GEO Investing

Ocean-Bio Chem (OBCI) is another information arbitrage opportunity we’ve found. Buried in the commentary of thecompany’s video interview cited in its press release today, we found some extremely bullish notes that we want to inform our members of before the rest of the market fully prices them in.

The GeoTeam has been covering Ocean Bio-Chem (OBCI) since September 25, 2014, when we disclosed to our premium members that they had made an acquisition of OdorStar Technology. In the process, they acquired Performacide, a product used as a hospital disinfectant that initially caught our attention during the Ebola scare. From there, we learned this product could potentially take on a life on its own outside of Ebola, and the more we looked at Ocean Bio-Chem, the more we liked it.

The company has a core business that’s been operating well enough to keep them profitable, but not growing. We think the company’s newest growth cycle has arrived, catalyzed by:

  • A drop in oil prices, which should spur demand for its core boating products (an assumption we talked about in our e-mail to premium members yesterday).
  • New products being pushed through a well-established distribution network.
  • High hopes for its new disinfectant product, Performacide.
  • The realization that the assets on OBCI’s books are under represented.

We disclosed our long position to our premium members in the beginning of October.  Heading into 2015, we’re extremely bullish on Ocean-Bio Chem for a number of factors, including:

  • As of the last quarter, the company has $19.5M in equity and little debt
  • The company has an enterprise value of $28.9M,  almost $4M less than the revenue produced in the trailing 12 month period
  • The company has a growing cash position, last quarter reported as $1.8M
  • The company has been consistently profitable, posting net income of $903 Thousand or $0.10/share last quarter

Today, the company put out a press release linking to an interview video with the company’s CEO and CFO. The interview leads us to believe that 2015 is going to be an extraordinarily bullish year. The confidence exuded from the executives in the video is palpable.

We encourage our members to use the following link to watch the interview, as it is cued up to a key question asked at 13:40. There’s roughly ten minutes of the interview after the 13:40 mark that’s worth watching. For our members’ convenience, we’ve written out some of the key points:

  • The decline of oil, a detriment to some other companies, will have a dramatically positive impact on marine and RV markets, the two main drivers of OBCI’s business. The company sells cleaning products for boats and RV’s, as well as fuel additives.
  • Fuel costs peaked at $4 to $5 per gallon which means a boat with 4 engines might consume enough fuel on a weekend to run up a $1,000 bill.  Current prices are approaching $2.00.  It’s unknown if prices will remain at that level but it’s not likely they’ll rush back up to previous peak prices.
  • Demand for marine distribution and boating sales are picking up rapidly as is demand for RVs.
  • Management is very positive on current business conditions and expects to end 2014 with extremely bright outlook.
  • When asked about 2015, they said the year is “almost too good to be true” and that they were “really optimistic.”  They have 30+ new products including a complete line of RV products that provide cleaning aids and everything else you might need for a RV.
  • They’re expanding the marketing and sales department to focus on existing and new market opportunities.  They are moving their office space around to accommodate new staff charged with addressing new markets and demand for the company’s products.  Also, they are looking for more warehouse space.
  • They also noted that their factory, which is listed on their balance sheet at $5M, actually has a liquidation value of over $25M, as it is “state of the art.” This, in essence, lends another $20M in equity to the company which would put their book value near $4.38/share.

A price target of 1.5x book, we believe, would be on the low end of estimates. This calculation would put shares at $6.57.  Assuming a no growth scenario, we believe this should be the baseline. From there, we believe it can only go higher. Based on these factors, we continue to be long OBCI and bullish about the company’s 2015 prospects.