Transcript General Cable Corp.

General Cable Corp.
(BGC)
Presented by:
Vignesh Murali, Akrati Johari,
Charlie Gambino and Michelle
Oboarekpe
April 6, 2010
Presentation Overview
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Business Overview
Microeconomic Analysis
Industry Analysis
Competitor Analysis
Multiples Valuation
Management Assessment
Pro-forma and DCF
Recommendation
Background
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Incorporated in New Jersey in
1927
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Headquarters
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Highland Heights, KY
Operates in 22 countries
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Went public in 1997 (NYSE: BGC)
44 manufacturing factory locations
Manufactures and distributes
copper, aluminum, and fiber optic
cable and wire products
3rd largest cable & wire company
in the world
Growth primarily through
acquisitions
Business Overview
Product Categories
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Electric Utility – LV & HV aerial and underground cables
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Electrical Infrastructure – Specialty cables – Military, Transit;
industrial power and construction cables; mining, oil, gas &
petrochemical products; transportation and industrial harness
assemblies; portable power cords and electronics
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Construction – Residential & Non-residential construction cables;
low-smoke , zero-halogen retardant cables
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Communication – high bandwidth networking cables , submarine
fiber optic communication cables, multi- conductor and coaxial
electronic wires
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Rod Mill – Copper and aluminum rods for OEM applications
Revenue Breakdown
Product Revenues
Comm. 14%
Segment Revenues
Rod Mill 4%
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North America - 34%
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Europe & North Africa 35%
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ROW - 31%
Electrical
Utility 34%
Construction
23%
Electrical
Infrastructure
25%
Industry Highlights
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Industry growth is influenced by a number of factors
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Regulation, construction and industrial activity, government spending on infrastructure
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Consolidation – Significant M&A activity
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Cost Structure
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Concentration
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Purchases of raw materials account for 75% of total manufacturing costs for most
manufacturers
Top 4 companies – 42.7% market share
Competitive
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High barriers to entry
Low switching costs
Strengths (SWOT Analysis)
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Market leadership
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Diversified portfolio
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Across its target markets
Breadth of product offerings
Consistent track record of successful
acquisitions
Weaknesses
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Cost of inputs are rising faster than the
company’s ability to pass these costs through
to customers.
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Limited sources of inputs
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Cash flows are generated primarily from its
international segments
Opportunities
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Increased demand in emerging markets
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Exponential population growth in developing
countries and emerging markets
Growing middle class
Increased demand for fiber optic products
Threats
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Weak demand expected for Electrical Utilities
Volatile raw material prices
Pricing pressure from manufacturers in China
and India
Technological shift from copper to fiber optic
communication products
Significant exposure to geo-political risks
Macroeconomic Factors
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Forecasted GDP growth
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Government incentives for alternative energy
