Singular Research Top Ideas for Performance 2017

Amyris (AMRS) current price $ 0.62  PT $2.80 :  has a proprietary bioscience platform that cost effectively converts plant sugars into hydrocarbon molecules and specialty ingredients used to replace expensive or difficult-to source materials in fragrance, cosmetics, healthcare, nutrition and industrial applications. AMRS partners with industry leaders to monetize its technology through development collaborations and long-term supply agreements with profit-sharing. Q3:16 revenues tripled to $26.5 million as a result of new collaborations and product sales ramping up under long-term supply agreements. At maturity, AMRS’s existing collaboration portfolio and pipeline could generate revenues exceeding $2 billion annually. During 2016 AMRS has transformed from a loss-producing biofuels business to a growing industrial biotechnology company partnering with established players in the health, nutrition, personal care and industrial markets. The Company develops new farnesene molecules for these partners, who in return provide AMRS with R&D funding, milestone payments, the potential for revenues from long-term supply agreements and profit-sharing on the partner’s downstream sales. At present, AMRS has 14 active revenue-generating collaborations covering the development of over 100 new molecules and another dozen collaboration agreements in various stages of advanced discussion.

Anika Therapeutics (ANIK) current price  $ 50.68 PT $60: Anika develops and manufactures therapeutic products for tissue protection utilizing hyaluronic acid (HA), a naturally occurring polymer in humans. Products address osteoarthritis, advanced wound care, and surgical issues. Anika HA products are unique from several perspectives.  Anika reported strong margins in Q3, which drove the EPS beat. Revenues of $25.8 million were slightly below our expectations, but gross margin of 80.6% was well above our estimate of 74%. EPS of $0.59 was above our estimate of $0.49. Revenue growth in 2016 has been impacted by inventory adjustments taken in 2015 by DePuy Mitek, the US distributor. Sales to end customers remains strong. Ø Anika has a solid growth path ahead from both current products and the product pipeline. Monovisc continues to gain market share despite premium pricing. Product performance has quickly driven Monovisc to hold the #2 position in the single injection viscosupplement market for knees in the US, after initial launch in 1H:2014. Prices are likely to decline, particularly to gain new large customers. YTD Monovisc sales are up 33%, while end user volume is up about 80% – channel inventory adjustments account for the difference. Price declines have only been in the 5 – 8% range. Ø Cingal was launched in Europe and Canada in late Q2:16, and Anika reports it has already contributed $0.5 – 1 million of revenues, or approximately 2 – 4% of total Orthobiologic revenues in Q3. Ø We anticipate a US launch for Cingal in late 2018 to early 2019.

Aceto Corporation (ACET) current price $19.85  PT $29. ACET is a global leader in marketing and distribution of pharmaceutical intermediates and active ingredients; finished dosage form generics; nutraceutical products; agricultural protection products and specialty chemicals. With operations in ten countries, it distributes more than 1,100 chemical compounds used as finished products or raw materials. Although the company is navigating through near term headwinds in the form of product launch delays and backorders related to Rising Pharmaceuticals (Rising) that will weigh on 1H:17 results, we expect management’s plan to launch 12 to 15 new generic products during this fiscal year and the completion of the recently announced acquisition of generic products and related assets of Citron Pharma in 2H:17 would drive ACET earnings going forward. Management expects to launch 15 – 20 of Citron’s 31 approved but-not-yet launched products in the second half of fiscal 2017 – a six month period. The entire 31 approved but-not-yet launched products and their associated revenue potential is embedded in the 8.3x EBITDA purchase price. Importantly, this acquisition advances the company’s transition to a Human Health segment driven focus, with the deal increasing Human Health segment sales by more than three-quarters of a pro forma full year basis. Separately, Aceto is standing by its assertion it can bring to market 12 to 15 new products on its own, apart from Citron. Aceto launched three new products in Q1:17, and has announced two launches so far in Q2:17 (generic Erythromycin gel for acne and generic Oxybutinin). Management guided that its launches will be back end loaded to the second half of fiscal 2017. So we figure another 7 to 12 launches will come in Q3 and Q4. Management expects the acquisition to be accretive to non-GAAP EPS at closing and accretive to GAAP earnings in 12 months.

