Transcript General Cable Corporation

November 9, 2010
Kyle Pellum
Jack Hainline
Dan Glotzbach
Seung Jae Oh
Outline
 Position History
 Company Overview
 Industry Analysis
 SWOT
 Competitors
 DCF
 Recommendation
Position History
 4/12/2010 – Bought 200 shares at 30.01
 Current Stock Price (as of Nov. 8, 2010): $31.14
 Unrealized Gain (as of Nov. 8, 2010): $226
Company History
 Incorporated in New Jersey in 1927
 Headquartered in Highland Heights, Kentucky
 11,000 employees on six continents
 Worldwide leader in developing, designing, manufacturing,
marketing, distributing and installing copper, aluminum
and fiber optic wire and cable products
 Raw materials account for 75% of conversion costs
 Began public trading on the NYSE on May 16,1997
 Have grown largely through acquisitions that have assisted
in entry into new markets around the world
General Cable 2009 Annual Report (Page 2)
Sources of Revenue
 Profitability of General Cable relies heavily on world
demand for energy
 Growth in wire and cable industry lags behind growth in
the economy
 General Cable has focused on benefitting from increased
emphasis on renewable energy (wind turbines)
 Demand for electrical utility cables have declined in the
U.S. for the past two years
General Cable 2009 Annual Report (Page 12)
Percentage of Revenue by Country
21%
11%
52%
10%
10%
General Cable 2009 Annual Report (Page 21)
Percentage of Revenue by Product Family
General Cable 2009 Annual Report (Page 22)
Acquisitions
 (BICC) June 1999
 Significantly increased General Cable’s market share and
reduced reliance on relatively undifferentiated products
such as building wire
General Cable 2000 Annual Report (Page 3)
Acquisitions
 Norddeutsche Seekabelwerke GmbH (NSW) 2007
 $28 million
 Based in Nordenham, Germany
 Serves the global submarine power cable and submarine fiber
optic communication system markets
 Baltic Sea wind turbines
 Phelps Dodge International Corporation (PDIC) 2007
 PDIC was a global company and the acquisition more than
doubled General Cable’s presence in the Middle East
General Cable 2007 Annual Report (Page 6)
Acquisitions
 Phoenix Power Cables acquired January 2010
 Acquired 90% stake in South Africa company (GCPSA)
 Based in Durban, South Africa is now named General
Cable Phoenix South Africa
 Investments in mining and infrastructure are expected to
result in increased demand in electrical power cable
General Cable 2010 1st Quarter 8-K (Page 7)
Acquisitions
 BICC Egypt acquired September 2010 for $21.7 M
 Headquartered in Cairo, Egypt
 Manufactures wires and cable for the transmission and
distribution of energy
 Pakistan Cables Limited acquired October 2010
 Headquartered in Karachi, Pakistan
 Manufactures and sells copper rod wires and offers
general wiring cable as well as low-voltage and medium
voltage cables
General Cable 2010 3rd Quarter 8-K (Page 6)
Recent Financial Results
 Third quarter earnings of $0.54 analyst estimates by $0.04
 Demand in ROW was better than expected particularly in
Brazil where ongoing investment in infrastructure boosted
sales
 Demand for electric utility products in the U.S. were better
than expected due to the release of a number of projects for
the transmission grid and wind farms
 Volume in Europe was better than expected due to a
stabilizing Spain, increased demand for medium-voltage
submarine products in Germany, and high-voltage
products in Spain
General Cable Homepage > Investors > News Releases
http://investor.generalcable.com/phoenix.zhtml?c=81254&p=irol-newsArticle&ID=1491422&highlight=
Industry Analysis
 Competitive, mature and cost driven industry
 Little product differentiation among industry participants
from a manufacturing or technology standpoint
 Increasing demand for submarine cable
 Underwater oil drilling platforms require integrated cable
 Offshore wind farms
 Demand for telecommunication remains low
 A few companies hold a large portion of market share and
significant growth through acquisitions
 Price of raw materials have been volatile and they account
for large portion of manufacturing cost
 Cost to enter industry is high
SWOT-Strength
 Market Leadership
 Geographic Diversity
 Product Diversity
 Successful expansion into emerging market through
acquisitions
SWOT-Weakness
 Production of fiber optic cables
 Heavily depends on one supplier
 Cyclical demand
SWOT-Opportunity
 Increasing demand of renewable energy
 Increasing demand in emerging market
 Increasing demand for fiber optic products
SWOT-Threat
 Highly competitive market
 Foreign country risk
 Volatility in the price of raw materials
 Interruptions of supplies from key suppliers
 Technological shift from copper to fiber optic
communication products
Competitors
Belden CDT Inc. (NYSE: BDC)
 Designs, manufactures, and markets cable,
connectivity, and networking products in various
markets.
