Parthenon LLC Urges Jewett-Cameron Board to Explore Options
Parthenon LLC Urges Jewett-Cameron to Explore Strategic Options
Believes that the Board should begin exploring alternatives to maximize shareholder value.
The performance of the stock has been disappointing.
Profitability has significantly declined over the past three years.
Insiders hold less than 1% of the outstanding shares.
No insider has purchased a single share in the last decade, signaling a clear lack of confidence in the business.
Dear Board Members,
Parthenon LLC stands as one of the largest shareholders of Jewett-Cameron Trading Company Ltd. (NASDAQ: JCTCF), possessing approximately 6.2% of the beneficial ownership. Since our initial investment in 2011, we have been patient and supportive. However, our growing concerns regarding the current CEO and Board Chairman have been expressed repeatedly over the last two years, yet our warnings have largely been disregarded.
This letter aims to articulate our serious worries regarding Jewett-Cameron's business and stock performance, as well as its long-term viability as an independent public entity. The almost complete lack of ownership by board members and management results in a troubling economic and incentive mismatch between insiders and outside shareholders. Despite past failures, management continues to pursue ineffective strategies and has failed to present a coherent plan to address present challenges. We believe management is oblivious to the urgency required to salvage shareholder value before it deteriorates further.
A brief overview of the stock and business performance reveals the extent of the issues at hand. Over the past five years, Jewett-Cameron stock has plummeted by 46.3%, while the Russell 2000 Index surged by 62.4% during the same timeframe. Looking back over the last decade, Jewett-Cameron’s total return stands at a negative 11.4%, while the Russell 2000 has grown by 118.8% in comparison. This stock decline has paralleled a significant downturn in business performance as well. From FY 2012 to 2021, Jewett-Cameron typically generated around $4 million in EBITDA each year, with a low of $3 million in FY 2019. Yet, in FY 2022, EBITDA fell to $2.4 million, and then to just under $1 million in FY 2023, with the first nine months of the current fiscal year showing approximately negative $1.2 million in EBITDA. Projections indicate slight profitability, if any, for the fiscal year ending in 2024, with FY 2025 perhaps being even worse based on recent insights from management.
Jewett-Cameron faces various significant challenges that must be addressed to restore profitability. These challenges include dependency on a concentrated supply chain inflected with geopolitical risks, increasing procurement costs, limited pricing ability with key customers, and heightened competition across vital product lines. Over the last decade, few successful product line extensions have emerged, resulting in little to no positive impact on profitability. The weight of these issues will likely prove overwhelming for a small independent company with constrained resources.
Concerns for Jewett-Cameron’s future as an independent entity have been echoed in the credit market. Recent difficulties in securing necessary credit underline the urgency of the situation. Despite obtaining a new lending agreement this past spring after being dropped by their previous lender, the terms are severe, pricing interest at the prime rate plus an alarming 4.75%, resulting in a costly 13.25% rate that threatens pre-tax profits.
Insider ownership stands at only 32,518 shares, representing just 0.93% of the company, totaling a mere $141,453 at a recent closing market price. This raises serious concerns regarding the level of commitment from insiders, most of whom obtained their shares through grants and options. Disturbingly, it seems there have been no purchases of stock by board members or senior executives over the past decade. This reality speaks volumes and suggests a troubling lack of confidence in the prospects of the company they manage.
Additionally, we were greatly disappointed by the board's attempt to reinforce their positions through a staggered board strategy proposed earlier this year, only to be thwarted by shareholders through an obvious grassroots vote against the initiative.
We believe Jewett-Cameron’s sophisticated product offerings in pet containment, fencing, and wood panel solutions, alongside its real estate assets, could potentially drive a market value that exceeds current public estimates, especially under management with appropriate resources and expertise. The cost-saving synergies available in a more robust operational setting could prove substantial. It is essential for the board to consider, with the guidance of an external advisor, whether the best course for Jewett-Cameron and its shareholders could involve merging with a larger entity that can truly harness the company’s potential. We are genuinely concerned this may be the only feasible long-term path for Jewett-Cameron.
We urge the board to begin considering its fiduciary responsibility towards all shareholders seriously.
Sincerely,
Thomas A. Corea
Chief Executive Officer
Parthenon LLC
Frequently Asked Questions
What is the main focus of Parthenon LLC's letter?
The letter addresses concerns about Jewett-Cameron's performance and urges the board to explore strategic alternatives to enhance shareholder value.
What has been the stock performance of Jewett-Cameron?
Jewett-Cameron stock has dropped by 46.3% over the past five years compared to significant gains in the Russell 2000 Index.
What issues are affecting Jewett-Cameron's profitability?
Challenges include supply chain risks, rising costs, competitive pressures, and inadequate product development, all impacting profitability.
What is the insider ownership situation at Jewett-Cameron?
Insider ownership is minimal, with insiders holding only 0.93% of the company, raising concerns about their commitment.
What does Parthenon LLC suggest for Jewett-Cameron's future?
Parthenon LLC suggests that Jewett-Cameron explore potential mergers with larger companies to maximize its product value and overall potential.
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