Saturday, December 20, 2008

A Rough Week for KSW

On Monday, shares of HVAC contractor KSW, Inc. (Nasdaq: KSW) dropped from $4.40 to $3.88. The next day, KSW filed an 8-k stating that the 56 Leonard Street Project in downtown Manhattan, the HVAC contract on which was worth $24 million, had been put on hold by the developer (judging from Monday's price action, someone got the memo early).

On Thursday, KSW released another 8-k stating that another project, this one on 42nd Street and 10th Avenue in Manhattan, was being delayed by the developer, who is seeking a redesign to reduce construction costs, and plans to restart the project within three months. The HVAC contract for this project is approximately $32 million. So within a few days, about $56 million of KSW's previously reported backlog of approximately $139 million was put on hold. It appears that the $32 million contract might get reduced somewhat, but that project could be back online in a few months; the $24 million contract appears to be on hold indefinitely.

In the wake of these two negative 8-ks, KSW shares traded as low as $1.79 on Friday, despite the company having no debt and a little over $3 per share in cash. Late Friday, the company released a press release announcing that its board had authorized a share buyback of $1 million, adding that,

“We will retain the repurchased shares as treasury stock,” said Floyd Warkol, Chairman and CEO of KSW, Inc. “We believe that the market’s response to our latest filings is unwarranted based upon the Company’s financial condition and standing in the industry.”

KSW shares recovered somewhat to close at $3.10 after hours.

Had I been following this in real time on Friday, I would have been a buyer when KSW traded below net cash. The near-term outlook for residential and commercial real estate in Manhattan is grim, but the company also does work in sectors that are less economically sensitive (e.g., hospitals, schools, court houses, etc.), and as I noted in a previous post (KSW Update),

The company also could be positioned to benefit if a new economic stimulus package includes funds for local infrastructure projects, since KSW's CEO sits on the Metropolitan Transportation Authority's Blue Ribbon Panel on Construction Excellence which provides "guidance to the MTA as it pursues its ambitious capital construction program" and the New York City Department of Environmental Protection's Blue Ribbon Panel on Construction Costs, which provides "guidance to the DEP on its capital construction program."

The image above, via Luxury Insider is a rendering of the 56 Leonard Street building designed by the Swiss architects Herzog & de Meuron, the same firm that designed the "Bird's Nest" stadium in Beijing. Condos at 56 Leonard were to range in price from $3.5 million to $30 million. There's obviously less demand in that price range now, given the ongoing effects of the deleveraging process on Wall Street.

No comments: