Yahoo Finance
Filing
Feb. 11, 2019
2019 Q1 Data
Price: $2.97 Shares:6.5m, Cap: $19m
1.Business Information
(1) History
The company was founded by Steve Reko in 1976 as a tool and mould company. Gradually grow the business and took it public in 1994. At that time, it already generates $25m in revenue. Its main customer is the big 3 US automakers. After that till 1999, it grew very well and reached $79m peak revenue in 1999 and $7.7m in profit. After that its revenue was down in 2000 and 2001 to $50m but rebounded to $60m to $70m level from 2002 to 2006. The profit remains low or even unprofitable. Since 2007 to 2009, revenue down to $50m level with some losses. Also at 2007, Steve Reko passed away and his daughter Diane took over the CEO role. At 2010, revenue down to $40 and lost several million.
At 2011, the company was getting almost bankrupted. Luckily it consolidated several factories to only 2 and sold the other buildings and paid down its debt. From 2012 to 2018, its revenue was up and down but remained at $40m to $50m level. It became more profitable. At 2016, it achieved again $7.6m profit on $50m revenue. However, in the last two years, its revenue was down to $40m level again profit down to $2m level.
At 2017 to 2018, it opens a new 40k sqft automation facility adjacent to its current building.
(2) Major business.
1) Tool and Mould: This is making the mold for the automaker to make the plastic parts of its vehicle. It is very tight related to the new model release number and also the auto sales number. Usually, one mold could cost $0.5m in cost and could be used to stamp 1m units.
2) Precision Machining: Also mainly used to build part of the machine for the automaker.
3) Automation: Supply automation hardware like robotics and related services to other manufacturers.
(3) Debt and Credit Facility.
By Q1 2019, it has around $11m in debt. Among which around $10m is mortgage at around 4% -5% in interest.
(4) Employee numbers
(5) Industry comparison.
(6) Major events
2. Management
(1) Key person
Diane Reko: Steve Reko's eldest daughter. He was a director of the company since 1984. She took over Steve's position after his death and lead the company through the 2009-2011 recession. The company's consolidation in 2011 was a great move and saved the company. Overall, she did a great job turning the company around and improves the profitability of the company.
(2) Insider ownership
The Reko family always holds 50% to 60% shares over the years.
3. Financial data.
(2018 data is not correct)
4. Valuation
(1) Currently, the company was traded around 10 P/E multiples. Also, its book value is more than double the current price. The main reason is that currently there is an expectation of the downturn of the auto industry.
(2) The automation division might generate good growth.
5. Risk
(1) Historically the company wants to shift away from too rely on the auto industry. However, it couldn't diversify its business even now. Any downturn of the auto industry will still have a big impact on the company. But I think now the company is much stronger than the 2010-2011 period, also, it is not likely that the big 3 will have the same trouble as then.
(2) The company's new automation facility might not generate profit.
6. Conclusion
Diane Reko did an impressive job turning the company around in the 2010 period. The company was in much better shape after that and is being managed well. The price is quite cheap as long as the company can remain profitable. Also, there is growth potential in the automation division.
7.Links
Price 3.45. Shares 6.3m. Cap 22m.
Full-year ends July 31, 2019
1. Revenue up to $48m vs $42m. last year. Net income $1.5m including 0.4m in currency loss and $3.7m in depreciation vs $1.8m in CapX. Using Normal CapX of $3m, real income should be $2.6m. Real income in 2018 might be 1.5m. Debt $10.3m, cash $5.4m.
