Trecora Resources (TREC:BUY Long-term) TREC’s second quarter FY:18 EPS came below expectations due to reduced customer demand

5-SEP-18 – Trecora Resources (TREC:BUY) TREC’s second quarter FY:18 EPS came below expectations due to reduced customer demand and higher operating costs, while gross margin sank again on higher feedstock costs. We are maintaining our price target of $15.00 per share and our rating at Buy-Long Term.

Q2:18 HIGHLIGHTS

  • TREC’s total revenue grew by 9.6% to $68.1 million in Q2:18. Petrochemical revenues at South Hampton Resources (SHR) rose 9.9% to $57.8 million attributable to higher prices despite lower volumes. Trecora Chemicals (TC) sales rose $0.75 million.
  • Gross profit fell to $8.1 vs. $11.1 million, as gross margin decreased to 12.0% in Q2:18 from 17.9% in the year earlier quarter. This was primarily the result rising feedstock costs not fully recovered in sales prices, and higher operating costs.
  • Adjusted EBITDA (excluding equity in AMAK earnings/losses and share based compensation) decreased to $6.2 million in Q2:18 from $8.4 million in the year earlier quarter.
  • Net Profit attributable to TREC in Q2:18 was $2.2 million or $0.09 per diluted share, compared with $0.8 million or $0.03 per diluted share in Q2:17. Adjusted net income (excl. AMAK equity profit in both years and one-time incentive compensation reversal this year) was $0.8 million or $0.03 per diluted share vs. $3.0 million or $0.12.
  • We are lowering our EPS estimates for 2018 to $0.49 while raising our 2019 estimate to $0.86, and maintain our price target at $15.00 and our recommendation of BUY- Long Term.

Singular Research Director’s Letter : July 2018

EARNINGS Trump Tariff Talk

The singular coverage list nudged ahead beating the benchmark in July.
The Singular coverage list was up 2.13 % vs. 1.50% for the Russell 2000 and 3.39% for the S&P 500 as big caps led driven by strong earnings reports.

SINGULAR MONTHLY PERFORMANCE STATISTICS
  Last Month YTD Trailing 12 Mo’s  
SINGULAR LIST 2.13% -0.05% 7.38%  
S&P 500 3.39% 4.77% 13.39%  
RUSSELL 2000 1.50% 7.85% 16.20%  

Trump continues to talk tough on trade, calling out China, Europe, Mexico, and Canada recently. The market doesn’t seem too disturbed, taking it all in stride and to the dismay of a mainstream media which is decrying the dire circumstances these tariffs will create for the global economy.
Most investors see this as Trump technique, with an initial extreme position taken, then moving towards the center, in pursuit of a positive outcome for U.S economic objectives.

Earnings continue to impress

With the second quarter nearly in the books, eps surprises have been dominate as
79% of S&P 500 companies have beaten the estimates. This will mark one of the highest beat ratios since the year 2000. Top EPS beaters for Singular include:  Anika Therapeutics (ANIK), +105%, Control 4 (CTRL) +29% and Emergent Bio solutions (EBS) + 21% above  Street consensus estimates.

                                                     

 Cracks in the dynasty

Facebook (FB), Netflix NFLX, and Twitter (TWTR) all disappointed on MAU growth and offered disappointing guidance.  Is the possible plateauing of this metric a harbinger of flattening growth ahead? These social media glamour heroes have been knocked down nearly 20% as of late. The strategy of buy the FAANG and go away, may be losing luster and coming to an end which would bode favorably for the rest of the market as investors seek out other stock plays to provide Alpha.

 

Top winners and losers.

National mortgage insurance Holdings (NMIH) was top performer, driven by strong earnings and a debt capital raise that increased earnings capacity. EVIO Inc.
(EVIO), was the weakest performer as capital was reallocated to larger caps with stronger near term fundamentals.

