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Option1307 (29.75)

I still Like Compass Diversified Holdings (CODI)

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March 26, 2013 – Comments (0) | RELATED TICKERS: CODI

I’ve been a holder of this company for almost a year now and thought it would be worthwhile to take a look at how things have fared thus far.

CODI is sort of a unique company; it is basically a publicly traded private equity firm. You can think of it as a BDC for simplicity’s sake. The company focuses on purchasing a controlling interest in niche companies with strong brand names, growing them, and ultimately selling them off for a nice profit. CODI has been around since late 2005 and so far has been rather successful. One of the best aspects of this company is that they have continued to increase their dividend; even with the economic meltdown in 2008-2010 they remained committed to their strong dividend.

There have been a few turnovers in regards to the portfolio of companies.

--> Notably HALO was sold in May 2012 for a small loss of 0.5 million.

--> Purchased Arnold Magnetics, a leading worldwide manufacturer of design specific permanent     magnets, in March 2012 for 130 million.

 

CODI still maintains a wide array of companies, 8 separate entities in total that cover very different markets. Below are the 8 current holdings and recent financial data.

1) Advanced Circuits – A manufacturer of printed circuit boards, acquired in 2006.

   --> Net sales

     o   2011 = 78.5 million

     o   2012 =  84.1 million

   --> Operating income

     o   2011 = 26.6 million

     o   2012 24.0 million

 

2) American Furniture – Large scale manufacturer of upholstered furniture, acquired in 2007. Company has been hit hard by recent economic times and has yet to fully rebound. Cost saving measures were implemented in 2012 which dramatically reduced the operating loss for CODI.

   --> Net sales

     o   2011 = 105.3 million

     o   2012 =  91.3 million

   --> Operating income

     o   2011 = loss of 35.2 million

     o   2012 loss of 1.5 million

 

3) Arnold Magnetics – Acquired in 2012

   --> Net sales

     o   2012 since acquisition = 104.2 million

   --> Operating income

     o   2012 loss of 0.5 million

4) CamelBak– Produces personal hydration systems, acquired in 2011

   --> Net sales

     o   2011 = 42.7 million

     o   2012 =  157.6 million

   --> Operating income

     o   2011 = Loss of 6.8 million

     o   2012 = 25.5 million

 

5) Ergobaby – Designer and manufacturer of baby transporting products and strollers, acquired in 2010

   --> Net sales

     o   2011 = 44.3 million

     o   2012 =  64.0 million

   --> Operating income

     o   2011 = 7.9 million

     o   2012 10.9 million

 

6) Fox Racing Shox – Designs and manufacturer of high performance suspension systems, acquired in 2008.

   --> Net sales

     o   2011 = 197.7 million

     o   2012 =  235.9 million

   --> Operating income

     o   2011 = 22.6 million

     o   2012 26.2 million

 

7) Liberty Safe – A manufacturer of home and office safes, acquired in 2010.

   --> Net sales

     o   2011 = 82.2 million

     o   2012 =  91.6 million

   --> Operating income

     o   2011 = 4.3 million

     o   2012 6.0 million

 

8) Tridien Medical – A medical device company specializing in patient support services and products, acquired in 2006.

   --> Net sales

     o   2011 = 55.9 million

     o   2012 =  55.9 million

   --> Operating income

     o   2011 = 5.0 million

     o   2012 3.7 million

As you can see their array of companies is as diverse as possible. For me the most exciting aspect of CODI is their interest in CamelBak and Ergobaby. Both of these companies are very strong in their respective fields and have a lot of brand loyalty associated with them. This is where I see a lot of their organic growth coming from in the next few years. The CamelBak deal was initially criticized by some who felt it was overpriced. CamelBak had experienced a decline in sales and profit margin the prior few years and multiple people were not thrilled with this acquisition. However, so far things have been turning around for CamelBak which bodes very well for CODI. I expect this trend to continue in the near future.

American Furniture has been sort of a drain on CODI the last few years. 2012 showed another loss but it was greatly reduced with cost cutting measures etc. which is a good sign. If housing continues to rebound as I expect things will likely turn positive for American Furniture.

As I mentioned earlier CODI pays out a killer dividend of 1.44 yearly which equates to just over 9% at todays prices. That is certainly not too shabby in todays market. I view this dividend surprisingly stable as CODI has never had to decrease their annual dividend, even during 2009 when the market got ugly. In fact, they have been in the habit of increasing their dividend every few years.

So far management has proven to be pretty solid. They have acquired several key properties and made some nice turn around stories (CamelBak), and sold off those that were no longer performing. Buying into CODI requires a good deal of trust into management and I think they have proven themselves fairly competent over the last few years.

I’m not looking to add to my position at these levels nor would I really recommend starting one here as I find the market a little hot (see here and here). However, in the zero interest rate environment that we live in currently I think CODI makes an excellent choice for income and growth in any significant market pullback we get.

 

 

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