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The homebuilding industry is short labor - we like the distributors - - PowerPoint PPT Presentation
The homebuilding industry is short labor - we like the distributors - - PowerPoint PPT Presentation
We have initiated coverage of 4 companies in the building products distribution and installation industry (collectively distributors) The homebuilding industry is short labor - we like the distributors because they provide partial
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*BTIG does not provide price targets on Neutral-Rated Stocks Note: EV/EBITDA is calculated using 4Q19 total debt and cash estimates and consensus EBITDA estimates Source: FactSet, Company Filings, BTIG Research
BTIG Building Products Distribution & Installation Initiation 3
Revenue Growth Adjusted EBITDA Growth Diluted EPS Growth 2019 2019 2020 2020 2021 2021 2019 2019 2020 2020 2021 2021 2019 2019 2020 2020 2021 2021 BTIG Con. BTIG Con. BTIG Con. BTIG Con. BTIG Con. BTIG Con. BTIG Con. BTIG Con. BTIG Con. Lumber and Building Materials Builders FirstSource (BLDR)
- 5.8%
- 5.8%
12.0% 9.9% 7.0% 5.3% 2.9% 2.3% 11.5% 10.3% 13.1% 10.3% 7.7% 7.9% 14.2% 14.0% 29.5% 13.2% BMC Stock Holdings (BMCH)
- 1.5%
- 1.2%
9.8% 8.4% 5.1% 4.6%
- 2.4%
- 3.0%
10.4% 10.5% 5.9% 7.2%
- 7.7%
- 7.8%
16.3% 17.6% 9.0% 11.9% Insulation Installation TopBuild (BLD) 10.1% 10.7% 7.0% 6.3% 6.2% 5.1% 27.0% 31.8% 11.7% 11.8% 10.2% 9.0% 46.8% 46.9% 13.2% 13.4% 12.8% 13.2% Installed Building Products (IBP) 13.1% 12.5% 11.7% 11.6% 9.0% 7.3% 19.7% 17.3% 18.6% 17.6% 14.0% 10.3% 30.2% 30.1% 38.3% 30.7% 23.6% 20.1%
Priced 02/28/20 Market Data 52-Week Range Price Change EPS Estimates Valuation % Off % Off BTIG Consensus EV/EBITDA Ticker Rating High Low 2019A 2019A 2020 2020 2021 2021 2019 2019 2020 2020 2021 2021 NTM 2020 2020 2021 2021 Lumber and Building Materials Builders FirstSource BLDR Buy $31.00 $22.71 $2,637 $3,976 1,272 $28.43 $28.43 -20% -20%
- 50% 108%
63% $1.90 $2.16 $2.80 $1.90 $2.17 $2.45 7.0x 7.0x 6.4x BMC Stock Holdings BMCH Neutral NA $24.53 $1,637 $1,977 356 $31.67 $31.67 -23% -23%
- 39%
58% 28% $1.63 $1.90 $2.07 $1.63 $1.92 $2.15 6.9x 6.9x 6.5x Insulation Installation TopBuild BLD Neutral NA $101.00 $3,382 $3,930 304 $125.66 $125.66 -20% -20%
- 41% 124%
70% $5.56 $6.29 $7.09 $5.56 $6.30 $7.14 9.8x 9.8x 9.0x Installed Building Products IBP Buy $87.00 $66.05 $1,983 $2,426 225 $80.25 $80.25 -18% -18%
- 56%
96% 51% $2.28 $3.16 $3.90 $2.28 $2.98 $3.58 10.7x 10.7x 9.7x Company Price Target Share Price Market Cap ($M) Enterprise Value ($M) 90D ADTV (000s) 2018 2018 YTD LTM High Low
02/28/2020
SLIDE 4
▪
Mac acro View: We forecast mid-single digit single family starts growth in 2020, driven by higher mix of entry-level
▪
Improvement exacerbates ongoing labor shortage challenges
▪
Our ur cov
- verage com
- mpanie
ies offer par parti tial l solu solutio tions to to labor iss ssue – structural components and a national in-house insulation installer employee base - and can leverage a tighter labor market to raise price and expand margin
▪
In n Lum Lumber and nd Buil uildin ing Materia ials ls (LBM), we believe that the structural components category will outgrow the overall market as homebuilders increasingly adopt products that reduce framing labor requirements and construction cycle times
▪
BUT sm smal alle ler ho houses als lso ne need less lum umber, mi millw llwork, k, do door
- rs, and wi
wind
- ndows. We expect these products to
undergrow in 2020
▪
In n ins nsula latio ion, the dominant players (our coverage) have pricing power as starts move higher
▪
Insulation is ~2% of cost to construct a home, so as insulation prices rise, installers can pass it through and grow margin
▪
After a strong 2019 for the stocks, we believe there is further appreciation ahead:
▪
Distributors are 78% correlated to starts, which we expect to grow in 2020
▪
We believe EPS growth will growth in 2020 on both stronger top line AND margin expansion
▪
