I came across a small-cap named Luxfer (LXFR) and wanted to analyze it. Luxfer manufactures gas cylinders and magnesium and zircon parts for several industries. They’ve lost a lot of sales and had to reduce headcount. Fuel cells could be a potential catalyst as Luxfer is a leader in gaseous tanks for vehicles.
Source: company’s website.
The stock trades for $13.31, 27.6 million shares, and the market cap is $367 million. Definitely a small cap, some might even say a microcap. Earnings per share were 48₵ and the stock trades at price to earnings ratio of 27. The dividend is 50₵ and the dividend yield is 3.75%. That’s a nice dividend yield and certainly beats what you can get at the bank.
Sales were $418 million in 2016, shot up to $488 million in 2018 and, subsequently, dropped to $443.5 million in 2019. Net income was $22 million, $25 million, and $3 million over that time frame. Sales took a drop in those years due to a divesture, weak sales in U.S. shale gas, weak sales in European automotive, and weak currencies.
The balance sheet shows $10 million in cash and $52 million in receivables. The liability side shows $36 million in accounts payables and $91 million in debt. Not a bad balance sheet.
The company receives 32% of its sales from what it calls industrial, 38% from defense/first responder/medical, and 30% from transportation. Ever heard the term “mag wheels”? As in magnesium wheels on old hot rods? Luxfer makes magnesium parts for the aerospace and other industries. Magnesium is also used in meal heating kits for soldiers back packing it and decoy flairs coming off of fighter jets. The company also uses zirconium in catalysts.
Luxfer is the world’s largest manufacturer of aluminum gas cylinders. These cylinders are used in diving and fire extinguishers. They are also used on buses and trucks for compressed hydrogen and natural gas. I would think that this would be a growth industry.
55% of sales come from the U.S., 8% U.K., 21% Europe, 11% Asia Pacific, and 5% for the rest of the world. I’ve analyzed many British and European companies over the years that derive most of their sales in the U.S.
Luxfer got spanked with Covid-19 in the second quarter of this year. Military exercises and SCUBA training decreases have affected that division with a 5.9% drop in sales. Aerospace and auto are down 29.1%. That makes sense with all of the shut down flights and problems with that industry. Cumulatively, sales were down 21.1%.
The company states that the highly engineered parts industry is $10 billion and gas cylinder industry is $2 billion. If Luxfer could continue to break in, there is room to grow.
I found this article in Forbes about Airbus (OTCPK:EADSF) working on hydrogen powered aircraft that could be ready by 2035. While Luxfer doesn’t make tanks for the airline industry (as far as I know), it shows that this nascent industry could be a great place to invest. Imagine the billions of research and development that Airbus and others are going to plow into.
I was curious to know where Luxfer sourced its metals. According to the Annual Report, the company gets about half its magnesium from China and the other half from North American suppliers, Dead Sea Magnesium in Israel, RIMA Industrial in Brazil, and two smelters in Russia. Much of its aluminum comes from Rio Tinto Alcan. Most of its zircon comes from South Africa and Australia, both countries are mining giants.
This link takes you to an article about how oxygen was delivered to the trapped Chilean miners via Luxfer cylinders. A hole was drilled to reach the miners.
I was thinking about how in the original Jaws, they killed the great white by shooting an oxygen canister is its mouth. Here is a link on YouTube on how Luxfer manufactures carbon cylinders. Ironically, they are using Fanuc (OTCPK:FANUY) robots which our firm has bought for its clients.
In response to the big slowdown with Covid-19, there was a 10% reduction in headcount and 30% reduction in executive salaries. The share buyback program was put on hold.
In regards to growth opportunities, a relationship with Northern Ireland-based Wrightbus was mentioned in the most recent conference call. Luxfer concentrates on producing gas tanks for larger equipment, not cars and trucks. Luxfer manufactures Class III and IV cylinders for Wrightbus. Wrightbus even makes double-decker buses.
Stephen Simpson wrote about Luxfer a few years ago. At the time, the company lost a major defense contract.
The stock was $19 back in December, fell to $11 when the markets crashed in March and are up a few bucks a share. You’d really have to have some good information to know if the stock was a buy. Luxfer is a neat company and I’m glad I ran across it. It’s a small company, but if it had a good run in one of its industries like fuel-cell tanks, it could take off.
Is the stock a buy? Well, are its industries going to recover after Covid-19? You need to follow these guys because if they win a big contract, the stock will take off. Small caps are the way for the individual investor to make money because there is a dearth of information out there. Everyone has their eyes on the mega caps.
Disclosure: I am/we are long FANUY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.