CB Richard Ellis Report Bodes Well for Microcap KSW (KSWW)

The Microcap Speculator submits: According to a report in Commercial Property News, a CB Richard Ellis, Inc. study expects strong demand for commercial real estate in New York City, especially midtown Manhattan:

New York City's commercial real estate demand is continuing to grow; so much so that it could create a challenge in the city retaining its office employee base, according to a study released this morning by CB Richard Ellis Inc.

"There is already a real shortage of office space in Midtown," Simon Wasserberger (pictured), first vice president of CB Richard Ellis, told CPN this morning. The current Manhattan vacancy rate is 6.8 percent, but is expected to decrease to about 3 percent by 2009. The study claimed that employment growth and an increasing proportion of office workers will cause demand for space to exceed existing supply by 2013.

Demand supports construction and renovation, which should benefit KSW, Inc. (ticker: KSWW). KSW is an HVAC contractor for large commercial and industrial projects in NYC (and to a lesser extent, residential high rises).

KSW shares have rallied 600% over the past year, but I think the fundamentals have improved sufficiently to support that share price and more. A year ago, KSW was struggling and unprofitable.

A few weeks ago, it reported earnings of $.50/share for 2005, including one-time gains. KSW increased revenues by over 100% in the prior year, and seems poised to rack up another year of strong sales in 2006. Its current backlog is over $82 million, or roughly 150% of 2005 revenues. KSW settled some pending litigation, which not only reduced its legal fees but strengthened the balance sheet. KSW now has over $5 million in cash and equivalents, giving it an enterprise value of less than $15 million and an enterprise value-to-sales ratio (based on 2005 revenues) of only .33. If KSW can fulfill its backlog and increase revenues in 2006, that metric will be even lower.

DISCLOSURE: I am long KSWW.OB. Not a recommendation to buy or sell any security. For informational and educational purposes only.

KSWW 1-Yr Price Performance: