SPARTECH GOOD VALUE FOR CURRENT STOCKHOLDERS

Spartech Corp. based in Clayton continues to grow by acquisition. Its common stock (symbol SEH), listed on the New York Stock Exchange has increased in price by 430 percent since early 1993 and 61 percent since December. Continued growth, improved efficiency and a strong focus on quality control are contributing to increasing earnings as a proportion of sales: and this stock may still offer good value for current shareholders.

Lawrence Powers founded Spartan Manufacturing Co. in 1960, and it went public as Spartech in 1978. It began to focus on plastics in the 1980s, became heavily indebted, and disposed of many non plastics businesses. Between 1984 and 1987 it acquired five plastic makers, one of which was the Cape Girardeau facility. The Cape plant employs 185 Heartlanders and produces color and specialty compounds as well as extruded sheet and rollstock.

Powers resigned from Spartech in 1991; and Bradley Buechler, president and chief executive officer, began to run the show. Buechler's team continued to expand the company through acquisitions of facilities in the United States and Canada. The most recent acquisition was announced Aug. 22 when it completed the purchase of the preferred plastic sheet division of Echlin Inc. Echlin is a Connecticut-based auto parts maker serving the global aftermarket.

During August, Spartech also announced a strategic alliance with Takiron Co. Ltd. of Japan and reported record third-quarter and nine-month results.

After showing losses for 1989, 1990 and 1991, it has had five years of steadily increasing earnings and began paying a dividend in 1995. Net income as a percent of sales has improved since 1992 and seems to be stabilizing around 4.5 percent. Return on equity for last year was 16.3 percent, and Spartech is paying about 20 percent of earnings in dividends, which yield 1.4 percent at current stock prices.

With 80 percent of earnings available for acquisition, capital improvement and replacement, and debt retirement, the company should be able to continue to grow for a while longer.

With a P/E (price to earnings ratio) of 18.5 as compared to a market average of 25, Spartech stock might be expected to be trading near $22. This is one of those rare cases where my research and the market multiples come very close to agreeing. Wednesday's close of $16 1/8 is close to market value.

Investors need to remember that Spartech is a small capitalization company. Correspondingly, we must expect more price volatility and greater risk than would be associated with large capitalization firms such as those included in the Dow 30 Industrials. That simply means that potential investors need to be willing to hold this stock for the long term and be prepared for significant price changes.

On the positive side, Spartech's stock is weathering the sale of over 18 percent of outstanding shares by TWC Capital. TWC has been a Spartech stockholder since 1985 and announced the sale of its stock through Wasserstein Perella & Co. of New York on Nov. 4.

Though I do not currently hold any Spartech stock, I think it offers good value for current shareholders. Those looking for a new investment should look elsewhere for more value.

Dividend Reinvestment Plan: No

Web Site: http://www.spartech.com

Bill Walker is president and CEO of Walkrich Investment Advisors and completes a market appraisal of over 5,000 common stocks each week. (573) 651-9196 (Walkrich@mvp.net)

William H. Walker, D.B.A.

Walkrich Investment Advisors, Inc., 1212 Harmony, Cape Girardeau, MO 63701

(573) 651-9196 E-mail:walkrich@mvp.net or walkrich@mo.net

http://www.mo.net/walkrich/wrhome.htm

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.