A POTENTIAL SWEET TOO TASTY TO PASS

13-Dec-2010

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.







By Liu-Yue (Louie) Lam, Co-Founder, CEO, Oxstone Capital Management

IPSU, Imperial Sugar – USA, $13.40, 12/8/2010

Imperial Sugar Company was founded in 1843.  It operates as a processor and marketer of refined sugar.  Besides operating in the USA, the company also markets organic cane sugar, agave syrup, honey, and other specialty sugars in Mexico and Canada too.  Imperial Sugar generated $1billion in annual sales and has the dominant market share position in many southeast states including 40% of the Texas market.

IPSU should directly benefit from the secular soft commodity boom.  This is a nice way to play the agricultural bull market.  The key question is whether it can finally get its manufacturing plant back online to meet strong demand.  For a small cap stock I always like to see strong insider ownership and IPSU has strong insider ownership representation at 13%.  A review of its top institutional holders include a well respected hedge fund – Passport Capital – (the Hot Dog Billionaire – John Burbank ), which helps provide additional validation to this investment idea.

IPSU is a small cap stock with a market cap of only $168mm which provides investors with another potential exit strategy in the form of receiving a takeover premium offer from larger overseas competitor that may want to take advantage of the weak dollar to enter into the attractive USA market.

In terms of valuation, IPSU currently has a ridiculously low trailing P/E of 1.2x.  A very low valuation provides low investor expectations that can be easily met as a potential catalyst for the stock price.  P/S is .21 and it is currently trading at just 73% of its Book Value.  Profit margins are 17.57% with strong demand with quarterly revenue growth yoy 83%.  Low debt levels provide financial flexibility.  IPSU even provides a small dividend of .6% which is just 1% of payout; providing further room to increase dividends in the future.  Once its plant issue is resolved, capex should normalize and free cash flow should improve.

From a big picture perspective, IPSU also plays into a growing consumer theme for small luxuries.  With the current great recession a never ending story, consumers will continue to look for small luxuries such as sweets to help provide small comforts in these difficult times.


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