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Just
Around the Corner... |
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We
hope you've been staying in touch with some of the detailed comments we've
been positing in the blog, particularly if it has to do with ethanol.
Why?
That adopted theme is about to mean much, much more. Later this
week we're going to begin coverage on micro cap stock we feel is 'doing
ethanol right'. The early numbers we've crunched are very compelling,
and this particular company boasts a competitive advantage nobody else
could (literally) quite duplicate.
 There
are no other company-specific details we can go into right now.
However, we can refer you back to several relevant blog entries that may
get you up to speed on what has become an ethanol quagmire. (Hint: There's
a specific reason we're reprising these commentaries.)
Before you might
jump to any conclusions based on these blog entries, we'll warn you that
none
of them specifically point to a certain stock. They're all relevant for
one reason or another, but there's nothing to read between the lines
there. Trust us - this is going to be a very new name to almost
all of you.
The actual date
of the unveiling still hasn't been determined, so be sure to keep your
eyes peeled for our next e-mail.
In the meantime,
we've got some earnings business to take care of.
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Spicy
Pickle - On the Right Road, But at What Speed? |
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It's no real
surprise that Spicy
Pickle's (OTCBB: SPKL) top line moved higher on a quarter-over-quarter
basis. Between their most recent quarter and the same one a year earlier,
they've opened a few more franchises, and opened several more company-owned
restaurants. That's why they raked in revenues of $1.36 million this time
around, versus revenues of $268K in the same quarter from 2007.
 They
generated an operating profit too, spending only $1.15 million to support
and drive sales at the store level. So, they cleared $219K in operating
profits. It somewhat points to viability.
The fiscal drain
is still the cost to manage and operate the entire franchise... the
general and administrative costs. The good news is, these expenses
seem to be relatively fixed at $1.5 million-ish. The bad news is,
the top line isn't big enough yet to cover the general/admin costs (even
if they're only paper losses) plus the operating expenses. You've
got to cover both if you expect to last for more than just a little
while. More stores - and therefore more franchise royalties - is
the obvious solution to the problem. On that note though...
How many
more stores will it take to start generating a net profit? That depends.
The faster they
can reduce their general and administrative expenses, the fewer stores
they'll need ti be orofitable. However, with a net loss of $1.36 million
last quarter, even a respectable reduction in the general/admin expense
lines may not let them get in the black all that soon. The average franchise
contributes about $50K in royalties a year to the corporation's top line.
Assuming that operating costs and administrative costs don't budge, it
would take about 26 more units to get close to the break-even point.
It's worth reminding
you that just last week they signed leases for 2 more stores, and there
are whispers of more stores being added in the very near future. So, there's
a light at the end of the tunnel. It will take more than a few days
to reach it, but we don't believe the time frame here will be measured
in years either. We think it's going to be on the order of months.
On the other
hand, comparing the current cash burn rate to the current sales
growth rate, there's a very real possibility they'll need another round
of financing to get them to the end of that tunnel. We have no specifics
on such a deal, as it's only a theory at this point.
Bottom line
- This is still a quality opportunity, though it could take months to bear
any fruit.
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China
Energy Delivers as Promised |
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China
Energy Recovery (OTCBB: CGYV) has developed a rather attractive
habit... of pushing the top line higher, and now generating a profit.
Last quarter,
they did $6.1 million in business. That topped the prior quarter by half
of a million bucks, and topped the same quarter from a year earlier by
$2.2 million. In fact, it was their best quarterly revenue ever ... and
just part of a long string of solid increases. Best of all, they still
have the capacity to do even more business in any given quarter.
 What
about profits? Yes, they created a positive net income as well.
The bottom line
showed income of $245K. That actually wasn't their most profitable quarter
ever, but they're also paying off some administrative expenses they weren't
dealing with before the previous now (largely related to the fund-raising
efforts from earlier in the year). As those expenses dissipate over
time, the margins will start to increase. More importantly though, we think
this most recent quarter is going to be close to the norm for future
quarters.
By the way,
year-to-date revenue growth - the first nine fiscal months of the year
-
was up 112%. The stock reached new multi-week highs on the news, and the
degree of buying volume and bullish momentum suggests CGYV is finally starting
to be 'found' by investors. On that note...
You may have
seen a recent article in the San Francisco Chronicle's online newspaper
that
made mention of China Energy Recovery in a very positive light. Steve
Westly - via his venture capital firm Westly Group - acknowledged
he has a stake in CER. The article didn't say how much he owned, but it's
fairly safe to assume it's a significant chunk.
But who's
Steve Westly? It's possible you know him but don't know you
know him. Aside from being one of the founders of eBay, he's also a former
State Controller of California, and came pretty close to becoming the Governor
of California in 2006. He's also said to be on a short list of candidates
for the position of Secretary of Energy under Barack Obama's watch. In
other words, his interest in China Energy Recovery is nothing to dismiss
- his background makes him as knowledgeable as anyone when it comes to
energy and its opportunities.
Anyway, it's
a significant endorsement for the company, and should garner a lot of new
attention for CGYV shares.
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Updated: 9:18 am PST (17:18 GMT), January 5, 2009