Stocks currently trade at 7% below 2016-current average multiples
4 BTIG Building Products Distribution & Installation Initiation 02/28/2020
SLIDE 5
▪
Lu Lumbe ber r and and Buil Building ding Ma Materia rials ls (LBM) LBM) Dis istrib ibut utors: s:
▪
BU BUY Buil Builde ders s Fi FirstSource (BLD BLDR, $3 $31 1 PT) T): Consensus underestimates the impact that BLDR’s investments in structural component capacity on 2020 and 2021 earnings growth as adoption of structural components grows – 37 37% up upsi side de to
- PT
▪
Neu Neutral l BMC BMC St Stoc
- ck Holdin
Holdings s (BMC BMCH): ): We believe geographic concentration in CA and WA as well as product concentration in windows, doors, and millwork limits growth potential
▪
Insula nsulation ion Ins nstalle llers:
▪
BU BUY Ins nstalle lled d Buil Buildin ding Prod
- ducts (IBP
BP, $8 $87 7 PT) T): Consensus underestimates IBP’s incremental margin growth potential. After 2.5 years of lagging, we believe IBP’s incremental margins are just beginning to rebound into the 20-25% guidance range – 32% % up upside ide to
- PT
▪
Neu Neutral l Top
- pBu
Build ild (BLD BLD): We believe incremental margin is at the tail-end of its outperformance period and do not believe the stock can outperform if margins decelerate
5 BTIG Building Products Distribution & Installation Initiation 02/28/2020
SLIDE 6
▪
Strong 2019 appreciation, more volatile than homebuilders
▪
Highly correlated to single family housing starts (78%)
▪
Less correlated to underlying material prices (54%)
▪
Not correlated to interest rates (9%)
6
Sources: FactSet, Census, Company Filings, BTIG Research
Annual Stock Performance of Distributors, Homebuilders, & S&P 500 Distributor Correlation to Starts, Commodities, 10yr
BTIG Building Products Distribution & Installation Initiation
83% 86% 55% 87% 58% 53% 43% 63% 25% 8%
- 11%
13%
- 20%
0% 20% 40% 60% 80% 100% BLD BLDR BMCH IBP
Starts Commodities 10yr Yield
37% 24% 81%
- 46%
113%
- 8%
3% 6% 71%
- 34%
51% 0%
- 1%
10% 19%
- 6%
29%
- 9%
- 60%
- 40%
- 20%
0% 20% 40% 60% 80% 100% 120% 140% 2015 2016 2017 2018 2019 2020 ytd Distributors Homebuilders S&P 500
02/28/2020
SLIDE 7
▪
We value distributors on an EV/EBITDA basis
▪
LBM is trading at 7x, insulation is trading at 10x
▪
We believe re-accelerating starts can support valuation
▪
Group is 7% below 4 year average valuation
7
Sources: FactSet, Company Filings, BTIG Research
LBM and Insulation EV/EBITDA Multiples
EV/NTM EBITDA Valuation Methodology
BTIG Building Products Distribution & Installation Initiation
5.0x 6.0x 7.0x 8.0x 9.0x 10.0x 11.0x 12.0x 13.0x 14.0x 15.0x 4.0x 5.0x 6.0x 7.0x 8.0x 9.0x 10.0x LBM (LHS) Insulation (RHS)
NTM Adj EBITDA Multiple Enterprise Value Total Debt Total Cash Equity Value Shares Out PT / Fair Value Price Delta LBM BLDR 575.5 8.6x 4,949.5 1,352.9 14.1 3,610.7 115.9 $31.00 $22.71 36.5% BMCH 286.5 8.0x 2,292.0 505.5 165.5 1,951.9 66.8 $29.00 $24.53 18.2% Insulation BLD 399.9 11.1x 4,438.8 732.2 184.8 3,891.4 33.3 $117.00 $101.00 15.8% IBP 233.4 13.0x 3,034.0 620.8 177.9 2,591.1 29.8 $87.00 $66.05 31.7%
02/28/2020
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8
Sources: BTIG Research
BTIG Building Products Distribution & Installation Initiation
LBM Distribution Value Chain Insulation Installation Value Chain
LBM Distribution Value-Add Products Distributed Products Construction Services On-siteConstruction Home Builder Framing Subs Building Product Manufacturing Process Building Product Manufacturer Raw Material Insulation Manufacturing Process Insulation Manufacturer Raw Material On-siteConstruction Home Builder Insulation Installation Insulation Installers Insulation Branches
02/28/2020
SLIDE 9
▪
$334B in 2018, $169B ex Home Depot (HD, Not Rated) and Lowe’s (LOW, Not Rated)
▪
- Ex. Home Depot (HD, Not Rated) and Lowe’s (LOW,
Not Rated), top 100 share was 36% and top 10 share was 27%
▪
Top 10 market share is expanding – both organic and through M&A
9
Sources: Company Filings, Census, ProSales, BTIG Research
BTIG Building Products Distribution & Installation Initiation
