Upload
knox
View
24
Download
1
Tags:
Embed Size (px)
DESCRIPTION
Patrick Industries Inc. (NASDAQ: PATK). Qianyi (Cathy) Han Guanrong (Rachel) Fu Jingfeng ( Jeffrey)Li Presented: April 29, 2014. AGENDA. Business Overview Macro-Economic & Industry Overview Technical Analysis Financial Ratios Valuation Recommendation. BUSINESS OVERVIEW. - PowerPoint PPT Presentation
Citation preview
Patrick Industries Inc.(NASDAQ: PATK)
Qianyi (Cathy) Han
Guanrong (Rachel) Fu
Jingfeng (Jeffrey)LiPresented: April 29, 2014
AGENDA
Business OverviewMacro-Economic & Industry OverviewTechnical AnalysisFinancial RatiosValuationRecommendation
Incorporated in 1959, in Indiana
3600 employees
Market Cap : $455MM
16 Warehouse and distribution centers & 18
manufacturing operations
Business :
Manufacturing: Suppliers to other industrial
markets, such as household furniture and
manufactures for various products, such as
hardwood furniture
Distribution: Wholesale distributor of pre-finished
walls and other miscellaneous productsRV
Indus-try
72%
MH Industry16%
Industrial Markets12%
Source: PATK 10-K Report, CapitalIQ
BUSINESS OVERVIEW
Source: PATK 10-K Report
PRODUCT OVERVIEW
PRODUCT OVERVIEW
Source: PATK Website
Source: PATK 10-K Report
ACQUISITION OVERVIEW
Source: PATK 10-K Report
SALES NEWORK
Net Sales
Consistent growth
Improving total return Significant increase in RV industry
Stable Growth in MH and Industrial market
Source: PATK 10-K Report
FINANCIAL OVERVIEW
MACROECONOMIC OVERVIEW
Recovery from recessionConsumer discretionary incomeGlobal trend of time and money spent on leisureCredit regulations and lending in housing starts and mortgage market
aided by FedPrice of gasoline and diesel fuelPrice of raw material/commodity: wood, steel, fiberboard, gypsum
Source: IBIS World
Manufactured housing: Rebound from weaker demands in housing starts back to 2009 and
2010 Increased substantially (32.9%) in 2012 following the recovery of
recession Private spending in housing construction and improvement is
expected to grow till 2019 Greater sales of existing housing will stimulate the renovation Lower cost of construction than site-built homes
Source: Manufactured Housing InstituteIBIS World, Manufactured Home Dealer in US
INDUSTRY OUTLOOK
Recreational vehicle:
Financial crisis disrupted credit flows and lowers buyers capacity to finance their RV purchases
After 2013, RV sales is expected to grow at 3.2% steadily
Shipment declines from 2007 to 2009, but rebound from 2009 to 2012 by 72%
Source: Recreational Vehicle Industry AssociationIBIS World, Recreational Vehicle Dealer
INDUSTRY OUTLOOK
INDUSTRY OUTLOOKCost Comparisons of Vacations Using Recreational Vehicles Versus Other Types of
Vacations (4-Person Travel Party)Vacation Mode of Travel 3 Days 7 Days 14 Days
$721 $1,634 $3,158
$880 $1,997 $3,854
$880 $2,035 $4,033
$930 $2,149 $4,232
&
$1,128 $2,906 $5,456
&
$2,958 $4,045 $6,792
Source: PFK Consulting, USA
Source: Recreational Vehicle Industry AssociationIBIS World, Recreational Vehicle Dealer
Recreational vehicle:
Number of aging (35-54) consumers enter retirement (baby-boomers)
Lifestyle trend: healthy, outdoor activities, pet friendly, quality family time
INDUSTRY LIFE CYCLE
Maturity stage in RV and MH:
Increase in market share through strategic
acquisition
Stable cost structure and brand reputation
Facing fierce competition
Intr
oduc
tion
Grow
th
Mat
urity
Decl
ine
TimeTo
tal I
ndus
try
Rev
enue
Source: Recreational Vehicle Industry AssociationIBIS World, Recreational Vehicle Dealer
PORTER’S FIVE FORCES
