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SEV: Presentation and huge growth

September 19, 2015 Leave a comment Go to comments

Sevcon is one of our holdings that hasn’t been too promotional about what it is doing and its industry. The company has a very small market cap (that will change very quickly). The company is positioned in what is going to be one of the fastest growing markets in the next 3-5 years. Recently the company did a presentation, I think this is one of the first conferences they had talked at in a long while, about the company. Key thoughts:

  • The company has been slowly growing revenues, CAGR of 14% in the last 6 years. But the growth is picking up and the CAGR will be much higher going forward.
  • The business model is based on subcontracting which will lead to rapid earnings growth as sales increases. Most screens and investors will pass on this company if they only look at the financials and skip looking at the business model.
  • Their industry is expected to grow 6x in 7 yrs. This is a key reason SEV is going to be extremely well positioned to grow at much higher rate than 14%.

The key for this company is the sub-contracted business model with a well positioned company in a high growth industry. SEV is not the best company in the industry but a high tide raises all. And meaningful increases in sales will mean faster growth in earnings. Also, you have a large amount of the float owned by Gabelli. So increased investor demand will create an interesting dynamics. As management has stated, the next quarterly earnings will show meaningful revenue growth. That, combined w/ recent investor presentation will bring more eyeballs to this story.

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