Outstanding Microcap – CompX International Inc. (CIX)

Johnny HopkinsStocksLeave a Comment

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)

(Source: Google Finance)

compx

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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