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
The most important insight of the day
Get the Harvest Daily Digest newsletter.