Bodisen Biotech - An interesting small cap

[BadBoyBenny]

Ticker BBC

This is a Chinese company, but it's incorporated in Delaware which gives us the benfits of SEC filings and regulations.

They have extremely agressive forecasts, which if they meet could lead to incredible value at today's price.

Company Site


[ QUOTE ]
About Bodisen Biotech, Inc.

A Delaware company, Bodisen is headquartered in Shaanxi, China's agricultural hub. In January 2006, Bodisen was ranked the 16th fastest growing company in China by Forbes China. The Bodisen brand is a highly recognized fertilizer brand in China. Its environmentally friendly "green" products support the mandate of the Chinese government to increase crop yields for the purpose of decreasing China's dependency on food imports. Utilizing proprietary agricultural technologies, Bodisen sells over 60 packaged products, broken down into 4 product categories: Organic Compound Fertilizer; Organic Liquid Fertilizer; Pesticides & Insecticides, and agricultural raw materials. Bodisen's organic fertilizers are government certified as "organic" and can be absorbed by plants within 48 hours and enrich soil conditions without the damaging effects associated with chemical fertilizers. Bodisen's products address grains, vegetables, and fruit crops and have been proven to increase crop yields by 10% to 35% while being environmentally friendly. Among China's population of 1.3 billion, approximately 900 million are farmers or have agriculture related jobs whose incomes depend on their crop yields. With approximately 600 (and growing) nationwide distribution centers, Bodisen has experienced rapid growth.

[/ QUOTE ]

This just came up on a screen for me, I haven't had enough time to form a solid opinion of my own. So I am plagarizing 2 posts off of the Yahoo finance boards (1 positive, 1 negative) to start discussion.

post1
[ QUOTE ]
For all the noise generated on this board, BBC is actually a pretty simple story. And since Wall St. loves a simple story (Chipotle, UnderArmour, Nutrisystem, ethanol stocks, etc), much of the noise generated here is probably generated by those looking to accumulate shares by shaking out weaker hands.

Industry facts:

1) As demand for organic foods grows, so will demand for organic fertilizers.

2) There are few large scale organic fertilizer manufucturers in China, and they currently control only a small slice of the $17 Billion Chinese fertilizer market.

3) According to Hanfeng Evergreen (an emerging producer of slow-release fertilizers in China): "Imported value-added fertilizers are too expensive to penetrate the China market to any significant extent."

4) China's domestic fertilizer industry is fragmented with hundreds of small regional producers, many operating out-dated and inefficient equipment.


INCREASING DEMAND + INEFFICIENT SUPPLY = OPPORTUNITY for BBC.


Financial outlook:

1) BBC has provided guidance for 100%+ growth in 2006

2) There is a palpable sense of skepticism about this growth forecast.

3) BBC needs to execute its growth plan for the stock to trade higher.

4) Markets and stocks often climb "walls of worry."

5) BBC expects to double its manufacturing capacity by year end.

6) This implies that the company will have operating capacity to generate at least $125 million in revenues in 2007.

7) If net margins stay stable at 30%, as BBC management suggests, BBC could have the potential to earn $37.5 million on an annual basis.

8) $37.5 million / 18.4 million shares = $2.02 EPS potential.


Investment considerations:

1) BBC is forecasting 100% growth in 2006 and a doubling of operating capacity for 2007.

2) With fragmented, undercapitalized domestic competition and higher-cost foreign competition, BBC expects sustainably high profit margins.

3) At just above 15, BBC trades at less than 8x EPS potential (based on anticipated increases in operating capacity and management's target margins)

4) Not many stocks with 100% growth rates trade at 8x EPS potential.


Risks:

1) BBC has less than 1% share of a market controlled by large international competitors.

2) With only one major facility operating currently, BBC has geographic and operational risk.

3) BBC may not be able to control its rapid rate of growth.

4) Companies operating in China have numerous country-specific and political risks.

5) Read BBC's financial reports filed with the SEC for further potential risk factors to consider.

