Newsletter

Trading Alert - Janel World Trade

August 14, 2002
Volume V, Issue 61
Email : info@otcjournal.com
URL : http://www.otcjournal.com

To OTC Journal Members:

Quick Note- Before deciding if you want to participate, please read the OTC Journal's section on Trading Alerts found on the left hand menu bar of our home page. For a Track Record of former Trading Alerts, Click Here.
 

Trading Alert- Janel World Trade (OTC BB: JLWT)

This past July 25th, Janel World Trade successfully completed a reverse merger, and opened for trading as a publicly traded company. This 27 year old business which has averaged about $50 million in annual sales over each of the past three years might very well have gone public via a traditional IPO with a major Wall Street brokerage firm in a better market environment.

If you are not familiar with reverse mergers, please take the time to read the section on the OTC Journal's web site which explains how they work. Click Here to read the section. There is complete coverage of both the positives and negatives of going public through this popular method.

As disclosed in a press release which came out just after the market closed today, Janel World Trade is about to embark on an ambitious expansion program. Valuation is compelling at current levels. Based on sales over the past three fiscal years the stock is trading at less than one-half the level of other stocks in the same group. The industry average is 1.63 times sales. In the low to mid $2 range, the company is trading at .67 times annual revenues, suggesting the stock could double from here, and still be undervalued as compared to its peers.
 

Investors Are Looking for Meat on the Bone!!!!!

While most investors have lost substantial amounts of capital over the last three years, investors in shares of Expeditors (NASDAQ: EXPD) have been treated to a first class seat.

This stock was trading at $6 in late 1998, and today trades in the $25 range. As investment dollars have swung back to old economy stocks, Expeditors shares have risen 400%. However, the company's sales have not risen 400%. Money has simply flowed into the safe haven of this sector.

Expeditors is the 1200 pound gorilla in the field of customs brokering and freight handling. JanelWorld Trade competes in the same business. The market could run in the trillion dollar annual range.

Janel handles approximately 25,000 shipments annually. The company has offices in New York, Los Angeles, Atlanta, Chicago, Hong Kong, and Shanghai. More than half of their 70 plus employees have been with the company more than 15 years which indicates a high level of stability.

The company handles imports and exports, and has the capability of passing on volume discounts from freight carriers to its customers, which include ConAir, Colgate Palmolive, Nicole Miller, Ralph Lauren, and many others.

Today, just after the market closed, Janel World Freight announced June quarterly and results for the first nine months of their fiscal year, which ends at the end of September.

The company has achieved $31 million in revenues through the first nine months of fiscal 2002 (end of June). Revenues were down slightly from 2001 as a result of 911, but profits and profit margins were up. The company reported a profit of $64,350. These results were generated as a private company, and as such investors can assume tax minimization strategies were inherent in these numbers. As a public company, earnings per share should become the focus.

More importantly, in today's press release Janel laid out an aggressive growth strategy it intends to implement over the coming months.
 

Growth Strategy

As disclosed in the press release today, Janel, as a new public company, intends to embark on an ambitious growth strategy. The company believes it can bring its revenue stream into the $80 million range in the fiscal year which begins October 1, 2002.

The company said it hopes to open additional offices in Southeast Asia. Furthermore, one can reasonably expect that after 27 years in the business, management would have contacts with many other like size or slightly smaller companies in the same industry. A rollup strategy is envisioned whereby the company would acquire other similar companies in the field, allowing for a much higher growth rate in a shorter period of time.

Post 911 business fell off temporarily for this entire industry group. Business in on the upswing again, and Janel is entering its seasonally busiest time of the year as holiday shipments begin to arrive and need to be handled. September to November is their busiest season, and therefore now is a good time to look at the stock.
 

Trading Alert Details

The stock has virtually no trading history at this time. The merger was completed at the end of July, and Janel put out its first formal substantive press release after the market closed today since becoming a public company.

Based on SEC filings, Janel has averaged $50 million in sales over the past three fiscal years. With the industry average at 1.63 times sales, one could assume the stock could trade with an $81 million market capitalization.

The limited trading history gives OTC Journal members a competitive advantage and first look at the situation, as in the $2.25 range the company only has a $34 million market capitalization (15 million issued and outstanding, 4 million in public float). This suggest the stock has upside into the $5.30 range.
 

