Benj gets exclusive access at Alpha Pro Tech AGM

Benj Gallander and Ben Stadelmann
Friday, June 8, 2012

Earlier this month, Benj high-tailed it from the shores of Toronto’s Lake Ontario to Markham, just north of the city. The occasion was the annual general meeting of Alpha Pro Tech, one of his favourites in the President’s Portfolio.

At the gathering there were a total of nine people: six who represented APT, two of their wives and the lone independent shareholder, Benj. Over the years, Benj has been to more AGMs than you can shake a stick at, but never where he was the only person not associated with management. It was both a little weird and very convenient.

Though headquartered in Markham, Alpha has the vast majority of its operations in the United States. Way back when it was listed on the Vancouver Stock Exchange, the company found that the mentality there was not conducive to its DNA.

Many of those listings were minor-league resource plays hopeful for the big score, either through the drill bit or by selling sketchy assets to investors. >However, the management of APT was intent on building a real company, with real assets and a profitable bottom line. Ultimately, they did just that and gravitated to the AMEX in the process.

Alpha Pro Tech thrives on real or possible disasters such as pandemics or hurricanes. This is because the company manufactures disposable protective apparel such as shoe covers, face masks, eye shields, lab coats, gowns and surgical caps, items that spike in demand during calamities. H1N1, SARS and Hurricane Katrina, while events that caused incredible hardship, were an opportunity for this enterprise.

This outfit also has a second division in the building supplies trade providing weatherization products like housewrap and synthetic roof underlayment products. Yep, this is kind of a peculiar combo, but the company makes it work, having been around since 1983 and almost always maintaining profitability.

There are many reasons this enterprise looks compelling as an investment. While the cash in the bank is relatively nominal at just north of $5 million, there is no debt. The current ratio is about 30:1, so no creditors are going to be knocking on the door.

Receivables are limited and the goodwill is negligible. Trading around the $1.35 mark prices it about 20 percent less than book value. Insiders are vested owners, with about 17 percent of the nearly 21 million shares in their pockets. Plus, the company is buying back shares.

Revenues generally ramp to around the $40 million level, but during the H1N1 scare soared to almost $60 million. That increased earnings from $1.5 million to over $9 million. The stock price rocketed from 75 cents, touching $7.45. Though that was extreme, the price does have a tendency to vault every three years or so.

Given that their standing is on an American exchange, the enterprise normally conducts AGMs in the US However, profits have been slim recently —about $1 million for each of the last two years. So, in a move to cut costs, the AGM was held in a Delta hotel across the road from their offices.

Canadian shareholders being scarce to begin with, Benj was on his own, which gave him the opportunity to commune with management for over an hour, as they exchanged questions, answers and ideas. This made him feel more confident than ever that this conservative executive is really aligned with shareholders, which naturally makes the company a better investment.

Purchased at $1.17, the initial sell target for Alpha is $3.34. Though historical patterns are no guarantee of future success, there is a very reasonable chance that this company will jump past that target in the next few years, as it has a number of times over the past decade.