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IWG Technologies is soaring in small cap value
Posted by: Gerry Wimmer
3/15/2015
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TOP IDEAS: A supplier to the aviation industry, IWG Technologies Inc. (TSXV: IWG) has solid fundamentals and growth prospects but the stock is still value-priced.



For over 25-years, Burnaby, BC-based International Water-Guard Industries (IWG), the main operating subsidiary of IWG Technologies Inc. (TSXV: IWG - C$0.22) has been supplying business aircraft manufacturers with product technology to improve the quality of on-board water systems for use by passengers and crews. With the introduction of several new products, the strengthening of the management team and the robust business aircraft market, the Company is beginning to generate a string of quarters with growing revenues and profits.

IWG is the world’s leading provider of flight-certified water treatment units and specialized aircraft water system components. The Company offers a range of products to meet all aircraft potable water systems needs, from water treatment units including components such as pumps, on-demand water heaters, tanks and water control systems.

IWG’s water treatment units, which use ultraviolet light disinfection to eliminate harmful micro-organisms, are the current standard on many high-end business jets manufactured by Gulfstream, Bomdardier, Airbus and Boeing. The Company recently launched a new generation of on-demand water heaters for aircraft showers and VIP galleys: the IWG (T-Series) Tank-less Water Heater, which is lighter and smaller. IWG says the T-Series product is the ideal water heater for future VIP aircrafts such as the Boeing 787 Dream-liner and the Airbus 350. The Company's newest product a compact water module (IWG-M1) which pressurizes, heats and controls water flow, has been selected for standard installations on Bombardiers’ new Challenger 350 and is suitable for other business jet and airliner-type aircrafts.

Today’s aviation industry is growing significantly in terms of new aircraft deliveries. The Company has said according to the General Aviation Manufacturers Association (GAMA) and Honeywell forecasts, the medium to large, long-range business aircraft market will continue to be the fastest-growing sectors of the new aircraft marketplace. This market segment is where IWG sells the majority of products. New market opportunities for the Company are with the commercial jet manufactures whose customers are beginning to require more complex water requirements to serve first-class and business class travellers on long-range commercial aircrafts. In addition to aircraft original equipment manufactures, IWG customers include aircraft completion and retrofit centres.

To take advantage of the new business opportunities, IWG hired a new President last year, expanded its facilities, brought products to production status and finished the development of new products for new markets. These initiatives contributed to the Company hitting record revenue levels of C$7.4 million in fiscal 2014. Net income for fiscal 2014 was C$0.75 million ($0.02 per share) with Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) of C$1.36 million. IWG gross margins on product sales average 50%.

The strong financial results have continued into fiscal 2015. IWG Technologies reported sales in the first quarter of fiscal 2015 (December 31) of about C$2 million. This was 35% higher than the same period last year. Over 80% of the Company’s sales are to customers in the United States. The EBITDA of C$465,000 (23% of sales) more than doubled compared to last year. Fiscal Q1 has been traditionally the Company’s weakest quarter.

Looking forward, IWG Technologies says the long-term business outlook for the aviation sector that the Company pursues is strong and that water issues for passengers flying on aircrafts continue to be very important. The Company’s stated objective is to significantly grow over the next few years. IWG Technologies has the infrastructure and a solid balance sheet to expand its business.

The Company has been operating profitably for 10 consecutive quarters and revenues have grown an average of 17% per year over the last four years. As revenues continue to climb the operating leverage will lend to higher profit growth which we feel is not reflected yet in IWG Technologies stock price. Trailing 12-months (TTM) the Company’s shares trade less than 4.5 times Enterprise Value (EV)/EBITDA which is inexpensive. Forward-looking to fiscal 2015, assuming sales rise 15% year-over-year (slightly below the 4-year average) and EBITDA margins maintain 23% of sales, the shares today trade about 3.5 times EV/EBITDA. Based on the financials results 12 months back or our 12 months forward outlook, IWG Technologies stock is trading for value.

In our opinion IWG Technologies is a growth story and deserves a stock valuation that better reflects this. Therefore we recommend that value-driven small cap investors should begin accumulating the shares of IWG Technologies from the current trading levels of $0.22 to a high of $0.40. At $0.40 the valuation is about seven times EV/EBITDA based on our fiscal 2015 outlook for the Company. We believe IWG Technologies is well-positioned to grow for at least several more years beyond fiscal 2015. If so, our $0.40 stock price target should be significantly exceeded over this term.

IWG Technologies is a small company but it still has a good balance sheet with net cash holdings of $1.31 million. The Company has only nominal amounts of short and long term debt.

The Company has approximately 38.5 million shares outstanding.

PenderFund Capital Management owns about 14% of the IWG Technologies outstanding shares.

IWG websites: www.iwgtech.com and www.water.aero

Author Ownership Disclosure: TSXV: IWG - YES


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Investorfile.com is not engaged in an investor relations agreement with IWG Technologies Inc. nor has it received any compensation from IWG Technologies Inc. for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of IWG Technologies Inc. through open market transactions and for investment purposes only.

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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.