  • Buy up to $2.50- you will own this 27 year old company with an $37.5 million valuation or less. This equates to .75 times trailing sales, with the industry average at 1.63 time sales. This is a value idea in the microcap arena. The company's long term track record minimizes downside risk.
  • Set your Stop Loss at $1.50 to give you some room for a short term pullback or what ever your risk tolerance is. A stop loss strategy is very important for short term traders, particularly in view of the limited trading history of the stock. For long term investors it is not important.
  • Look for a short term move to $3.00  on the heels of today's announcement after the close. Investors should now begin looking at this stock. This would represent a 33% return on investment from the high end of our recommended range.
  • Longer term we are looking for a $5 to $6 stock, particularly if the company is successful in its expansion strategy.

The OTC Journal intends to publish follow-up editions on this company. 


This newsletter is our opinion only, and not a solicitation to buy this stock. Make up your own mind. If you are looking for a short term trade limit your loss if the stock goes against you. As always, we remind you before making any investment decisions please review the section on our home page on Trading Alerts. Read our section on Successful Microcap Investing, paying particular attention to the Trading Strategies Section. The track record on our previous alerts can be obtained by clicking here.

Here is the complete text of today's news release for your review:
 
Wednesday August 14, 4:11 pm Eastern Time
Press Release
SOURCE: Janel World Trade, Ltd.

Janel World Trade, Ltd. Announces Its Third Quarter Financial Results, Projects Significant Revenue Growth in Fiscal 2003

JAMAICA, N.Y.--(BUSINESS WIRE)--Aug. 14, 2002--Janel World Trade, Ltd., (Nasdaq OTCBB: JLWT - News) today reported financial results for its fiscal third quarter and nine months ended June 30, 2002. In addition, the company's chief executive officer outlined Janel's growth strategy and revenue expectations for fiscal 2003. 

Highlights: 

  • As previously reported, the company completed its reverse merger transaction with Wine Systems Design, Inc., whereby the new entity formally changed its name to Janel World Trade, Ltd. and commenced trading on the Nasdaq Bulletin Board under the symbol "JLWT."
  • Net income of $43,412 in Q3 2002 was up 159% from $16,766 in Q3 2001.
  • Income before taxes in Q3 2002 rose 160% to $66,912 from $25,766 in Q3 2001. This represented a year-over-year increase of 325 basis points in the company's pretax profit margin on net revenue (total revenues less forwarding expenses).
  • Total company SG&A as a percentage of sales declined by 125 basis points year-over-year to 11.20% in 3Q 2002 versus 12.45% in 3Q 2001.
  • The company projected revenues of $42-$44 million for its fiscal year 2002 ending September 30th.
The company discussed specific elements of its growth strategy for next year and beyond, the successful execution of which would be expected to produce significantly higher gross revenues that may approximate $80 million in 2003.

Third Quarter Results 

Janel World Trade, Ltd. reported net income of $43,412 for its fiscal third quarter ended June 30, 2002, a jump of 159% as compared to net earnings of $16,766 earned by the company in the third quarter of fiscal 2001. In addition, the most recent quarter's net income reflects an increase in Janel's net profit margin (net income as a percent of net revenues) of 211 basis points to 3.21% from 1.10% in the third quarter of fiscal 2001. The company achieved the increase in earnings and profit margin despite the fact that its total revenues for the 2002 third quarter fell year-over-year by $522,300, or 4.4%, to $11,457,309. The lower revenues were primarily due to the general decline in international trade following the events of September 11, 2001. 

For the 2002 third quarter, forwarding expenses decreased by $351,123, or 3.4%, to $10,103,182 as compared to $10,454,305 a year earlier. The decline was consistent with the lower level of forwarding revenues year-over-year. Forwarding expenses consist primarily of the fees paid by Janel directly to cargo carriers to transport its freight shipments between terminal points on behalf of its customers, and also includes any duties and/or trucking charges related to the shipments. The company's profitability was additionally enhanced by a lower level of SG&A expenses, which fell year-over-year by $205,467, or 14.5%, to $1,209,427 in 3Q 2002. As a percentage of revenues, quarterly SG&A expense in the third quarter of fiscal 2002 declined 125 basis points to 11.20% as compared to 12.45% in 2001. 

