With a dividend yield of almost 5%, is Colt CZ a quality stock to build passive income ?
Colt CZ, the former Czech arms factory, is very popular among Czech investors. It only went public on the Prague stock exchange in 2020, but the history of the brand dates back to 1936. Colt was even founded in 1836. How do the financial results of the armaments company Colt CZ look like?
Together with its subsidiaries, the company is engaged in the manufacture, purchase and sale of firearms, ammunition and tactical accessories in the Czech Republic, the United States, Europe, Africa, Asia and internationally. It also engages in the rental of real estate, trading in military supplies, the manufacture of sight assemblies and the operation of a shooting academy for the training of sport shooters and government agencies.
In 2021, the then still Czech Armaments Group bought the American Colt's Manufacturing Company, maker of the legendary Colt 1911 rifle, for $220 million. Subsequently, in April of this year, the name was changed from Česká zbrojovka to Colt CZ Group.
The company is currently trading at CZK 541 per share, up 6.5% since the beginning of the year when the price stood at CZK 506. The company's market capitalization now stands at CZK 18.45 billion. The dividend yield is currently 4.62%. The PE for the last 12 months stands at 17.7.
The company has earned a total of CZK 10.861 billion for 2021, which is a nice 55.99% growth from 2020. But even more positive is the regular growth of this metric by at least 11% each time over the last 4 years. The company has earned a gross profit of CZK 4.289 billion last year, which is an improvement of almost 50%. Thus, gross profit is also growing regularly. However, we can notice that the gross margin is on a declining trend, which is due to cost increases. Anyway, the margin is still almost 40%, which is not bad. EBITDA is also growing regularly, this year it reached CZK 1.734 billion, but it was the lowest margin in the last 5 years. The company has been profitable for a long time, generating over CZK 760m last year, surpassing its best year so far in 2019.
In the annual report, I looked at how much revenue is flowing to the firm in terms of geography. The total revenue is slightly different from Koyfin's figures, but only slightly. Here I would like to point out mainly the strengthening of the company's position in Canada, the Czech Republic, but also in Africa or Asia. The company achieved high revenue growth in these regions of 471%, 152%, 86% or 82%. This shows the potential where the company can still grow. However, the biggest sales are undoubtedly generated in the US, specifically 6.248 billion CZK, which represents a 58% share of all sales. In the screenshot below, we can notice that sales grew in all regions, which is definitely positive.
The balance sheet tells us that the company owned assets worth a total of C$17.013 billion last year, a year-on-year growth of 93.85%, as for 2020 the assets amounted to "only" C$8.777 billion. This jump was clearly due to the acquisition of Colt, which was made just in 2021. Following this, the item that grew the most was Goodwill, which is the portion of the purchase price that is greater than the sum of the net fair value of all assets purchased as part of the acquisition and the liabilities assumed in the process. The Oher Intangibles item, which is intangible assets such as proprietary technology, copyrights or patents, also grew by leaps and bounds.
Free cash flow (FCF) was ₹889.7 million last year, down 29% from ₹1.258 billion in 2020. However, this is not extraordinary considering that in 2019, free cash flow was only ₹230.8 million. The company is able to generate enough free cash on a steady basis, so that's a positive. The problem at first glance may be the long-term debt, which has grown to CZK 4.973 billion. This was due to the acquisition of Colt. I expect that the company will gradually reduce this debt, which it certainly has the prerequisites for, so it should not be a major obstacle to further growth.
I won't mention buybacks as the company has only been on the stock exchange for a short time and so far any etra buybacks wouldn't make sense. Moreover, as is known, Czech and European companies do not use buybacks much, which is a pity.
The payout ratio for the last 12 months is 24.54%, which is a good number. This shows that the company keeps over three-quarters of the profits generated and is still able to pay a solid dividend. The company resumed the payout right after listing in 2021 at C$7.5 per share, which was increased to C$25 per share this year. As a publicly traded company, it has only paid a dividend once a year so far, but perhaps we'll see more frequency at some point.
The Prague Stock Exchange offers undeniably interesting opportunities, and Colt CZ is certainly one of them. The arms industry is a very lucrative segment in itself, and although it may not be to everyone's liking, there will always be demand for their products. Personally, I am not considering opening a position yet, but this company will definitely be on my watchlist.
How do you like this company? Is there anything you would highlight in terms of financial performance here? 🤔