Agenda - NYUpages.stern.nyu.edu/~iag/presentations/2007-2008/csar.pdfMattan Griffel Zhuoya Wang...
Transcript of Agenda - NYUpages.stern.nyu.edu/~iag/presentations/2007-2008/csar.pdfMattan Griffel Zhuoya Wang...
1
Presented by:
Michael Tanzer
Mattan Griffel
Zhuoya Wang
October 5, 2007
• Company and Industry
• Thesis overview
– Focus on Core Business
– Increased Financial Flexibility
– Margin of Safety
• Risks
• Recap
• Questions
Agenda
2
Caraustar (NASDAQ: CSAR)
• Manufacturing:
– Recycled paperboard and packaging
• Industry leadership position
– Product diversification and integration
• Serves four principal end-use markets:
– tubes, cores and composite cans
– folding cartons
– gypsum facing paper
– specialty paperboard products.
Recovered Fiber Group
•Processing•Brokerage•Mill Fiber Procurement•Consulting Services
Mill Group
•Recycled Paperboard•Gypsum Paper•Laminated Paperboard
Industrial Packing Segment
•Tube and Core•Edge Protectors•Plastics•Adhesives•Paragon Plastics
Consumer Packing Segment
•Folding Cartons•Composite Containers•Graphic and Technical Services
Four Main Segments
Converted Products Group
Four Main Segments
3
Sales Breakdown - Segment
Mill Group
‘06 Sales:
270.0M
Recovered Fiber Group
‘06 Sales:
117.3M
Consumer Packing Segment
‘06 Sales:
235.2M
Industrial Packing Segment
‘06 Sales:
367.4M
Key Long Term Relationships
4
Paper CAN be Sexy
• Industry: recycled paperboard and packaging solutions
• Industry Stagnant (-1-0% yoy)
• Emphasis on growth through acquisition
• Extremely Cyclical as tied to housing market
Industry Risks:
• Manufacturing expanding offshore
• Product substitutions
• Recovered fiber prices volatile
• Energy costs high + volatile
5
Thesis
• Restructuring:
– Focus on core business
– Increased financial flexibility
• Reduction of debt
• Undervalued to assets
• Strongly incentivized management
Focus on Core Business
6
Remix, break it down.
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
Paperboard Recovered
Fiber
Tube, core
and
composite
Folding
carton
Internal
ExternalConsumer
Packing
24%Industrial
Packing
37%
Mills
27% Fiber
12%
2006 External Sales:Core Group
Core Group - Mill
• 15 Mills– Locations: South, Midwest, Eastern
seaboard
• 4 Principle markets– Tubes, cores, and composite containers
– Folding cartons
– Gypsum wallboard
– Specialty paperboard products
7
Core Group - Mill Operating
Rates
Mill Capacity Market Position
Tube, Core,
Composite
Container
41%
Other
Specialty
21% Gypsum
Facing
38%
19%
18%
15%
12%
7%
6%
5%
3%
1%
14%
100%
Market Share
Caraustar Boxboard Capacity (2007)
8
Group 2: Recovered Fiber
• Collect, Process, Sell recovered fiber
• Environmentally-friendly, low cost alternative
• Green initiative
• Synergies with other divisions
Group 3: Industrial Packaging
• Konva-Kore®: #1 in carpet industry
• Kolumn Forms
– Construction tubes to build columns
9
Group 4: Consumer Packaging
• Consumer packaging
– High quality custom packaging
– Digital imaging & graphic design
• Industrial packaging
– Tubes, cores, and composite containers
Portfolio Rationalization
• Sold 50% interest in Standard Gypsum to Temple-Inland ($135M)
• Additional groups sold– Corrugated packing facility
– Fiber partitions business
– Coated recycled boxboard
• Exited– Contract packaging
– Transportation business
10
SG&A Reduction
SG&A: 2003 $148M 14.9% of sales
2006 $127M 12.9%
2007 Q2 $26.7M 11.2%
Target $100M/year 10.0%
0
4
8
12
16
2003 2006 2007E Target
Increased Financial Flexibility
