This has always been a bit of an "on the fence" investment for mine. It's clearly not a wonderful quality business, but 2019-2022 shows that there is a bit of operating leverage in it. It operates in some nice little niches and benefits from management who have been personally invested for decades.
Potential upsides: - Ongoing margin expansion due to scale; simply a return to say 12% EBIT margins (a restoration to 2010-2013 performance) would lift NPAT by ~50%. That would put it on a P/E of around 4.
- Hidden assets. Namely undeveloped land which, according to the Annual Reports, is "recorded at historical cost and not depreciated".
Potential downsides: - Global/local recession and reduction in freight volumes. Operating leverage hits the company in reverse. Fortunately it's retired $20m or so of debt in the last couple of years, so the balance sheet is set up fairly well for this. The shares would certainly get crunched though.
Overall I think there's still a bit of undervaluation here - with a trailing p/e of 7 and free cash flow yield of almost 15%, there is potentially a forward FCF yield of around 20-25%, again, assuming the lift in revenues and margins holds. Happy to keep holding until the risk/reward balances tips. IMO fair value is around $1.80.
CLX Price at posting:
$1.31 Sentiment: Hold Disclosure: Held
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