New Coverage – Luxfer Holdings, Plc. (LXFR)

Luxfer Holdings with its expertise in metal fabrication has established a solid foothold a number of markets that need components made from advanced metal alloys. Luxfer’s history in aluminum has helped it become particularly strong in innovating products using aluminum and its alloys.  Its solid-state aluminum gas cylinder has won customers in healthcare and pharmaceutical market.  However, the Company has not stood on its aluminum laurels, establishing a strong product line with magnesium and zirconium alloys that have won strong enthusiasm in the automotive and aerospace industries.

Along the way Luxfer has managed to structure an efficient operation that has generated profits through thick and thin, downturn and competitive threat.  The Company runs on a low-leverage capital structure due largely to strong cash flow generation that has been used for internally financed growth rather than debt.  Recent efforts have pushed return on invested capital ever higher and now well above the cost of capital.  Our investment thesis counts on the market to catching up with this value-creating dynamic.

A pending acquisition could double the size of Luxfer in terms of revenue and profits as well as extend its market reach in the renewable energy and other industries.  We expect the deal to be a valuation trigger.  However, our investment thesis is not dependent upon it.  Should the deal close as expected in early 2019, we will revised our estimates and target price.

 

 

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