Hammond Power: Donville Kent & Alluvial CapitalDonville Kent and Alluvial Capital take positions in Hammond Power. Below are the links to their recent investors letters commenting on Hammond.
Donville: https://donvillekent.com/investing-resources/
Hammond Power (HPS/A)
• Hammond Power is a new investment in the fund. They design and
manufacture transformers (enables electrification) and they have been in
business for over 100 years and now have 1,400 employees in 21 global
locations.
• Sales have currently hit an inflection point because the electrical grid
worldwide is not even close to being able to handle the demand that new
technology is demanding from the grid.
• Transformers are essential in all electrical grids and are used in generation;
transmission; distribution; and within commercial, industrial and
residential settings.
• Hammond has 25% market share in North America with a good backlog,
strong free cashflow and high ROI expansion opportunities in Guelph,
Ontario, and Mexico.
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• The stock should re-rate higher as margins and free cash flow continue to
expand.
Alluvial Capital
https://alluvialcapital.com/partnership-info/
In happier news, I have identified another opportunity in the Canadian industrial sector. Small
Canadian manufacturers have become something of a theme for Alluvial, first with Supremex and
now with our new holding Hammond Power Solutions. For decades, Hammond Power Solutions
has been producing transformers, the boring, but utterly essential components responsible for
transferring energy between circuits in electrical installations. Though they are one of the oldest
examples of electrical technology, transformers are required by virtually anything that creates or
employs electrical energy. The high quality, dry-type transformers produced by Hammond are
widely used in factories and commercial buildings, power grids, and renewable energy facilities
as well as oil & gas, mining, and many other
industries. Demand for transformers has
exploded as the electrification of the world
economy accelerates. Despite running its
factories at full capacity, Hammond has been
unable to keep pace with inbound orders.
The company plans to invest $40 million to
increase its production capacity, as it expects
demand for its products to remain strong in
the coming years.
Despite the stellar outlook, Hammond Power
shares change hands at below 10x trailing
earnings and the enterprise is valued at
7x operating income. 2023 earnings will
increase from last year’s as a result of price
increases and continued strong demand.
Hammond employs a conservative capital
structure with zero debt and produces free
cash flow like clockwork. There are few things
I like more than finding a high-quality firm like Hammond trading at a pedestrian valuation. While
Hammond shares have appreciated as the company’s revenues and profits grow, the market has yet to fairly credit the company for its growth profile and profitability.
https://twitter.com/Pikachu_invest/status/1680590643247063041?s=20