Chuck Akre, the famous value investor, has managed to generate a sweet annualized return of 11.2% in the past ten years, nearly four times higher than the S&P 500’s annualized return of only 3%. Chuck Akre loves to purchase quality businesses, which have the potential to compound capital at very high rates. In the first quarter of 2013, he increased his positions in Colfax Corp (NYSE:CFX) by nearly 33% to more than 1.6 million shares. As of March, Colfax accounted for 4.3% of his total portfolio. Is Colfax Corp (NYSE:CFX) a good investment opportunity? Let’s find out.
Colfax Corp (NYSE:CFX) is considered a global provider of fluid-handling and fabrication technology under several brands including Howden, ESAB and Colfax Fluid Handling. The company operates in two main business segments: gas and fluid handling and fabrication technology. Most of its revenue, $2 billion, or nearly 50% of the total 2012 revenue, was generated from the fabrication technology segment while the gas and fluid handling segment contributed $1.9 billion in revenue. However, gas and fluid handling enjoyed the higher operating margin at 7.4%, whereas the operating margin of the other segment was 7%. In 2012, Colfax produced a loss of $83.3 million, or a loss of $0.92 per share. The loss was mainly due to the restructuring and other related charges of more than $60 million and the provision for income taxes of more than $90.7 million.
The 2012 cash flow was still positive. The operating cash flow came in at $164 million while the free cash flow was $81 million. Colfax Corp (NYSE:CFX) does not leverage a lot in its operations. As of March 2013, it had $1.82 billion in equity, $235 million in cash and $1.53 billion in debt. What I am worried about is the company’s huge goodwill and intangible assets of nearly $2.73 billion. Thus, the tangible equity was negative at $910 million. Colfax recently hit a new 52-week high at over $50 per share, with a total market cap of around $4.6 billion. The market seems to value Colfax Corp (NYSE:CFX) quite expensively at 12.80 times EV/EBITDA.
Ampco-Pittsburgh is the cheapest valued
Compared to its peers including Ampco-Pittsburgh Corp. (NYSE:AP) and Flowserve Corporation (NYSE:FLS), Colfax has the highest valuation among the three. Ampco-Pittsburgh Corp. (NYSE:AP)‘s hostory dates back to 1929. It operates in two main business segments: Forged and Cast Rools and Air and Liquid Processing. The majority of its revenue, $189.5 million, or 64.7% of the total revenue, were generated Forged and Cast Rolls segment while the Air and Liquid Processing generated nearly $103.5 million in 2012 revenue.
In the first quarter 2013, Ampco-Pittsburgh Corp. (NYSE:AP)’s revenue has decreased, from $73.6 million last year to more than $69.6 million. The net income dropped significantly by 93.7%, from $2 million to $126,000. The decline in the net income was due to the lower revenue, higher other expense and higher equity losses in its Chinese joint venture. Ampco-Pittsburgh is trading at around $19 per share, with the total market cap of nearly $200 million. The market values the company cheaply at only 5.3 times EV/EBITDA.