Goodfellow Inc. (TSX:GDL)

[drmark]

Is it just me or is Goodfellow really cheap?  Not sure how many of the participants in this board are traditional value investors, but this company has generated a boatload of cash over the past several years, has a great balance sheet, and yet is trading at a rock bottom price.  Check out this blog for more details:  http://canadianbengraham.blogspot.com/

[drmark]

Hi Tara

Thanks for taking the time to share with me the good advice.  Of course it would make sense to provide some numbers, so here goes:

Year end is August so fiscal 2009 numbers are TTM
Current price: ~ $10 (thinly traded so it jumps around a bit)
Market Cap:  $90 million
Working capital:  $79 million, with the bulk of the current assets in receivables and inventory (the company carries very little cash)
Long term debt:  Currently none.  There is $5.4 million in current bank debt
Goodwill & Intangibles:  None.  There is a long-term deferred pension asset of $4.7 million
Shares outstanding basic & diluted:  8.6 million (basic & diluted are the same).
Book value per share:  $12.97
Gross margin: 2009 – 18.9%; 2008 – 18.6%.  Note that this comes from p 6 of the annual report; the income statement does not break out COGS, but lumps in with SG&A
Free cash flow:  defined as CFO less Capex, it was $19.7 million in fiscal ’09 ($2.30 per share) and $19.0 million in fiscal ’08 ($2.21 per share).  The three prior years were all positive, averaging $11 million per year. 
Earnings per share:  87 cents in fiscal ’09 before an extraordinary gain of 39 cents relating to an expropriation agreement; 83 cents in fiscal 2008.  As far as a forecast goes, I don’t have one.  But the company has been consistently profitable and management was cautiously optimistic in the outlook section of the most recent annual.  They state:  “we have seen many firms depart the scene particularly in the core lumber sectors” and “the Company remains a favored customer due to our strong financial position.  This has resulted in good opportunities on both the supply and customer side.”   
Lawsuits:  to the best of my knowledge, none.
Insider ownership:  The Goodfellow family owns 48% of the outstanding shares.  Stephen Jarislowsky, the legendary Canadian value investor, owns 12% and is chairman of the board.
Latest insider trading:  none significant.  Based on a comparison of the past two management proxies

To be sure, this isn’t a glamorous growth stock.  But it is a stable business with solid cashflow, great management and a very good balance sheet.  With a tangible book value of nearly $13 against a share price of $10, and average EPS over the past 7 years of $1.20, it certainly represents good value.

[drmark]

Thank you for your very kind words Tara, although I'm somewhat humbled by your analysis.  Clearly I still have a lot to learn and I sincerely appreciate you taking the time to offer your very in-depth analysis.  Perhaps I'm too focused on the numbers alone and sometimes miss the bigger picture, in this case that the recent past may not be a great predictor of the near future, given the different economic environment.

Still, economic forecasting is notoriously difficult.  I think the surprises are just as likely to be on the upside as they are on the down, and with the share price so low on Goodfellow, I think any upside gains would be larger than the downside losses. While ultimately an investment in Goodfellow may not generate market-beating returns, over the long run, investing in many companies like Goodfellow, will.

And thanks for the heads up on Jite and Xentel.  I read your write-ups on both.  Very interesting....I will definitely be looking at these in more detail.

Have a great one!