 

TOP 5 PERFORMERS FOR THE MONTH
Symbol Rating Target Month Return Comment
NMIH BUY  $  17.50 28.2% strong eps and guidance
ANIK BUY  $  60.00 25.1% relief rally from oversold condition on better than expected eps
TRNS BUY  $  20.00 20.9% strong eps beat . Higher margins from cost reductions
NVEE BUY  $  52.00 8.7%  
EBS BUY  $  60.00 7.7%  
         
         
 

WORST 5 PERFORMERS FOR THE MONTH

Symbol Rating Target Month Return Comment
EVIO BUY  $2.00                 -22.0% continued decline from disappointing near term execution
HNNA BUY  $  23.75 -9.8% profit talking on in line quarter
LYTS BUY  $9.80                 -8.4% C-level departs creating selling pressures
QNST BUY  $  16.75 -7.7%  
GASS BUY  $6.00                 -5.3%  

New initiations

We launched coverage on Internet marketing specialist Quinstreet Inc. (QNST), a firm that is well positioned to capitalize on the ongoing shift from traditional to digital ad spending, and also on Geospace Technologies Corp. (GEOS), a leading manufacturer of seismic equipment for the oil and gas exploration industry which we believe is in the beginning stages of a significant turnaround.

At Singular Research we wish to thank our clients and followers for their continued commitment and support of our unbiased, independence research model as we strive to consistently deliver Alpha generated from the lack of coverage outperformance anomaly.

Sincerely,

Singular Research

Singular Research Director’s Letter : June 2018

Steady in June despite trade war rumblings and another rate hike

Despite headwinds from the specter of a looming trade War with China, a hike in interest rates and domestic political fervor over immigration policies, US markets, in what is historically a flat month, managed to eke out a slight gain in June, +48 basis points for the S & P 500. Many of these elements are negatives for large caps but could serve to benefit the performance of domestic small caps. The Singular Research coverage list performed in line with major domestic equity indices for the month of June.

directors letter 20180716 a

Our top performers for June were: 1) Salem Media +35.5% bolstered from The District Court ruling clearing the humungous At&t- Time Warner merger. 2) Harvard Biosciences (HBIO) drawing renewed investor interest with analyst’s increased estimates for 2019, and 3) NV 5 Inc. (NVEE) benefiting from and improving outlook for domestic engineering & construction activity in 2018.

directors letter 20180716 b

Our worst performers for June were: 1) Anika Therapeutics (ANIK) which received a setback from results in clinical tests on its Cingal product, 2) Wisdom Tree Investments ( WETF) suffering from market perceptions possible continuing outflows from its currency sensitive funds that are negatively correlated with the dollar, since this is a short call it is actually a positive refund for investors and : 3) Huttig Building Products ( HBP) disappointing investors hoping for a quicker resolution to its search for a new CFO.

directors letter 20180716 c

In June we dropped coverage on : 1) Gray TV ( GTN) as its acquisition announcement of Raycom created a huge move up in price that nearly equally our 12-month target and : 2) Stamps.com (STMP) which reached out price target of $275 . Thus it has appreciated over 300% since we incepted coverage nearly 3 years ago.

Finally, we want to thank our loyal clients for their strong support and confidence over the last twelve years.

Sincerely,

Singular Research Staff

Singular Research Director’s Letter : May 2018

Earnings surprise and positive guidance drive upside surprises.

May proved to be a good month to hold and stay.  The Singular coverage list had a good month, up 3.3% outperforming the S&P but lagging the Russell 2000 which was up nearly 6%.

The month was dominated by the close of a very strong earning season where aggregate S&P earnings were up nearly 23%. The other dominant trend was small caps began to pull away from their big cap brethren. We believe this outperformance is well supported by economic fundamentals. Small caps are more domestic focused and thus less vulnerable to International political- economic headwinds, also they seem to be benefiting from lower corporate tax rates and slightly rising interest rates due to lower levels of debt and previous inability to benefit from Financial engineering that buffeted big caps.

Finally, and possibly most significantly small caps tend to perform well when small business confidence increases. The index of small business confidence is at its highest level in over a decade.

