In today’s content analysis, we discuss about Exco Technologies (XTC), a Canadian mid cap that operates in three main segments: Extrusion Tooling, automobile, and die-cast. Download
Its SPscore of 73% is the second best on the Canadian market, and almost all the indicators we consider in our evaluation process are positive. The return on capital is high, at 15.1%, and the long-term trend is positive. The NOPAT has also been growing at an impressive pace of 25% per year in the past 5 years, so is the invested capital, which shows how well management can identify the best investment opportunities for shareholders.
As for valuation, the stock is currently trading well below its intrinsic value, at a 0.53 P/IV ratio, reflecting a potential upside of close to 90%. The discount is even more interesting considering that it’s the largest observed over the past 5 years. The intrinsic value is also increasing very steadily since early 2015. The Future Growth Value (FGV) of -33% tells us the enterprise value is smaller than the current operating value, even though the latter is growing nicely. Other more traditional ratios also suggest the multiples are very conservative: the price-to-earnings is at 9.7, and the price-to-book is at 1.57.
The economic performance is also good and getting even better. The EVA is extremely stable, its growth rate being very linear and predictable. It confirms the company can create more and more wealth for its shareholders over time thanks to wise capital deployment.
XTC’s accounting performance is also solid. The revenues have been growing at a fast pace over the past 5 years, just like the earnings per share. The company regularly increases its dividend, at an average rate of 16% per year. The dividend yield of 2.8% is also appealing, especially for a mid cap and knowing it’s not at risk. The payout is below 25%, which is very conservative, and the company generates positive free cash-flows. The balance sheet is robust, and leverage is low with a Debt/Equity ratio of 13%.