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More on McCoy

The President's Club Newsletter's Fabrice Taylor talks to CEO Jim Rakievich - and comes away encouraged

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Feb 14, 2014

by Max Fawcett

Fabrice Taylor, Alberta Venture’s former resident stock picker and the brains behind the President’s Club Newsletter, dug a little deeper on the McCoy (TSE:MCB) sell off from earlier this week. Here’s what he found.

“I spoke to McCoy (TSE:MCB) CEO Jim Rakievich for 30 minutes late last night and I am back on the MCB bid having gained confidence that this year will be okay and next year should be big notwithstanding the recent problems. The stock has been reset to a price where investors can make a nice return in my view.

There were four issues that will hurt Q4 and to some extent 2014 earnings. The ERP matter was the biggest. As I said before, these systems can be a nightmare to implement but once they’re up and running smoothly they can do wonders for margins. McCoy’s Edmonton office transitioned to the new system with ease because it was already on a different ERP system. The Louisiana office had never been on ERP, so that transition is proving time consuming and costly. Mr. Rakievich was down there when we spoke personally overseeing things, but the staff is still not fully trained. The large order that was delayed was a complicated piece of engineering that was more challenging than first thought. The delays and modifications will hurt the profits on the project. But it’s a one-time issue.

These two issues do give one pause to consider management’s oversight. Mr. Rakievich told me this is his fourth ERP install in his career (and, he hopes, his last). So why did he not prepare for this? The answer is that he relied on his VP. That VP walked the plank because of this failure. The other issues are not as grave but still, to a lesser extent, make me wonder about credibility. Still, this management team has done a bang-up job turning McCoy around over the past few years and pushing it into a new, more profitable direction so I think it’s proper to give them the benefit of the doubt. Sometimes a crisis helps a company get better.

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I think the company will have a better 2014 than 2013, and next year should be superb as the recurring revenue stream from replacement parts starts to flow. That’s the high margin business. Meantime, the company has zero debt and about $15 million in the bank. The yield is about 3.5 per cent and earnings are growing. The stock is in the dog house so bid somewhat patiently but try to pick some up. Eventually sentiment will turn positive if business is good.”

 

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