Dynamic Materials Corporation (BOOM) was originally incorporated in 1971 as Explosive Fabricators Incorporated, and changed to its current name in 1994. It started as an explosion metals forming business that turned blank sheets of metal alloys into complex three-dimensional parts for aerospace equipment manufacturers. From these beginnings, it has emerged as the world’s leading manufacturer of explosion-welded clad metal plates. The company went public in 1976 under the distinctive ticker symbol, “BOOM”. It currently consists of three segments: Explosives Metalworking, Oilfield Products, and AMK Welding.
The company’s core business, accounting for 60% of net sales in 2011, is its Explosives Metalworking segment, DMC Clad, which is the global leader in explosion-welded clad metal. DMC Clad’s products are used in a broad range of industries including oil and gas, chemical and petrochemical, shipbuilding, power generation, and others that require metal products that can withstand exposure to corrosive materials, high temperatures, and high pressures. Growing global demand for these products, driven by the underlying demand for new equipment in its primary markets, has bolstered this segment in recent years. With well-established roots in both the United Sates and Europe, the company is pushing to expand its footprint in East Asia, Australia, and Latin America. Specifically, it is evaluating opportunities to establish manufacturing capacity in East Asia and expand its sales and marketing capacities in that fast-growing region. Its main competition comes in that region as well, from a division of Asahi Kasei, which appears to be the only company with the scale and technical ability to compete directly with DMC Clad. Other competitors in Europe and Asia are far smaller and more technically limited.
The purchase of Germany-based DYNAenergetics in 2007 added the lucrative Oilfield Products segment to the company’s portfolio. DYNAwell, the oilfield services business of DYNAenergetics, manufactures and sells perforating explosives for the oil and gas industry. It faces competition from large oil and gas service companies, such as Halliburton (HAL) and Schlumberger (SLB), but competes for sales based on price, customer service, and quality. In recent years, the segment has taken over as the company’s top growth driver. High oil prices and advances in natural gas exploration and production have led to a surge in activity, with operations in North America and Russia leading the way. As a result, the Oilfield Products segment has jumped from 29% of net sales in 2010 to 35% in 2011.
The company’s smallest segment is AMK Welding, which provides advanced welding services to its blue-chip industrial customers. It has a particular niche in welding complex, shaped parts for machining companies that supply manufacturers of aircraft engines, both commercial and military. More recently, it has begun work on a major turbine project for a large U.S. power-generation company. However, in recent years, AMK’s share of the company’s total business has dwindled, accounting for only 5% of net sales in 2011.
After years of paying off borrowings that arose from the DYNAenergetics acquisition, Dynamic Materials’ balance sheet is free of long-term debt. Now that the burden is paid off, and with over $60 million in working capital at the end of 2011, the company has abundant opportunities to increase shareholder value. Indeed, in today’s low interest-rate environment, it makes sense for the company to put its capital to work. BOOM stock pays a meager dividend yield of less than 1%; the disbursement was a mere 17% of net profits in 2011. With such a strong balance sheet and resurgent earnings, the dividend yield could be brought in line with the market average of 2.2% without compromising the company’s financial safety. Alternatively, with a market cap of only about $300 million, the company’s working capital could provide for a substantial stock buyback program. If management doesn’t choose one of these options, it could find other ways to put the company’s capital to work, either by making major acquisitions or expanding the capacities of its current operations.
As a global leader in its industry, Dynamic Materials has been benefiting from globalization. It is currently expanding into markets that would have been unimaginable in decades past. In recent years, the company has been boosted by increased infrastructure spending in the Arab world, particularly the Gulf States. In Russia, the company has established manufacturing facilities and taken part in that country’s oil and gas boom. In fast-growing East Asia, the company is aggressively seeking to expand.
Dynamic Materials’ sales and earnings have been highly cyclical over the last 10 years. The company boomed from 2003-2008, peaking in 2007 with record earnings of $2.00 per share and its blockbuster acquisition of DYNAenergetics. However, earnings were hit hard by the last recession, bottoming out at $0.24 a share in 2010. Earnings are steadily coming back, largely due to the Oilfield Products segment, and we project that the company will reach record earnings levels in the next three to five years and set records for sales.
The main risk Dynamic Materials faces is the cyclical nature of its business. A faltering of investment in industrial equipment or natural gas and oil production would likely hit the bottom line hard. However, further growth in such investment would probably mean a continuation of the rapid upward trajectory of the company’s earnings.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.