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Superior Industries International: Superior Company Serving Inferior Customers

November 09, 2012 | About:
Superior Industries International Inc. is founded by Louis L. Borick in 1957 and is headquartered in Van Nuys, Calif. It is engaged in the designing and manufacturing of aluminum road wheels for sale to original equipment manufacturers (OEMs). The company is a supplier of cast aluminum wheels to the automobile and light truck manufacturers, with wheel manufacturing operations in the U.S. and Mexico. The company operates five manufacturing facilities in the U.S. and Mexico. Products made in its North American facilities are delivered to automotive assembly operations in North America, both for domestic and internationally branded customers. Its OEM aluminum road wheels are sold for factory installation, as either optional or standard equipment, on many vehicle models manufactured by Ford, General Motors (GM), Chrysler Group LLC

(Chrysler), BMW, Mitsubishi, Nissan, Subaru, Toyota and Volkswagen.

Is It Cheap?

- Trading at 0.97 P/NTA, at parity with its five-year average P/NTA of 0.97

- Trading at 6.9x P/E, close to its five-year historical low P/E of 6.7 (obscured by 2008 and 2009 losses)

- EV/EBITDA at 3.9

- Net cash as a percentage of market capitalization = 46%

- ROE (trailing twelve months) was 15.1% and ROE (five-year average) was 0.34%

- Dividend yield 3.7%, with dividend payout ratio at 25%

- Book value growth (five years) was negative 4%, book value growth (10 years) was flat. Losses in 2008 and 2009 destroyed book value.

Is It Safe?

- Debt-free for the past five years

- Inventory days and receivable days remain relatively healthy at 29 and 56 days, respectively.

- Financially strong company with financially weak customers. Ford and GM accounted for 35% and 30% of company's fiscal year 2011, respectively.

- Margins impacted by volatility of aluminum costs. SUP's gross profit is subject to fluctuations, since the change in the product selling prices related to the cost of aluminum does not necessarily match the change in the aluminum raw material purchase prices during the period being reported. This is further exacerbated during periods of high volatility in aluminum prices and when a portion of aluminum purchases is via long-term fixed purchase agreements

Is It Quality?

Market leader in North American aluminum road wheel space

- SUP is the leading supplier of aluminum road wheels for OEM installations in the world, and currently are the largest producer in North America. SUP supplies approximately 31% of the aluminum wheels installed on passenger cars and light trucks in North America. There are several competitors with facilities in North America, but none of which represent greater than 10% of the total North American production capacity.

Dividend sustainability backed by huge cash balances with dividends paid quarterly

- Dividends are currently paid quarterly, although there is no stated dividend policy. Dividends were omitted in 2008 and 2009 due to losses.

In Closing

Superior Industries is a current Third Avenue Management holding, being mentioned as early as 2004 in Third Avenue shareholder reports.

Valuations seem fair and uncompelling now, with strong cash position offset by the counter-party risk of high leveraged customers.

This investment idea was generated through a quantitative screen. Readers can read my article, "TheMartin Whitman Stock Screen - Nov. 6, 2012."

Disclosure: Not Vested

About the author:

Mark Lin
Mark is a private value investor and runs the Cheapskate Investing website which borrows from the wisdom of value investing giants, using a systematic quantitative screening approach to filter the global stock markets for cheap cigar-butts and wide-moat compounders. He is also a regular contributor to various value investing communities.

Visit Mark Lin's Website


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