 Their cables products include copper and fiber optic
cables.
 Belden primarily operates in the United States,
Canada, Europe, Latin America, Africa, the Asia
Pacific and the Middle East.
Competitors
CommScope Inc (NYSE: CTV)
 Provides infrastructure solutions for communication networks worldwide.
 The company operates in four segment: Antenna, Cable and Cabinet group
(ACCG), Enterprise, Broadband and Wireless Network Solutions (WNS)
 The ACCG segment includes product offerings of primarily passive
transmission devices for the wireless infrastructure market.
 The Enterprise segment provides structured cabling systems for business
enterprise applications and connectivity solutions for wired and wireless
networks.
 The Broadband segment consists of coaxial cable, fiber optic cable, and
conduit for cable television system operators.
 The WNS segment include base station subsystems and core network
products, such as power amplifiers, filters, location-based systems,
network optimization systems, and products and solutions that extend
and enhance the coverage of wireless networks, such as RF repeaters and
distributed antenna systems.
Competitors
Nexans SA (Paris Stock Exchange)
 Manufactures and sells cables and cabling systems for
the energy and telecom infrastructure, industry,
building, and local area network markets.
 The company also engages in the cable recycle
business.
 Nexans has operations in Europe, the Middle East,
Russia, Africa, North America, South America, and the
Asia-Pacific
Competitors
Draka Holding N.V.
 Engages in the development, production, and sale of cable and cable
systems worldwide.
 The company operates in three groups: Energy and Infrastructure,
Industry and Specialty, and Communications.
 The Energy and Infrastructure group offers low-voltage and
instrumentation cables. It offers cables for construction, industrial,
and infrastructure markets in Europe and the Asia-Pacific areas.
 The Industry and Specialty group engages in the specialty cable
operations. It offers automotive cables, and cables for wind
turbines, aviation, defense, and offshore oil and gas industries in
North America and the Far East.
 The Communications group offers optical fiber cable products. It
also offers cable solutions for telecommunications, data
communications, and broadband access networks markets.
 The company’s products are also used in aircraft, trains and cars, ships,
offshore rigs, and homes and offices for various applications.
Competitor’s Performance
Company Comp Set
Company Name LTM Gross
Margin %
LTM EBITDA LTM EBIT
LTM Net
LTM Total
Margin %
Income
Revenues, 1
Margin %
Yr Growth %
Margin %
CommScope,
Inc.
(NYSE:CTV)
Belden, Inc.
(NYSE:BDC)
Draka Holding
NV
(ENXTAM:DRA
K)
Nexans SA
(ENXTPA:NEX)
29.7
15.6
9.5
3.5
(0.3)
33.1
14.5
11.0
4.4
12.5
8.9
5.9
3.0
(1.0)
(9.1)
13.4
8.5
6.0
0.9
(4.7)
General Cable
Corp.
(NYSE:BGC)
13.4
8.4
6.3
2.1
1.9
Financial data provided by
Multiple Analysis
Company Name
TEV/Total
TEV/EBITDA
TEV/EBIT
P/Diluted EPS P/TangBV
Revenues
LTM - Latest
LTM - Latest
Before Extra LTM - Latest
LTM - Latest
LTM - Latest
CommScope,
Inc. (NYSE:CTV)
Belden, Inc.
(NYSE:BDC)
Draka Holding NV
(ENXTAM:DRAK)
1.20x
7.38x
11.84x
29.79x
107.23x
1.03x
6.96x
9.10x
19.48x
9.69x
0.52x
8.25x
15.36x
NM
1.59x
Nexans SA
(ENXTPA:NEX)
0.32x
3.72x
5.28x
30.86x
1.05x
General Cable
Corp.