Singular Research monthly performance May 2018https://singularresearch.com/sr/wp-content/uploads/2018/06/sr-directors-letter-06-21-2018a-768x171.png 768w, https://singularresearch.com/sr/wp-content/uploads/2018/06/sr-directors-letter-06-21-2018a.png 1018w" sizes="(max-width: 300px) 100vw, 300px" style="max-width: none; float: left; margin: 0px 10px 10px 0px; display: inline;">

Our top performers for the month were lead by Olympia Financial (OLY). Olympia up 24.6%. It benefited from a strong earnings report and is supported by an attractive dividend yield of over 5%. 
Salem media followed with a 20.6% return, rebounding from an extreme oversold position condition. Investors also are starting to look towards the 2018 midterms and the increased ad revenue that will generate for the company.
Nmi Holdings improved 20.2% this stock is benefiting from the strong economy and prospects for longer and improved housing starts this year.

Singular Research top performershttps://singularresearch.com/sr/wp-content/uploads/2018/06/sr-directors-letter-06-21-2018b.png 666w" sizes="(max-width: 300px) 100vw, 300px" style="max-width: none; float: left; margin: 0px 10px 10px 0px; display: inline;">

Our worst performers to were led by EVIO, Inc, a Cannabis testing company,  down 29.4% due to a disappointing earnings report. Harvard Bioscience followed with a negative 23.5% return caused by profit-taking from its run of nearly a hundred percent over the last two very months.  Our third-worst performer was Biolase down 23.4% impacted by the departure of its CEO.

Singular Research worst performers May 2018https://singularresearch.com/sr/wp-content/uploads/2018/06/sr-directors-letter-06-21-2018c.png 767w" sizes="(max-width: 300px) 100vw, 300px" style="max-width: none; float: left; margin: 0px 10px 10px 0px; display: inline;">

In May we initiated coverage on two new names. We started Wisdom tree Investments (WETF) with a sell due to its exposure to currencies and increased competition.  We launched Cordoba Minerals (CDB) with a buy as we believe the prospects of this Canadian Resource company for the development and discovery of copper and gold are bright in the years ahead.

Finally, we want to thank our loyal clients for their strong support and confidence over the last twelve years.

Singular Staff

Singular Research Director’s Letter : April 2018

Fake Earnings

The U.S Equity markets are not getting any much credit from the tax cuts yet this year. Earnings will be up a record 21%, the best showing in many years. We will focus on revenue growth in the quarter ahead as well as estimates and guidance. Investors are trying to figure out what the real rate of earnings growth is at this point counter balanced against rising interest rates. It looks like the peak for operating margins is in as real growth is lower margin vs financially engineered eps growth.

The” FANG “, continues to bang earnings growth as well as rank among the top spending corporations with lobbyists in DC as forward-thinking monopolists are paving the way for future growth, evidenced by the recent Facebook testimony in front of Congress. Where is the outrage? Where are the new proposals to protect our privacy? Facebook. will still be allowed to self-regulate. What would you pay for 20 to 25% earnings growth for the next five – ten years with virtually no competition. Certainly, more than the 20 to 30% premium the “FANG” is trading to the market right now.

Earnings are to the upside with q3 expected to be up over 20% as well. Valuations are not crazy either at a slight premium to the five-year average and historical average. Interest rates are still below average. But the market seems fairly valued and higher earnings are needed to propel the market higher from this level. Is the Fed neutral, based on money supply growth and GDP growth this seems to be the case. Should we worry that the spread between the two year and ten-year government bond is narrowing down to 40 basis points? Usually this is a strong indicator that a recession on the horizon. Meanwhile, the leading economic indicators continue to edge higher, a very good sign for the economy and the market.

In summary, it might be good to hold in May and go play. It looks like the market is going to have to grind it out until it has for evidence that there is solid earnings growth ahead into early 2019. Also, the mid-term elections in November will start to become an overhang and provide another potential negative for the market.
Another key question, will the market normalize and take the benefit of the tax cut and reinvest into the real economy or continue to engage in financial engineering via share buybacks and M&A.

