Micro-cap CORNER

First Call/Thomson Financial Insiders' Chronicle, Dec 13, 1999 by Ugly Plane

Typically, the activity of one insider does not warrant mention, but in the case of Ugly Ducking (UGLY), the surrounding circumstances are interesting enough to justify a second look. Director Frank Willey, head of the Audit Committee, purchased 147,500 shares at $6.51 a share on December 1. Not only was the purchase the largest insider transaction in the company's trading history, it occurred into share-price strength. Mr. Willey, along with several other insiders who purchased shares near the lows in September '98, has done very well on his investment of 27,000 shares, as the stock is up more than 50% since.

Ugly Duckling is perhaps the kind of company that can get away with such an unconventional name. There's nothing pompous about their line of work. A string of used car dealerships, the company focuses exclusively on the "sub-prime" market, selling lower-priced cars to customers often with bad credit or no credit. While the image conjures recollections of the tactics depicted in the 1980 classic, "Used Cars," it would be hard to argue against the business model. Margins on older used cars tend to be quite high, and even when bad debt expense is considered, sub-par loan portfolios have been rather profitable in the past. Perhaps this is the reason why the company is working to get its hands on more. Ugly Duckling just completed the acquisition of part of the assets of Virginia Auto Mart and $8 million of that company's loan portfolio. The acquisition, news of which followed on the heels of an impressive positive earnings surprise, as the company turned a substantial profit and reversed its loss from on a year- over-year comparison, brings Ugly's dealership count to 72.

BE Aerospace (BEAV) designs and manufactures seats and other sadistic interior features of commercial aircraft. Despite some fairly good-sized orders, times have not been so good at BE. Management has cited engineering inefficiencies as the reason why earnings estimates will be missed by a wide margin this quarter and fiscal year. (The former COO and President Paul Fulchino will be "pursuing other interests.") Immediately following the pre-announcement, on November 23 and 24, two insiders purchased 71,500 shares at $5.78 to $6.57 per share. Both insiders have only recently begun to accumulate shares, with one having been a consistent seller going back to '90, the other since '96. Both bought in smaller amounts in February '99. That they are buying again shows that they continue to support the issue in challenging times--though perhaps not their short-term investment savvy.

Down approximately 80% from its two-year highs and with bad news still trickling in, BE may look to be dangerously close to falling off the map. Perhaps it is. However, there are other signs besides the insider accumulation that suggest that it may be too early to throw in the towel. Revenue growth remains strong, and margins have shown surprisingly little deterioration given the challenges in the business. The sale of Sextant In-Flight Systems has enabled the company to pay down some debt, and new orders from Delta for such things as cockpit oxygen masks hold out promise that the company may be able to successfully offer a more diverse product mix. If BE is most likely a company that will take a while to turn around, insiders, at least, are positioning themselves for the long-term.