TI Fluid Systems (LSE: TIFS) is a relatively new business to the London market having only gone public last year, and so far, the company has failed to attract any investor attention.
The reason why I believe investors are ignoring the company is that it’s boring. TI Fluid is a manufacturer of “highly engineered automotive fluid storage, carrying and delivery systems for light vehicles“. This niche, specialist sector is hardly exciting. However, the group is growing steadily and its unique offering deserves more attention in my opinion.
Growing steadily
Today the company reported revenue growth of 5.4% for the year ended December 2017 and adjusted EBITDA growth of 5.6%. An increase in global light vehicle production volumes of 2.1% helped the firm boost earnings while an increase in its adjusted EBITDA margin to 14.1% from 13.9% also helped to improve profitability. What’s more, unlike many other businesses that have recently come to market, TI Fluid has a relatively stable balance sheet with adjusted debt-to-EBITDA at the end of 2017 of only 1.8 times.
Based on the figures published today by the company, shares in TI Fluid are trading at a P/E of 10.9. City analysts are expecting further double-digit growth in earnings per share this year. Based on these projections, the stock is trading at a high single-digit earnings multiple.
Even if City estimates turn out to be incorrect, shares in TI Fluid look to me to be too cheap considering the firm’s double-digit earnings growth rate. That said, as the group only went public in October last year, this low valuation does not surprise me. Investors tend to shy away from newly public businesses until the company has proven itself. With this being the case, it may only be a matter of time before the shares suddenly re-rate higher so it could pay to take this opportunity while it is still around.
2020 vision
Another potential secret bargain stock I like is Tharisa (LSE: THS). This is an investment holding company with interests in platinum metals and chrome mining processing operations. These projects have only started to pay off in the past three years, but now they are up and running, the firm is highly profitable.
Between 2012 and 2014 Tharisa reported losses of $123m, but in 2016 the company booked a net profit of $58m, up from $14m for 2015 and over the next two years, City analysts are expecting the firm to produce a total net income of $115m. Following this growth, I believe Tharisa will move from a net debt position of $75m in 2014 to a substantial net cash position by 2019.
Right now, the market is not placing any value on this growth that all. The shares are currently trading at a 2019 P/E of 7.2 and dividend yield of 2.9%. The payout is covered more than four times by earnings per share, and as the company’s balance sheet improves, there should be further growth in the distribution. Management has a ‘Vision 2020’ plan in place to dramatically increase production in the next three years, which should help it meet, or possibly surpass City growth targets.