11
Financial Summary
2006 2007
Total Volume (tons in thousands) 326.2 239.2
Sales $263.7 $235.6
SG&A Expense $33.1 $26.7
Income before restructuring & impairment
$5.4 $4.2
EPS - Continuing Operations ($0.55) ($0.08)
Cap Ex $15.8 $11.6
For the Quarter ended June 30,
$ millionsCurrent liabilities 110.4Long-term debt 260.2Other long-term liabilities 92.0
462.6Stockholder equity 161.6
Balance Sheet
End 31-Dec-06 $ millionsCash 1.0Receivables 95.0Inventory 75.0Other current assets 8.3PPE 263.6Goodwill 127.5Other long-term assets 53.6
624.6
(Net tangible assets 34.0)
12
Increased Financial Flexibility
• Debt reduced $232M (47.2%) to $260M
• Annual interest expense reduced by $24.4M (58.1%)
• Revolving credit facility expanded by $60M (80%) and extended five years
• Working capital reduced $8M (7.7%)
Liquidity
$Million
Cash on hand (6/30/07) $2
Revolving credit facility availability
$87
Less borrowing on revolving credit facility
($32)
Less letters of credit ($16)
Less reserves ($15)
Available liquidity $26
Equipment Lease $7
Asset Sales $25-$30
13
Long Term Debt
7.375% Senior Notes due 6-1-09 $ 189.8
7.25% Senior Notes due 5-1-10 29.0
Revolving credit facility through 3-30-11 32.0
Senior term loan amortizing through 3-30-11 28.2
Other (net) 4.5
TOTAL LONG TERM DEBT $ 283.5
As of 6/30/07
Margin of Safety
“Our breakup value is $12 per share”
-Ronald J. Domaninco, CFO
14
EBIT Breakdown
Mill Industrial Consumer Total
Sales (External) $270M $367M $235 $872
MV of Internal Sales (approx.)
221M 7M 1M 229M
Net Sales 491M 374M 236M 1101M
Operating Expenses 445M 366M 239M 1050M
Normalized EBIT 46M 8M (3M) 51M
Real-Estate Valuation
• Very old company
– Real estate appreciated over 80 years!!!1!
• Average land size: 330 acres/plant
• Average value:
– $3,100 per acre
– Range: $1,180 - $4,820 per acre
– Excludes corporate offices and Pasadena properties
• 90 wholly owned + 2 Joint Venture properties
– Conservative Real Estate value: ~$84m
15
Financials and Valuation
• 5th largest in US
• Produces 2.8 mil tons a yr
• “We get requested monthly by any of the 5 (referring to comps) to see if the business is for sale”
• Going, Going, Gone… on Wednesday
Fiber Breakdown
• Acquisition Comp
– PPG acquires Altivity at industry average 8*EV/EBITDA
– This would make target price of (ebitda = 28-30 mil) =224 mil $
0
50000
100000
150000
200000
250000
2004 2005 2006
Intersegment
ExternalCustomers
16
Joint Venture, baby
• Standard Gypsum – Industrial gypsum producer
– Sold 50% (01/17/07) for $135m to Temple-Inland
• Premier Boxboard, LLC– Agronomic and industrial gypsum producer
– Owns 50% stake, along with Temple-Inland
• Additional source for value
• Business not consolidated– Largest US recycled boxboard company
• EBITDA: $23M
• Avg. Acquisition Price: 6-7x EBITDA
• Potential Sale Price: 50% x (6-7) x 23 = $69-80M
Management Incentive
17
Insider Transactions
• Management owns 13% of Shares Outstanding
Transactions
October 14,000 shares bought
September 340,000 shares bought
July 12,000 shares bought
April
January
10,000 shares bought
8,000 shares bought
Only insider sale in the last 3 years: 4000 shares in Sep ‘06
Risks
• Further demise of the housing market
• Failure to sell parts at premium
• Postponement of sales
• Hamster invasions
18
Recap
• Good Company ≠ Good Investment
• Joel Greenblatt’s Checklist:
Emphasis on margin of safety
Look for a catalyst
Well-incentivized management team
Significant size
Questions, anyone?