Primarily as a result of the proportionately greater year-over-year declines in forwarding and SG&A expenses relative to the decline in revenues, Janel's income before taxes rose 160% to $66,912 in the third quarter of fiscal 2002 from $25,766 a year earlier. Despite the modest decline in third quarter revenues, the company's pretax profit margin on net revenue (total revenues less forwarding expenses) increased by 325 basis points to 4.94% in third quarter fiscal 2002 from 1.69% in the 2001 period. 

Nine Months Results 

Total nine-month gross revenues declined 13.4% year-over-year to $31,008,594 mainly due to an industrywide slowdown in the wake of the events of September 11, 2001. Despite the fall-off in revenues, Janel's year-to-date 2002 net earnings rose slightly to $64,350 versus $63,179 in 2001, and the company's net profit margin increased by 15 basis points to 1.58% in the current year from 1.43% in 2001. 

As in the third quarter, year-over-year declines for the nine months in both forwarding expenses and SG&A by 14.1% and 8.3%, respectively, more than offset the effect of lower gross revenues. As a result, income before taxes actually rose 1.7% to $98,850 in 2002 as compared to $97,179 in the first nine months of fiscal 2001. The slightly higher net earnings also represented an increase in the company's nine-month pretax profit margin (as a percentage of net revenue) by 24 basis points from 2.19% in 2001 to 2.43% in 2002. 

Review and Outlook 

James N. Jannello, the company's executive vice president and chief executive officer, stated, "Given the overall relative softness of the freight industry in the wake of last September 11th, we are quite pleased to be able to show significant increases in our third quarter and year-to-date bottom-line results as part of our first-ever earnings release as a newly public company. We plan to continue building on this strong beginning for the rest of this current fiscal year and as we look ahead to fiscal 2003 as well. Combined with our results for the first nine months, we expect a profitable fourth quarter with our full-year fiscal 2002 revenues up to the $42-$44 million range." 

Jannello continued, "More importantly, however, we are moving ahead with the ambitious long-range strategy that we have mapped out for growing the company's revenues and profitability. To be more specific, we have plans for additional branch offices both domestically and in Southeast Asia; additional revenue streams for our headquarters and existing branch locations; discussions and due diligence with privately held transportation-related firms which may ultimately lead to their acquisition by the company; expansion of our existing sales force by hiring additional commission-only sales representatives with established customer bases; increasing our focus on growing revenues related to export activities; initiating work within the next six months on a substantial telecom transportation project to Southeast Asia for which Janel has been designated the exclusive freight forwarder; evaluating direct entry into the trucking and warehouse distribution business as a complement to the services we already provide to existing customers; and continuing to reduce our overhead and operating expenses, particularly with regard to the integration of any additional offices or acquisitions. Assuming successful execution of substantial elements of our strategy, we project that Janel's gross revenues for fiscal 2003 will be significantly greater than projected gross revenues for fiscal 2002, and may approximate $80 million for the year." 

Jannello concluded, "Clearly we believe that there are substantial opportunities available for Janel World Trade to move ahead. The company is led by a stable, highly experienced and motivated management team that has produced a track record of growth over the past 27 years. We are committed to continuing as we have begun and are very enthusiastic over the prospects we see for the company going forward." 

About Janel World Trade, Ltd. 

Janel World Trade, Ltd. (OTCBB: JLWT - News) is a global provider of integrated logistics services, including domestic and international freight forwarding via multi-modal carriers, customs brokerage, warehousing and distribution and other transportation-related services. Additional information on Janel World Trade is available on the Internet at www.janelgroup.com or www.janelgroup.net. 

Forward-Looking Statements 

The statements contained in this release that are not historical facts are forward-looking statements (as such term is defined in the Private Securities Litigation Act of 1995). Actual results may differ materially from those anticipated or implied in the forward-looking statements. These forward-looking statements involve risks and uncertainties, including competitive factors and pricing and supply pressures; the Company's dependence upon conditions in the air, ocean and land-based freight forwarding industry; the size and resources of many of the Company's competitors; and the need for the Company to effectively integrate acquired businesses and to successfully deliver its primary services. Additional information with respect to these and other factors that could materially affect the Company is included in the Company's filings with the Securities and Exchange Commission, including its most recent Form 8-K/A and Form 10-Q filings. 
 

