Abrams Industries

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Abrams Industries

• 9-26-2005
• Matt Litwin, Ramu

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Overview

• Description
• Abrams Industries
• Develops, implements, and supports energy
  engineering solutions for commercial clients
• Engages in real estate investment and
  development, but are phasing down operations
• Investment Thesis We believe Abrams growth
  potential and the macroeconomic conditions
  surrounding its business model will result in
  returns unaccounted for in the present stock
  price.

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Company History

• Strategic Shift
• Manufacturing/Construction ? Building
  Performance Services
• 1999 Ceased Manufacturing
• 2004 Ceased Construction Business
• Acquisitions
• 2001 Servidyne Systems established 1974
• 2003 Wheatstone Energy Group
• April 2004 iTendant Software
• May 2004 Building Systems Engineers with
  Stock cash
• Seeks to make further acquisitions offer new
  services

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5 year chart
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Divisions

• Energy Services
• Implementation of energy-saving lighting programs
  and other energy-related services
• Real Estate
• Acquisition, development, leasing, and sale of
  shopping centers and office buildings in the
  Southeast and Midwest
• Energy and Facilities Solutions
• Energy engineering services and facility
  management software applications

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Divisions
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Non-Real Estate

• Professional services include (from website)
• Commercial development - experience
• Financial capital sources
• Technical design, operations
• Legal Regulatory compliance, structure
• Risk Management cost, reliability, usage
• Value-added services approach leverages know-how
• Experienced Project Team
• Reversion of existing plants
• Also Provide Technology Software to achieve
  performance goals

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Energy Services and Facilities Solutions Client
List

• Frito Lay
• Eckerd Drug Stores
• JC Penney
• Starwood Hotels
• Verizon Wireless
• Speedo
• Kroger
• Numerous municipalities
• Schools, hospitals, military bases, towns

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Macro

• Higher Energy Prices
• Natural gas prices risen from 2 - 14
• Companies may opt to generate their own
  electricity to avoid uncertainty to save
  money.
• If the economy recesses companies cant grow
  revenues as well and will look to lower costs to
  increase profitability.
• Tax incentives article
• Incentives to Make Buildings Energy Efficient

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Macro Environmental
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Macro Environmental

• Abrams is a play on alternative energy however
  more economically viable
• University of South Carolina Engages Johnson
  Controls for Energy Savings
• 149 million square feet of commercial property
  was certified LEED in 2004. Up from 8 million in
  2000.
• All new buildings at Cornell are compared to
  these standards.
• Many US companies are beginning to consider their
  greenhouse gas emissions.

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Why Abrams?

• It is a pure play the only public company in
  the industry.
• The fewer variables there are to consider the
  easier it is to tell how a company will perform.
• Their direct competitors Itron and Maximum
  Performance Group are held by venture capital
  funds.

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Finances

• Perhaps undervalued company
• P/Book
• Market value of Real Estate may have appreciated
• 6.50 of book value per share
• P/Sales .80
• P/Earnings 9.75
• Note real estate sales make earnings positive,
  otherwise operations are negative
• Profit Margin 7.90, Operating Margin -.73

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Finances

• Current Ratio 2.81
• Working Capital 10 Million
• Loss from Continuing Operations has been
  decreasing.
• Went from 35 cents a share to 11 cents a share
  for Q1.
• New divisions are experiencing rapid growth.
• Revenues increasing rapidly
• Revenues from Continuing Operations rose to 22.4
  for Fisical Year 2005, up 84.
• CEO expects that costs can be contained.

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Ratio Analysis - Competitors
Their direct competitors such as Itron Maximum
Performance Group are Privately held by venture
Capital firms and likely are not profitable.
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Potential

• Software if it becomes an industry standard can
  scale up enormously
• Dividends 2.7 annually
• Cant necessarily reinvest all their proceeds in
  new acquisitions.
• Dont want to break decades long history of
  paying dividends.

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Risks

• Small company, small float and low trading
  volumes result in
• Extreme volatility
• Opportunity for manipulation
• No research coverage limited institutional
  ownership increase chances of mispricing.
• Growth may prove to be difficult stock may
  stall.
• Backorders increasing

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Mitigating Factors

• High Insider Ownership - 52 have a strong
  incentive to preserve stockholder equity.
• Valuations are a better measure of risk than
  volatility in the long run.
• Even if revenue growth is limited, higher demand
  will ensure higher margins.
• Potential buyout target, if larger player decides
  to enter the industry.

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Recent Chart
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Targets

• 3 6 month horizon
• Target 8.00 (45 move)
• Note this is not a sell price this is a
  re-evaluation price (i.e. well tighten the
  stop-loss)
• Stop-Loss Price 4.00 (-28 move)
• Suggested Amount 1225-1400
• 7-8 of the portfolio
• We feel confident risking 350 maximum in
  exchange for the potential of a double or triple
  bagger (or more!)