LBM Top 10 and Top 100 Market Share
13% 27% 31% 18% 36% 53% 0% 10% 20% 30% 40% 50% 60% LBM Market Share LBM Market Share ex HD and LOW HB Market Share Top 10 Top 100 4% 4% 7% 6% 6% 6% 7% 7% 7% 6% 6% 7% 8% 9%10% 8% 7% 7% 7% 7% 8% 8% 9% 10% 11% 12% 13% 0% 2% 4% 6% 8% 10% 12% 14% 16% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Top 10 Market Share
LBM Top 10 Market Share Gains Top 10 LBM Distributors
Rank Name Type 2018 Sales Product Examples 1 ABC Supply (Private) Specialty 10,541.9 Roof covering products, roof insulation, siding, windows, doors 2 Builders FirstSource (BLDR) Lumber 7,724.8 Lumber, EWP, structural components, windows, doors, millwork 3 Beacon Roofing Supply (BECN) Specialty 6,841.9 Roofing products, siding, drywall, waterproofing, acoustical tiles 4 84 Lumber (Private) Lumber 3,859.6 Lumber, EWP, structural components, siding, insulation, millwork 5 BMC Stock Holdings (BMCH) Lumber 3,682.4 Lumber, EWP, structural components, windows, doors, millwork 6 US LBM (Private) Lumber 3,348.4 Lumber, EWP, windows, doors, trim, wallboards, roofing 7 SRS Distribution (Private) Specialty 2,750.5 Roofing products 8 GMS (GMS) Specialty 2,657.5 Wallboard, ceilings, interior wall steel framing, insulation 9 Foundation Building Materials (FBM) Specialty 2,044.3 Wallboard, ceilings, metal framing, insulation 10 Carter-Jones Lumber (Private) Lumber 1,482.0 Lumber, roofing, millwork, windows, doors, structural components
02/28/2020
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10
Sources: Company Filings, BTIG Research
BTIG Building Products Distribution & Installation Initiation
1. 1.
Indu ndustry ry St Still ill Fr Frag agmented – Mo More Mar Market Shar Share Consol Consolida idatio ion Ahea Ahead
▪
$169B market ex HD and LOW – Top 100 distributors only 36% of it
▪
BLDR has acquired 6 companies since 2016, BMCH 9 acquisitions
▪
Acquisition multiples for bolt-ons lower than current 8x trading multiple
2. 2.
St Structural l Com Compo ponent Adop Adoptio ion
▪
Structural components improve cycle times and reduce on-site labor requirements
▪
Labor shortages driving adoption – this is good for distributors because component margins are 800- 1,000 bps above distributed lumber
3. 3.
En Entry-Le Level l Driv ives s St Start arts s Gr Growth in in 20 2020 20
▪
Mix shift within homebuilders helps BLDR but could be a challenge for BMCH
▪
Builders will continue to use structural components – they need the cycle time improvements
▪
We DO expect less need for windows, doors, and millwork
02/28/2020
SLIDE 11
▪
LBM revenue is highly correlated to lumber prices but the STOCKS are less correlated – while the fluctuations in price creates income statement volatility, we have found it tends to net out by the bottom line
▪
Initial impact of higher lumber prices -> no change to revenue because of customer pricing commitments, gross margin declines, lower SG&A/Sales offsets GM because sales force is paid in part on gross margin
11
Sources: Census, Company Filings, BTIG Research
BTIG Building Products Distribution & Installation Initiation
YoY Change in LBM Revenue and Lumber Prices
- 60.0%
- 40.0%
- 20.0%
0.0% 20.0% 40.0% 60.0%
- 15.0%
- 10.0%
- 5.0%
0.0% 5.0% 10.0% 15.0% 20.0% 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 BLDR (LHS) BMC (LHS) Lumber (RHS)
BLDR Correl: 86% BMCH Correl: 88%
02/28/2020
SLIDE 12
▪
Unlike LBM – Insulation is a SMALL and HIGHLY CONSOLIDATED market which is driving pricing power
▪
Residential total market size is around ~3.5-$4.0B
▪
Commercial total market size $5B+
▪
In residential, BLD controls 40% share and IBP 28%, the remaining 32% is highly fragmented (hundreds of local and regional firms)
▪
In commercial, BLD’s market share is 10% and IBP’s is 4%
12
Sources: Company Filings, Census, BTIG Research
BTIG Building Products Distribution & Installation Initiation
28% 4% 40% 10% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Residential Commercial
IBP BLD
Market Share
02/28/2020
SLIDE 13
1. 1.