 

  Banco Latinoamericano (BLX) current price 27.96  PT $35.60   Banco LatinoAmericano de Exportaciones (“Bladex”) is a Latin American supranational bank. Core banking activities include trade finance operations such as bankers’ acceptances, letters of credit, and receivables factoring. Within its Treasury division, the bank buys and sells regional fixed income securities for its own investment book. The bank also operates an asset management business (Bladex Asset Management “BAM”), which runs a hedge fund focused on regional fixed income securities, currencies, and regional indices. management expressed positive outlook for the company’s business prospects in FY:17, considering Latin America’s economic growth and trade flows. In the trade flows segment, the WTO anticipates the Latin American countries exports to climb 4.4% in 2016, up from the earlier projection of 1.9% for the year. The international trade regulator also expects Latin America trade flows (imports + exports) to grow ~7% in 2017. With the trade finance (shortterm and low risk in nature) representing 61% of the BLX total commercial loan book, we expect the above mentioned favorable projections of Latin America’s trade flows to drive demand for the company’s traditional business (trade finance) and result in earnings growth growing forward.

  • Daktronics Inc.(DAKT) current price $10.40   PT $14    Daktronics, Inc. is the world’s leading supplier of electronic scoreboards, large electronic display systems, and digital messaging solutions for use in sports, transportation, and communications. The company is a market leader in electronic digital display systems and products which are rapidly becoming more prevalent in various eclectic outdoor and indoor venues as an important source of revenue generation and event augmentation. As this trend continues, the company should continue to experience superior top line and bottom line growth.  The improving political climate for increased infrastructure spending should prove to be a boon to Daktronics key verticals in transportations systems and Highway digital display products.  An improving domestic economy will provide better budgets for public venues such as high schools, colleges and community centers to upgrade or initiate digital display systems as a new additional source of revenue. The Company’s products are used to display static images which change at regular intervals. Daktronics is a proven technological innovator with systems that include many features unique to the outdoor advertising market, that will drive a strong upgrade cycle.

StealthGas, Inc. (GASS) current price $4.13 PT $6  StealthGas provides seaborne transportation services for LPG producers and users worldwide. Various petroleum products include butane, butadiene, isopropane, propylene, and refined petroleum products. The company operates a fleet of 49 LPG vessels, three medium range product tankers and one Aframax oil tanker. The small vessel LPG market served by StealthGas is far more stable than the large vessel market. GASS has four new vessels on schedule for delivery in 2017, and 80% of the funding for these vessels is committed, with the remaining $21.5 million easily addressed with cash. Charter rates have been bouncing along bottom and the fact that they don’t decline further during the seasonally weak summer months indicates a confirmation of the bottoming process, in our opinion. The pricing cycle continues to bounce along bottom, but there are signs this will improve in the coming months. Oil and gas prices have reached an area of stabilization, even if vacillating within a price range, after a long price decline. In the market where StealthGas is focused, the small LPG deliveries in coastal areas, there has been increasing ship scrapping in the industry. Approximately 24% of the industry fleet is over 20 years old – older vessels are far less efficient to operate. A low pricing environment is driving older vessels to the scrapyard. Finally, the small to medium vessel LPG industry has a small orderbook for new builds. We lower our EPS estimates for 2016 and 2017 due to the lengthening of this weak pricing environment. We anticipate a slight improvement in pricing during 2017. The younger fleet, new builds to be added to the fleet in 2017, and normal drydock expenses drives the beginning of the earnings rebound in 2017.We anticipate StealthGas has earnings power of $2.00 – $2.25 per share in the upcoming cycle. StealthGas is priced at 24% of book value.

 

Black Hills Corporation (BKH) price $62.15  PT $68  Black Hills Corp is a vertically-integrated energy company. It operates in utilities group comprised of regulated electric utilities & regulated gas utilities, and non-regulated energy group comprised of power generation, coal mining and oil and gas. BKH relies on rate-base generation assets offering the advantage of more stable, less expensive customer rates. The generating assets are included in the utility rate base and reviewed and approved by government authorities. BKH is submitting applications in 2017 seeking approval for Cost of Service Gas Program designed to provide natural gas price stability for utility customers, while providing increased earnings opportunities for shareholders. BKH is transitioning the oil and gas business toward supporting the Cost of Service Gas Program, while maintaining the upside value optionality of the Piceance Basin.The acquisition of SourceGas, and smaller utility systems in Kansas, Iowa and Wyoming over the past several years easily integrates into operations because of a scalable platform which adds to shareholder value.

