Updated Thoughts on Greystone Logistics ($GLGI)
It's been a while since I wrote about this one.
Note: You can find my original GLGI writeup here. This post won’t make much sense if you haven’t read that one.
As it stands today, I think Greystone is much more of an FCF story than the growth story it was a few years ago. The large Capex cycle from the iGPS expansion is over, so the huge FCF-generation of the business is starting to show through. By my estimation, Greystone will generate somewhere around $7m in FCF to common equity shareholders this fiscal year, which means it trades at <4x FCF right now.
So the question is, is this FCF sustainable or does it shrink?
The 3% decline in pallet volume this quarter was due to fluctuations in the timing/scheduling of deliveries — it was not due to a drop in demand in the quarter.
iGPS is building their own pallet facility and will start producing in a few months. Greystone doesn’t expect iGPS’ production to be able to meet their needs for 2-3 years, meaning that business with iGPS should continue for at least a few more years. But, longer term, it seems imperative that Greystone diversify away from iGPS — and Greystone’s management knows this.
MolsonCoors’ dual-sourcing looks like it might the first step in a broader reduction in their relationship with Greystone. Greystone expects a 4-5% revenue hit in 2021, but there have been some shakeups in staffing on the Molson side so further could changes could be coming. It’s hard to predict.
WMT expansion is still possible, but Covid has slowed warehouse automation down.
Before the recent cutbacks from Molson, Greystone was operating pretty much at capacity, so they weren’t investing much in marketing since they didn’t have capacity anyways. They’re now marketing more aggressively + working on UL certification for some pallets, which they think could open up customers for them.
Greystone’s current facilities don’t really allow significant expansion. They’d need a larger building to really grow, which I think is one of the reasons that growth has tapered off recently. Obviously, such an expansion = new Capex cycle.
Another point to remember is that $3m of their debt is the PPP loan, which I think has a pretty good chance of being forgiven. It you take that out, net debt is down to ~$20m, vs. ~$30m just two years ago.
I don’t know exactly what will happen over the next few years, but I’m continuing to hold. Obviously this is not a Facebook or Google in terms of business quality but I think <4x FCF is too cheap, especially since CEO Warren Kruger owns 30%+ of the common and will probably put the FCF to good use.
Also just general disclosure:
DISCLAIMER: The Author may buy or sell long or short securities of this issuer and makes no representation or undertaking that Author will inform the reader or anyone else prior to or after making such transactions. While the Author has tried to present facts it believes are accurate, the Author makes no representation as to the accuracy or completeness of any information contained in this note and disclaims any obligation to update such information. The views expressed in this note are the sole opinion of the Author, which may change at any time. The reader agrees not to invest based on this note and to perform his or her own due diligence and research before taking a position in securities of this issuer. Reader agrees to hold Author harmless and hereby waives any causes of action against Author related to the above note. This note should not be construed as a recommendation to buy or sell any security or as investment advice.
Hey Nihar -- I recently came across this company and have been diligencing as the situation seems particularly interesting. Found this thread as a result of continuing research and had a quick question: where did you see / hear about iGPS building their own facility and mgmt comments re: iGPS revenue will be gone in 2-3 years? Trying to find the primary source.