One of the great little companies in our Small & Micro Cap Screener, which you can register for here, is CompX International Inc. (NYSEMKT:CIX).
CompX is a leading manufacturer of engineered components utilized in a variety of applications and industries.
Through its Security Products segment the company manufactures mechanical and electronic cabinet locks and other locking mechanisms used in recreational transportation, postal, office and institutional furniture, cabinetry, tool storage and healthcare applications.
CompX also manufactures stainless steel exhaust systems, gauges, throttle controls and trim tabs for the recreational marine and other industries through its Marine Components segment.
The company’s share price currently sits around $11.38, down from a high of $15.19 on July 26.
(Source: Google Finance)
Revenues
As you can see from the chart below, sales for the six months ending June 30, 2016 were down slightly to $54.2 Million from $56.8 Million for the previous corresponding period but, the company still maintains very healthy gross margins around 30% and operating margins around 13%. Net income was also down 11% from the previous corresponding period.
The company stated that the decrease in sales was primarily due to a decrease of approximately $1.6 million and $3.2 million in sales for a government security end-user that did not recur in the second quarter or first six months of 2016, respectively.
| Six Months Ending | June 30, | |||
| (Amounts in thousands) | 2015 | 2016 | ||
| (unaudited) | ||||
| Net sales | $ | 56,808 | $ | 54,182 |
| Cost of goods sold | 39,082 | 37,491 | ||
| Gross profit | 17,726 | 16,691 | ||
| Selling, general and administrative expense | 9,719 | 9,621 | ||
| Operating income | 8,007 | 7,070 | ||
| Interest income | 16 | 73 | ||
| Income before taxes | 8,023 | 7,143 | ||
| Provision for income taxes | 2,799 | 2,505 | ||
| Net income | $ | 5,224 | $ | 4,638 |
Now let’s have a look at the real value of CompX. First let’s take a look at the company’s latest statement of cashflows for the six months ending June 30, 2016.
Real Value
Here’s what I love to see, a really uncomplicated statement of cashflows showing that the company has operating cashflow of $1.8 Million. Capital expenditures were $1.7 million in the first six months of 2016 compared to $1.9 million in the first six months of 2015. Capital expenditures for 2016 include approximately $994,000 related to the expansion of its Grayslake facility which was completed in April 2016.
| Six Months Ending June 30 | ||||
| (Amounts in thousands) | 2015 | 2016 | ||
| (unaudited) | ||||
| Cash flows from operating activities: | ||||
| Net income | $ | 5224 | $ | 4638 |
| Depreciation and amortization | 1771 | 1850 | ||
| Deferred income taxes | -224 | -26 | ||
| Other, net | 216 | 291 | ||
| Change in assets and liabilities: | ||||
| Accounts receivable, net | -4348 | -3634 | ||
| Inventories, net | 632 | 851 | ||
| Accounts payable and accrued liabilities | -2762 | -1639 | ||
| Accounts with affiliates | 174 | 164 | ||
| Prepaids and other, net | -95 | -626 | ||
| Net cash provided by operating activities | 588 | 1869 | ||
| Cash flows from investing activities – | ||||
| Capital expenditures | -1913 | -1674 | ||
| Cash flows from financing activities – | ||||
| Dividends paid | -1240 | -1242 | ||
| Cash and cash equivalents – net change from: | ||||
| Operating, investing and financing activities | -2565 | -1047 | ||
| Balance at beginning of period | 45570 | 52347 | ||
| Balance at end of period | $ | 43005 | $ | 51300 |
Net cashflow after investing was $194,000. The company spent $1.2 Million on dividends to its shareholders, leaving a change in its cash position at the end of the period of ($1 Million). Even when we subtract $1 Million from the company’s bank account, that still leaves CompX with $51.3 Million.
Strong Balance Sheet
Now let’s take a look at the balance sheet (below). CompX has $51 Million in cash and cash equivalents and zero debt. In fact the company only has $15.6 Million in total liabilities. If we subtract that $15.6 Million from its cash it still has an excess of $35.4 Million.
| (Amounts in thousands) | June 30, 2016 | |
| ASSETS | (unaudited) | |
| Current assets: | ||
| Cash and cash equivalents | $ | 51,300 |
| Accounts receivable, net | 12,386 | |
| Inventories, net | 14,124 | |
| Prepaid expenses and other | 1,330 | |
| Total current assets | 79,140 | |
| Other assets: | ||
| Goodwill | 23,742 | |
| Other noncurrent | 590 | |
| Total other assets | 24,332 | |
| Property and equipment: | ||
| Land | 4,928 | |
| Buildings | 22,517 | |
| Equipment | 64,923 | |
| Construction in progress | 455 | |
| 92,823 | ||
| Less accumulated depreciation | 59,526 | |
| Net property and equipment | 33,297 | |
| Total assets | $ | 136,769 |
| Current liabilities: | ||
| Accounts payable and accrued liabilities | $ | 9,968 |
| Income taxes payable to affiliates | 634 | |
| Total current liabilities | 10,602 | |
| Noncurrent liabilities – | ||
| Deferred income taxes | 4,975 | |
| Total Liabilities | 15,577 | |
Valuation
CompX currently has a market cap around $141 Million. When we subtract its cash of $51 Million that means the company has a Enterprise Value of $$90 Million. The company is trading at 6.91 times operating earnings on a P/E of 15.57.
So there you have it. CompX is a great little undervalued company with solid gross margins, a strong balance sheet, zero debt, loads of free cash, a FCF/EV yield of 9% (TTM), and a 2% dividend yield.
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