Cleaning Up Nice: Cemtrex's Rapidly Growing Conglomerate
- April 13th, 2015
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WHITEFISH, MT / CRWEPRESSRELEASE / April 13, 2015 / Cemtrex Inc. (OTCMKTS:CTEI) is a diversified engineering and technology company that has been steadily - and quietly - growing over the past 15 years. Unlike many micro-cap stocks traded over-the-counter, the company has steadily grown its revenue and net income over the past four years, driven by savvy acquisitions and organic growth in a business that started with a single product line in the environmental space. In this article, we'll take a look at the company's two divisions and why the stock may be undervalued given its growth prospects and relative to peer multiples. ROB Group Acquisition Unlocks Value Cemtrex acquired ROB Group, a German electronics manufacturing company, back in October of 2013 for about $6 million in non-dilutive loans. Through its four divisions, ROB Group provides electronics design, manufacturing, assembly, and cabling solutions serving some of the largest companies in medical, automation, industry, and renewable energy sectors around the world. During FY 2014, the newly acquired segment contributed just over $30 million in revenue, which represents about 63% of its total revenue for the year. While the margins on that revenue were undisclosed, the company's overall gross profit margin improved dramatically in 2014 compared to 2013, suggesting that the acquisition had a favorable impact on the revenue mix (see Figure 1). Figure 1 - CTEI Revenue & Gross Margins - Source: YCharts The contract electronics industry is expected to grow at a 9% CAGR between 2013 and 2018 to reach $670 billion, according to BCC Research, which means that the ROB Group acquisition is also likely to benefit from strong industry tailwinds. Unfortunately, the segment's actual growth rates remain unknown given the limited operating history, but the industry dynamics look promising. Organic Growth in Environmental Services Cemtrex's bread-and-butter lies in its environmental products and systems group, which sells a complete line of air filtration and environmental control products under the brand name Griffin Filters. In addition to these products, the company sells monitoring instruments designed to detect greenhouse gases and other harmful emissions for industrial customers around the world. During FY 2014, the environmental services division grew top-line revenue by nearly 30% to about $17 million, driven by an increased demand for environmental control equipment in foreign markets. Management also attributed the margin expansion for the period in large part to the execution of profitable environmental and filtration projects by the environmental services division. The global environmental sensor and monitoring industry is expected to grow at a 5.9% CAGR to reach $17.6 billion by 2019, according to BCC Research, driven by ongoing government regulations like the Federal Clean Air Act. While the division operates in the same space as larger companies, like CECO Environmental Corp. (NASDAQ: CECE) and Fuel-Tech Inc. (NASQAQ: FTEK), margins have remained stable over time. Potentially Undervalued Cemtrex trades with a market capitalization of approximately $20 million, despite having $47.7 million in revenue, $2.6 million in net income, and double-digit organic growth rates in its environmental business. With about 40 million shares outstanding, the stock has a modest trailing price-earnings multiple of just 7x, understating its growth potential, while trading below top-line peer valuations (see Figure 2).
|CECO Environmental Corp. (CECE)||1.106|
|FuelTech Inc. (FTEK)||0.8975|
|Donaldson Company Inc. (DCI)||2.147|
|Cemtrex Inc. (CTEI)||0.3672|
Figure 2 - Peer Comps - Source: YChartsUsing a comparable P/S ratio of 1 to 1.5 would put the stock price at around $1.17 to $1.76. At the current valuation even a modest movement toward its peer valuations could mean decent returns. While the company incurred some debt in order to finance the acquisition of ROB Group, it's worth noting that the debt is "friendly-debt" in that its held by regional commercial banks with favorable terms and related parties that are unlikely to be hostile in collection. The firm's cash flow also remain robust enough to cover the debt payments with plenty of room to spare, which suggests a relatively low probability of default. Moving forward, the company's growth rates are likely to continue due to a combination of growth in the contract electronics manufacturing industry as well as ongoing regulatory compliance - both in the U.S. and internationally - for its filtration and other environmental products. As a result, the modest valuation by growth and peer metrics may be attractive to investors. Takeaway Points Cemtrex is a diversified engineering and technology company that has built up an impressive business over the past 15 years. With its acquisition of ROB Group back in 2013 and consistent organic growth, management has significantly increased the size of the company in a bid to attract more investment. As these growth rates continue, it's likely the market will start to notice this little-known stock. Investors in the environmental services or contract electronics manufacturing space may want to take a closer look at the stock now. With its compelling valuation and profitability, the micro-cap over-the-counter company is significantly less risky than many of its counterparts. Growing top-line and bottom-line results should eventually help the firm close its valuation gap over the long-term. For more information, visit the company's website at www.cemtrex.com. About Emerging Growth LLC EGC is a marketing and consulting firm that specializes in creating ongoing communications strategies for public and private companies. Legal Disclaimer: Except for the historical information presented herein, matters discussed in this release contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Emerging Growth LLC is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. Emerging Growth LLC may from time to time have a position in the securities mentioned herein and may increase or decrease such positions without notice. For making specific investment decisions, readers should seek their own advice. Emerging Growth LLC may be compensated for its services in the form of cash-based compensation or equity securities in the companies it writes about, or a combination of the two. For full disclosure please visit: http://secfilings.com/Disclaimer.aspx SOURCE: Emerging Growth LLC ###
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