COMPX INTERNATIONAL INC CIX
May 21, 2014 - 4:35pm EST by
finn520
2014 2015
Price: 10.94 EPS $0.00 $0.00
Shares Out. (in M): 12 P/E 0.0x 0.0x
Market Cap (in M): 136 P/FCF 0.0x 0.0x
Net Debt (in M): -35 EBIT 9 12
TEV: 101 TEV/EBIT 10.4X 7.5X

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  • Family Controlled
  • Maritime
 

Description

Business Description
 
CompX International (CIX) is a Dallas, TX-based company with two segments: Security Products (niche locks and lock components) and Marine Components (parts for ski/wakeboard boats). The company is part of the Harold Simmons empire and is 90% owned by Simmons affiliates.  Simmons was a Texan billionaire who passed away in December 2013 and who controlled a number of interlocking public companies: VHI, NL, KRO, CIX
 
Stock price $10.94, 12.4m shares, $136m m cap, $35m net cash, $101m EV.  This is thinly traded at roughly $75k/day so is only suitable for personal accounts.
 
All numbers TTM:
Security Products: $85m revenue, $27m gross profits, $18m EBIT
Marine Components: $11m revenue, $2m gross profits, $0m EBIT
Corporate OH: -$6m EBIT
Total: $11m EBIT
 
Security Products: This business manufactures and sells niche locks and lock components for a wide variety of end markets.  One can get a good sense of these markets from the company website: http://compx.com/csp.html
 
The segment has been stable over time and shown modest EBIT growth, from $9.5m EBIT in 2003 to $16.1m EBIT in 2013 and $18.0m EBIT TTM.  Revenue has been flat but EBIT margins have increased dramatically from 12.2% to 23.1% over that period as the company has focused on higher margin niche products.  Segment assets have also been flat for a long time and thus this incremental growth has required little capital.  I estimate the Security Products segment earns 25% pretax ROTIC with fully-loaded Corporate OH in that number.

Marine Components: This business makes parts for ski/wakeboard boats.  It is currently subscale and the company is building it up.  It is now roughly breakeven at $11m sales after losing money for the past 5 years.

The company had another segment, Furniture Components, that it sold in 2012 for $59m moving the company to a net cash position.

Thesis

I think this is a quality business selling at a reasonable price.  The Security Products segment, which provides almost all of the value, is stable, growing, and appears to be an attractive takeout target.  Sales grew 3% in 2012, 11% in 2013, and 21% in 2014 Q1.  EBIT in Q1 grew year-over-year from $3.2m to $4.7m.  Currently, the company is trading at 9.0x EV/EBIT and at year end that should be sub-8x EV/EBIT.  I think this is an attractive price to own this business and that in a takeout it could fetch in the mid-to-high teens per share.  I do not know if the Simmons estate will sell.  Given his death in December, it seems the odds of that have increased.  Simmons sold Titanium Metals (TIE), which he controlled, in late 2012, so there is some precedent along those lines.

The company paid a $0.50/share dividend for a number of years but cut that to $0.20/share in 2013 due to the sale of the Furniture Components segment.  The company has historically run with net debt and the last time the compandy had significant net cash, in late 2007, it repurchased 16% of shares outstanding from a Simmons affiliate, albeit at the top of the market.

David Bowers is the CEO, age 76, and has been in the role since 2002 and at the company since 1960.  He writes a one-page letter to shareholders every year, available on the website back to 2004.  He only owns 10k shares but made a 1.7k share open market purchase in March 2014 at $10.73/share.

 

I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.

Catalyst

Possible sale of the company.
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    Description

    Business Description
     
    CompX International (CIX) is a Dallas, TX-based company with two segments: Security Products (niche locks and lock components) and Marine Components (parts for ski/wakeboard boats). The company is part of the Harold Simmons empire and is 90% owned by Simmons affiliates.  Simmons was a Texan billionaire who passed away in December 2013 and who controlled a number of interlocking public companies: VHI, NL, KRO, CIX
     
    Stock price $10.94, 12.4m shares, $136m m cap, $35m net cash, $101m EV.  This is thinly traded at roughly $75k/day so is only suitable for personal accounts.
     
    All numbers TTM:
    Security Products: $85m revenue, $27m gross profits, $18m EBIT
    Marine Components: $11m revenue, $2m gross profits, $0m EBIT
    Corporate OH: -$6m EBIT
    Total: $11m EBIT
     
    Security Products: This business manufactures and sells niche locks and lock components for a wide variety of end markets.  One can get a good sense of these markets from the company website: http://compx.com/csp.html
     
    The segment has been stable over time and shown modest EBIT growth, from $9.5m EBIT in 2003 to $16.1m EBIT in 2013 and $18.0m EBIT TTM.  Revenue has been flat but EBIT margins have increased dramatically from 12.2% to 23.1% over that period as the company has focused on higher margin niche products.  Segment assets have also been flat for a long time and thus this incremental growth has required little capital.  I estimate the Security Products segment earns 25% pretax ROTIC with fully-loaded Corporate OH in that number.

    Marine Components: This business makes parts for ski/wakeboard boats.  It is currently subscale and the company is building it up.  It is now roughly breakeven at $11m sales after losing money for the past 5 years.

    The company had another segment, Furniture Components, that it sold in 2012 for $59m moving the company to a net cash position.

    Thesis

    I think this is a quality business selling at a reasonable price.  The Security Products segment, which provides almost all of the value, is stable, growing, and appears to be an attractive takeout target.  Sales grew 3% in 2012, 11% in 2013, and 21% in 2014 Q1.  EBIT in Q1 grew year-over-year from $3.2m to $4.7m.  Currently, the company is trading at 9.0x EV/EBIT and at year end that should be sub-8x EV/EBIT.  I think this is an attractive price to own this business and that in a takeout it could fetch in the mid-to-high teens per share.  I do not know if the Simmons estate will sell.  Given his death in December, it seems the odds of that have increased.  Simmons sold Titanium Metals (TIE), which he controlled, in late 2012, so there is some precedent along those lines.

    The company paid a $0.50/share dividend for a number of years but cut that to $0.20/share in 2013 due to the sale of the Furniture Components segment.  The company has historically run with net debt and the last time the compandy had significant net cash, in late 2007, it repurchased 16% of shares outstanding from a Simmons affiliate, albeit at the top of the market.

    David Bowers is the CEO, age 76, and has been in the role since 2002 and at the company since 1960.  He writes a one-page letter to shareholders every year, available on the website back to 2004.  He only owns 10k shares but made a 1.7k share open market purchase in March 2014 at $10.73/share.

     

    I do not hold a position of employment, directorship, or consultancy with the issuer.
    Neither I nor others I advise hold a material investment in the issuer's securities.

    Catalyst

    Possible sale of the company.

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