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Is this the ASX’s most promising small-cap business?

Fancy owning one million shares in a profit-making consumer staples company? Especially one whose product range is available in every supermarket in the land?

Well, you can with Pental Limited (ASX: PTL); whose range includes White King, Softly, Velvet, Pears, Huggies, Pears, Jiffy, Little Lucifer, Lux – and the purchase of one million shares would only cost you $30,000! The huge amount of current and prospective shares (assuming all options are exercised) totals over two billion, and a capital consolidation is scheduled when the options are sorted out.

Previously known as Symex the company was devastated as cheap imports undermined its domestic chemical manufacturing viability. All looked lost by 2012 when equity was wiped out. Luckily Pental had bought the iconic White King brand from Sara Lee in 2011 – and this was to soon aid the resurrection of the company.

In a good story, its bank Australia and New Zealand Banking Group  (ASX: ANZ) supported the company and forgave $10 million of debt. A large cornerstone investor was found and Pental sold all assets bar the consumer staple brands and associated manufacturing facilities. Today it is investing in new facilities, hiring more people and expanding the product range – however the market is yet to recognise the potential in this stock.

Pental continues to sell below book value and now has a very low debt to equity ratio of 7%. With a market capitalisation of $53m the 2015 price-earnings ratio is estimated to be 9. Dividends are expected to be re-established in the upcoming financial year. In addition, several important initiatives are underway to boost revenues and profits over the medium and long term.

1. Introduction of innovative new products across major well-known brand lines.
2. Further capital investment in manufacturing and packaging facilities; improving productivity and margins.
3. Exploring well priced opportunities in potential bolt-on acquisitions.
4. Expanding presence in the New Zealand market.
5. Contracts signed to supply white label bleach products to Aldi, Coles and Woolworths.

In summary Pental (3c) is poised to deliver good returns from its significant niche in the reliable consumer staples sector. In my view Pental is a strong buy.

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Motley Fool Contributor Peter Andersen owns shares in Pental Limited

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