By: Preetie Cheema, Qian Ying Lee, Aish Purushothaman, Jamila Shairzad 10H.
Post Holdings Cheema
description
Transcript of Post Holdings Cheema
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May 9, 2014
1 Sarabjit Cheema, BS 2011, NYU Stern
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Disclaimer
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THE INFORMATION CONTAINED IN THIS PRESENTATION IS FOR INFORMATIONAL AND EDUCATIONAL PURPOSES AND DOES NOT CONSTITUTUE A SOLICITATION, RECOMMENDATION OR OFFER TO BUY OR SELL ANY SECURITIES. THE VIEWS EXPRESSED HEREIN REPRESENT THE OPINION OF SARABJIT CHEEMA. SARABJIT CHEEMA MAY HAVE PERSONAL INVESTEMENTS IN THE COMPANIES DISCUSSED HEREIN. THE INFORMATION CONTAINED HEREIN IS BASED ON PUBLICLY AVAILABLE INFORMATION. THE COMPANIES INCLUDED IN THIS PRESENTATION MAY HAVE MATERIAL NON-PUBLIC INFORMATION IN THEIR POSSESSION AND CONSEQUENTLY, MAY DISAGREE WITH THE CONCLUSIONS SET FORTH BY SARABJIT CHEEMA. THIS PRESENTATION CONTAINS HISTORICAL AND ANTICIPATED OPERATING PERFORMANCE OF THE COMPANIES DISCUSSED IN THIS PRESENTATION, ACCESS TO CAPITAL MARKETS, MARKET CONDITIONS AND THE VALUES OF ASSETS AND LIABILITIES. ACTUAL RESULTS MAY VARY MATERIALLY FROM THE ESTIMATES AND PROJECTED RESULTS CONTAINED HEREIN. THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. ACCORDINGLY, YOU SHOULD NOT RELY UPON FORWARD-LOOKING STATEMENTS AS A PREDICTION OF ACTUAL RESULTS. SARABJIT CHEEMA MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN. SARABJIT CHEEMA DISCLAIMS ANY DUTY TO PROVIDE ANY UPDATES OR CHANGES TO THE ANLAYSES CONTAINED HEREIN INCLUDING, WITHOUT LIMITATION, THE MANNER OR TYPE OF ANY INVESTMENT MADE BY SARABJIT CHEEMA.
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Post Holdings, Inc
Post Holdings (Post or the Company) sells branded and private label ready-to-eat cereals, snacks and active nutrition products
Spun-off from Ralcorp February 3, 2012
Capitalization(1):
Market Value of Equity: $1.85B
Enterprise Value: $3.9B
Operating Statistics(2):
2014E Revenue: $4.3B
2014E EBITDA: $614M
2014E FCF / Share: $3.22
Recent stock price: $48.03(1) Ticker: POST
3 (1) As of May 9, 2014 (2) See slide 17
Valuation Statistics(2):
EV / EBITDA: 10.2x
FCF Yield: 6.7%
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Investment Considerations
Durable products/brands
Recurring cash flow
High margin
Low capex
Limited working capital requirements
Strong management team
Efficient capital allocation
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Post possesses the following positive characteristics:
Key risks include: Staggered board
Management succession/age
Acquisition integration
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Company Overview
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Transformation Under Bill Stritz
After being spun-off from Ralcorp, Post was a single category participant
3rd largest seller of ready-to-eat cereals in the US with 10.4% market share
Low growth category
Lacked diversification
Net Sales of $959mm(1)
6 Source: Company presentation (1) Fiscal year ended September 30, 2012 (2) LTM December 31, 2013 reflecting all closed acquisitions as of April 17, 2014 including both pre- and prost-acquisition periods as well as the pending acquisition of the PowerBar and Musashi brands and
the pending acquisition of Michael Foods
Series of acquisitions have transformed Post into a multi-category participant
Participant in high growth categories
Dynamic and diversified portfolio
RTE Cereal has shrunk to 27% of Pro-forma sales
LTM 12/31/13 net sales of ~4.1bn(2)
2012 2014