Mar Market St Structure Driv ives s Pric icing ing Power
▪
Insulation is a small (1.5-2.5%) cost line for builders
▪
4 manufacturers with fiberglass capacity
▪
Installation agreement typically priced turnkey – installers can sub out manufacturers
▪
Control over installation labor enables installers to draft off price increases and minimize declines
2. 2.
Pric ice/C /Cost Outl utloo
- ok Favorable
ble
▪
Multiple manufacturers price increases announced for Jan 2020 – likely to be at least partially realized due to re-accelerating starts and OC capacity reductions
▪
Labor tight enough to enable relatively quick pass through by installers before more manufacturing capacity comes on-line in late 2020
3. 3.
Bolt Bolt-On M& M&A Driv ives Fur Furthe her Gr Growth
▪
M&A volume lagged in 2019 – we expect re-acceleration in 2020
▪
Bolt-on acquisition multiples are 4-6x pre synergies, stocks trade at 11-12x
▪
Since 2015, BLD has acquired 11 companies with $514M of annual rev; IBP acquired 55 companies with combined revenue of $536M since its 2014 IPO
13 BTIG Building Products Distribution & Installation Initiation 02/28/2020
SLIDE 14
▪
Builders FirstSource (BLDR): Buy $31 PT
▪
BLDR is the second largest LBM distributor in the US and the largest with manufacturing capabilities. BLDR
- perates out of 400 locations in 40 states
▪
We believe BLDR is best positioned to take advantage of higher demand for structural components as a result of BLDR’s long-running strategy and recent investment activity
▪
Over the past three years, BLDR has significantly added to its manufacturing capabilities by opening 9 new manufacturing facilities in addition to new lines and new equipment at existing facilities
▪
Recent M&A also focused on increasing structural component capabilities. 4 truss facilities acquired and recent acquisition of Raney Construction adds vertically integrated off-site construction capabilities
▪
Current multiple of 7.1x is 5% below its 2016-current average and 26% below the 2018 peak. Higher revenue and EPS growth from increasing structural component adoption should lead to lead to multiple expansion in 2020
14 BTIG Building Products Distribution & Installation Initiation 02/28/2020
SLIDE 15
2,251.6 1,449.6 1,542.9 528.6 712.5 795.2
Lumber & lumber sheet goods Manufactured products Windows, doors, & millwork Gypsum, roofing, & insulation Sliding, metal, & concrete products Other building products & services
32% 32% 20% 20% 22% 22% 7% 7% 10% 10% 11% 11% 2,251.6 1,449.6 1,542.9 528.6 712.5 795.2
Revenue By Product, $M Revenue By Product, % of Total Revenue
71% 23% 6%
New Single Family Residential Professional Repair and Remodel / Other Multifamily
71% 71% 23% 23% 6% 6% 5,484.5 1,776.7 463.5
Revenue By End Market, $M Revenue By End Market, % of Total Revenue
15
Sources: Company Website, Company Filings, BTIG Research
BTIG Building Products Distribution & Installation Initiation
Geographic Footprint (Nov 2019) LTM Revenue by Product 2019 Revenue by End Market
Prio ior investments wi will ll dr driv ive hi high gher mi mix of man manufactured pr prod
- ducts in
n 20 2020 20
Mini Model
BUILDERS FIRSTSOURCE, INC. (BLDR) 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 FY Ends December FY FY FY FY FY FY FYE FYE Income Statement Net Sales 7,034.2 7,724.8 7,280.5 8,155.5 8,729.1 Pre-tax Income 91.9 260.8 282.8 333.6 438.6 Net Income 38.8 205.2 221.8 256.9 337.7 Diluted EPS $0.34 $1.76 $1.90 $2.16 $2.80
- Adj. EBITDA
419.0 501.6 516.1 575.5 651.1 Margin Analysis Gross margin 24.6% 24.9% 27.2% 26.3% 26.3% Pre-tax margin 1.3% 3.4% 3.9% 4.1% 5.0% Adj EBITDA margin 6.0% 6.5% 7.1% 7.1% 7.5% 02/28/2020
SLIDE 16
▪
BMC Stock Holdings (BMCH) - Neutral
▪
BMCH is the 5th largest LBM distributor in the US and 3rd largest with structural component capabilities, as
- f 12/31/18. BMCH operates out of 150 facilities in 18 states with TX, CA, and GA accounting for 55% of 2018
revenue
▪
We believe BMCH’s revenue growth from volume will be slower than the overall market in 2020 due to its exposure to slower growth geographic and product categories
▪
BMCH has revenue and margin concentration in CA and WA and limited exposure to some of the strongest housing markets in AZ, FL, and NV
▪
We believe the millwork, doors, and windows category will undergrow in 2020 as builders continue to shift mix to more affordable entry-level housing
▪
This category accounted for just under 30% of BMCH’s LTM revenue and generates the company’s highest margins
▪
We believe slower growth limits upside from current levels.
