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CVU - CPI Aero


HWWProject
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Interesting Risk/Reward here.  CPI Aero (CVU) is a U.S. manufacturer of structural aircraft assemblies for aircraft and helicopters in both the commercial and defense markets.

 

After a huge loss in 2014, they seem to be back to profitability in 2015.  Trading just below NCAV.  Per February investor presentation, expects record 2015 Revenues and has a large $420M backlog.  The recent DOD delay in shelving the A-10 Thunderbolt could bring in a huge order this year.  But then there is a big negative -  they've just delayed their 10-k - now to March 30th.

 

CVU doesn't meet some of my quality metrics, and hard to put a normalized earnings on it, so I am staying away for now.  But a profitable company trading below NCAV may be a good short-term play here so thought I'd share.  It has been in business since 1980, provides vital aircraft parts to our fleet, would not seem likely to go out of business. 

 

 

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I believe they manufacture some large components (wings?). From what I understand about the industry, you leave yourself open to huge P/L swings because you dedicate so much space/expertise (high fixed costs/overhead) to a cyclical industry. Working with the government somewhat enhances this experience, since profit is limited but the swings remain.

 

I'll try to remember to look up my notes tonight and post them. If I recall, they look really cheap but the company was/is somewhat aggressive with their accounting. I don't think they are done writing done that line item (would be great to hear from others on this accounting). I think they could be setting themselves up for another terrible year down the line.

 

Not to say it's all doom and gloom. I just don't think it's all that great of a business, it can be very cyclical, and it's not as cheap as it looks.

 

I did not realize they delayed their 10-k. I have not been following closely. This is what I thought of them a few months ago.

CVU_-_BS.thumb.png.0e91b76fa03d5a9a045ce5b3b121d9fa.png

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I seem to recall reading on their website (maybe last year's 10-K) that 'Costs in excess.." that you circled is basically 'Accounts Receivable'.  You bring up a good point as that is almost all of their current assets, so it would be important to investigate that line further.

 

I believe they sub out a lot of the actual manufacturing, and just do the assemblies themselves.  They say this makes them light on PPE/Capex.  You can see they have very little PPE compared to total assets. 

 

I agree this will always be a cyclical business, may be a good investment if we're in the low point of the cycle for them.  I think its' worth waiting on the new 10-K.

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I seem to recall reading on their website (maybe last year's 10-K) that 'Costs in excess.." that you circled is basically 'Accounts Receivable'.  You bring up a good point as that is almost all of their current assets, so it would be important to investigate that line further.

 

I believe they sub out a lot of the actual manufacturing, and just do the assemblies themselves.  They say this makes them light on PPE/Capex.  You can see they have very little PPE compared to total assets. 

 

I agree this will always be a cyclical business, may be a good investment if we're in the low point of the cycle for them.  I think its' worth waiting on the new 10-K.

 

Just trying to understand what the issue is with what has been circled in red. This is typical percent of completion accounting often done by construction companies or project based companies which might apply here. Thanks.

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I seem to recall reading on their website (maybe last year's 10-K) that 'Costs in excess.." that you circled is basically 'Accounts Receivable'.  You bring up a good point as that is almost all of their current assets, so it would be important to investigate that line further.

 

I believe they sub out a lot of the actual manufacturing, and just do the assemblies themselves.  They say this makes them light on PPE/Capex.  You can see they have very little PPE compared to total assets. 

 

I agree this will always be a cyclical business, may be a good investment if we're in the low point of the cycle for them.  I think its' worth waiting on the new 10-K.

 

Just trying to understand what the issue is with what has been circled in red. This is typical percent of completion accounting often done by construction companies or project based companies which might apply here. Thanks.

 

I'm pretty sure there is a footnote where they mention that they booked the maximum of their largest contract when it is now likely they will only receive the minimum. COGs will equal revenue for that contract until the contract is complete. At that point, they will square the contract. This type of accounting (construction accounting, as you mentioned) is a black-box. It's like investing in a cheap, small bank. That's the reason for the recent write-down and my caution.

 

Couldn't find the footnote. Good luck with this.

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