 JMP Group, Inc. (JMP) price $6.12  PT $7.50  JMP Group is a diversified financial services company. The company’s main lines of business consist of a broker-dealer and investment bank focused on the middle market, and asset management subsidiaries focused on alternative investment strategies and a corporate credit manager. Capital markets activities have started to recover, and although nowhere close to peak levels, they are up significantly from both the prior quarter (Q2:16) and the prior year (Q3:15). With M&A advisory fees continuing to grow, total investment banking revenue is up just less than 80% from Q2:16 and up 26.3% from Q3:15. Our outlook for the balance of FY:16 anticipates an uptick in capital market activities through the remainder of the year, although we believe that this will be less robust than initially anticipated and are planning to adjust our outlook in a subsequent report. While the investment banking side of the business has been in a cyclical downturn, JMP Group’s earnings have been propped up by its diversified lines of business such as asset management as well as through investment income and principal transactions. In Q3:16, JMP benefited from an improved pricing environment for corporate loans, which benefited EPS. Just after the quarter closed, they announced an accretive transaction in a real estate fund in which they are involved that will result in a one-time gain in Q4:16, as well as ongoing management fees.

 

Seabridge Gold Inc. (SA) price $9.60 PT $17  Seabridge Gold (SA) is a development stage company engaged in the acquisition and exploration of gold properties located in North America. SA is designed to provide shareholders with exceptional leverage to a rising gold price. The company’s business plan is to increase its gold ounces in the ground but not to go into production on its own. SA
intends to either sell projects or participate in joint ventures towards production with major mining companies. During the quarter, Seabridge released an updated Preliminary Feasibility Study (PFS) and Preliminary Economic Assessment (PEA), which both showed improved project economics for potential joint venture partners or acquirers. Ø Subsequent to the updated studies, the company also released drilling results that show both a possible significant extension to the Iron Cap Lower Zone Deposit, and a new high grade zone that was not previously discovered. While not much is known about the size of this new deposit, the grades shown in the initial sample were significantly higher than the rest of the KSM project. Ø The company has also identified a significant target at the recently acquired Iskut project, and drilling is scheduled for 2017.

Trecora Resources (TREC) price $13.05  PT $18 The company is a leading producer of specialty chemical products used in the manufacture of expandable polystyrene, polyethylene and other plastics. The company also owns a 41% interest in a Saudi joint stock company which is scheduled to put into production in late 2018 or early 2019 a base and precious metals deposit located in southwestern Saudi Arabia. we are revising upwards our EPS forecasts for FY:18 and FY:19 as major projects at SHR (D Train and Advanced Reformer) and TC (Distillation and B-plant) are expected to come online in FY:18, which will drive revenues along with meaningful improvements in gross margins. Although the management is guiding a massive ~$30 million annual EBITDA additions over 2018-2020, we have forecast conservative EBITDA increases of ~$20 million in FY:18 and ~$8.0 million in FY:19. Consequently, we remain positive on the long term story of TREC and retain our last price target of $18.00 per share, which is an equally-weighted blended valuation of sum-of-the-parts ($17.50) and DCF ($18.47). TREC currently trades at 15.2x our 2016 pro forma petrochemicals earnings estimate of $0.79 per share and 12.5x our 2017 pro forma earnings estimate of $0.97 per share, and EV/EBITDA of 8.0x for 2016 and 6.8x for 2017. Our sum-of-the-parts approach values TREC at $17.50 per share (Petrochemical assets at $13.76 per share + mining assets at $3.74 per share) versus the current price of $13.35 per share, while a DCF approach values the company at $18.47 per share. An average of the two approaches produces a target price of $17.98 per share, which we round to $18.00 per share. With petrochemical earnings forecast to improve in 2017 and beyond based on better margins, and what we believe will be relatively stable AMAK pretax operating earnings contribution after 2017, we continue to believe TREC’s future remains bright and the valuation is attractive.