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Timeline of Acquisitions
Since 2012, Stritz has spent ~$4bn on acquisitions
7 Source: 8-K SEC filings (1) December 7, 2013 CAD$1 = .9132
Date Target Purchase Price ($mm)
Expected NPV of Tax Benefits
EBITDA ($mm) EV / EBITDA Comments
1/13 N/A N/A N/A Natural and organic RTE cereals
5/13 $158 $25 - $30 $17 - $19 8.3x - 9.3x Acquired branded and private label cereal, granola, and snacks from Hearthside
8/13 $180 $22 - $26 $17 - $20 9x - 10.6x Protein beverages and foods and nutritional supplements
9/13 $370 $42 8.7x Past producer
12/13 CAD$320(1) CAD$23(1) 13.9xPrivate label and branded peanut and other nut butters, baking nuts, raisins, other dried fruit and trail mixes
12/13 $380 $40 - $45 $40 - $45 8.4x - 9.5x Nutritional and sports supplements
2/14 $150 $15 - $17 8.8x - 10x Proteins bars, powders, and gel products
4/14 $2,450 $250 - $270 9.1x - 9.8x Value-added egg products, refrigerated potato products and cheese and other dairy products
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Pro-Forma Post: Diversified Portfolio of Brands
8 Source: Company presentation
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Expanded Platform Provides Optionality
9 Source: Company presentation
Post intends to grow organically and pursue tuck-in acquisitions to support and expand each platform
Entrance into active nutrition and organic foods reduces reliance on legacy business (RTE cereal)
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And Basis to Benefit From Strong Secular Trends
10 Source: Company presentation
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Management
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Seasoned Management Team
12 Source: Company Presentation
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Management Incentives Aligned With Shareholders
13 Source: Proxy statement
Bill Stritz (CEO) beneficially owns 1.1% of Post Holdings
Receives only $1 base salary annually
In May 2012, granted 1,550,000 stock options at an exercise price of $31.25/share
In October 2013, received an additional 600,000 stock options at an exercise of $40.30 in conjunction with one-year employment extension
Stock options will vest in equal installments on the first, second and third anniversaries of the grant date
100% of CEO compensation tied to increase/decrease in shareholder value
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Financials
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Historical Revenue and Margins
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Net Sales ($mm) EBITDA Margins
Revenue decline during 2010-2012 and margin compression through 2013 attributed to competitive price pressure in RTE cereal market and commodity inflation, respectively
RTE cereal market expected to remain challenged from breakfast away from home products
24.8%
26.6% 26.5%
21.1%
18.9%
10.0%
13.0%
16.0%
19.0%
22.0%
25.0%
28.0%
2009 2010 2011 2012 2013
$1,072
$997
$968 $959
$1,034
$870
$900
$930
$960
$990
$1,020
$1,050
$1,080
2009 2010 2011 2012 2013
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Historical Return on Capital
16 Note 1: ROIC defined as EBIT*(1 tax rate of 35%) / (Equity + Net debt) Note 2: Peer group includes General Mills, Kellogg, Hormel, J.M. Smucker, and Campbell Soup
Under Ralcorp, Post was materially mismanaged Lack of reinvestment into business
Limited new product launches/extensions
Poor return on invested capital
Return on Invested Capital
5.4% 5.7%
7.1%
5.3%
4.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2009 2010 2011 2012 2013
Industry Average = 12%
