⏩ Speedy thesis #4: SMP, PIF, BRC
Stocks that pay a dividend while you wait for capital appreciation.
Speedy thesis works as a starting point for investment research: presenting potential opportunities and helping readers to select companies and stocks fitting into their own (dividend investment) strategy and portfolio.
In the episode #4 we feature the following rather unknown stocks:
A | Standard Motor Products - manufacture of spareparts. Dividend 2.8%.
B | Polaris Renewable Energy - renewables in Latin America. Dividend 5.5%
C | Brady Corporation - all kinds niche products. Dividend 1.7%.
A | Standard Motor Products ($SMP) 🇺🇸
🔑 anti-cyclical, stable margins, 100 years of history, small cap.
Standard Motor Products SMP 0.00%↑ is a small cap manufacturer of after-sales replacement parts for vehicles, mainly passenger cars.
Thesis 💡
Unknown small-cap in a robust industry with good underlying trends.
Volatile stock price providing opportunity to trade around core position.
Growing dividend and opportunistic buybacks.
Engaging in interesting bolt-on acquisitions to add new customer and product categories and to expand internationally.
50 % of its sales are independent from ICE motor technology.
Major risk: Concentrated customer portfolio full of big winners (O’Reilly, Autozone etc.)
🎯 Most likely, I start small purchases if the stock drops below $37.
I estimate the fair value to be somewhere 35-37 dollars per share based on 10% discount rate, historical growth rates -2 percentage points, continuation of dividend growth as in the past and terminal P/E of 12. Terminal multiple might be too low, since its the current multiple probably anticipating contraction of earnings.
For more detailed analysis, please see my Seeking Alpha article.
B | Polaris Renewable Energy ($PIF) 🇨🇦
🔑 Fashionable assets in out of the fasion locations.
Polaris Renewable Energy owns renewable energy assets in Nicaragua, Panama, Peru, Ecuador and Dominican Republic.
I once used to own Polaris and I was very happy to see a write-up on it, because this type of businesses are usually fairly hard to crack open. The following thesis is written by me based on my prior acquintance with the company but mostly on the analysis by
.Thesis 💡
The company is set to increase its power production this year by 50% and the following year by 20%. Yet, the share price is on a depressed level. Following parts highlight the reason to invest:
Theme: ESG, renewables, real assets, infrastructure.
Valuation: EV/EBITDA 6.7x (peers trade with twice higher multiples), P/FCF 4.5x. Earnings are low due to the depreciation.
Dividend: 5.5% dividend yield, payout is 25% of free cash flow.
Catalyst: “The company has a path to double the earnings”, South-America could come back to fashion, the company proves itself (profits+growth).
Geography actually enables the trajectory of growth.
Counter thesis: Political, currency and economic risks deserve a discount. Potential realization of risks should be mitigated with position sizing and stop-loss.
The debt of the company is asset backed which protects the downside in a case of bad news.
C | Brady ($BRC) 🇺🇸
🔑 Lindy business, high and stable margins, dividend champion
Brady BRC 0.00%↑ manufactures and sells labels, labeling equipment, workplace safety products, barcode readers and so on. They are “leader in niche categories”.
Unfortunately I didn’t pull the trigger when I got a price alert for Brady at around $42 in September. I remember the moment.
Now, the company published again better than expected numbers and the company is developing nicely in several fronts: expanding, getting more effective, buying back shares and rejuvenating itself.
Thesis 💡
Boring business and industry. Nobody follows, only 3 analysts.
The company has increased its dividend for 37 years with a low payout ratio. Room to raise or do another acquisition on top of the 3 made in 2021.
Recent acquisitions, leadership change, reorganisation and good business momentum could take the stock to new level. Lately the margins have been expanding from historically low levels.
Major risk: A decade ago Brady did a lot of value destructive acquisitions, hopefully now they have learned their lesson. The price paid on the acquisitions made in 2021 look high though.
🎯 Possibly, I start small purchases if the stock drops below $46 in general market weakness.
I estimate the fair value to be somewhere 44-46 dollars per share based on 10% discount rate, historical growth rates -2 percentage points, continuation of dividend growth slightly faster than historically and terminal P/E of 15.
For more detailed analysis, please see my Seeking Alpha article.
My twitter handles
🇬🇧 English: @paidwait
🇫🇮 Finnish: @anttisleinonen