(NYSE:BGC)
0.51x
6.05x
8.02x
17.36x
1.49x
Stock Performance
Discount Rate
WACC (ROE)
Cost of Equity (ROE)
Cost of Debt
Weighted Average Cost of Capital (ROE)
WACC (ROE)
ROE (2001-2004)
31.70%
20.79%
ROE (2004-2007)
94%
7.13%
ROE (2007-2010)
3.17%
14.26%
ROE (average)
20.79%
CAPM
Discount Rate (Goal-Post Theory)
Cost of Equity
Cost of Debt
Weighted Average Cost of Capital
17.63%
7.13%
12.39%
Market Return
9%
Risk-Free Rate
3%
Market Premium
6%
Beta Average
1.91
Cost of Equity (CAPM)
14.48%
Growth Rate Assumption
Growth Rate Assumptions
2006
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
North America
8.99%
-2.90%
-31.86%
22.64%
10.0%
13.0%
-15.0%
11.0%
Europe and North Africa
34.07%
12.15%
-28.16%
-9.89%
-5.0%
3.0%
-10.0%
6.0%
170.13% 334.96% -28.70%
17.97%
30.0%
30.0%
14.0%
44.0%
25.91%
9.62%
12.2%
17.0%
-1.6%
26.2%
ROW
Growth Rate
35.01%
-29.62%
DCF Valuation
2010
2011
2012
2013
2014
Net Income
$
107.83
$
128.44
$
160.69
$
133.59
$
209.29
+ Depreciation & Amortization
$
113.77
$
131.14
$
152.50
$
174.21
$
196.37
+Interest Expense
$
(69.81)
$
(83.71)
$
(100.39)
$
(104.19)
$
(108.13)
- Changes in NWC
$
192.88
$
(312.92)
$
107.90
$
225.67
$
(212.14)
- CapEx
$
(125.74)
$
(128.25)
$
(130.82)
$
(133.44)
$
(136.11)
FCF
$
(166.82)
$
360.54
$
(25.92)
$
(155.49)
$
373.57
$
2,418.50
Terminal Value
FCF
$
(166.82)
$
360.54
$
(25.92)
$
(155.49)
$
2,792.07
DCF
$
(162.02)
$
311.58
$
(19.93)
$
(106.39)
$
2,363.39
Growth Rate
Terminal Value
$
2,418.50
4%
5 Year Discount Rate
12.39%
Terminal Discount Rate
13.00%
DCF Valuation
Total PV of FCF
$ 2,386.62
Less: Debt
$ 1,000.70
Equity Value
$ 1,385.92
# of Shares (in millions)
52.11
Intrinsic Value
$
26.60
+10%
$
29.26
-10%
$
23.94
Sensitivity Analysis
Discount Rate
$
Growth Rate
26.60
10%
11%
12%
13%
14%
15%
16%
2.50%
$
37.12
$
31.30
$
26.71
$
23.00
$
19.93
$
17.35
$
15.15
3.00%
$
39.69
$
33.17
$
28.10
$
24.05
$
20.73
$
17.97
$
15.63
3.50%
$
42.69
$
35.32
$
29.69
$
25.24
$
21.64
$
18.67
$
16.17
4.00%
$
46.24
$
37.82
$
31.51
$
26.60
$
22.67
$
19.45
$
16.77
4.50%
$
50.48
$
40.74
$
33.60
$
28.14
$
23.83
$
20.34
$
17.46
5.00%
$
55.62
$
44.19
$
36.03
$
29.91
$
25.15
$
21.34
$
18.23
5.50%
$
61.95
$
48.31
$
38.87
$
31.95
$
26.66
$
22.48
$
19.09
Recommendation
 DCF Value= $26.60

+/- 10%: $23.94 - $29.26
 Share Price as of 11/8/10: $31.14
 HOLD 200 Shares
 Sell 2 January 2011 Call Options
 Strike: $33
 Limit Order: $1.00
Recommendation
 Rates of Return from option scenarios
 Option is exercised

33-30 = 3 ,
(3+1)/30 = 13.33%
 Option is never exercised.


Able to sell options 3 times a year.
1 * 3 = 3, 3/30 = 10%
 Based on our estimations selling the options will either
give us 13.33% for one time or allow us to get a steady
cash stream of 10% per year.