October 14, 2015
Jordan Terry @ Stone Street Advisors LLC
Founder & Managing Director, Stone Street Advisors LLC, investment research & consulting
Playing the U.S. Housing Recovery the Wrong Way: Builders FIrstSource & Credit 101
Playing the U.S. Housing Recovery the Wrong Way: Builders FIrstSource & Credit 101
- Builders FirstSource ($BLDR), a materials and component supplier to the residential construction industry, recently acquired much larger competitor ProBuild
- Significant profitability risk from lumber price decline, failure to reduce OpEx/recognize merger synergies, lower than expected housing #’s, macro uncertainty
- Both firms are PE-sponsored levered rollups; acquisition is a levered rollup of levered rollups with BFS sponsors controlling ~40% at close
- Combined firm is levered to the hilt:
- Pro forma Long-term debt (ex-leases)/Adjusted LTM EBITDA stands at 7.1x, 34% higher than average for S&P LSTA Issuers as of 2015q2
- Adjusted EBITDA/Interest Expense is running at 1.9x versus 3.4x for LSTA Issuers, or 43% lower than average
- (Adjusted EBITDA-CapEx)/Interest Expense is 1.3x
- Our base-case projected 2015 adjusted EBITDA is $262mm
- Long-term Debt/Adj. EBITDA 7.4x
- Adj. EBITDA/Interest Expense 1.6x
- (Adj. EBITDA-CapEx)/Interest Expense 1.0x
- BLDR stock pricing in higher growth, less risk v. our projections. As of writing at $14.40:
- 13.1x EV/2015e Adj. EBITDA or 9.6x 2020e EBITDA
- 20.7x EV/(Adj. EBITDA-CapEx) or 15.1x 2020e EBITDA
- At 11x EBITDA, difference between $250mm and $350mm is $5.60/share v. $15.30; -61% downside v 7% upside
Loading PDF
More from Jordan Terry
Jordan Terry, Stone Street Advisors LLC
We’d like to address two subsequent events following the publication of our January 27th report (posted here) in which we laid out the case for the New York Sports Club parent's inevitable restructuring. Neither event affects our outlook nor our ...
Feb 18, 2016
Jordan Terry, Stone Street Advisors LLC
"Clarification/correction 2/4/2016: Below and in the original version of this document, we cite an S&P; LCD report that Town Sports has hired Rothschild as financial advisors. We have confirmed that this is NOT a reference to Rothschild Investment ...
Jan 28, 2016
Jordan Terry, Stone Street Advisors LLC
• The New York Sports Club parent is trying to win back market share from low-priced competitors with $20 & $40/month "high-value low-price" no-contract plans. • Most existing members will switch from $60-125/month memberships to these low-priced ...
May 08, 2015
Jordan Terry, Stone Street Advisors LLC
Disregarded by all except Prem Watsa, OSTK has slowly and quietly grown into a $1.5bn/year business with an installed customer base Operational challenges remain, but are easily identifiable and curable Even after committing to a new, unnecessary HQ ...
Nov 17, 2014
Jordan Terry, Stone Street Advisors LLC
There are many highly-leveraged (relative to historical/industry averages) firms with razor-thin if not negative operating earnings that are very likely to run into trouble when - if not before - cheap/easy credit spigot turns. This is a theme we've ...
Jun 05, 2014
The most important insight of the day
Get the Harvest Daily Digest newsletter.