ESWW – Looking for a catalyst

Environmental Solutions Worldwide Inc., is a manufacturer of catalytic converter products, founded in 1998. This video gives an impression of what the business is about. The company doesn’t publish any information currently. With ESWW’s average share volume of 497, it’s a bit of a challenge to acquire a position, even a small sized one. What we have is a tiny, dark, and illiquid company. Good. Let’s dive in.

There are no recent financials available and the company’s main website is last updated around 2015. Some numbers regarding the shares:
Market cap = $ 716.605
# Shares out = 143.321

The price chart displays a forgotten or simply overlooked stock.

The most recent 10-K dates from 2014. Shortly after, the shares were deregistered. At the time, the market cap was around $ 8,1 million with 135.404 shares outstanding. The share count is this low since a reverse 1:2000 split in 2013. Tradingview provides a long range chart going back to the year 2000, which is even more dramatic, however it looks quite distorted and the prices do not make sense, probably because of the reverse split adjustment. To illustrate, the actual market cap was around $ 91 million in 2000. I cannot really fathom this chart, to be honest, and I’d be grateful if anyone could shed some light on this.

Right, financials. The 2014 10-K presents quite a healthy balance sheet, a few highlights:
Cash and equivalents: $ 8,3 million
Current ratio: 3,2
Debt to equity: 0,66

Revenue and profits were $ 25,4 million and $ 11,4 million respectively. Not bad. However, after five years of darkness, these numbers should be discarded completely. At this point I’m just curious about two main points – the reliability of the share count as of today, and whether the business is still alive or not. I am unable to verify the former, other than what the OTCMarkets website states, and I can only guess regarding the latter. So, let’s continue along that path.

Pennsylvania has a website listing tax liens on unpaid taxes. ESWW isn’t in it. So no red flag there but also no sign of life. Google street view provides images supposedly taken in August 2019, which show a decently maintained (or by the looks of it) headquarters at 200 Progress Drive, Montgomeryville, PA.

The building has two parking lots, both of them contain quite a few cars.

In 2017 a news release was published regarding the opening of a new plant, for the manufacture of the company’s Skyline product line. The article links to the website of Skyline, which reveals a new subsidiary not mentioned in the 10-K: Skyline Emissions Inc. This subsidiary has a new address which should match the newly opened plant: 103A Park Drive, Montgomeryville, PA. Just around the corner.

The company definitely has a presence here, but since the building seems to house multiple businesses, it’s hard to say whether the cars are owned by ESW Group employees or not. I don’t expect Gamburg’s furniture employees all arriving by bus each morning.

The Skyline website offers better clues. The news page is updated until october 9, 2019, which spreads hope. Skyline also has a YouTube channel which posted some video’s in february 2020, which is 10 months ago at the time of writing. Their Linkedin page has updates from just a week ago.

By looking at their presence on the web, I’m pretty confident that the company is still alive and doing business today. I like the industry. Despite the ‘green revolution’ we are in, heavy internal combustion engines are definitely not going away soon. Emission requirements are getting stricter every year, demand for ESW’s products should remain in the foreseeable future. Prices of certain raw materials have been soaring, like palladium, which is up 400% since 2015. As long as these prices can be reflected in the pricing of the end products, this doesn’t worry me, however I’m no expert in this.

There is quite a lot of risk associated with this stock. There is no recent financial information. The liquidation value of this company is non-existent in my estimation, since the company does not own any land or buildings, just equipment. The capital structure is a huge question mark. They might have a lot of debt, or they might be almost free of it.

What I see is a company with a wide range of specialised products and testing services, and it seems to be alive and kicking. Maybe they’ll dust off their investor relations department in the near future and start communicating again. Maybe another company will acquire them at some point. For a market cap of less than a million, I’m in.

Thanks for reading. Regards,

Thijs

Disclaimer: Long ESWW