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William P. Smartt, the CFO of Building Materials Holding Corp (BLG) recently filed a Form 4 with the SEC, revealing that he bought 30,000 shares in the open market at 3.11. Literally, the Smartt money is buying...Can we put that in context?
On May 12, BLG announced 1Q 2008 earnings, a loss of 1.17. This was on top of a big bath in 4Q 2007. I listened to the conference call on 5/14, noting that they are verging on noncompliance with covenants from their lenders and that there was considerable lack of visibility going forward. They have developed a restructuring plan and at the time of the conference call had discussed it with Wells Fargo, the lead bank. They were planning to discuss it with the rest of the banks in the near future.
They have since announced the closing of a number of facilities. And now the CFO is buying. A Vice President of Finance also bought some shares for his IRA a few days ago. My guess would be that discussions with the banks yielded waivers sufficient to make the restructuring plan possible and that the financial people believe it will work.
On the plus side, SG&A is to be seriously reduced, inventory management improved, right now the recent acquisition Select Build is doing their own thing, not as good as what the integrated combination will do. They are under cost pressure from major builders, expected, they intend to pass it on the their own suppliers.
They are gaining market share in that their inflation/deflation adjusted sales figures are down less than new home starts. They have maintained gross margins in the materials side and are pricing installation services to contribute to fixed cost.
I added to my SLO position at 3.06, less than management bought at, and will probably make one more buy if it goes lower. This is a book value ploy, shares are trading for less than tangible book value. With the financial people buying stock, I would guess that BLG will liquidate and/or deploy their assets effectively, leading to an eventual recovery to somewhere in the area of 8 per share.
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