Competition: HIGH
• Few patent and rights
• Many manufacturers and distributors provide similar products
Substitute: MEDIUM
• RV versus rental cars and airlines
• MH versus alternative housing: site-built home and townhouse, apartment rentals
Bargaining power of Suppliers:
MEDIUM
• Wide range of raw material suppliers and low differentiation: steel, plastic
• Relationship with different suppliers to reduce too much dependence
Bargaining power of Buyers: HIGH
• End-users are sensitive to price
• Forecast interior design trend may change every year
• Easily supplanted by next year’s new model
Entry barrier: MEDIUM
• Does not require high technology and innovation
• Expansion to new product lines through acquisition
Source: Patrick Industries, 10-K. 2013
Opportunities Threats
• Diversification and flexibility to operate in other industrial markets
• Plant expansion increases capacity utilization and production of better functional building products
• Increasing in the baby boomer population
• Sensitive to world economy and consumer sentiment
• Forecast based sales requires accurate estimation and quick adaptation to new models
• Possible decline in popularity of camping and motor home travel due to high gasoline price
Source: Patrick Industries, 10-K. 2013
SWOT ANALYSISStrengths Weaknesses
• Competitive price with high quality standards
• High degree of flexibility from suppliers• “Customer 1st” performance oriented culture to
retain talents• Strategic acquisition to support new product
lines and expansion into new markets at existing logistic network
• Not concentrated in few product types
• Too many brand names from acquisition
• High concentration at RV industry
Source: Yahoo! Finance
TECHNICAL ANALYSIS
Source: Patrick Industries, 10-K. 2013
FINANCIAL RATIOSPATK Corp – Liquidity RatiosField 2011A 2012A 2013ACurrent Ratio 2.236 2.527 2.706Quick Ratio 0.850 0.915 0.962Cash Ratio 0.028 0.015 0.001
PATK Corp – Profitability RatiosField 2011A 2012A 2013AOperating Profit Margin 4.38% 6.18% 6.88%Net Income Margin 2.75% 6.42% 4.04%ROA 9.88% 19.58% 13.80%ROE (Book Value) 29.37% 45.75% 29.21%
PATK Corp – Solvency RatiosField 2011A 2012A 2013ADebt/Assets 0.38 0.35 0.32Debt/Equity 1.14 0.81 0.67Interest Coverage 3.02 6.70 18.86
PATK Corp – Activity RatiosField 2011A 2012A 2013AA/R Turnover 21.72 24.49 26.27Days Sales of Inventory 38.10 46.15 40.93Days Sales Outstanding 16.80 14.90 13.89Fixed Asset Turnover 13.40 11.80 14.13Total Asset Turnover 3.59 3.05 3.42
FINANCIAL RATIOS
Source: Patrick Industries, 10-K. 2013
PATK Corp – DuPont RatiosField 2011A 2012A 2013ATax Burden 101.96% 132.08% 62.00%Interest Burden 61.65% 78.67% 94.70%Operating Margin 4.38% 6.18% 6.88%Asset Turnover 3.59 3.05 3.42Leverage Ratio 2.97 2.34 2.12Return on Equity 29.37% 45.75% 29.21%
PATK Corp – Greenblatt RatiosField 2011A 2012A 2013ATEV 149.7 216.5 522.3EBIT / Tangible Assets 58.64% 72.95% 97.22%EBIT/TEV 9.00% 12.49% 7.84%
Source: Patrick Industries, 10-K. 2013
VALUATION - COMPS
Company Name
Weights on
multipleTriMas Corporation 20.00%Brunswick Corporation 20.00%Drew Industries Incorporated 40.00%American Woodmark Corp. 20.00%
100.0%
CY Revenue
($mm)
CY EBITDA ($mm)
CY EPS ($)
EV / CY Revenue
EV / CY EBIT P/E P/B
Ticker Company NamePrice ($)4/28/2014
52-Week High
Market Cap
($mm)4/17/2014
Net Debt
($mm)
Enterprise Value ($mm)
4/17/2014 2013A 2013A 2013A 2013A 2013A 2013A 2013A
