A Profitable Opportunity

Robert Hsu, December 07, 2007

As you have seen, markets have been very volatile in the latter half of the year. In commodities especially, the increased volatility has made it difficult for consumers and producers to manage their costs. The more volatile environment is actually an ideal situation for our new recommendation.

Headquartered in Kansas City, Missouri, the company is an integrated commodity risk management company. Basically, this means that the company provides risk management consulting and transaction services to commodity wholesalers, end users and producers.

Through its 118 consultants, it helps its clients buy and sell commodities to hedge against price fluctuation, which enhances clients' margins. So if you're a company like JetBlue and you want to hedge your fuel costs, you go to the company and have them work their magic in jet fuel futures to get you a deal.

The company has experience with a wide variety of commodities -- everything from cotton to dairy products and natural gas to wheat. It also operates independent clearing and execution platforms for exchange-traded futures and options contracts on all major domestic and international exchanges. The company has four major business segments: commodity and risk management services, clearing and execution services, financial services and grain merchandising.

In particular, its agriculture and energy segments have been fast growers. A whopping 60% of the company's sales are from the agricultural industry. Part of its agriculture segment's success has to do with the fact that corn prices have been highly volatile and have hit record levels over the past few years due to the growing demand for alternative fuels. Meanwhile, business is starting to accelerate in segments like food services and forest products. With the heightened global volatility in commodity prices, the company's customers engage in more transactions.

The company serves its customers through 13 offices in the U.S., two in Canada, one in China, one in Brazil and one in Ireland. More than 10% of its sales are from the fast-growing Asia Pacific region. It has huge growth potential in international markets, particularly China and other parts of Asia. Currently China, the largest user of many major commodities, and Brazil, a main supplier of these commodities, account for nearly 30% of the company's total sales. It continues to expand rapidly in these fast-growing markets. Also, rising demand from Asia is the main driver behind the ongoing global commodities boom.

In addition, the company is well-established in its industry -- it has more than 75 years of experience in the commodities markets. However, it didn't go public until this past March, which gives us a good opportunity to get in early. Start investing in this company by learning about my specific recommendation through Asia Edge. Become a subscriber today to learn more!

Volatility Will Continue to Company's Momentum

With increasing demand, decreasing supplies and the sharp volatility in the commodities markets, the company's business is on fire. Its year-over-year earnings growth has ranged from 80% to 160% in the past five quarters. Meanwhile, its sales growth was 35% to 66% during the past six quarters.

In mid-November, it reported terrific quarterly earnings, driven by higher exchange-traded volumes due to continued volatility in the grain and energy markets. Net income soared 208% to $12.0 million, or 42 cents per share, from $3.9 million or 18 cents a year ago. Revenues surged 43% to $75.6 million from $52.7 million.

For its fiscal year 2007, total revenues climbed 42% to $257.4 million from $181.9 million in 2006, while net income more than doubled to $33.3 million or $1.33 per share from $15.3 million or 70 cents. In addition, its 2006 earnings also more than doubled from 2005.

As the company focuses on both its core capabilities in traditional markets as well as expansion into new markets, I believe it will continue to build strong growth momentum.

Recently, the stock has demonstrated especially strong momentum -- it has managed to shrug off market weakness and appears to be setting up an attractive breakout from its current consolidation. Fundamentally, the company is expanding both in the products it offers and geographically.

Like what you read? Join Asia Edge today.

Already a member? To view the full article, click on this link.