▪
BMCH’s multiple is 10% below its 4 year average
16 BTIG Building Products Distribution & Installation Initiation 02/28/2020
SLIDE 17
Structural components Millwork, doors & windows Lumber & lumber sheet goods Other building products & services
18% 18% 29% 29% 30% 30% 24% 24% 636.0 1,039.0 1,082.8 868.8
Revenue By Product, $M Revenue By Product, % of Total Revenue Single family homebuilders Remodeling contractors Multifamily, commercial & other contractors
75% 75% 12% 12% 14% 14% 2,713.9 419.5 493.2
Revenue By End Market, $M Revenue By End Market, % of Total Revenue
17
Sources: Company Filings, BTIG Research
BTIG Building Products Distribution & Installation Initiation
Geographic Footprint (12/31/18) LTM Revenue by Product LTM Revenue by End Market
TOO MUCH TOO LITTLE Mini Model
BMC Stock Holdings, Inc. (BMCH) 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 FY Ends December FY FY FY FY FY FY FYE FYE Income Statement Net sales 3,366.0 3,682.4 3,626.6 3,982.9 4,186.8 Pre-tax income 81.8 156.9 146.5 170.4 187.3 Net income 57.4 119.7 109.8 128.6 141.4 Diluted EPS $0.85 $1.77 $1.63 $1.90 $2.07
- Adj. EBITDA
200.0 265.9 259.4 286.5 303.4 Margin Analysis Gross margin 23.6% 24.7% 26.2% 25.7% 25.9% Pre-tax margin 2.4% 4.3% 4.0% 4.3% 4.5% Adj EBITDA margin 5.9% 7.2% 7.2% 7.2% 7.2%
02/28/2020
SLIDE 18
▪
IBP is the second largest residential insulation installer in the US with over 175 branches in 38 states.
▪
Pure-play installer with 28% residential market share and 4% commercial market share
▪
IBP is at the beginning stages of incremental margin re-acceleration which consensus underestimates
▪
2018 conservatism on price was a drag through 2Q19 – we see the pricing conservatism reversing
▪
Commercial startup costs now abating
▪
Believe re-accelerating margins and the potential for consensus revisions will lead to multiple expansion
▪
Current multiple of 10.3x is 9% below its 2016-current average and 36% below its 2018 peak
18 BTIG Building Products Distribution & Installation Initiation 02/28/2020
SLIDE 19
Residential new construction Repair and remodel Commercial
75% 75% 7% 7% 18% 18% 1,138 99 99 274
Revenue By End Market, $M Revenue By End Market, % of Total Revenue
19 BTIG Building Products Distribution & Installation Initiation
Mini Model
Sources: Company Filings, BTIG Research
LTM Revenue by Product LTM Revenue by End Market Geographic Footprint (9/30/19)
Insulation Waterproofing Shower doors, shelving, mirrors Garage doors Rain gutters Window blinds Other
64% 64% 7% 7% 7% 7% 6% 6% 3% 3% 3% 3% 9% 9% 970 112 106 90 90 50 50 42 42 142
Revenue By Product, $M Revenue By Product, % of Total Revenue Installed Building Products, Inc. (IBP) 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 FY Ends December FY FY FY FY FY FY FYE FYE Income Statement Net Sales 1,132.9 1,336.4 1,511.6 1,688.7 1,840.8 Pre-tax Income 55.8 72.2 92.6 128.3 160.2 Net Income 41.1 54.7 68.2 95.6 119.3 Diluted EPS $1.30 $1.75 $2.28 $3.16 $3.90
- Adj. EBITDA
141.1 164.4 196.8 233.4 266.1 Margin Analysis Gross margin 28.6% 27.8% 28.8% 29.5% 30.1% Pre-tax margin 4.9% 5.4% 6.1% 7.6% 8.7% Adj EBITDA margin 12.5% 12.3% 13.0% 13.8% 14.5%
02/28/2020
SLIDE 20
▪
BLD is the largest US insulation installer and operates out of almost 200 branches in 40 states; distribution
- perates out of 75 locations in 32 states
▪
Residential market share is 40% and commercial is 10%
▪
After four years of significant margin expansion, we expect margin improvement to decelerate and we believe consensus over-estimates BLD’s margin expansion potential
▪
Margins have been boosted by non-recurring events: (1) operational autonomy post-spin (2) an acquisition of a large peer, (3) switching from leasing to owning vehicles, and a (4) better ability to negotiate pricing with manufacturers following the 2017 litigation settlement with Owens Corning (OC, Not Rated)