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Singular Research All Time Best Performers

Singular Research All Time Best Performers

2015 Best Calls

2015 Best Calls

Company Name Ticker Performance
Intl FC Stone INTL 62.66%
Stamps.com STMP 47.75%
Liberator Medical LBMH 40.16%
Flexstell Industries FLXS 36.99%
KMG Chemicals KMG 30.97%
Cooper-Standard CPS 26.82%
Aceto ACET 24.33%
Innospec IOSP 24.27%
NN Inc. NNBR 24.07%
Atlas Financial AFH 21.93%

 

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Director’s Letter January 2014

A New Year Brings a New Equity Market

After a strong finish to 2013, the equity markets initially took pause at the beginning of the year, and have recently begun to sell off more indiscriminately. Has the world changed that quickly? We don’t believe so, but perceptions change, and valuations metrics did not describe much upside to the market averages in 2014 even as Wall Street strategists were bullish. We anticipate more volatile equity markets this year but not an end to the bull market. US economic growth is poised to lead the world, and small cap companies with a focus on the US are likely to perform well in 2014.

The employment data for December took a respite from its strong performance in prior months, but we do not perceive this as a harbinger of weakening growth. We anticipate the Fed will continue to cut back on quantitative easing, driven by its belief the US economy is healthy enough to stand on its own. We do not believe the reduced monetary stimulus will be detrimental to the US economy, but equity markets typically respond to such policy changes with more volatility. The underlying strength of the US economy is evident by the positive US Manufacturing PMI and general health in retail sales.

 

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For December, the S&P 500 was up 2.4%, the Russell 2000 was up 1.8% and the aggregate Singular List was up 4.2%. For calendar 2013, the S&P was up 29.6%, the Russell 2000 was up 37.1%, and the Singular Research List was up 33.9%.

We changed the rating on one name in December. We increased our rating on Hudson Technologies (HDSN) to BUY from BUY-LT as a result of the proposed EPA rulings for virgin R-22 allocations for 2015 through 2019. The proposal was far more favorable for HDSN than we had expected, and our analyst has increased the price target.

Our top five performers in December include companies from a variety of industries. The top performer in December was LSB Industries, up 27.9%. The company has noted that production utilization is increasing and the stock is rebounding after reporting a weak Q3. Reed’s was up 22.8%in December. The company has announced agreements with additional retail chains in the past few months that significantly broaden distribution of its premium products. Bacterin was up 21.9% in December. The company recently hired a new CEO with a marketing focus and is re-vamping the sales force. Arabian American Development was up 21.6% in December. The company reported a strong Q3 and our analyst has increased estimates for 2014. Newtek Business Services was up 19.9% in December. The company has exceeded its previous goal for loan servicing assets in 2013.

Our worst performers in December are from a variety of industries, and we believe they all have significant upside from here. University General Health Systems was down 17.0%in December. The company missed its self-imposed target to complete its tardy SEC filings, but outlined healthy trailing EBITDA and growth prospects in a recent conference call. Angie’s List was down 16.4% as a short. The stock has bounced after a strong decline and news about the partial nature of its web based information is expected to drive higher membership churn rates. Rocky Mountain Chocolate Factory was down 13.4% in December. The company has reported good quarters recently and international licensing activity is improving. Nymox Pharmaceutical was down 13.3%. The company recently completed the first half of its Phase 3 clinical trials for BPH, but information from this study may not be released until the second half is completed in April 2014. INTL FCStone was down 11.1% in December. The company benefits from greater volatility in agricultural commodities and metals, which is likely to increase in the coming quarters.

As we move into the 2014, we continue to seek out investment ideas that have minimal to no Wall Street coverage. There are a number of uncovered and under-covered names we have been investigating, and we plan to launch coverage on several names in the coming weeks. With the Fed tapering in 20104 and concerns about growth in China, we anticipate 2014 to be a stock pickers market. We thank our clients for your support of independent equity research.

Sincerely,

Greg Garner, CFA
Senior Equity Analyst