By Gene Marcial From its name, it's tough to tell what kind of business tiny Frisco Bay Industries is. It's not even headquartered anywhere near San Francisco.
Nevertheless, shares of this little-known, Montreal-based company (FBAY) more than quadrupled, to 7.37 a share, in early December from the low point they reached right after the September 11 attacks. Profit-taking since then has knocked the stock down to 4.70 -- which is still nearly triple its 52-week low of 1.68 on Sept. 23, 2001.
Some investment pros think Frisco Bay will easily bounce back sometime this year to exceed its December high. What's the reason behind its appeal?
A TINY GIANT. The stock has been strong lately because Frisco Bay is primarily in the appealing security-systems business. More specifically, this Nasdaq-traded Canadian company is an international provider of integrated security systems for government agencies, financial instituitions, and major industrial corporations, mainly in the U.S. and Canada. Among its top clients: IBM, Boeing, Ford Motor, Bell Canada, and Ontario's Pearson International Airport.
The 2002 Mallon Global Security Index, comprising 175 security companies traded on stock exchanges around the world, ranks Frisco Bay No. 7, with a 350% gain in its stock price during 2001. And as a security systems integrator, Frisco Bay is ranked 15th in North America among a list of 100 companies based on revenues, according to the annual Top Systems Integrators Report for the electronic security industry, published by SDM magazine, a Cahners publication in Canada. Systems integrators derive more than half of their revenues from the sales, installation, and servicing of access control, closed-circuit TV, and integrated security systems.
"Frisco Bay is on the cutting edge of security technology and, as a major security systems integrator, is at the forefront of a widening growth industry," says Jack Mallon of Mallon & Associates, an investment bank catering exclusively to the $100 billion global security industry, and publisher of Mallon Global Security Investing newsletter.
"POSITIVE ADDITION." This small-cap company, says Mallon, attracted investor attention with its recent impressive contracts, such as the $10 million (Canadian) three-year agreement to supply and service digital-video-surveillance equipment to a large Canadian financial institution.
Through its Intivid Solutions unit, Frisco Bay makes digital-video products, including VIP, a PC-based surveillance system that allows advanced recording and remote retrieval of digital-video images. Introduced in 1993, VIP is distributed worldwide and is available in four languages. It's designed to be easily integrated with other security system components and applications.
Diebold (DBD), the leading provider of integrated security systems, has signed an agreement with Frisco Bay to sell, install, and service Intivid's VIP line. Frisco Bay's "VIP product has proven itself in the markets we serve and will be a positive addition to our digital-video offerings," says Richard Baggot, general manager of Diebold Electronic Security Group.
CASH DISPENSERS. Frisco Bay Chairman and CEO Barry Katsof notes that companies worldwide are replacing the analog videocassette recorders in their surveillance systems with digital equipment that delivers huge improvements in image storage, search, and retrieval capabilities. Frisco Bay's alliance with Diebold, says Katsof, is in line with "our goal of becoming the supplier of choice in digital-video technology" for original-equipment manufacturers and solutions providers. It brings together, he adds, the two companies' core competencies in digital technology.
Apart from security systems, Frisco Bay also provides automated financial equipment, such as automated teller machines. In Canada, it has contracts with financial institutions, retailers, and restaurants to supply and install ATMs. The latest to sign up is McDonald's of Canada, which hired Frisco Bay to install ATMs in all of Mickey D's Canadian outlets.
Frisco Bay is currently processing more than 10 million ATM transactions a year in Canada, and the U.S. is its next goal. Frisco Bay already is doing businesses with big U.S. companies in the security-surveillance area. Among its customers are clothes retailer J. Crew and home-improvement giant Home Depot. Frisco Bay is expected to target such U.S. security customers for its ATM products and services as well.
STRONG BACKLOG. The company, which has yet to report sales and earnings for the fourth quarter and fiscal year, ending Jan. 31, 2002, has posted four consecutive quarters of profitability. "More than halfway through our final quarter for this fiscal year, our order backlog remains strong, and we expect a solid finish to this fiscal year," says Katsof. Despite a sluggish economy in North America in the past 12 months, Frisco Bay's product mix has enabled the company to increase revenues and profits to record levels, he adds.
Revenues are expected to climb to more than $26 million (U.S.) in this fiscal year ending Jan. 31, 2002, up from $22 million in fiscal 2001, according to some industry observers. And Frisco Bay is expected to post earnings of about 45 cents a share, vs. a loss of 9 cents in fiscal 2001.
Some big investors argue that for a company with only 2.3 million shares outstanding, and with those shares trading at just 10 times estimated fiscal 2002 earnings, the stock has a lot of upside potential. And in these times when government and Corporate America are highly security-conscious, shares of companies like Frisco Bay do carry some sense of downside protection as well. Marcial is BusinessWeek's Inside Wall Street columnist