TRS TriMas Corporation 32.30 42.1 1,461 279 1,769 1,395 163 1.85 1.27x 15.37x 25.28x 2.65xBC Brunswick Corporation 40.47 47.7 3,751 232 3,984 3,888 413 8.43 1.03x 12.30x 21.12x 3.45xDW Drew Industries Incorporated50.01 55.4 1,181 -66 1,115 1,016 110 2.15 1.10x 13.57x 23.23x 3.73xAMWD American Woodmark Corp. 30.99 40.0 482 -101 380 709 44 1.33 0.54x 11.29x 23.21x 2.67xMean 0.98x 13.13x 23.21x 3.12x
Median 1.06x 12.93x 23.22x 3.06x
PATK Patrick Industries 41.37 45.9 441 47 489 595 48 2.24 0.78x 11.67x 17.92x 4.90x
VALUATION - COMPS
$43.21
Estimated Share Price
Multiple Multiple Value
Price (using subjective weights)
P/E – 25%23.2x $51.99
EV/Revenue – 25% 1.0x $50.67
EV/EBITDA – 25% 13.2x $45.31
P/B – 25%3.2x $24.88
Source: Patrick Industries, 10-K. 2013 Yahoo! Finance
VALUATION – Discount RateBeta Debt 55,000 11.0%
5 Year 0.98 Equity 444,024 89.0%2 Year 1.87 Total 499,024 100.0%1 Year 1.46Half Year 1.24One Month 2.18 Risk Free 2.73%Beta on Yahoo 1.1 Market Risk Premium 7.0%Adj. Beta 1.20 PATK Return to Owners 20.0% 10%
CAPM 11.1% 90%Cost of Equity 12.02%
5Year (annualized) 135.5%2 Year (annualized) 80.3% Cost of Debt 3.8%1 Year (annualized) 111.5% Tax Rate 38%Half Year 25.3% After tax Cost of Debt 2.3%Three Month 0.17099One Month -5.3% WACC 10.949%
Risk Premium 2.0%
Discount Rate 12.9%
Beta Regression Capital Structure
Discount Rate
PATK Return
Source: Patrick Industries, 10-K. 2013
VALUATION – ProjectionsVALUATION – Projections
Income Statement (% of Sales unless noted) 2009A 2010A 2011A 2012A 2013ANET SALES 31% 11% 42% 36%Cost of goods sold 89.23% 89.35% 85.61% 84.97% 84.70%GROSS PROFIT 10.77% 10.65% 14.39% 15.03% 15.30%Warehouse and delivery 4.82% 4.20% 4.43% 3.61% 3.39%Selling, general and administrative 5.71% 4.97% 5.39% 4.95% 4.70%Income tax expense (Tax Rate) 7.93% -7.07% -1.96% -32.08% 38.00%
Income Statement (% of Sales unless noted) 2014P 2015P 2016P 2017P 2018PNET SALES 20.00% 15.00% 10.00% 8.00% 5.00%Cost of goods sold 85.00% 84.00% 83.00% 82.00% 82.00%GROSS PROFIT 15.00% 16.00% 17.00% 18.00% 18.00%Warehouse and delivery 3.50% 3.68% 3.86% 4.05% 4.25%Selling, general and administrative 4.70% 4.68% 4.66% 4.64% 4.62%Income tax expense (Tax Rate) 38.00% 38.00% 38.00% 38.00% 38.00%
Forecast Figures
Historical figures
Source: Patrick Industries, 10-K. 2013
VALUATION - DCF
$39.81 10.95% 11.95% 12.95% 13.95% 14.95%1.00% 46.16$ 41.25$ 37.17$ 33.72$ 30.77$ 1.50% 48.13$ 42.81$ 38.43$ 34.75$ 31.63$ 2.00% 50.32$ 44.53$ 39.80$ 35.87$ 32.55$ 2.50% 52.77$ 46.43$ 41.31$ 37.09$ 33.55$ 3.00% 55.53$ 48.54$ 42.97$ 38.42$ 34.63$
Discounted Cash Flow Sensitivity Analysis
Gro
wth
rate
Discount Rate
2014 2015 2016 2017 2018 TerminalNet Income 27,284 35,678 43,928 52,444 53,907 Depreciation 7,297 7,479 7,666 7,858 8,055 CapEx (8,000) (8,200) (8,405) (8,615) (8,831) Change NWC 12,814 10,024 10,553 8,090 7,120 FCF 39,395$ 44,981$ 53,742$ 59,777$ 60,250$ 561,297$ PV FCF 34,879$ 35,259$ 37,297$ 36,729$ 32,776$ 305,341$
Discount rate 12.95%Terminal Value Growth Rate 2.0%
Implied Equity Value 482,280 Less: Debt 55,000 Implied Market Cap 427,280$
Share outstanding 10,733 Implied share price 39.81$
Weight Stock PriceDCF 50% 39.81$ Comparable Analysis 50% 43.21$ Weighted Value 41.51$
VALUATION - ResultCurrent Stock Price: $41.73
Our Valuation: $41.51
Weight Stock PriceDCF 50% 39.81$ Comparable Analysis 50% 43.21$ Weighted Value 41.51$
Valuation Summary
Source: Patrick Industries, 10-K. 2013
RECOMMENDATION
WATCH LISTFuture Outlook and Concerns• Stable growth in RV industry against high energy costs• Any cost saving from acquisition in the future (e.g.. SG&A)• Opportunity to diversify into other industrial markets