Sunday, January 11, 2009

Perritt's Annual Reports

Last week I received the hard copy of the annual reports for Perritt's MicroCap Opportunities Fund (maximum market cap $750 million) and its Emerging Opportunities Fund (maximum market cap $350 million), dated October 31st, 2008. Perritt tends to own a lot of stocks in its funds (~100 names), but the annual reports highlighted a few representative ideas. Below are two of them.

From the MicroCap Opportunity Fund:

Northwest Pipe is a leader in the manufacturing of high-pressure steel pipe used in water infrastructure applications including wastewater, hydro-electric power and drinking water systems. The company currently has $235 million in backlog, and earnings have grown in excess of 30 percent annually during the past five years. The growth driver for the company is the need to update water infrastructure in this country. Many of the nation’s current water pipes are made of cast-iron and were installed over a century ago. A ruptured water pipe costs far more to replace than a scheduled pipe replacement.

The Perritt annual report listed the market cap for Northwest Pipe (Nasdaq: NWPX) at $235 million, as of 10/31/08. At Friday's close it was about $383 million, presumably buoyed by expectations of infrastructure spending by the incoming Obama administration.

The annual report for the Emerging Opportunities Fund listed two groups of representative stocks, a "value" group representing stocks trading for less than their liquidation values, and a "growth" group listing attractively valued growth stocks. Below was one of the representative stocks from the growth group:

KSW, Inc. (KSW) furnishes and installs heating, ventilating, and air conditioning (HVAC) systems and process piping systems primarily in New York. The company is benefiting from a strong maintenance and replacement cycle related to the commercial building boom of the late 1970s and early 1980s. This growth in maintenance and replacement revenue is offsetting the decline in multi-unit residential revenues. In the third quarter of 2008 the company reported revenue and earnings growth in excess of 20% and 30%, respectively. The company’s fully financed backlog is currently $141 million not including two large hospital projects announced in October 2008.

Again, that was as of 10/31/08. As of Friday's close, KSW, Inc. (Nasdaq: KSW) had a negative enterprise value, so it would presumably fit in Perritt's value category today.


Albert said...

It's a pretty small base KSW is growing off of. I'm not as confident about its abilities to scale up all that much. I hope it can, but I'm not expecting much.

DaveinHackensack said...

As I mentioned in an earlier post, one way for the company to grow would be to acquire a small HVAC company in another city, but the company's not in the market for an acquisition now. It's best near term prospects would be to share in some infrastructure spending (maybe the Feds will throw some money at NYC's long-delayed Second Avenue subway line?).

J said...

Iron pipe is dead. Its use is limited to fire fighting mostly. New pipes are all HDPE or SP in Israel. The Germans are leading in this field.

DaveinHackensack said...

Thanks for that info, J.