Don’t get faked out, Stay long.

Singular Research Monthly Performance April 2018

April’s top performers combined were an eclectic bunch with varied influences likely contributing to outperformance. General Finance (GFN) posted a strong q1 and raised estimates slightly. EVIO Inc, (EVIO) was a new initiation with favorable news on growth plans, and Huttig Building Products, Inc. ( HBP) bounced back from an extreme oversold condition.

Top 5 Performers

The worst performer list had was led by LSI Industries (LYTS), hit with a surprise resignation of its CEO, followed by NMI Holdings (NMIH), suffering from some surprising price cuts by a competitor that spooked the market on the outlook for future margins, and closely followed to the downside by Salem Media( SALM), as investors continued to abandon a sector perceived to be another casualty of technological disruption and an aging audience.

Worst 5 Performers

We are excited to announce new coverage on EVIO Inc. (EVIO). EVIO Inc. is a leading provider of quality control testing, consulting and advisory services to the cannabis industry. The company owns 9 laboratories serving five states in the US – California, Colorado, Massachusetts, Oregon and Florida.
At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage to add alpha for our active institutional following. We thank our clients for your support of independent equity research.

Singular Staff

Singular Research Summer Solstice 2018 Conference, Philadelphia PA

 

Singular Summer Solstice 2018 Conference

July 19th2018

Philadelphia, Pennsylvania

“The only performance-based conference in the small and micro-cap space – 

supported by unbiased research since 2004.”

Summer Solstice 2018 Conference








captcha
 

Singular Research Director’s Letter : March 2018

Tough Talk Reverses Rebound

After experiencing an impressive bounce from the prior month’s sell-off, equity markets staged a short-lived rebound that was squelched by fears of a trade war between U.S and China. Although the trade banter has simmered, new anxiety has arisen regarding higher secular inflation and aggressive moves by the special council against Trump. Moving into April, market participants await q1 eps reports to match vs. high expectations as the apex of good news on earnings is feared while eps growth vs. rising rates battle continues.

Screenshot 2018 05 08 21.36.27

March’s top performers were led by eps beaters and a couple oversold bouncers. As our coverage list and the R2K showed a positive divergence from a decline of over 3% in the S&P 500. Will this become a trend? Too early to detect a change in leadership as of press time. NV 5 Corp. (NVEE), up 28.9% in March, blew away our estimates and CEO Dickerson Wright attested to the strongest operating environment he has witnessed in many cycles. Trecora Resources, (TREC), recovered from a plant shutdown and benefited from a strong lift in operations to beat eps estimates by a wide margin. A-Mark Precious Metals Inc, (AMRK) aided by increased concerns of trade wars and a subsequent increase in market volatility, posted a 10% gain in March.

Screenshot 2018 05 08 21.40.55

The worst performer list was largely impacted by disappointing eps reports and/ or guidance. NMI Holding, Inc, (NHIM) was hit by market fears of higher rates and an imminent peak in housing starts. Salem Media (SALM) continued to battle a secular decline in industry fundamentals while it struggles to beat estimates. Acme United (ACU), our inaugural pick , at $9 when we incepted over twelve years ago, while continuing to execute its successful growth plan over the long term, has experienced some occasional bumps, including some execution adjustments as it transitions to online marketing.

Screenshot 2018 05 08 21.44.04

In March, we dropped coverage on Vasco Data Services, (VDSI), as it continued to struggle with a transition from a hardware to a software based business model , missing estimates consistently over the last twelve months. We initiated coverage of Olympia Financial, (OLY.to) an Canadian based financial services company with a diversified array of growing products and services with a Buy-Long term rating.

At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage to add alpha for our active institutional following. We thank our clients for your support of independent equity research.

Lawrence Kudlow to Become Trump’s White House Economic Adviser

Robert Maltbie & Singular Research for appointment to Trump team.  Watch “Larry Kudlow interview Sept 22, 2016 : “How to Grow Again” on YouTube.