UG - United Guardian

[Martian]

 

 

The Company (95m market cap) conducts research, product development, manufacturing and marketing of lubricant products.

 

Segment	% of Revenue	Comments
Personal Care (Cosmetic/Skin Care)	63%	Main product is Lubrajel - an ingredient in skin creams, moisturizers, makeup and body lotions
Pharmaceuticals	15%	Needs regulatory approval. They have two products, Lubrajel and  Renacidin, a ready-to-use sterile solution
Medical	20%	special grades of Lubrajel  that can withstand sterilization by gamma radiation
Industrial	1%

 

Two product lines account for 95% total revenue.

Lubrajel - 82% 

Renacidin - 13%

 

It has patents for certain products which expire at the end of 2013, 2016 and 2019.

 

Two customers (distributors and marketing partners) account for 58% of total revenue. Revenues are mostly from US, Canada, China and France .

 

Company has a net margin > 30%  and ROE > 25%

CEO owns around 30% of the company. Company has no debt. Does not maintain a line of credit. It has paid dividend for 16 consecutive years.

 

I think the stock is bit pricy now..

 

[LC]

UG has come across my eyes a few times. They have good margins, low debt, etc. Solid fundamentals. Every time I looked into it, it seemed fairy priced to me. Couldn't get it for a P/E lower than 20x.

[watsa_is_a_randian_hero]

I've followed this company for a few years now.  Owned it a while back (bought below 12), sold it, no longer own.  Great company, owner-operator, stable revenue base, consistently returns cash to shareholders. 

 

However, my FV estimate is closer to $17.  It takes an 8% cost of capital to get to the current share price with my projections, which are somewhat generous.  EBITDA margins are at 20-year highs...the 20 year average is 28% and they currently stand at 44%.  My "generous" assumptions splits the difference and assumes margins regress to 35% over the next 5 years. 

 

One other thing to watch for is cap ex over the last 5 and 10 year periods is below depreciation.  While this may be indicative of frugal management, over the long run this is not sustainable. 

 

 

[LC]

The low capex doesn't totally frighten me...they have about 40 employees and I think a lot of what they offer is R&D driven and patent protected.

 

Have you guys seen anything from management regarding their patent expirations, the effect this will have on revenues, and whether they have anything "in the pipeline" to replace these revenues? Also, about 10% of the market cap is in fixed income mutual funds...do we know the details of those?

 

I want to invest here at a more attractive price because it's a high-margin cosmetic product which does not rely on branding/marketing/the whims of consumers to sell.

[Martian]

 

 

Have you guys seen anything from management regarding their patent expirations, the effect this will have on revenues, and whether they have anything "in the pipeline" to replace these revenues? Also, about 10% of the market cap is in fixed income mutual funds...do we know the details of those?

 

 

from their last 10k

 

The following are some of the projects that the Company is either working on or intends to work on in the near future:

 

CLORONINE: a powerful disinfectant, germicide, and sanitizer for disinfecting medical and surgical instruments and equipment (particularly where autoclaves are not available), and for the purification of water supplies. The product had been developed many years ago, and has since been reformulated. There can be no assurance that the Company’s efforts to market this product will be successful.

 

EMOLIEN:  A water-based emollient and moisturizer.  It is intended to be a cost-effective emollient (used at a level of 0.2% to 0.5%), to increase lubricity and moisturization for creams, lotions and gels, as well as other potential uses.

 

ESSENTIAL ELEMENTS (copper/zinc peptides): A new product for skin and hair care applications.  The specifics cannot be disclosed until patentability issues are investigated further, but the product would be used to maintain and improve healthy cellular metabolism.

 

NATURAL POLYMER BLEND: A line of polysaccharide polymers from natural sources (sourced from vegetables and micro-organisms), suitable as a thickener and emulsion stabilizer.

 

LUBRAJEL UT:  A new form of LUBRAJEL, formulated with a new ingredient, that may have health care uses, primarily in the urological field.  The Company is in the process of sampling this product to potential customers, and has filed a patent application with the U.S. Patent & Trademark Office.

 

It should be understood that many of the research and development projects listed above are in their early stages of development