[/ QUOTE ]

post2

[ QUOTE ]
Since you are posting half-truths as facts, I will post some real facts instead.

1) Higher crude oil price is hurting China too.
Yuppies who used to have spare money to spend more on food are not cutting back on other unnecessary expenses (like organic food).

2) There have been quite a few big scandals recently on farmers mislabeing their produce as organic in order to sell for higher prices. Consumers in major cities in Shanghai and Beijing have already lost faith in any truth in labelling for "organic food". Search Chinese news website for links on this story.

3) Due to WTO entry, China has dropped tariff's on fertiliers from 11% to 6%. Last year, China imported $478M worth of fertilizers from abroad. Now with lower tariff, there will be even higher foreign competitions to cut the margins in domestic fertilizer market in China.

4) BBC owns no proprietary technology. Anyone can replicate what BBC has done in a very short time to produce "organic fertilizer".

5) There are many fertilizer companies in China, but there are quite a few big ones as well. These big guys have the manpower, the money, and the resources to replicate what BBC has done.


[/ QUOTE ]

[hawk59]

30x earnings is not that crazy. I was expecting to see 100x once i read the description. That said, I wouldn't buy this in a million years. I don't see how you could ever feel good about it.

[BadBoyBenny]

Well, if you a exclusively a margin of safety investor (don't know if you are or not) then this is not for you.

If you like to take shots at huge returns once in a while this might be your cup of tea.

[hawk59]

[ QUOTE ]
Well, if you a exclusively a margin of safety investor (don't know if you are or not) then this is not for you.

If you like to take shots at huge returns once in a while this might be your cup of tea.

[/ QUOTE ]

Where is the huge return? They make fertilizer and they are selling at 30x earnings. What kind of growth are they going to have, how much is it going it cost to achieve that growth? , and what is it worth? Those aren't 'margin of safety' questions. If you can't answer those questions then you are just hoping to get lucky.

[BadBoyBenny]

Well, revenues grew 91% last year and they didn't have to take on much debt for that. They have already signed contracts for the year 2006 that will exceed last year's revenues. They are a regional business and have plenty of room to expand into other territories if they want to compete with other small players.

I don't know about cost of doubling their revenues, but they believe they can maintain their margins when they do it, and have a very clean balance sheet right now. If their revenues grow by another 75-100% next year they will be worth at least double their current market value in a buyout by someone like DuPont. If no offers are given, the segmented market means they have plenty of room to expand and compete.

I don't see why the hate on their business of fertilizer, farming is a huge business in China.

[Sniper]

Link to recent thread

[laserboy]

These guys got taken out to the woodshed and shot this morning! [img]/images/graemlins/shocked.gif[/img]

STIR-FRIED STOCKS

http://finance.yahoo.com/q/bc?s=BBC&t=5d

Hmmm... maybe it's not such a great idea to invest in companies that sell manure and market themselves as "Biotech" companies...

This was a Cramer pick, BTW. He was pumping it shortly after it got listed on the AMEX (it used to be BBOI on the pink sheets). I wonder if he ever mentions it on his show again... [img]/images/graemlins/confused.gif[/img]

[Sniper]

wow.. that NY Post article is well worth the read!

[AvivaSimplex]

FWIW, the author of the NY Post article reported last week that Bodisen made a large unregistered private placement at $12.99 a couple months ago, well below the stock price at the time. Well, if by "unregistered" he meant "registered", and by "$12.99" he meant "$14.00," and by "well below" he meant "7% below," then that story is pretty accurate.

If his most recent article is accurate, then this stock is definitely a POS. The NY Post is not known for its journalistic credibility though (e.g. its gossip columnist tried to extort a billionaire recently), and I would not rule out this author being on the take.

That said, I'm not investing in BBC, because it's a fertilizer company with no patents or any moat. Branding might be a competitive advantage, but I have no way of knowing how well BBC is branded or how important that is to Chinese farmers. Basically any other fertilizer company could do exactly what they're doing and nail their margins. I realize I recommended this earlier, but events and DD have changed my mind.