Exco is a global designer and manufacturer of dies, moulds, equipment, components, and assemblies. The company supplies globally to the die-cast, extrusion, and automotive industries through its 15 strategic locations in seven countries.
Exco serves a diverse and broad customer base through two business segments: Automotive Solutions, and Casting and Extrusion. It has operations in Canada, U.S., Mexico, Colombia, Brazil, Morocco, Bulgaria, and Thailand. Exco serves the automotive and industrial markets throughout the world.
The U.S. is Exco’s largest market accounting for 60% of sales in the last year, followed by Europe (20%), Mexico (11%), Canada (4%), and others (4%). By revenue, the automotive solutions segment is the largest and accounted for 58% of total revenues last year and the casting and extrusion segment comprised the remaining 42%. The company operates through leading businesses like Castool Tooling Systems, ETS, Polydesign, Polytech, and Neocon.Investment Data
- Opportunity Score: 55
- Ticker: TSE:XTC
- Sector: Consumer Cyclical
- Industry: Auto Parts
- Market Cap: 0.38B
- P/E: 13.94
- Dividend Yield: 3.97%
- Payout Ratio (Earnings): 55.07%
- Canadian Dividend Aristocrat: NO
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 6/10
- Dividend Income Fit: 7/10
Revenue Growth & Market Exposure
With a six-decade-long history, Exco occupies leading market positions in niche industries and has developed extensive experience in designing and engineering. The company is a leading manufacturer and supplier for interior trim and convenience solutions to the global auto market. Its focus on light-weight vehicles also provides ongoing growth opportunities as fuel efficiency and emission reduction norms get stricter and as the industry transits to aluminum alloys for the production of non-powertrain structural components. Exco is the largest independent manufacturer of die-cast moulds in North America and a leading manufacturer of dies for aluminum extrusions in the Americas.
Over the years, Exco has built a diverse collection of leading businesses in typically niche industries. The company is known for offering innovative and quality solutions at a low cost. It has a large global footprint, concentrated in low-cost jurisdictions, and in close proximity to customers’ operations. Exco is also strategically located in Free Trade Zones near the US, and Western European markets.
Exco’s continued innovation is critical to its growth, for example, the incorporation of 3D printed components into the design of its moulds greatly enhanced the overall quality and performance of the die-cast process. In 2019, Exco continued to solidify its technological leadership with the production of die-cast moulds. The company is well-positioned for top-line growth from its core operations, given the high demand for its industrial and automotive products.
The North American automotive industry which is Exco’s largest end market contracted in fiscal 2019. Exco Technologies had a tough year with the liquidation of Automotive Leather Company (ALC) business and other operational issues but its diverse businesses positioned it well to capitalize on opportunities in various market niches.
Exco has a history of sustained dividend growth over time as a Canadian Dividend Achiever. The company has increased its dividend every year since FY2008 and by over 300% since FY2010. It last raised its dividend by an annualized 13%. Exco sports a current annual average yield of 6% and has a payout ratio of 50%. Its dividend growth is impressive at a rate of 17% CAGR in the last decade. The management has indicated share repurchases to be a critical component of Exco’s capital deployment.
Even during a tough 2019, Exco generated a free cash flow of $0.89 per share and returned a $0.65 cents per share to its shareholders, ending the year in a net cash position. The company also has a strong liquidity position. It enjoys consistent strong free cash flow which is deployed towards share repurchases and bolstering the balance sheet. Exco’s recent capital expenditure reflects strong organic growth opportunities.
Exco has made considerable progress in reducing its reliance on U.S. dollar sales and has expanded its manufacturing to developing countries where competing technologies and lower labor costs exist. It also continues to diversify its revenue base with new products and services. The company has implemented major capital projects to increase its capacity, reduce lead times and costs, and improve quality.
Exco suffers from rising imports as a result of increasing global movements. Though the company’s manufacturing presence in countries like Mexico, Morocco, and Canada grants it a low-cost advantage but has also led to increased competition with products manufactured in these regions. The company occupies a 20% and 30% market share position in die-cast moulds and dies for aluminum extrusions in North America, granting enough room for future growth.
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Exco is focusing on enhancing its capabilities by reducing lead times and manufacturing costs through design and process enhancements. The company believes moulds for structural aluminum components will be a significant growth driver in the medium term and its North American and European vehicle production volumes will remain sustainable near current levels for the next few years. The current market conditions have led to a slowdown in global automotive sales which will adversely affect Exco’s growth. The company should, however, benefit when the auto industry makes a comeback.