▪
We expect these tailwinds to begin to abate in 2020 and 2021, leading incremental margin to fall back into BLD’s guide of 22-27%
▪
Current 9.8x EV/NTM EBITDA multiple already prices in our positive outlook on revenue growth
20 BTIG Building Products Distribution & Installation Initiation 02/28/2020
SLIDE 21
Residential Commercial
77% 77% 23% 23% 2,023.9 600.2
Revenue By End Market, $M Revenue By End Market, % of Total Revenue
21
Sources: Company Filings, BTIG Research
BTIG Building Products Distribution & Installation Initiation
Geographic Footprint (at USI Merger) 2019 Revenue by Product 2019 Revenue by End Market Mini Model
Insulation and accessories Glass and windows Rain gutters All other
79% 6% 6% 9% 2,084 152 149 240
Revenue By Product, $M Revenue By Product, % of Total Revenue
TopBuild (BLD) 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 FY Ends December FY FY FY FY FY FY FYE FYE Income Statement Net sales 1,906.3 2,384.2 2,624.1 2,808.4 2,982.2 Pre-tax income 128.0 180.8 253.8 289.8 328.4 Net income 158.1 134.8 191.0 214.4 243.0 Diluted EPS $4.32 $3.78 $5.56 $6.29 $7.09
- Adj. EBITDA
197.6 283.3 359.1 399.9 439.9 Margin Analysis Gross margin 24.2% 24.2% 26.0% 26.2% 26.6% Pre-tax margin 6.7% 7.6% 9.7% 10.3% 11.0% Adj EBITDA margin 10.4% 11.9% 13.7% 14.2% 14.8%
02/28/2020
SLIDE 22
22
Sources: Company Filings, Company Websites (BLDR, BMCH, JELD, ProSales Magazine, Homereference.net, Hansen Pole Buildings), BTIG Research
BTIG Building Products Distribution & Installation Initiation
LBM Product Examples
The LBM Value Chain
Product Examples Product Examples Product Examples Logs, Pulp, Wood Fiber, Gypsum Lumber, Plywood, Oriented Strand Board, Engineered Wood Single Family Homes Doors, Windows, Drywall, Exterior Siding Multifamily and Commercial Structures Professional Remodeling Largest Suppliers Customer Examples Boise Cascade Co. (BCC, Not Rated) JELD-WEN Inc. (JELD, Not Rated) Beazer Homes USA Inc. (BZH, Not Rated) Weyerhaeuser Co. (WY, Not Rated) Masonite International Corp (DOOR, Not Rated) D.R. Horton (DHI, Buy, $67 PT) Canfor Corp. (CFPZF, Not Rated) PlyGem Holdings, Inc. (CNR, Not Rated) Lennar Corp (LEN, Buy, $75 PT) Norbord, Inc. (OSB, Not Rated) M I Windows and Doors, Inc. PulteGroup (PHM, Neutral) Interfor Corporation (IFP, Not Rated) James Hardie Industries plc. (JHX, Not Rated) Taylor Morrison Home Corp (TMHC, Neutral) West Fraser Timber Co. Ltd. (WFT, Not Rated) LP Building Products (LPX, Not Rated) Toll Brothers Inc. (TOL, Neutral) National Gypsum Co. Andersen Corp TRI Pointe Group (TPH, Neutral)
LBM Re Revenue Streams Raw Materials Building Products Co Companies - LBM BM Suppliers Value-Add Homebuilders, Professional Contractors, Co Commercial Developers Construction Services Distribution Dimensional lumber Plywood and OSB Engineered wood Roofing / Shingles Siding Millwork Windows Cabinets Doors (pre-hung manufactured) Ready-Frame wall package (BMC) Better Framing System wall package (BLDR) Roof trusses Floor trusses Wall panels Pre-cut engineered wood Stairs Distributed Distribution / Value-Add Manufacturing Mix Manufactured Components Product Category Product Examples Typical Gross Margin Mid - High Teens High Teens - High 20s Typical Gross Margin
02/28/2020
SLIDE 23
23
Sources: Company Filings, Company Websites (Home Depot, ProSales Magazine), BTIG Research
BTIG Building Products Distribution & Installation Initiation
The Insulation Value Chain
