Making America Great Again One House At A Time Value Investor - - PowerPoint PPT Presentation
Making America Great Again One House At A Time Value Investor Conference Omaha, NE May 4, 2017 Bob Robotti President & CIO Robotti & Company Advisors Traditional Value Investor Bias Investing Checklist Is this company cyclical?
Omaha, NE May 4, 2017
President & CIO Robotti & Company Advisors
Sir John Templeton
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Investing Checklist Is this company cyclical? Is the business tied to commodity prices? Is the balance sheet levered? Are shares trading near 52 week highs?
New entrants attracted by prospect
Investors Optimistic Rising competition causes returns to fall below cost of capital: Share Price Underperforms Business investment declines, industry consolidation, firms exit: Investors Pessimistic Improving supply side causes returns to rise above cost of capital: Share Price Outperforms
Source: Capital Returns, Edward Chancellor, editor (2015)
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“A business which sells at a premium does so because it earns a large return upon its capital; this large return attracts competition; and generally speaking, it is not likely to continue indefinitely. Conversely in the case of a business selling at a large discount because of abnormally low earnings. The absence of new competition, the withdrawal of old competition from the field, and other natural economic forces should tend eventually to improve the situation and restore normal rate of profit on the investment.” Security Analysis (1934 Edition) Benjamin Graham and David Dodd
Source: Barclays
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We take a longer-term view and have the ability to tolerate market swings.
Leads Us To Our behavioral edge comes from our ability to tolerate market volatility. As a result, our investment process concentrates on understanding the long-term normalized earning power of a business well before the “investing herd” gains interest.
Analytical Edge
Within the context of a longer-term perspective and 30+ years of experience, we have the ability to develop a different conclusion than that of the market.
Informational Edge
Our network of industry relationships, focus on deep primary research, and experience serving on company boards, provides us with more pieces for building our information mosaic.
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building products, prefabricated components and value-added services primarily for new residential construction and repair & remodeling.
LBM distribution network serving the professional market BLDR benefits from regional economies of scale.
expense reduction and balance sheet improvement BLDR is poised to benefit from the reversion of single family home starts to a normal level.
digit multiple of normalized earnings power.
Source: Builders FirstSource 10K, S&P CapitalIQ
Prices as of 5/3/17 in $ millions (except share price)
Page 7 Financial Summary Price: $15.92 Net Debt 1,788 Dil Shrs: 113.6 Net Debt/EBTIDA 4.7x Market Cap 1,808 LT Debt 1,802 52 Week High $16.50 Cash 14 52 Week Low $9.04 Enterprise Value 3,596 Avg Volume (mm) 1.6
Financial Summary Consensus 2016 2017E 2018E Revenue 6,367 6,810 7,226 growth 78.6% 6.9% 6.1% ev / sales 0.6x 0.5x 0.5x EBITDA 382 454 515 margin 6.0% 6.7% 7.1% ev / ebitda 9.4x 7.9x 7.0x Diluted EPS $1.27 $1.06 $1.46 Housing Starts 1,176 1,240 1,331 SFH Starts 784 855 961
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Materials Manufacturers
Windows & Doors Cabinetry & Fixtures Roofing, Siding & Insulation Flooring & Carpets Structural Board
National Homebuilders Regional Homebuilders
Big Box Retail Pro-Segment
Distributors
HVAC Wallboard Plumbing Lighting Molding & Trim Architectural Paint
Homebuilders
Specialty
Contractors
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material cost of a home.
Source: BMC Holdings Investor Presentation
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Source: Builders FirstSource Q4 2016 Results Presentation
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Source: Builders FirstSource Q4 2016 Results Presentation
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Source: U.S. Bureau of the Census retrieved from Federal Reserve Bank of St. Louis, Builders FirstSource Q4 2016 Results Presentation
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through procurement savings, general & administrative cost reductions and network consolidation.
from regional economies of scale.
Builders FirstSource is ~50x larger than the average remaining top 100 pro dealers.
