Core-Mark Holding Company, Inc. (CORE)

Core Molding Technologies

Price: 10.68
Market Cap: $107.17 million
P/E: 12.65
EPS (ttm): 0.84

http://www.coremt.com

Business

Core Molding Technologies operates as a compounder of sheet molding composites (SMC) and molder of fiberglass reinforced plastics in the United States. It engages in the production and sale of SMC compound and molded products for various markets, including light, medium, and heavy-duty trucks; automobiles and automotive aftermarkets; personal watercraft; and other commercial products. It also supplies reinforced plastic products to other truck manufacturers, automotive suppliers, manufacturers of commercial products, and wholesale distributors. Core was founded in 1988.

Something to note is that Stock Advisor pick, Paccar, is a major customer of Core. Sales to Paccar amounted to 12% of total sales in 2005, up from 4% and 3% from 2004 and 2003. Core provides Paccar with roofs, backpanels, shrouds, and other components which Paccar uses primarily on its heavy and medium duty trucks. The thing I like with this is that Core has a major customer with a multi-billion dollar, very steady company. Core's smart with their customers.

Another major customer is Yamaha, who Core has been providing SMC products to since 1990. Yamaha made up 8% of Core's total 2005 sales, compared to 12% and 15% in 2004 and 2005.

Core has been growing through acquisitions and expanding their own business products. They bought Airshield, a Mexican business, and Core is now importing approximately a fifth of their products. The latest acquisition was announced on November 8, and the company they are acquiring is Premix, a privately held manufacturer and developer of thermoset compounds and a custom molder of fiberglass reinforced products with more than 46 years of experience. (Terms weren't disclosed.) Premix had approximately $75 million annual sales in fiscal 2006, so this seems like a smart acquisition.

Core named Kevin Barnett, aged 44, as the new CEO, after previous CEO James Simonton announced his retirement (effective Jan. 1). Barnett has been with Core since 1997, so he brings experience and younger blood in at the same time. I think he'll be a good leader for Core.

Financials

Core has the capacity to manufacture approximately 48 million pounds of SMC sheet material annually.

Core has a pretty strong balance sheet, with $11.68 million in cash and $10.75 million in debt. The debt situation has been improving every quarter for the past year, and is at its lowest point since fiscal 2000, and cash is very close to its highest amount of cash since fiscal 2000 as well. So, the balance sheet is strong and improving.

Cash flow has been positive and rarely negative since fiscal 2000, and Core has never relied on the bank to fuel growth. The 3Q produced $4.57 million in cash flow from the business.

3Q 2006 Highlights

** Net income of $2,938,000, compared to $1,511,000 in the previous year, or $.28 this year and $.14 in 3Q 2005. So, income is growing very strong.
** For the first nine months of 2006, net income was $7,723,000, or $.74 per diluted share, compared with $5,202,000, or $.50 per diluted share.

**Total net sales were $48,078,000, compared with $31,614,000 in the same quarter of 2005.
** Product sales increased 25 percent, to $38,854,000, from $31,045,000 for the same period in 2005, primarily because of strong demand from medium and heavy duty truck customers (probably had something to do with Paccar).
** Tooling sales totaled $9,224,000 versus $569,000 for the similar time period in 2005. This is not a recurring area of business, it is sporadic and not a business trend.

** Profit margin increased to 6.11% from 4.81% in fiscal 2005
** Operating margin increased to 9.46% from 7.96% in fiscal 2005
** ROA increased to 13.79% from 8.78% in fiscal 2005
** ROE increased to 28.87% from 20.80% in fiscal 2005

Margins are strongly increasing, as are ROA and ROE. The balance sheet is strengthening, the business is producing strong cash flow and isn't relying on the bank to fuel growth, net income is increasing strongly, as are sales. Share dilution hasn't been a big problem, the company has been able to keep it under control and strengthen the balance sheet at the same time.

The P/E of 12.65 seems incredibly low considering earnings growth, expanding margins, and the strengthening of the balance sheet. The low P/E is probably because of Core's size, as well of because it's trading on the AMEX (the obscure stock exchange of America), and the fact that no analysts are following the stock. The industry average for the P/E is 17.27.

I think this is a gem of a company, especially when considering all the above and the fact that no director has been with the company less than six years. This will be an interesting one to follow, and I really think we'll see great returns from this point out, but will have to do some more research to get a better understanding of the business before making an investment myself.

Resources:

http://www.coremt.com/
http://finance.google.com/finance?q=CMT
http://finance.yahoo.com/q?s=CMT
http://biz.yahoo.com/prnews/061108/nyw070.html?.v=78
http://biz.yahoo.com/prnews/061108/clw513.html?.v=52