Material Examples Product Examples Product Examples Sand, Recycled Glass, Paper, Polymer Glue Fiberglass Insulation, Cellulose Insulation, Single Family Homes Spray Foam Insulation Multifamily and Commercial Structures Professional Remodeling Largest Suppliers Customer Examples Owens Corning (OC, Not Rated) D.R. Horton (DHI, Buy, $67 PT) Johns Manville (Parent: Berkshire Hathaway, BRK.A, Not Rated) Lennar Corp (LEN, Buy, $75 PT) Knauf PulteGroup (PHM, Neutral) CertainTeed (Parent: Saint-Gobain, OCDGF, Not Rated) NVR Inc (NVR, Neutral) KB Home (KBH, Neutral)
Insulation Re Revenue Streams Installation Raw Materials Insulation Manufacturing Co Companies Homebuilders, Professional Contractors, Co Commercial Developers Distribution Fiberglass batts and rolls Blown-in loose fill fiberglass Blown-in loose fill cellulose Polyurethane spray foam Rain gutters Fireplaces Closet shelving Roofing materials Garage doors Shower doors Product Category Product Examples Insulation Other Products
Insulation Product Examples
02/28/2020
SLIDE 24
24 BTIG Building Products Distribution & Installation Initiation 02/28/2020
BMC STOCK HOLDINGS, INC. (BMCH, Neutral, $N/A PT; Current Price: $24.53; Analyst: Ryan.Gilbert) BUILDERS FIRSTSOURCE, INC. (BLDR, Buy, $31.00 PT; Current Price: $22.71; Analyst: Ryan.Gilbert) INSTALLED BUILDING PRODUCTS, INC. (IBP, Buy, $87.00 PT; Current Price: $66.05; Analyst: Ryan.Gilbert) TOPBUILD CORP. (BLD, Neutral, $N/A PT; Current Price: $101.00; Analyst: Ryan.Gilbert)
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25 BTIG Building Products Distribution & Installation Initiation
Analyst Certification I, Ryan Gilbert, hereby certify that the views about the companies and securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report. I, Carl E. Reichardt, Jr., hereby certify that the views about the companies and securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report. I, Max Downie, hereby certify that the views about the companies and securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report. Regulatory Disclosures Ratings Definitions BTIG LLC’s (“BTIG”) ratings, effective June 12, 2017, are defined as follows: BUY – A security which is expected to produce a positive total return of 15% or greater over the 12 months following the recommendation. The BUY rating may be maintained as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the target to fall outside of the 15% return. SELL – A security which is expected to produce a negative total return of 15% or greater over the next 12 months following the recommendation. The SELL rating may be maintained as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the target to fall outside of the 15% return. NEUTRAL – A security which is not expected to appreciate or depreciate meaningfully over the next 12 months. NOT RATED – A security which is not rated or covered by BTIG. UNDER REVIEW – Effective immediately, coverage of the following securities is Under Review. Ratings, price targets, disclosures, and estimates for the companies listed below are suspended and should no longer be relied upon. Distribution of Ratings and Investment Banking Clients BTIG must disclose in each research report the percentage of all securities rated by the member to which the member would assign a “buy”, “neutral” or “sell” rating. The said ratings are updated on a quarterly basis. BTIG must also disclose the percentage of subject companies within each of these three categories for whom the member has provided investment banking services within the previous twelve months. Stocks under coverage as of the end of the most recent calendar quarter (December 31, 2019): 312 Distribution of BTIG’s Research Recommendations (as of December 31, 2019): BUY: 66.3%; NEUTRAL: 32.4%; SELL: 1.3% Distribution of BTIG’s Investment Banking Services (as of December 31, 2019): BUY: 28.0%; NEUTRAL: 11.9%; SELL: 0.0% For purposes of FINRA ratings distribution rules, BTIG’s stock ratings of Buy, Neutral and Sell fall into Buy, Hold and Sell categories, respectively.
