Friday, December 08, 2006

JER Envirotech - breaking out...


Sometimes technicals and fundamentals come together in a powerful way. Those are the set-ups that I like the best. I believe that JER.V is currently presenting such an opportunity.


I have been following JER Envirotech since early 2004. The company was brought to my attention by one of the VC's that is involved with Carmanah Technologies. Clearly, sustainable technologies is an area where they focus. I found it attractive as an investment for several reasons. They had already completed a few years of R&D and were ready to move towards production. The intellectual property was developed in conjunction with the Canadian government, which would be important for a small company. The markets were easily identifiable, ripe and massive.

Corporate Thumbnail

  • JER manufactures wood-thermoplastic composites, also known as WPC.
  • JER's composites come in two forms: pelletized for injection molding applications and extruded 4’ x 8’ panel board
  • The composite combines polypropylene and organic fibers: sawdust, rice husk, palm fiber, coconut fiber, etc.
  • Patents were developed in conjunction with Canadian Natural Resources Council. Canadian government owns the IP, licensed exclusively to JER for ten years.
  • First production plant established in 2005 in Delta, BC.
  • Joint ventures created to build plants in Malaysia, Philippines, India (China and Indonesia in the works).

So What?

So, if the story is so good, why does the chart look so bad? In September 2005, the stock broke out and doubled in three months. After hitting a high of 1.45 in November, it has not since regained that high. The stock looked like it was recovering in August but by September, it had risen up to the downtrend line and was turned back there. On the next leg down, though, it made a higher low and has been consolidating since then, coiling tighter and tighter.

Over the past several months, progress at JER has stalled. The equipment that is built for JER’s production facilities is highly-specialized. The lines that they obtained to produce the panel board were delivered with a die that cut 4’ widths exactly. The problem is, JER needed boards slightly wider than 4’, so that the edges could be trimmed for perfect size and consistency. Re-ordering the dies has meant months of delays in starting panel board production at the plant in Canada and in Malaysia. JER has not been able to secure large orders without the production capability in place and fully operational.

The dies were scheduled to be delivered at the end of November. I suspect that the dies were delivered and that is the reason that the volume spiked today. Once the panel board lines are up and running then we should know shortly thereafter what the order flow is going to be. There’s a lot more to the story, but I thought I should keep this as brief.

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