Global Brass operates with a “balanced book” approach, which reduces the impact of metal price fluctuations on earnings. What this means is the timing, price, and quantity of commodity purchases is matched with sales. This also allows fixed prices and shipment terms to be offered to clients. In addition, Global Brass’ price exposure is mitigated by derivatives and purchases of the physical metal.
Second-quarter results paint a picture of a solid, growing company. Although volume has decreased due to lingering effects of the recession, margins have expanded appreciably. The consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at 93% higher in 2012 than in 2008 despite the reduction in volume. In addition, net income came in at more than $12 million in 2012, compared with a loss of more than $69 million in 2008.
In this year’s second quarter, Global Brass saw a 7.5% increase in volume and consolidated adjusted EBITDA of over $36 million, up 16% from the same period last year. Earnings per share rose to $0.75, an increase of $0.16. The company credits greater demand in the housing, building, munitions and coinage markets for the improvements.
Getting back to the example of my first copper purchase, it’s important to note that Global Brass is a certified supplier to the U.S. Mint. Legislation called the Currency Optimization, Innovation and National Savings (COINS) Act is being considered by Congress that would replace the dollar bill with a coin.
This change could save the government billions over the long term. In addition, it will provide a tremendous growth opportunity for the company’s Olin Brass segment. This may be what Griffen is betting on to keep this company solidly in the black.
Risks to Consider: As a recent IPO, Global Brass and Copper has not been battle-hardened in the financial markets despite its experience. In addition, wildly gyrating copper prices can only be hedged so far. Be sure to use stop-loss orders and diversify properly when investing.
Action to Take –> BRSS has fallen from the highs in the $21 area to find support at $17. Shares have since bounced higher and are in a gentle uptrend higher. There is not enough data to plot a 200-day simple moving average, but the 50-day simple moving average is just above $19. Buying now in the $18 to $18.50 range with a stop at $15 and a 12-month target price of $27 makes solid sense.
This article was originally written by David Goodboy and posted on StreetAuthority.
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