Author Topic: FSCR- Federal Screw Works  (Read 8577 times)

brycepeterson

  • Newbie
  • *
  • Posts: 34
Re: FSCR- Federal Screw Works
« Reply #10 on: September 04, 2018, 09:36:07 AM »
Thanks for the EV #'s, debtculture.  Does anyone have 2017 FCF #?  And 2018 and 2019 FCF estimates? 

DTE - what's your FCF projection for '18 and '19?

I made a lot of $ on Magnetek a few years ago.  They make aerial lift systems (cranes, lifts).  They had a huge pension deficit.  To make a lot of $ you need (a) low entry price FCF to EV (b) company uses FCF to aggressively pay-down debt & pension.  At the time, MAG's biz was also growing FCF.

Thanks,

Bryce


DTEJD1997

  • Hero Member
  • *****
  • Posts: 1759
Re: FSCR- Federal Screw Works
« Reply #11 on: September 04, 2018, 02:34:48 PM »
Thanks for the EV #'s, debtculture.  Does anyone have 2017 FCF #?  And 2018 and 2019 FCF estimates? 

DTE - what's your FCF projection for '18 and '19?

I made a lot of $ on Magnetek a few years ago.  They make aerial lift systems (cranes, lifts).  They had a huge pension deficit.  To make a lot of $ you need (a) low entry price FCF to EV (b) company uses FCF to aggressively pay-down debt & pension.  At the time, MAG's biz was also growing FCF.

Thanks,

Bryce

Bryce:

I have no finalized numbers at this point for 2018...the 4th quarter and annual report should be out in about 3 weeks.  So far, in the 1 9 months of the year, FSCR has only earned $.94/share, which is down somewhat from the prior year.  HOWEVER, the 4th quarter is usually strong.  I could see FSCR earning WELL over $1/share in this year's 4th quarter. 

FSCR is almost certainly going to get some MAJOR help on their pension obligation due to the strong performance of the overall market this last year.  That could add another $1.50/share in book value (as pension deficit goes down).

I am going to wager that management knows 4th quarter will be very good, that is why the special dividend was declared.

Could we see operating earnings of close to $3/share?  Maybe?

In the late 90's and early 2000's, FSCR was earning up to $8/share.  I don't think we will go back to those level of earnings...but $4/share if the economy stays strong might not be too far a stretch.

Management has been spending a lot of cash flow on equipment.  I am going to wager that a chunk of this is for a potential new truck contract.  If that assumption is correct, AND assuming they now have all (almost all) of the desired machinery in place, they might have tremendous cash flow.

I think FSCR is totally flying under the radar and is better managed than it appears at first glance.  Like a lot of my other ideas, many other investors I know simply refuse to even consider such wild & wacky ideas of car parts supplier trading for a P/E of 2.

We will see. 

brycepeterson

  • Newbie
  • *
  • Posts: 34
Re: FSCR- Federal Screw Works
« Reply #12 on: September 04, 2018, 04:59:09 PM »
Thanks DTE.

I looked at the last 3-4 years cash flow on the OTC markets page.  Looks like FSCR has produced negative FCF in total (one year was +$2 million).  If, given its best FCF year, at $50 million EV, that's only a 4% FCF yield ($2 million FCF / $50 million EV).  I like to invest in companies producing FCF vs. EV, thus would pass at this price.  (I'd need to see consistent FCF or have a strong sense of FCF generation in future years.)  I love the company name, and the idea of paying down debt  & pension can be a big winner. 

If the pension plan deficit comes down per 6.30.18 annual report, that might be a good start (what you said).  Still, it hasn't produced FCF regularly, thus I'd want to see that.

DTEJD1997

  • Hero Member
  • *****
  • Posts: 1759
Re: FSCR- Federal Screw Works
« Reply #13 on: September 04, 2018, 06:37:42 PM »
Thanks DTE.

I looked at the last 3-4 years cash flow on the OTC markets page.  Looks like FSCR has produced negative FCF in total (one year was +$2 million).  If, given its best FCF year, at $50 million EV, that's only a 4% FCF yield ($2 million FCF / $50 million EV).  I like to invest in companies producing FCF vs. EV, thus would pass at this price.  (I'd need to see consistent FCF or have a strong sense of FCF generation in future years.)  I love the company name, and the idea of paying down debt  & pension can be a big winner. 

If the pension plan deficit comes down per 6.30.18 annual report, that might be a good start (what you said).  Still, it hasn't produced FCF regularly, thus I'd want to see that.

Bryce:

The company name could be their single greatest asset?

I've been aware/watching this company off/on for at least 25 years.

The past few years are not really a good representation of what the company can do.

Yes, the have largely been cash flow negative.  They have too much debt, too many pension obligations, and so on.

HOWEVER, there are some factors to consider.

A). The company has been in operation for just over 100 years.  They made it through the Great Depression.  They also made it through the GFC (which was arguably worse than the GD for them/industry).  Them making it through the GFC is a testament to the skill and conservative nature of management (who own a big chunk of the company). 

When you look at the results they were producing in the 1980's, 1990's and the early 2000's, they were pretty darn good.  They then entered a period in the mid 2000's that has taken them almost a decade to wade through.  They have somewhat downsized the company...they have transitioned partially into higher value added products...they have invested in engineering and automation...they worked with/dealt with the problems of the auto industry.

There is a tremendous amount of sales leverage, something like $60+ per share.  Peak margins in the past have been as high as 8%.  That could put peak earnings somewhere around $5-$6/share.  If they can hit that, OR come close for a couple of years, the company will be radically different at the end of those 2 years...debt will be paid down...pensions contributed to....dividends increased/paid...stronger company...better future prospects.

