PFB Corp Integrates Upstream, Just in Time for Green Housing Market Upturn

Tom Konrad CFA

On May 9, green building firm PFB Corporation (TSX:PFB, OTC:PFBOF) announced that it had signed a letter of intent with NOVA Chemicals for PFB to acquire NOVA’s Performance Styrenics business.  The all share deal will give NOVA an equity stake in PFB as well as two seats on PFB’s board.

PFB’s Plasti-Fab subsidiary currently sells Expanded Polystyrene products (EPS) such as Insulated Concrete Forms and Structural Insulated Panels into the North American green building market, and as a result is a customer for the Performance Styrenics division’s EPS resins.  Over the last few years, volatile materials costs have been a large source of uncertainly in PFB’s earnings, so the acquisition should lead to more predictable earnings at the company.

While the size of the equity stake has not been announced, I expect it will be significant given that two board seats come along with the stake.  This boost in size should be beneficial to PFB’s shareholders given the company’s current small market cap ($38 million) and low liquidity (only $4000 worth of shares trade hands on a typical day.)  The added size and revenues will allow PFB to better afford the costs of a market listing, and may enable a move to a more liquid market such as AMEX, or a wider class of investors to invest in the stock.

Although the low liquidity makes it difficult for investors to buy PFB’s stock quickly, a patient investor can acquire it at a very attractive price.  PFB typically trades between $5.50 and $6.50.  At $6 a share, PFB pays a 4% dividend, and has a trailing twelve month price earnings ratio of 11.  Book value per share was $6.72 at the end of 2011.

PFB is beginning to see its green building markets revive:  First quarter earnings per share were up 6 cents over a year ago, and sales were up 6.5%.  Other green building companies are expecting a market revival in 2012, as I wrote here about geothermal heat pump companies Waterfurnace Renewable Energy (TSX:WFI,OTC:WFIFF) and LSB Industries (NYSE:LXU).

With a great valuation and reviving market, now seems a great time to buy PFB stock.    Just use good-til-cancelled limit orders to avoid driving the price of this thinly traded stock up to more than you’re willing to pay for it.

Disclosure: Long PFB, WFI, LXU

This article first appeared on the author’s Forbes.com Green Stocks blog.

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