CT Automotive <4x PE

Hey everyone. I haven't posted here before but have been following along for the past few years. I own stock in a small UK-based automotive OEM called CT Automotive. They manufacture interior parts for new cars, like air vents and other trim pieces. They report in USD. Revenue in 2024 was $119M, and they just posted an update saying revenue in 2025 is expected to come in at $115M. They earn most of their revenue from the sale of parts to OEMs, but about 10% of revenue is from tooling of new parts for the OEMs. Their customers include most of the large auto makers (55 car models across 22 OEMs). Their CEO Simon Phillips owns 26% of the shares. He founded the company in around 2000 after working in the industry prior to that. He retired a few years ago but was brought back in as CEO when the company was struggling during the post-covid era when there were major supply chain problems. The company posted net income of $6.5M in 2023, $7.6M in 2024 and based on their release today, it looks like 2025 will come in at above $7M. They report under IFRS and there are some quirks with lease costs that might result in net income being slightly higher than true free cash flow, and their taxes were extremely low in 2023 and 2024. But I’m estimating adjusted “owner earnings” which is basically free cash flow excluding changes in working capital and excluding growth capex, and with a normal 20%+ tax rate applied to be in the range of at least $6M for 2025. I bought my shares when the market cap was $32M USD, so it was a <6x PE ratio. Shares have drifted down and today the market cap is just under $24M USD. So its trading at <4x if my numbers are correct.

At last check, there was $13.5M debt + $7M lease liabilities = $20.5M total debt and lease liabilities, which is around 3.3x free cash flow and well under 3x of EBITDA. So that seems safe.

Their CFO resigned a few months ago (or maybe he was fired), and just today they reported some accounting errors that will result in a restatement of 2024’s financial, but the end result is only an $800k downward adjustment to earnings.

ROE: 29.7M book value as of June 30, 2025, which is mostly receivables and inventory, vs 6M net income or free cash flow results in an ROE of around 20%

Capital allocation: The company has used its free cash flow to expand inventory and take on additional trade receivables from customers, or de-lever over the past few years. There have been no dividends or buybacks in 2022-1H 2025.

>>>From the 1H 2025 report:

>>>>>“Trade receivables increased by $9.6m to $35.3m, primarily due to a delayed payment from one customer, which was received in July and an increase in tooling prepayments for future programs, which corresponds to an increase in deferred revenue.”

>>>>>"The Mexico plant is growing with heavy investments being made ($3.4M in capex planned for 2025). This growth is partially driven by tariffs, which can be avoided by manufacturing in Mexico vs other countries."

So in summary, we have a founder-led company with a CEO that has a lot of skin in the game, a manufacturer that’s been around for 25 years with a diverse customer base of blue chip auto makers, a three-year post-covid track record of solid earnings, manageable debt, a solid 20% ROE with reinvestments happening that should result in higher earnings in the future, at a <4x PE ratio. I’m scratching my head as to why it’s so cheap. The reasons I’m coming up with are that 1) it’s very small and the stock is illiquid (but I don’t mind since I usually hold my shares long-term) 2) the covid era is a scar (but we now have three years of steady performance beyond a once in a lifetime event), 3) the recent accounting issues (which to me don’t seem to be major), 4) the fact that the automotive industry is known to be cyclical (but I don’t think we’re in a current top are we?), and 5) slight decrease in revenue from 2024 to 2025 (but at a 4x PE flat is fine)..

If anyone has any holes to poke in this investment, I’d love to hear them. I’m buying more shares today (unless someone talks me out of it ; )