CompX International

Matthew ClarkChristopher Goetze

Company Overview

• Micro Cap – 133 Million• Headquarters in Dallas, TX• Industry: Security and Protection Services• Two segments– Security Products– Marine Components

Company Manufacturing

• Security Products– mechanical and electrical cabinet locks and other

locking mechanisms used in recreational transportation, postal, office, etc. applications.

• Marine Components– stainless steel exhaust systems, gauges, throttle

controls and trim tabs

Industry Analysis

Industry Life Cycle Position

• Security and Protection Services industry • Mature Phase• Stable and sees a growing demand for security

products where people are worried about the security of their personal information

Industry Reaction to Business Cycle

• Security and Protection Services industry is a non-cyclical industry

• Their Marine Services Products are affected by seasonal changes like weather and summer time

• Will expose the Marine Components segment to cyclical changes

External Factors affecting CompX

Government

• New legislation regarding climate change and the environment could pose a threat to the marine product services segment.

• It could increase the cost of production and may affect future sales through the possible price increase – while trying to appease legislation and follow the

laws.

Foreign

• A threat that is posed on CompX is the manufacturing of similar products in foreign countries across Asia– due to cheaper labor and materials – which allows foreign competitors to undercut

CompX International’s prices.

Company Specific Analysis

Overview

• Security and Protection Products– Many different kinds of locking systems

• Marine Components– Different parts for boats and other marine

equipment

• Generating a CAGR of 6.43%

Corporate Strategy

• Diversifying the products they offer since 2006– Expand their customer base

• Emphasis on new product development and sales to additional markets – increased their potential for future sales and has

helped diversify their risk

Life Cycle

• CompX International is nearing maturity• Their diversified product line still provides

some growth potential• A foreign country such as China could make

and sell their products cheaper than CompX International

• Still see the company seeing the same returns in past years even if this happened

Products and Markets

Products and Market Lines

• CompX International’s main product line is their mechanical and electrical cabinet locks and other locking mechanisms– accounted for roughly 87.7% of their revenues in

their most recent fiscal year– traditional locks which include KeSet®, System

64®, TuBar®, and Turbine™– e-locks which include CompX eLock®, and also

StealthLock®

Product and Market Lines

• CompX International’s secondary product line is their recreational marine components– This product line accounted for roughly 13.3% of

their revenues in their most recent fiscal year– CompX is an Original Equipment Manufacturer

(OEM) which makes the parts that are used in a different company’s end product

– CompX’s productions of these parts are branded under various names

Market for Company’s Products

• The markets for CompX’s products include locksmith distributors, and OEM customers.

Marketing Strategy and Customer Support

• CompX has a marketing strategy of their engineers and sales people partnering with representatives within the respective companies they do business with.

• CompX also relies heavily on their dealer network and how they present their products to their customers.

Significant Customers

• CompX’s customer base is diverse and the loss of any single customer would not affect the company in a detrimental way

Suppliers and Raw Materials

• many of the products CompX produce use zinc, brass, and steel components– This opens them up to the risks of the

commodities markets

• CompX material costs accounted for 48% of their cost of sales in 2015.

Competition

Competitive Environment

• Their security products have to compete with foreign and domestic competitors as well as the competition involving the price of the raw materials

• Their marine components compete with small domestic manufacturers and limited competition with foreign competitors

Comparative Analysis of Competition

• CompX’s outstanding patents range from less than 1 year to 17 years as of December 2015

• This shows the company’s longevity of protection and innovation of their products

Financial Analysis

Revenue Growth

• CompX International has been growing their revenues by a CAGR of 6.43% over the last 5 years

• This performance is attributable to CompX International’s different revenue generators being diversified and not depending on one another

• Having their security products segment not being a cyclical product, and having only the marine components segment acting cyclical is helpful

Margin Analysis

• CompX International has maintained their margins over time and has showed stable operating margins and gross profit margins since 2012

• CompX International also had a large increase in their profit margin for 2012 and then the profit margin returned back to more of an expected profit margin

Margin Analysis

Relative Valuation

Price to Earnings Multiples

• trades a little more than 14 times its earnings, versus an industry average of 30.3 and the SP500 average of 23.99.

• The Price to Earnings Growth (PEG) multiple, looks to agree when it comes to the Industry, but not the SP500 in this case. It is currently 3.05 for CompX versus the industry at 5.12 and the overall market at 1.96.

• Investors can invest in CompX and it will provide them with a lower Price to Earnings instead of a higher P/E of another stock in the Security Services Sector.

Revenue Multiples

• CompX International trades at 1.21 times sales, versus an industry average of 1.75.

• A consistent measure of value versus sales would be the EV/EBITDA multiple

• CompX EV/EBITDA multiple is 4.54. • The Industry has a EV/EBITDA multiple of 13.15 – much higher than CompX’s EV/EBITDA which shows that

CompX might be undervalued. – This could be explained by CompX having no debt

outstanding which would lower the EV/EBITDA multiple.

Recommendation

• Involved management• Strong Financials• No debt since 2012• Book Value of CompX is $9.48, but currently

trading around $10.70. PBV = 1.12• PBV of the industry = 3.28• Overall Recommendation is to Buy