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Company Valuation and Risk Disclosures BMC Stock Holdings, Inc. (BMCH, Neutral)) Valuation: We value BMCH on an EV/NTM EBITDA basis. Since 2016, BMCH’s multiple has ranged from a low of 5.1x to a high of 10.1x. BMCH’s average multiple is 7.6x. Our valuation multiple is 8.0x, 5% above its average multiple. BTIG does not provide price targets on Neutral-rated names. Risks: Macro risk, mortgage rate risk, competition, commodity price volatility, entry-level mix shift, and geographic concentration in TX, CA, and GA. Builders FirstSource, Inc. (BLDR, Buy, $31.00 PT) Valuation: We value BLDR on an EV/NTM EBITDA basis. Since 2016, BLDR’s multiple has ranged from a low of 5.6x to a high
- f 9.7x. BLDR’s average multiple is 7.5x and BLDR currently trades at 8.0x consensus NTM EBITDA. Our valuation multiple is
8.6x, 15% above its average multiple and yielding a $31 PT. We believe BLDR’s multiple can expand in 2020 on higher demand for structural components. Risks: Macro risks, mortgage rate risk, competition from other distributors, commodity price volatility, and impact of the entry-level mix shift on operations
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Installed Building Products, Inc. (IBP, Buy, $87.00 PT) Valuation: We value IBP on an EV/NTM EBITDA basis. Since 2016, IBP’s multiple has ranged from a low of 7.3x to a high of 16.1x, with an average multiple of 11.3x. IBP currently trades at 10.7x consensus NTM EBITDA. Our valuation multiple is 13.0x, 15% above its average multiple. We believe IBP’s multiple can expand in 2020 on improvements in incremental margin, which should in turn push consensus estimates higher. Risks: Macro risk, mortgage rate risk, manufacturer pricing pressure, and customer pricing pressure TopBuild Corp. (BLD, Neutral)) Valuation: We value BLD on an EV/NTM EBITDA basis. Since 2016, BLD’s multiple has ranged from a low of 6.8x to a high of 14.1x, with an average multiple of 10.3x. BLD currently trades at 10.9x our NTM EBITDA estimate. Our valuation multiple is 11.1x, a 7.5% premium to the 2016-current average. We do not expect BLD’s multiple to expand in 2020 due to incremental EBITDA deceleration and the potential for downward revisions to consensus EPS. BTIG does not provide price targets on Neutral-rated names. Risks: Macro risk, mortgage rate risk, manufacturing pricing pressure, customer pricing pressure Company–Specific Regulatory Disclosures BTIG LLC expects to receive or intends to seek compensation for investment banking services in the next 3 months from: Builders FirstSource, Inc. (BLDR) Other Disclosures Additional Information Available Upon Request
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General Disclosures Research reports produced by BTIG LLC (“BTIG”) are published for and intended to be distributed solely to BTIG institutional and corporate clients. Recipients of BTIG reports will not be considered clients of BTIG solely because they may have received such BTIG report. To the extent recipient accesses BTIG research, whether on a BTIG research website or through a third-party platform, BTIG is able to search, filter, download and review information on the readership of BTIG’s research, including the specific research consumed and the name, company name, email address and, in certain circumstances, the location of the individual who accessed the research (the “Readership Information”). Recipient consents to BTIG’s receipt of the Readership Information, including receipt of that information from a third party. The research analyst(s) responsible for the preparation of this report receives compensation based upon a variety of factors, including the quality and accuracy of research, internal/client feedback, and overall Firm revenues. BTIG reports are based on public information and BTIG considers the same to be reliable, comprehensive information, but makes no representation or warranty that the reports are accurate or complete. BTIG opinions and information provided in this report are as of the date of the report and may change without notice. An issuer may be classified as “Under Review” or “Research Restricted”. In these cases, investors should consider any previous investment recommendation and/or rating to a subject company/issuer to no longer be current and should not be relied upon nor considered a solicitation. This research report is not an offer to buy or sell or solicitation of an offer to buy or sell any security in any jurisdiction where such an offer or solicitation would be illegal. This research report was not drafted specifically for any particular individual or entity and is not a personal recommendation to participate in any particular trading strategy or transaction. Any recipient of this research report should obtain independent advice specific to their personal circumstances before undertaking any investment activity and must make their own independent evaluation of any securities or financial instruments.
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Facts, views or opinions presented in this report have not been reviewed by, and may not reflect information known to, employees or other professionals in the “BTIG Group” (BTIG Group includes, but is not limited to, BTIG and its parents, subsidiaries and/or affiliates). BTIG Group employees, including Sales Representatives and Traders, may provide oral or written commentary or advice that may be inconsistent with the opinions and/or views expressed in this research report. BTIG Group employees and/or its affiliates not involved in the preparation of this research report may have investments in securities or derivatives of securities of companies mentioned in this report that are inconsistent with the views discussed in this report. Investors in securities products bear certain risks in conjunction with those investments. The value of, and income from, any investments may vary because of changes in interest rates or foreign exchange rates, securities prices or market indexes, operational or financial conditions of companies or other factors within or beyond the companies’ control. Recipient of the research reports should be aware that investments in securities may pose significant risks due to the inherent uncertainty associated with relying on forecasts of various factors that can affect the earnings, cash flow and
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