Record turnover and profits and heavy investment are signs Castings is a strong company in almost every respect bar the industry it serves.

Business model: Creator

Castings moulds iron into castings at its foundries in the UK, and machines them into automotive components.

Situation: Cyclical

The period between 2008 and 2010 shows how profit is at the mercy of factors largely out of Castings’ control. Already dealing with unprecedented raw material costs, and in the process of installing a new foundry, it faced a decline in demand that reduced output by 40%. Castings sells most of its output to car and commercial vehicle manufacturers and individuals and businesses put off buying new vehicles as the credit crunch unfolded. Profits came under pressure although the company avoided making a loss.

Expectations: Growth

That performance, and its subsequent growth, suggest Castings should continue to profit even in bad times, due to strong finances and consistent management, and following sustained investment in new capacity and more productive equipment, Castings is demonstrating it can grow even when its market is experiencing more mixed fortunes. European car makers are struggling in general, though net necessarily its customers. Jaguar Land Rover, for example, is expanding.

Threats:

Competitive position: Neutral
Although it operates in a competitive industry, Castings, which exports 80% of production, has some of the hallmarks of a hidden champion. Specialising in global niche markets, hidden champions embed themselves in customers’ businesses earning unusually high returns providing essential components and services. Castings products are prosaic, engine mountings, manifolds and steering knuckles for example, so the analogy may be imperfect, but its solidity probably makes it an attractive partner and Castings earns a respectable 14% return on tangible assets.

Finances: Strong
In March 2012 Castings had ''18m in cash, no debt, no-off balance sheet operating leases, and its pension scheme was in surplus. It was strong enough in 2009 to continue investing in long-term commitments while short-term business and even some of its cash, deposited in an Icelandic bank, was melting away.

Management: Strong
This year, the company reported record turnover and profit, and chairman Brian Cooke, a major shareholder and former chief executive who joined Castings in 1960, must have been a major influence. So must the current chief executive, David Gawthorpe, who took over in 2007, and joined in 1984.

Valuation: Cheapish
Castings is an admirable company, in a very competitive, unpredictable and inefficient business. To grow, it must invest heavily in equipment, which as we saw in 2009, fate can render surplus to requirements. The same is true of people. That year it laid off hundreds of employees only to re-employ many of them.

An earnings yield of 14% appears to undervalue Castings, but I’m very wary of investing in a cyclical company when profits are high and the shares look cheap. Averaging adjusted earnings over the last seven years, including two recessions, gives a yield of 11% though, and that still looks pretty good value.

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One of the hardest things for a value investor is buying more shares in a company that has already performed well. Castings is up over 70% since it joined the Thrifty 30, and although buying high is not part of the game plan, after much indecision I added more shares to the portfolio this morning. I doubt @theredcorner would have come to the same conclusion, but he helped me understand how to value companies investing as heavily as Castings.

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