STELLA-JONES INC (SJ.TO)

I put through a bid for SJ.TO this morning despite my near term bearish lean. This is a great company with very consistent growth profile. It has grown its top- and bottom-lines, and cash flow by more than 20% for the past five years. ROE at 20.5%, and currently paying a dividend. Outlook for 07 remains very strong. The company is in a sweet spot where two of its major business, rail ties and electrical poles, are in major replacement cycle, and will likely to continue in the next couple of years. It is also aggressively acquiring smaller companies in North America and has done a very good job consolidating. Based on its first six months results,

Valuation is also compelling. I estimate that it would made about $1.85-$2.0 per share for fiscal year 2006. At current level, it is trading at about 10-11x of its 06 EPS. It is even cheaper on cash flow basis. Even with a modest multiple of 15X, SJ.TO should be traded at 30 level. Having said that this is a very small company ($220 million market cap), limited share count (roughly 11 million floating), and low liquidity. There is also no apparent near term catalyst. Be patient, pick your entry carefully.

Position: Long SJ.TO