SIF - I've been buying shares of Sifco here the past few days at $9.00 and lower. This is an aerospace component manufacturer that has fallen on some hard times recently. The stock traded around $30 for the majority of 2014. The company's results are a bit seasonal with their upcoming Q3 and Q4 being the stronger quarters. They have made several acquisitions here over the past 3 years, most recently in 2015, that have added debt to the balance sheet. Though results have been below expectations, they have been able to generate cash flow and pay down over $10 million of debt in the past six months. I expect they can lower the debt balance by another $5 million through the end of their fiscal year (9/30).
Their latest acquisition, C*Blade generated about 5 million Euro of EBITDA on sales of 25 million Euro, or a 25% margin. Their existing business generated EBITDA margins in the range of 10% - 15%+. Currently, EBITDA margins are depressed at approximately 5%. Over the past several quarters, the company has incurred significant one-time costs associated with the C*Blade acquisition. They also implemented a new ERP system that resulted in extra costs and a delay in their financial reporting. As a result, G&A expenses increased significantly in FY15 and YTD16. I believe those expenses are one-time in nature and in the company's latest financial release, the company indicated that those additional costs will not be incurred going forward. I think EBITDA margins can return to the 13%-15% range over the next two fiscal years.
I believe the company will begin to show a profit again beginning this next quarter (Q3) with improving results in Q4. I think in FY2017, they will again show profitability from an EPS perspective and could generate EPS above $1.00 per share by the end of FY2018. They have a new CEO that has significant experience in the aerospace & energy industry with a history of turning around under-performing businesses. If he can right this ship, I could see SIF trading at double its current price at some point in late 2017.
