Robert Pio Molloy

With the financial crisis of late 2008/early 2009, revenues for almost every single publicly quoted company were pummeled during the period. Now that some of that uncertainty has been removed from the market, we’re finally starting to see revenues returning to most of the affected businesses, with International Baler being no exception.

I updated my spreadsheet with their historical financial statements and extrapolated the 4th quarter results (IBAL don’t file a specific end-year for the 4th quarter). Please note that the “G. Ma” column refers to the gross margin percentage.

What’s most evident (but not explicitly stated in the annual report) is that International Baler returned to modest profit in the 4th quarter. If we ignore the first three quarters, when the economy was exceptionally bad, the P/E ratio currently stands at a reasonable 12.2. What’s also promising is that 4th quarter revenues doubled quarter-on-quarter, which suggests that while International Baler might not be returning to 2008 revenues, the fundamentals of the business are likely to be sound, with a very definite possibility of improved earnings.

As is evident, the balance sheet is in excellent shape with the book value being nearly twice the current market capitalisation. Further downside protection is added by the fact that the company has no significant debt, and that cash makes up a significant part of that book value.

Selected financial data at a glance.

• Market value per share: $0.50
• Cash per share: $0.37
• Earnings per share for Q4: $0.02
• Price to book value: 0.58
• Price to earnings for Q4: 12.2
• Debt to book value: 0%

It’s also evident that there are a number of intangible factors that are very favourable towards the company.

• The company owns a 62,000 square foot manufacturing facility on 8 acres in Jacksonville, Texas. The company is carrying the value of this facility and all contents at $871,000. The company may be over-deprecating this asset.
• Leland and LaRita Boren currently hold 51.1% of outstanding shares. The Boren family also own 100% of American Baler, a direct competitor to International Baler. They have been building their position in International Baler in the last few years and it may be likely that they will continue to build this position, eventually buying out International Baler, consolidating it with American Baler.
• The macro environment for a company that bales a variety of waste material (paper, metal, plastic, rubber, textiles) is likely to be positive going forward as green issues remain in the public spotlight, with many city and county authorities making recycling and reuse of waste material a requirement.

I believe the International Baler offers Ben Graham value, with a very definite possibility of Phil Fisher growth. I have initiated a small position as part of a diversified portfolio.