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a global leader of dies, moulds, components, and assemblies-The 19th Guangzhou Die-casting, Foundry & Industry Furnace Exhibition
8/30/2017 壓鑄展-鑄造展- Die-casting expo-foundry expo |
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Summary
Sales and net income were down for the third quarter, but were up year to date.
The company has a strong balance sheet, it has increased dividends for 11 years, and is on track to continue growing.
At year multi-year lows, the stock price is oversold and is a great bargain.
The market sell off this past month has brought the stock price to lows not seen since 2014. The plunge has provided a good entry point for GARP, value, and DGI investors.
Exco is a global leader of dies, moulds, components, and assemblies. For those unfamiliar with such manufacturing, the company website has helpful videos on showing die casting and extrusion tooling. The company’s customers are the die-cast, extrusion and automotive industries.
Investors began to sell off Exco Technologies on the earnings announcementof August 3rd, but they apparently were looking at the quarter figures and ignoring the nine-month YTD figures:
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Sales were down 10% for the quarter compared to 2016. But, for the nine months YTD, sales were up 6% compared to 2016.
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Adjusted net income was down 14% for the quarter compared to 2016. But, for the nine months YTD, it was up 8% compared to 2016.
In addition, the company had $71 million in debt when they acquired AFX in April of 2016, but it stands at only $14 million as of June 30, 2017. As a result, the company chose to reduce its credit facility from $100 million to $50 million. It continues to make debt reduction a priority.
Growth and Consistent Dividend Increases
Exco is on the Canadian Dividend All-Star List due to increasing dividends for 11 years, starting in 2006. This time frame includes the last downturn of 2008-2009. A manufacturer in the automotive sector that can raise dividends during a downturn is not to be taken lightly.EXCOF data by YCharts
With positive NCAV on the books, the dividend is quite safe, and is currently yielding a respectable 3.30%. Furthermore, the company has indicated it will continue to look for acquisitions and/or share buybacks.
I figure the PEG Ratio (TTM) at 0.37, marking it as a great opportunity for GARP investors. I arrived at the figure using US dollars in the price for EXCOF and earnings reported in Canadian dollars. Guru Focus calculates the PEG to be 0.42. But even if the PEG were twice as high at 0.84, it would still be a good buy.
Exco still reported a promising outlook. OEM production should grow in Mexico. Performance is expected to improve as losses are expected to decline in South Africa and Lesotho following plant closures. “The trend toward strong interior trim demand caused by greater OEM vehicle refresh/redesign and /or launch of entire new models continues unabated.”
Profitability and Valuation
The following graphic is from their 2016 annual report, summarizing not only the business, but also a few key figures:
The trailing twelve month (TTM) figures show increases sales, net income, and EPS over 2016 in the bar graph above. Only cash flow from operations is lagging:
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Sales (TTM): $614
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Net Income (TTM): $51
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Diluted EPS (TTM): $1.21
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Cash flow from operations (TTM): $65
At 17.64, the forward rate of return is more than twice the 6-7% expected of the S&P 500.
Even so, the Canadian stock on the Toronto exchange is at multi-year lows. EXCOF, which trades over the counter in the States, mirrors the Toronto stock.
There is the ever-present possibility that the long bull market will come to an end soon. The automotive sector is believed to be in a downturn as well. These risks are mitigated by the company’s strong balance sheet and its history of increasing dividends through the last downturn.
-The
19th Guangzhou Die-casting, Foundry & Industry Furnace Exhibition
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