheap, that is likely due to political risk (nationalization) associated with Argentinian assets.

About the author:

Tannor Pilatzke
I am a self taught investor through Warren Buffett, Charlie Munger, Ben Graham, Peter Lynch, Joel Greenblatt, David Einhorn, Seth Klarman, Howard Marks, Phillip Fisher and Thornton O'Glove. My focus is a bottoms up Value-GARP strategy with a mix of top down contrarianism.

"When you find yourself on the side of the majority, it is time to pause and reflect." - Mark Twain

Visit Tannor Pilatzke's Website


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