Description
Anthony & Sylvan Pools Corporation (SWIM) installs, repairs, and services residential in-ground concrete swimming pools. SWIM also has 18 retail locations that sell pool equipment and supplies. SWIM was spun off from it's parent, Essef Corporation (a pool equipment manufacturer), in August 1999 when Essef was acquired by Pentair, Inc. SWIM trades on the NASDAQ Small Cap market. 1999 sales were $185 million.
SWIM currently trades at about 7.75 per share. (Note: traded up to 8 ½ today on positive 3rd qtr earnings news.) SWIM has virtually no debt (June 30, 2000). My calculation of the asset value of SWIM (calculated as the cost of reproduction of the company) is $19.20 per share. Price/book is 0.81 based on the price of $7.75 per share. SWIM is trading at 5.3 times EBIT for the trailing 4 quarters, 5.1 times my estimate of trailing free cash flow, and 14% of trailing sales. Trailing free cash flow return on ending equity is 16%.
In the S-4 SEC registration filed for SWIM in June 1999 as part of Essef's acquisition, Rhone Group rendered a fairness opinion valuation of SWIM at $68 million. This translates to $19.60 per diluted share as of June 30, 2000.
Management cares. From late October to December 1999, SWIM bought back 34% of it's outstanding shares. Essef's former CEO, Thomas Waldin, is on SWIM's board and is SWIM's largest shareholder (34%). Essef's former CFO is SWIM's CEO and is a 10% owner. SWIM's officers received 306,000 incentive options at the time of the spin-off which have an exercise price of $14.55. SWIM officers also bought about 390,000 shares under a stock purchase plan that provides them additional options. Under this plan they receive an additional cash award, equal to the amount of their stock purchase, if the share price reaches varying levels from $18.20 to $25.50 over the next five years. Officers and directors that came from Essef have additional options that carried over from their options at Essef.
Possible negatives:
- SWIM has no apparent franchise (Warren Buffett definition).
- Cyclical company, similar to home builders. May be near cycle peak.
- Some insider stock purchases were made using loans from SWIM.
- Gross margin of only 26%.
- Yahoo message boards indicate customer pool installation complaints in some regions. This may be weighing on the stock now and could turn into a positive if management turns this around.
- Thinly traded. Market cap $23 million.
- Issued 10% stock dividend in May and plans to continue these. (They just announced another one today.) I consider this a nuisance.
All fundamental data above are as of June 30, 2000 and earlier SEC filings. 3rd quarter 2000 earnings released today improve the P/E and similar ratios.
Disclosure: I indirectly own shares of SWIM, which I bought in 2000.
Catalyst
The only catalysts I see are the very low price relative to value, and the management incentives. These should be enough for the patient investor.