Lakeland Industries Limited

I bought Lake Industries (LAKE: NASDAQ) at $4.70 and $4.74 in two different batches on 21 June 2013 and 18 July 2013 respectively. Subsequently, we sold LAKE at $15 on 9 October 2014. 

Batch	Profit
21 June 2013 Batch	217%
18 July 2013 Batch	215%
Total	215%

Nature of the Company

LAKE is protection clothing manufacturer. What does protection clothes used for? They protect lives and workers from fire, hazardous chemicals and diseases. I believe that you know the answer of what occupations require these.

Rational of Investing in LAKE

I first learn about LAKE when I was reading online. First, Du Point, the supplier of raw material required for LAKE’s product decided to stop supplying to LAKE out of sudden! As expected, sales decline dramatically. Second, LAKE suffered huge business loss in Brazil. With these two horrible news, Mr Market marked its share price down, so badly.

I thought that it was interesting case since these two problems are temporary and can be fixed easily over time with the right solutions. Besides that, I figure out that it may be in niche market such that important workers like fireman and chemical cleaners need to replace protective clothes to the point that safety and quality of their lives (after work) are not compromised.

I often read transcripts of quarterly earning conference. Most CEOs and CFOs in many companies always advise analysts about profit margin, sales, fine details of accounting variables and etc. There is one time where LAKE’s CEO said as follows:

"I mean, we have canvassed a lot of people. But I think as a general statement, whether it's private equity firms or financial buyers or even strategic acquirers, they're all looking for EBITDA, okay? And if you don't have EBITDA, their attitude is your worth 0, okay? But if you were a buyer of commodities, they -- gold has no EBITDA but it does have some value on the market. This -- it is a preoccupation with EBITDA. If you have 0 EBITDA, therefore, you're worth 0, okay? Wouldn't matter whether you had $100 million in cash if you had 0 EBITDA, you're still worth 0. This is the attitude out there. Of course, it's a negotiating attitude because if you look at our company, we have receivables that are convertible into cash relatively quickly. We have sold some real estate assets at book value. Jesus Christ, everybody is saying we're not worth book value, but we can sell our real estate at book value. So if we can sell real estate at book value and you can collect receivables at their stated value, then you have cash. And again, you have people saying, "Well, if you're a company with $100 million of cash but no EBITDA, you're still worth nothing." That's their attitude. So what can I say? I guess we have to build up some EBITDA, and then they'll have another reason why they can't pay at the market price.” (Taken from SeekingAlpha's website

That is different type of talk I am not expecting of.  I have read Rittenhouse’s book called ‘Investing between the lines: how to make smarter investment decisions by decoding CEO communications’. I actually thought it is an interesting book that analyse tiny details of what every CEO communicates to shareholders. In fact, my friend didn’t think highly of this book. I can see why it is not great book because this method suggested by Rittenhouse is good as looking for the needles in the haystack. Nevertheless, it has some impact on me such that I read transcript differently now.

Events Occurred during the Holding Period

CEO informed the shareholders that he successfully contained the Brazil problem and found suitable raw material substitutes. As a result, there is large increase in earnings when compared to last financial year’s quarter. Obviously, its share price roses up nicely

It is worth to note that some investors I read online sold LAKE early because LAKE swapped old dated debt with new dated debt. That made them uncomfortable. I may not be familiar with finer detail of the debt contract. However, from limited strategic viewpoint, it is fair to conclude that debt issue may be needed to maintain the day-to-day operation as long as it doesn't goes beyond my perceived debt limit level. There is small bumpy ride of holding LAKE throughout few holding months.

This year, the world has failed to control Ebola. CEO took the opportunity to communicate the shareholders that LAKE is selling Hazmat Suit for Ebola as per press release dated 12 September 2014. There is a rumor that US government is buying 160,000 Hazmat Suits when there is the first Ebola case in USA – I say this because I couldn't verify the validity of this news. Because of that, there is huge price rise for few days.

Rationale of Selling LAKE

Thanks to that news, I feel its current price is in speculative territory, which I should exit. It is no doubt that I did not anticipate Ebola as a positive catalyst. A simple wait will put me to seeing some unexpected events unfolding.