Source: Builders FirstSource Q4 2016 Results Presentation
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Source: Builders FirstSource Q4 2016 Results Presentation
Source: Builders FirstSource Presentation for Zelman Housing Summit, September 2016
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Pro-Forma the ProBuild Acquisition assuming the acquisition closed January 1, 2015 Source: Builders FirstSource Quarterly Result Announcements
4% 5% 6% 7% 5,900 6,000 6,100 6,200 6,300 6,400
Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
EBITDA MARGIN (TTM)
REVENUE (TTM) Jun- 15 Sep- 15 Dec- 15 Mar- 16 Jun- 16 Sep- 16 Dec- 16 TTM Revenue 6,104 6,092 6,067 6,180 6,229 6,276 6,367 EBITDA Margin 4.7% 5.0% 5.2% 5.7% 6.0% 5.9% 6.0%
Revenue vs EBITDA Margin
(ttm)
Annual Maintenance Capex = 1% - 1.5% of Sales
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6.5x 6.2x 5.5x 5.3x 5.3x 4.8x BLDR Net Debt / EBITDA
(ttm)
Source: Builders FirstSource Quarterly Result Announcements
Issue Outstanding Annual Cash Interest 10.75% Unsecured Note 2023 368 40 5.625% Senior Secured Note 2024 750 42 4% Floating LIBOR Term Loan 2024 468 19 2% Floating LIBOR Revolver – 5 Lease Obligations 246 22 Total 1,831 127
$ millions
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$678 $700 $779 $1,071 $1,490 $1,604
2009 2010 2011 2012 2013 2014
BLDR Revenue
2009 - 2014
bottomed in 2009 at 442k single-family home starts.
single family home starts increased 46% to 647,000.
554 586 612 784 928 1,001 442 471 434 537 620 647
2009 2010 2011 2012 2013 2014
Home Starts
2009 - 2014
U.S. Home Starts Single Family Starts
generated $687mm of revenue.
Builders’ revenue increased 136% to $1.6bn
Source: U.S. Bureau of the Census retrieved from Federal Reserve Bank of St. Louis, Builders FirstSource Filings
784 1,176
2016 Actual 2018 - 2020 Estimes
Single Family Home Starts
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$6,367 $12,735
2016 Actual 2018 - 2020 Estimes
BLDR Revenue
$678 $700 $779 $1,071 $1,490 $1,604 2009 2010 2011 2012 2013 2014
BLDR Revenue
2009 - 2014
554 586 612 784 928 1,001 442 471 434 537 620 647
2009 2010 2011 2012 2013 2014
Home Starts
2009 - 2014
U.S. Home Starts Single Family Starts
Source: U.S. Bureau of the Census retrieved from Federal Reserve Bank of St. Louis, Builders FirstSource Filings, Robotti & Company Advisors Estimates
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EBITDA Estimate (8x EV / EBITDA multiple) Share Price Margin of Safety
Revenue 9,000 10,000 11,000 12,000 13,000 14,000 6% 540 600 660 720 780 840 7% 630 700 770 840 910 980 8% 720 800 880 960 1,040 1,120 9% 810 900 990 1,080 1,170 1,260 10% 900 1,000 1,100 1,200 1,300 1,400 11% 990 1,100 1,210 1,320 1,430 1,540 12% 1,080 1,200 1,320 1,440 1,560 1,680
EBITDA Margin Revenue 9,000 10,000 11,000 12,000 13,000 14,000 6% 40% 67% 93% 120% 146% 173% 7% 80% 111% 142% 173% 204% 235% 8% 120% 155% 190% 226% 261% 297% 9% 159% 199% 239% 279% 319% 359% 10% 199% 244% 288% 332% 376% 421% 11% 239% 288% 336% 385% 434% 482% 12% 279% 332% 385% 438% 491% 544% Revenue 9,000 10,000 11,000 12,000 13,000 14,000 6% $22 $27 $31 $35 $39 $43 7% $29 $34 $38 $43 $48 $53 8% $35 $41 $46 $52 $58 $63 9% $41 $48 $54 $60 $67 $73 10% $48 $55 $62 $69 $76 $83 11% $54 $62 $69 $77 $85 $93 12% $60 $69 $77 $86 $94 $103
EBITDA Margin
Source: Robotti & Company Advisors Estimates
Disclosures Builders FirstSource (BLDR) Robert Robotti and/or members of his household has a financial interest in the following securities Yes Robotti & Company or its affiliates beneficially own common equity of the following securities Yes Robotti & Company or its affiliates beneficially own 1% or more of any class of common equity of the following securities Yes Robert Robotti serves as a Director or Officer or Advisory Board Member of the following securities No
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President & CIO
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