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Chicago Rivet & Machine: Fortunes Tied to Auto Industry

December 12, 2012 | About:
Incorporated in 1927, Chicago Rivet & Machine Co. (CVR) operates in two segments of the fastener industry: fasteners and assembly equipment. The fastener segment consists of the manufacture and sale of rivets, cold-formed fasteners and parts and screw machine products. The assembly equipment segment consists primarily of the manufacture of automatic rivet setting machines, automatic assembly equipment and parts and tools for such machines. Its corporate headquarters are in Naperville, Ill., and its manufacturing facilities are located in Tyrone, Penn., and Albia, Iowa.

Valuation

CVR currently trades at a trailing 12 months P/E of 11.37 and a trailing 12 months EV/EBITDA of 3.40. In terms of asset-based valuations, CVR is currently valued at 0.80x P/B, a 14% premium to its five-year average P/B of 0.69x P/B. CVR achieved a 7.2% ROE for the past 12 months.

Financial and Business Risks

CVR is debt-free with net cash of $7.4 million representing 40% of its current market capitalization of $18.5 million.

Demand for CVR's products is directly related to conditions in the domestic automotive industry. When conditions in the domestic automotive industry declined significantly during 2008, and worsened further in 2009, CVR was loss-making.

CVR also acknowledged that it has been adversely impacted by increased costs for steel and other materials in recent years.

CVR's top two customers, TI Group Automotive Systems Corporation and Fisher & Company, accounted for 17% and 16% of its 2011 revenues, respectively.

Business Quality and Capital Allocation

CVR's fastener division is ISO/TS 16949:2009 certified, the minimum requirement needed to serve a Tier 1 supplier. CVR also has a long history: It was founded as a manufacturer of brake lining and harness rivets in 1920 and built its first rivet setting machine in 1925.

CVR has paid dividends in every single year since 1995 and currently sports a dividend yield of 3.1% (excluding special dividends). Dividends are paid quarterly. On Nov. 19, 2012, CVR announced that its board of directors declared a special dividend of 30 cents, on top of the regular quarterly dividend of 15 cents.



Disclosure


The author does not have a position in any of the stocks mentioned.

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 deep-value 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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