| High conviction ideas by Small & Micro Cap portfolio managers

KEMET Corporations: When was the last time you saw a company where its customers offered interest free loans?

by | Aug 29, 2019

1. Basics

M.Cap: $989 million

KEMET Corporation is a global manufacturer of passive electronic components. Through acquisitions and organic growth, the company has expanded its product base to include multilayer ceramic, solid and electrolytic aluminum and film capacitors, and electro-magnetics, sensors, and actuators.

2. Top funds

Nokomis Capital

– KEM accounts for 5.7% of Nokomis Capital’s portfolio – rank #5

– Top 6 stocks accounts for roughly 50% of its portfolio.

Divisar Capital Management

– KEM accounts for 5.34% of its portfolio – rank #8

– Top eight stocks account for roughly 54% of its portfolio.

Apis Capital Advisors

– KEM accounts for 5.72% of its portfolio.

– Top four stocks account for roughly 54% of its portfolio.

3. Sign of Moat

a)  KEMET is a market leader in polymer tantalum, with an estimated market share of greater than 50.0%. Based on net sales, the company believes that KEMET is the largest manufacturer of tantalum capacitors in the world, and one of the largest manufacturers of direct current film capacitors in the world, and has a substantial market position in the specialty ceramic and custom wet aluminum electrolytic markets.

b) Specialty products: This accounts for roughly 39% of FY2019 revenue. The company generates revenue by selling customized products – experts in electrical circuits, experts in product applications, and the sales team are engaged in the product selection process with customers.

c) Interest free loans from customers: The company’s three largest customers have agreed to provide interest free loans in exchange for assurance of future supply. The company uses the funds to purchase certain production equipment. When was the last time you saw a company where customers offered interest free loans?

d) The company claims that over the years it has transformed its product portfolio from a commodity-based approach to a customized, design-in approach.

e) Lowest cost production facilities in the industry.

 

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