Evidence of a growing water storage business offsets what was a lacklustre quarter for ZCL Composites (ZCL Composites Stock Quote, Chart, News: TSX:ZCL), says Paradigm analyst Corey Hammill.
On Thursday, ZCL reported its Q4 and fiscal 2015 results. In the fourth quarter, the company earned $3.9-million on revenue of $47-million, down 3 per cent from last year’s Q4 topline. The company also announced that announced a one-time special dividend of fifty cents per share and a 60-per-cent increase in the regular quarterly dividend.
“ZCL delivered another successful year in 2015,” said CEO Ron Bachmeier. “In a year in which certain of our markets experienced some of the most challenging conditions ever encountered, we posted record revenue of $185.7-million, a 9-per-cent increase over 2014. We also achieved increases in gross profit and gross margin in our largest revenue source, the underground operating segment, aided by a strong U.S. dollar. These gains more than offset difficult market conditions for our above ground operating segment, particularly in the oil sands, where we recorded a significant revenue decline and negative gross margins.”
Hammill says that while ZCL, which manufactures and supplies fiberglass reinforced plastic underground storage tanks, has mostly served the petroleum industry, a new segment has emerged that may ultimately eclipse that business.
“The two dividend announcement show that ZCL management is confident in the company’s outlook going forward,” says Hammill. “The company’s fastest-growing segment in the quarter was the water storage business, which grew 14% (27% for the full year). We believe that remains a vast opportunity for the company and it will continue to become a larger percentage of business for ZCL.”
In a research update to clients today, Hammill maintained his “Buy” recommendation and one-year target price of $9.50 on ZCL Composites, implying a return of 22 per cent at the time of publication.