B). Ignore all of paragraph A....that is just informed speculation.  Action speaks louder than words.  If FSCR is paying a dividend, I am going to be reasonably sure of three things: 1). They had good/great earnings in 4th quarter, 2). They probably are cash flow positive this year, 3). They are probably going to be cash flow positive in the next year.

C). The Ford "F" series trucks are FSCR's single largest model that they produce for.  Even with all of F's problems, the "F" series trucks have been doing very well indeed.  If you look further down the models the produce for, most of them are trucks/SUV's.  Clearly a good place to be in.

D). They have had large amounts of capital spending the past few years...I am going to speculate that part of that is in anticipation for new work/models.  I don't know...could it be maybe, just maybe the new Dodge RAM trucks?

Well, enough speculation on my part...I think there is potential here.  These guys have certainly done it in the past...they have good relations with the Big 3, they made it through the GFC...they are starting to produce real earnings.  We will know a lot more in 3 weeks.

In the end, FSCR will probably always trade for a low PE and discount.  Investors want something with zing & flash (TSLA?).  Who is going to talk about Federal Screw Works at a cocktail party?  Who is going to guy in front of the committee and pound the table that they need to buy Federal Screw Works?

Even with all that, I think FSCR should trade for more than LOW single digit P/E's...how about a P/E of 7 or 8?

If I am right, I'll be an incredibly happy investor.

DTEJD1997

  • Hero Member
  • *****
  • Posts: 1759
Re: FSCR- Federal Screw Works
« Reply #14 on: September 14, 2018, 11:44:05 PM »
Hey all:

Anybody notice that FSCR declared a "special" dividend of $.40/share?

What a nice, tasty, juicy dividend!

The annual report is coming out in a couple of weeks.

It will be interesting to see the results.

I am going to guess that they will be good, very good indeed.  I think it is highly likely that the declaration of the dividend is a precursor to good results.  Not 100% sure, but 98% sure.

I also think that in addition to a high level of earnings, it is likely that the company will have had some free cash flow for the year.

Finally, I think it likely that the pension did well and thus the company has a lower level of obligations.  There is a lot of leverage here, so good results could easily translate into $1/share+

Any thoughts?

DTEJD1997

  • Hero Member
  • *****
  • Posts: 1759
Re: FSCR- Federal Screw Works
« Reply #15 on: September 24, 2018, 09:46:02 AM »
hey all:

Anybody else see the quarterly & annual report from FSCR?

Looks like my prognostication was kinda, sorta, correct....

Operating earnings came in at only $2.78/share, lower than what I was expecting.  As of today, the stock is trading for a lofty P/E of 2.8.  Earnings increased by $.56/share over last year.  Sales were actually down a couple of million dollars.

Here is where is gets interesting...Pension & post-retirement benefits were reduced by about $4mm, ($3.08/share).  Book value is now about $12.50/share.  Even at $12.50/share, I suspect that is an understated amount.

Finally, free cash flow is just above $1/share for the year.

Mr. ZurSchmiede hints at possible future sales expansion and a good upcoming year in the commentary.

I hope they can keep it up!



awindenberger

  • Sr. Member
  • ****
  • Posts: 349
Re: FSCR- Federal Screw Works
« Reply #16 on: September 24, 2018, 02:16:44 PM »
hey all:

Anybody else see the quarterly & annual report from FSCR?

Looks like my prognostication was kinda, sorta, correct....

Operating earnings came in at only $2.78/share, lower than what I was expecting.  As of today, the stock is trading for a lofty P/E of 2.8.  Earnings increased by $.56/share over last year.  Sales were actually down a couple of million dollars.

Here is where is gets interesting...Pension & post-retirement benefits were reduced by about $4mm, ($3.08/share).  Book value is now about $12.50/share.  Even at $12.50/share, I suspect that is an understated amount.

Finally, free cash flow is just above $1/share for the year.

Mr. ZurSchmiede hints at possible future sales expansion and a good upcoming year in the commentary.

I hope they can keep it up!

I bought a couple hundred shares today and was happy with the report.

My biggest concern regarding taking a larger position is in regards to the pension liabilities. Given the strength of the market the last 9 years and their current portfolio breakdown, I'm concerned that their pension will be going backwards again over the next 5-10 years. If you attend the annual meeting, could you ask them about what they might be doing to lower risk on that front?

Thanks for the idea.

tat2507

  • Newbie
  • *
  • Posts: 4
Re: FSCR- Federal Screw Works
« Reply #17 on: September 24, 2018, 07:36:02 PM »
I cant Find the annual Report for FSCR. Where are you getting this Report?

DTEJD1997

  • Hero Member
  • *****
  • Posts: 1759
Re: FSCR- Federal Screw Works
« Reply #18 on: September 24, 2018, 09:44:29 PM »
I cant Find the annual Report for FSCR. Where are you getting this Report?

Please try looking here:

https://www.otcmarkets.com/stock/FSCR/disclosure

Spekulatius

  • Hero Member
  • *****
  • Posts: 3405
Re: FSCR- Federal Screw Works
« Reply #19 on: September 25, 2018, 04:06:06 AM »
FSCR looks optically cheaper than it is. I get ~$39.2M EV (including pensions) and $7.7M ENITDA or roughly 5x EBITDA. There are quite a few major car supplier trading at similar multiples and those are better business ( Lear, Delphi etc).
Anyone has any idea why they are spending almost 10% of their revenue for Capex, yet revenues revenue not growing? Thatís twice as much than their depreciation.
Life is too short for cheap beer and wine.