                        JANEL WORLD TRADE, LTD.

                   CONSOLIDATED STATEMENTS OF INCOME
                              (Unaudited)

                           Nine months ended      Three months ended
                              June 30,                 June 30,
                          ------------------       ------------------
                           2002        2001        2002        2001
                          ------      ------      ------      ------
Revenues:
Forwarding revenue     $30,999,567 $35,755,567 $11,456,431 $11,972,445
Interest and dividends       9,027      33,399         878       7,164
                        ----------  ----------  ----------  ----------
                        31,008,594  35,788,966  11,457,309  11,979,609

Costs and expenses:
Forwarding expenses     26,940,160  31,356,924  10,103,182  10,454,305
Selling, general and
 administrative expenses 3,953,251   4,309,262   1,283,417   1,491,234
Interest                    16,333      25,601       3,798       8,304
                        ----------  ----------  ----------  ----------
 Total costs and
  expenses              30,909,744  35,691,787  11,390,397  11,953,843

Income before income
 taxes                      98,850      97,179      66,912      25,766
Income taxes                34,500      34,000      23,500       9,000
                        ----------  ----------  ----------  ----------
Net income              $   64,350  $   63,179  $   43,412  $   16,766
                        ==========  ==========  ==========  ==========

Other comprehensive
 income (loss), net
 of tax                 $    1,322  $  (18,933) $   (3,064) $    3,059
                        ----------  ----------  ----------  ----------
Basic and diluted
 earnings per share     $   .00429         N/A  $   .00289        N/A
                        ==========              ==========

Weighted number of
 shares outstanding(a)  15,000,000         N/A  15,000,000        N/A
                        ==========              ==========
 

(a)  Assumes all shares were outstanding for the entire periods
 
 

                        JANEL WORLD TRADE, LTD.

                      CONSOLIDATED BALANCE SHEETS

                                 June 30, 2002     September 30, 2001
                                 -------------     ------------------
                                 (Unaudited)           (Audited)
ASSETS
Current Assets:
Cash                               $  950,008         $1,429,082
Accounts receivable                 3,262,190          2,738,513
Marketable securities                  39,536             37,592
Loans receivable - officers           192,766            138,837
                 - other               10,858             20,682
Prepaid expenses and other            188,865            108,739
                                    ---------          ---------
    Total Current Assets            4,644,223          4,473,445
                                    ---------          ---------

Property and equipment, net           126,123            165,805
                                    ---------          ---------

Other Assets:
Cash surrender value of life
 insurance                             44,469             44,469
Security deposits                      48,458             48,651
                                    ---------          ---------
    Total Other Assets                 92,927             93,120
                                    ---------          ---------

    Total Assets                   $4,863,273         $4,732,370
                                    =========          =========
 

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable - bank                $  300,000         $  325,000
Accounts payable                    2,036,191          1,833,782
Accrued expenses and taxes payable    128,232            169,234
Current portion of long-term debt      28,457             80,924
                                    ---------          ---------
    Total Current Liabilities       2,492,880          2,408,940
                                    ---------          ---------

Other Liabilities:
Deferred compensation                 123,037            123,037
Long-term debt                         11,873             30,582
                                    ---------          ---------
    Total Other Liabilities           134,910            153,619
                                    ---------          ---------

STOCKHOLDERS' EQUITY
Common stock, $.001 par value,
 225,000,000 shares authorized;
 15,000,000 shares issued and
 outstanding at June 30, 2002          15,000              3,200
Additional paid-in capital            217,087            228,887
Retained earnings                   2,003,396          1,937,724
                                    ---------          ---------
    Total Stockholders' Equity      2,235,483          2,169,811
                                    ---------          ---------

    Total Liabilities and
        Stockholders' Equity       $4,863,273          $4,732,370
==========          ==========
 
 

--------------------------------------------------------------------------------
Contact: 
     Janel World Trade, Ltd.
     Jay Jacobson, 914/722-2737
 


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