DailyTrends.com Company of the Week: Metretek (MTEK)
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I recommended this company almost three years ago when it was trading at .11 cents a share on Lahiji.com I remember writing to everyone that when one person buys this stock, they are essentially buying into three companies: Southern Flow Companies (provides gas measurement services to natural gas and pipeline companies to substantiate gas transfer volumes), Metretek (supplies automated meter reading systems to natural gas distributors), and PowerSecure (offers products and services that have to do with energy generation. Basically together, they allow utilities (of all shapes and sizes) systems that can monitor, record, and transmit data about customer gas consumption.
In the last two months, they have made a couple of significant announcements that have largely escaped small-cap investors. For one thing, they are getting leaner and meaner.
On January 4th, the company announced the sale of an asset that was holding them back financially. Metretek completed the sale of its contract manufacturing operation to Instrutech Florida, LLC effective December 30, 2004. Not only that, but MTEK also stated that it has almost completed the redemption of its Preferred Stock. By fully retiring 86% of its outstanding preferred stock, the redemption value was $5.3 million.
I spent time this week with the CEO of the Company, Mr. Phil Marcum. I had the pleasure to meet Phil when he came to Los Angeles last year. It felt like it was time for an update on Metretek not only for me, but for all the members.
Chris Lahiji (DailyTrends.com): Which company of yours generated the most profit for shareholders in 2004? Do you expect that to be the leader in income for you in 2005?
Marcum (MTEK): Our Southern Flow operation generated slightly under $2 million in segment profit in 2004, and should report a slight increase in 2005. PowerSecure's 2005 profit should be slightly higher than Southern Flow's, thereby overtaking the lead for the first time.
Lahiji: Why do you think your stock has gone down, when natural gas and energy stocks have flourished? What is it that you exactly do for these companies?
Marcum: Our stock declined in the last half of 2004, due principally to the performance of the contract manufacturing operation that we have now discontinued. All of our other operations are performing very well—much more in line with the peer groups you cited. We believe that the discontinued operation represented an anchor on the consolidated group, and thereby depressed the stock price.
Lahiji: What are your projections for EPS in 2005?
Marcum: We expect to report net income of $3 million, resulting in primary EPS of approximately $.25 and fully diluted EPS of approximately $.19.
Lahiji: Are you looking to grow organically or through acquisitions?
Marcum: All of our current projections are based solely on organic growth, although we would never rule out the possibility of a strategic acquisition.
Lahiji: Finally, what is your outlook on oil and energy prices for the next couple of years? Do you think that the price is sustainable?
Marcum: Prices will continue to be influenced by both supply and demand issues and by political forces. We believe the market characteristics are such that prices will continue to remain strong. We cannot predict the possible political effects.
END OF INTERVIEW
FINAL ANALYSIS OF LAHIJI
I think the stock is underappreciated here even in the low 2's. Go figure that when I first recommended the stock at .11 cents, I never knew that profits were going to accelerate that rapidly. In a public statement made by Metretek, the Company expects to report net income of approximately $3.0 million, or $0.25 per primary common share outstanding and $0.19 per fully diluted common share outstanding, on revenues of $41 million to $42 million.
Not bad for a stock at two bucks a share.
I like it here and believe that the upside can be 50% in a 12 to 16 month range. My confidence in Mr. Marcum happens to be high, and believe he can create significant value for shareholders at these levels.
Remember that the stock is lightly traded so please be patient in purchasing shares if you find interest. If everyone jumps at once the market maker can charge a higher price for the stock so be advised.
Chris Lahiji will be available to take your questions until Monday, February 7. Please use the form below to submit your questions.