Jewett-Cameron Trading Company Limited - JCTCF
A Quality Oregon Company With an Appetite for its own Shares
I was able to import all the old OTCAdventures.com posts to this platform. That’s a lot of content! Some of the analysis is pretty strong, some is not. Nevertheless, it’s all part of my journey as an investor, and it’s all here now.
Jewett-Cameron Trading Limited is an Oregon-based manufacturer and distributor with a market cap of $35 million and net cash of $2.9 million. Jewett-Cameron’s history began in 1953 as a lumber producer, but the company has engaged in many and diverse pursuits since. Currently, the company offers lawn, garden, and pet products, treated wood, and seeds.
It’s an odd combination of business lines, but the company is consistently profitable. Most interestingly, Jewett-Cameron loves to return capital to shareholders with buybacks. In 1997, the company had the equivalent of 12 million shares outstanding, split-adjusted. Today, there are 3.5 million, a 71% reduction. I struggle to think of another company this size that has been so successful in reducing its share count. The firm is also in rare company when it comes to total shareholder returns. Typically, if a company is worth just $35 million after decades of public ownership, something has gone wrong. But Jewett-Cameron remains small simply because it has opted over the years to return nearly all profit to shareholders, and shareholders have a compound annual return of ~13.5% over the last 24 years to show for it. A shareholder who bought $25,000 worth of Jewett-Cameron in July 1997 would now have nearly $520,000 today. That shareholder’s ownership in Jewett-Cameron would also have increased from 0.43% to 1.50%.
But what of today? Is Jewett-Cameron capable of delivering similarly attractive returns going forward? That is for the reader to decide, but the company does appear reasonably valued on trailing results, and enjoys some economic tailwinds.
While Jewett-Cameron Trading has three distinct lines of business, the only one that is relevant to the investment case is Jewett Cameron Company. JCC offers home products like fencing, pet gates and enclosures, umbrellas, covers for patio furniture, etc. It’s all here. This is a decent business. Americans are spending more than ever on their pets and outdoor living spaces. Jewett-Cameron maintains an attractive website showcasing its brands, plus a pet-focused Instagram account. Many of the company’s products for dog-owners carry the endorsement of the American Kennel Club.
Pre-tax margins for the segment average around 10%, with 30 cents in pre-tax earnings for every dollar of gross invested assets. For the twelve trailing months ended February 28, the segment earned $4.7 million in pre-tax income.
By contrast, Jewett-Cameron’s treated wood and seeds businesses are marginal. In good years they collectively earn $100,000 or so pre-tax, but more often they lose $100-200k. It is curious why Jewett-Cameron remains so committed to these loss-making operations. Perhaps the company honestly believes the fortunes of each will improve, or it simply wishes to preserve local jobs. Whatever the case may be, the seed division has some asset value.
Jewett Cameron Seed Company owns 12 acres on the edge of North Plains, Oregon, 18 miles from Portland. While I doubt there is millions in real estate value here, I am certain that the land has some value. (Jewett-Cameron headquarters are located nearby on 5.6 acres, company-owned. There may be value embedded here, too, but the company has never shown any appetite for a sale and lease-back or other transaction that would capitalize on its real estate holdings.)
Even with the small losses produced by the treated wood and seeds segments, Jewett-Cameron earns healthy profits. For the twelve months ended February 28, 2021, the company reported operating income of $4.6 million and net income of $3.4 million. Return on average equity was ~17%.
With shares at $9.90, Jewett-Cameron trades at 10 times trailing net income and at an EV/EBIT of 6.9. Doesn’t seem bad for a decent little business with a good outlook and a propensity for returning capital.
And, there is a good reason to expect Jewett-Cameron’s share repurchases to continue. Jewett-Cameron Trading was once controlled by its co-founders, Donald Boone and Michael Nasser. A decade ago, these gentlemen directly owned 3.25 million shares, split-adjusted, good for 43.8% ownership. Over the following decade, Mr. Nasser has reduced his holdings to just 31,888 shares. Mr. Boone passed away in 2019, still owning over 1 million shares. These shares have all been donated to the Oregon Community Foundation, which now owns 31% of Jewett-Cameron’s shares.
The Oregon Community Foundation is huge, with over $3 billion in assets. So the $10.7 million in Jewett-Cameron shares it holds is small in the context of the entire investment portfolio, but still represents a concentrated, illiquid position in a tiny company. The Foundation cannot dump hundreds of thousands of shares into the market without slamming the price, so the most logical outcome is the gradual repurchase of these shares by Jewett-Cameron from its cash reserves and future free cash flow.
Bottom line, Jewett-Cameron is a well-financed, well-managed company with some good assets and a history of rewarding shareholders. It has a few marks against it, like its two underperforming segments and the usual risks that accompany small manufacturers and distributors. (Customer concentration, vulnerability to rising inputs costs, moderate cyclicality.) But beyond the financials and the investment potential, Jewett-Cameron is just an unusually cool company.
Stock nerd alert: Jewett-Cameron’s strange JCTCF is an oddity for a US company. Tickers with five letters ending in “F” denote a foreign issuer. In JC’s case, the ticker is a legacy of when the company maintained a dual listing in Canada, which it dropped in 2012.
At one time, Jewett-Cameron was among the most frugal of public companies. In 2012, former CEO Donald Boone earned just $39,960. A trade publication applauded. Executive compensation is higher these days, but still reasonable compared to many other micro-cap companies.
Jewett-Cameron is the only company I know to have had operations in the Kingdom of Tonga, a remote island nation in the South Pacific. From 1990 to 1999, the company operated building material supply centers on three islands. Ultimately, the venture was done in by high costs and the falling Tongan currency. I would LOVE to know the whole story of the venture, but I likely never will.
Jewett-Cameron provides a nice little operating summary of the company here. Happy reading.
Alluvial Capital Management, LLC does not hold shares of Jewett-Cameron Trading Company Ltd. for client accounts it manages. Alluvial Capital Management, LLC may hold any securities mentioned on this blog and may buy or sell these securities at any time. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at firstname.lastname@example.org.
Two very telling job listings from the company's LinkedIn - Accounts Receivable Specialist and Director of M&A. New CEO seems much hungrier for growth, and I think the company may be at a capital allocation inflection point.
Accounts Receivable have really ballooned hurting cash flow (for now), but I suspect I know what they're going to do with it once it flows through. And I am not so sure it's going to be share repurchases. I hope Buffett's institutional imperative doesn't beat out shareholder value here...