Syprius Solutions

Benj Gallander, Ben Stadelmann, and Philip MacKellar
Wednesday January 31, 2018

Our modus operandi is to stock up on beaten-down, out-of-favour companies during tax-loss season. Alas, this past season, the pickings were slim as the Stock Watch List had shrunk to the lowest number of companies in memory. Meanwhile, those left on the list were less desirable as bargains were tough to find.

One that Benj acquired for his personal portfolio was Sypris Solutions, a technology and electronics provider based in Louisville, Ky., which focuses on the commercial vehicle and energy markets.

SYPR has been in a downward spiral. Ten years ago, revenue was US$436 million. This past year, it touched down at less than US$92 million, while last quarter it was just north of US$21 million.

One major reason for the huge drop was a dispute with Dana Holding, which knocked down sales by almost US$200 million in 2015.

Cash flow from operating activities is regularly negative. The book value has slumped to US89 cents, far below the current trading price.

Sypris has operations in both the United States and Mexico. The latter country is is not in US president Donald Trump’s good books. Plus, management has set targets in the past and, unfortunately, they have either not been achieved, or weren’t reached in the time frame envisioned.

What attracted Benj to this apparent dog?

The company’s two-year transition plan is moving toward its finish and it appears that most of the heavy lifting has been done, with positive results being achieved. That has seen SG&A (selling, general and administrative expenses) decline by better than 41 percent.

The gross margin went from negative 2.6 percent in last year’s third quarter to a positive 3.1 percent this year and is expected to increase to 16 percent to 18 percent in 2018.

Revenue has stabilized, albeit at a low level, but is expected to increase to about US$90 million this year. A number of new contracts have been received. The debt load was reduced from US$24 million in 2015 to just north of US$9 million.

One reason Benj likes this stock is because of the insider ownership, which clicks in at 47 percent, aligning those stakeholders’ interests with other shareholders. The company has also been around since 1954, indicating that it has staying power.

However, potential investors should be aware that the average daily trading volume for the past three months has been a tad less than 25,000 shares, and that is after a recent uptick, making accumulation difficult.

The purchase price of US$1.36 in December was close to the 52-week low. The initial sell target is US$5.49. In 2012, the stock traded above US$7.00. It will certainly take time to return to the glory days, but for patient investors, this enterprise could prove very worthwhile.