Description
Modtech Designs, manufactures, markets, and installs modular relocatable
classrooms. The company's classrooms are sold primarily to California
school districts. Modtech also designs and manufactures buildings and
canopies for commercial use.
Modtech has the favorable position of being a leading supplier to a growing
industry with limited supply growth. Political connections create superior
barriers to entry. Education is one of the primary focuses in the country
today and crowded schools are a major issue. California spends 40% of its
budget on education and there is a push to limit classroom sizes to 30
children which would significantly increase demand. Modtech's modular
format has 1/4 the build-time at 1/2 the cost of a traditonal building, yet
still meets all the requisites including earthquake resistence. The company
is expanding into Florida and will expand up the east coast. The company
employs capital well and is gowing at 20% plus percent. Currently, the
stock has fallen because investors are concerned that Californi'a energy
crisis will reduce budget spending. We believe this issue has passed the
crisis point.
The stock currntly sells at 10x this years and 8x next years earning. Also,
the company should generate $37 mm of EBITDA which means the company trades
at sub 4x EBITDA while growing at 20% plus.
Catalyst
The move into new states should create 20-25% aearnings growth.
Relief on the energy side should reduce budgetary concerns.
Passage of a new classroom spending bill in the next California
election should significantly increase demand.