Tuesday, 24 November 2009

Tree hugger with wine stains? Have some FSI Inc. poly-aspartic acid!

Long FSI@$1.70

A striking feature of Flexible Solutions International is the - possibly unique - incentive scheme of its 87 year old Canadian director (national life expectancy, 80.6). This involves over a quarter of a million stock options, erm, expiring through 2011.

It helps that the son and inheritor (presumably) of said director is the CEO as well as the finance chief. Helps even more that Dad is one half of the compensation committee. And holds all the patents behind all the sales.

But this is an unusual company. Visit their homepage and be forgiven for thinking that their products consist principally of evaporation and heat loss inhibitors for swimming pools. There is no talk of anything else. Yet these lines represent a mere 10% of sales, a surprisingly large >50% of assets and a shocking (30)% drag on total profit in the 9 months to September.

It takes – and I’m not making this up – some effort to deduce that a small icon labelled “NanoChem” (leading to an even sparser website than the bare bones source) might be of interest in working out just how they make money.

Eventually, with Google/Edgar and conference call transcripts it emerges (painfully) that FSI is the only company making fully biodegradable chemicals for multiple industrial and agricultural uses. For example, wine lovers (or maybe just clumsy wine lovers) will admire the environmentally sound detergent ingredient they produce. Ironically, however (given that end use), it is the fertiliser market that appears to be the immediate sales booster.

In short, if you know what poly-aspartic acid is then you are ahead of the game (and to be congratulated). And if you were led to the first mover who manufactured it entirely renewably you might be, investably speaking, interested.

Suffice to say that the Canucks leading FSI have converted an old Albertan potato factory (Ed - thought they grew?) into the only production facility that performs this feat commercially. And all that in the last 3 months with a remarkable lack of fanfare.

A lot of narrative for a dinky by capitalisation bunch of chemists. Why they don’t engage in a little more market schmoozing - actually, make that any significant market schmoozing – is a lapse. And, for pater, could be bad news for those options.

NB: Once more, my chosen a portfolio tracker lets the side down: FSI is not its database. Suggestions welcome.

Other business: some swathing reductions in gold miner holdings as their end market begins to take on a look more usually associated with that of cocaine users.

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