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Pro-Forma Post Holdings
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Source: Management estimates (1) Includes 5mm shares issued on March 12, 2014. Does not include dilution from preferred equity (2) Assumes 6.75% interest rate (3) Assumes $30mm cash production less $150mm for Powerbar and Musashi acquisition (4) Assumes preferred equity (annual dividend 3%) issued to finance equity portion of Michael Foods buyout (5) Stock price of $48.03 as 5/9/14
No Margin Upside Assumed
Revenue 4,265 6.75% Notes due 2021 894EBITDA 320 7.375% Notes due 2022 1,408Powerbar & Musashi EBITDA 15 _% Notes due _(2) 1,765Michael Food's EBITDA 255 Total Debt 4,067Michael Synergies 10 Cash(3) 708Cost Savings (Modesto Plant Closing) 14 Net Debt 3,359EBITDA 614
% Margin 14.4% Series B Preferred @ 3.75% 242CapEx 90 Series C Preferred @ 2.5% 320EBIT 524 Series _ Preferred @ _%(4) 500Interest 283Taxes 84 Net Debt / EBITDA 5.5xPreferred Dividends 32 EBITDA / Interest 2.2xFree Cash Flow 124Shares Outstanding(1) 38.6
Free Cash Flow / Share $3.22% Yield 6.7%
EV / EBITDA 10.2x
Pro-Forma Post Holdings Pro-Forma Capitalization
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EBITDA Margins Relative to Comparables
18 Note 1: Fiscal year ended for Old Post, General Mills, Kellogg Company, Hormel Foods, J.M. Smucker, and Campbells Note 2: Industry average excludes Old Post and Pro-Forma Post
Pro-Forma Post significantly under-earning relative to peers and historical basis due to recent acquisitions
18.9%
14.4%
19.5%
22.8%
10.6%
20.5%
19.5%
8.0%
12.0%
16.0%
20.0%
24.0%
Old Post Pro-Form Post General Mills Kellogg Company Hormel Foods J.M. Smucker Campbell's Soup
Industry Average = 18.6%
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10.2x 11.5x
9.4x
13.5x
10.1x 11.6x
0.0x 2.0x 4.0x 6.0x 8.0x
10.0x 12.0x 14.0x 16.0x
Pro-Form Post General Mills Kellogg Company Hormel Foods J.M. Smucker Campbell's Soup
6.7%
5.3%
7.1%
4.2%
6.1% 5.8%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
Pro-Form Post General Mills Kellogg Company Hormel Foods J.M. Smucker Campbell's Soup
Trading Comparables
19 Source: Proxy statement
Latest FYE Free Cash Flow Yield
Latest FYE EV / EBITDA
Industry Average = 5.7%
Industry Average = 11.2x
At current valuations, investors are paying nothing for a management premium and margin upside
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Valuation
20 (1) Includes 5mm shares issued on March 12, 2014 and excludes conversion of preferred equity
At a 17.5x FCF multiple, or 5.7% FCF yield, Post would be worth at least $73.60/share (53.2% upside)
Revenue 4,265 4,265 4,265EBITDA Margin 16.0% 17.0% 18.0%Pro Forma EBITDA 682 725 768CapEx (100) (100) (100)Interest (283) (283) (283)Taxes (105) (120) (135)Preferred Dividends (32) (32) (32)Free Cash Flow 162 190 218Shares Oustanding(1) 38.6 38.6 38.6Free Cash Flow / Share 4.21$ 4.92$ 5.64$
Multiple 17.5x 17.5x 17.5x
Implied Share Price 73.60$ 86.17$ 98.74$ % Return 53.2% 79.4% 105.6%
2 Year IRR 24% 34% 43%3 Year IRR 15% 22% 27%
Illustrative Valuation Analysis ($mm)
Slide Number 1DisclaimerPost Holdings, Inc Investment ConsiderationsCompany OverviewTransformation Under Bill Stritz Timeline of AcquisitionsPro-Forma Post: Diversified Portfolio of BrandsExpanded Platform Provides OptionalityAnd Basis to Benefit From Strong Secular TrendsManagementSeasoned Management TeamManagement Incentives Aligned With ShareholdersFinancialsHistorical Revenue and MarginsHistorical Return on CapitalPro-Forma Post HoldingsEBITDA Margins Relative to ComparablesTrading ComparablesValuation