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Global growth in energy infrastructure
spending
Ratio Analysis
2004
2005
2006
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
Profitability
Return on Assets %
Return on Equity %
3.09%
4.46%
7.88%
7.65%
6.93%
4.15%
5.13%
6.26%
5.64%
6.14%
6.39%
13.85% 13.18% 36.77% 29.30%
21.68%
10.15%
13.82%
15.02%
12.65%
12.46%
12.65%
10.89% 11.37% 12.85% 14.36%
12.88%
13.62%
14.00%
14.00%
14.00%
14.00%
14.00%
Margin Analysis
Gross Margin %
SG&A Margin %
8.03%
7.23%
6.41%
6.43%
6.12%
7.74%
6.00%
5.00%
6.00%
6.00%
6.00%
Net Income Margin %
1.92%
1.65%
3.65%
4.15%
3.03%
2.48%
4.51%
5.28%
4.66%
4.74%
4.83%
Total Asset Turnover
1.7x
1.7x
2.0x
1.5x
1.6x
1.1x
1.1x
1.2x
1.2x
1.3x
1.3x
Fixed Asset Turnover
5.7x
6.6x
9.4x
8.0x
7.7x
4.6x
4.6x
5.3x
6.2x
7.3x
8.7x
Accounts Receivable
Turnover
6.2x
5.2x
5.8x
5.0x
5.8x
4.5x
4.9x
5.2x
5.0x
5.0x
5.1x
Inventory Turnover
6.1x
6.2x
6.9x
5.3x
5.8x
4.2x
5.3x
5.4x
5.5x
5.6x
6.2x
Current Ratio
1.6x
1.5x
1.7x
1.5x
1.8x
2.1x
2.4x
2.5x
2.6x
2.6x
2.5x
Quick Ratio
0.8x
0.9x
1.0x
0.8x
0.9x
1.2x
1.6x
1.7x
1.8x
1.8x
1.8x
Total Debt/Equity
124.39% 153.97% 170.49% 133.96% 143.97%
72.61%
58.60%
45.87%
37.47%
31.01%
25.64%
LT Debt/Equity
124.02% 151.79% 157.71% 88.99% 117.51%
68.44%
55.00%
43.87%
36.15%
29.35%
23.47%
Asset Turnover
Short Term Liquidity
Long Term Solvency
Dupont Analysis - Historical
Historical Dupont
600.0%
500.0%
400.0%
ROE%
Net Income Margin%
300.0%
Total Asset Turnover
Equity Multiplier
200.0%
100.0%
0.0%
2004
2005
2006
2007
2008
2009
Dupont Analysis – Forward
Forward-Looking Dupont
300.0%
250.0%
200.0%
ROE%
150.0%
Net Income
Margin%
100.0%
Total Asset
Turnover
Equity Multiplier
50.0%
0.0%
2010E
2011E
2012E
2013E
2014E
Industry Competitors
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Belden, Inc. (NYSE:BDC)
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Designs, manufactures and markets signal transmission
solutions, including cables, connectors and I/O modules as
well as network devices and control, load sensing and load
moment limitation systems designed for safety-critical
applications ranging from industrial automation to data
centers, broadcast studios and the aviation and aerospace
industry.
The company focuses on segments of the worldwide cable
and automation markets that require both highly
specialized and readily available products.
It primarily operates in the United States, Canada, Europe,
Latin America, Africa, the Asia Pacific, and the Middle East.
Industry Competitors
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CommScope, Inc. (NYSE:CTV)
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Provides infrastructure solutions for communication networks worldwide.
The company operates in four segments: Antenna, Cable and Cabinet
Group (ACCG); Enterprise; Broadband; and Wireless Network Solutions
(WNS).
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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.
It markets its products directly to telecommunication service providers or to
OEMs that sell equipment to the providers, as well as through a global
network of distributors, system integrators, and value-added resellers.
CommScope was founded in 1997 and is headquartered in Hickory, North
Carolina.
Competitor Analysis
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Nexans SA
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Global leader in cables and cabling solutions
Designs, manufactures, and markets cables,
connection accessories, cabling systems, and
network supervision and control software
worldwide.
Serves infrastructure, industry, building, and local
area network markets.
Industry Competitors
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Draka Holding NV
 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.
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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.
^SPX - Share Pricing
NYSE:BGC - Share Pricing
NYSE:BDC - Share Pricing
NYSE:CTV - Share Pricing
ENXTAM:DRAK - Share Pricing
ENXTPA:NEX - Share Pricing
3/31/2010
1/31/2010
11/30/2009
9/30/2009
7/31/2009
5/31/2009
3/31/2009
1/31/2009
11/30/2008
9/30/2008
7/31/2008
5/31/2008
3/31/2008
1/31/2008
11/30/2007
9/30/2007
7/31/2007
5/31/2007
3/31/2007
1/31/2007
11/30/2006
9/30/2006
7/31/2006
5/31/2006
3/31/2006
1/31/2006
11/30/2005
9/30/2005
7/31/2005
5/31/2005
3/31/2005
Stock Performance Graph
800
700
600
500
400
300
200
100
0
Financial Comparison
Company Name
General Cable
Corp.
(NYSE:BGC)
Belden, Inc.
(NYSE:BDC)
CommScope,
Inc. (NYSE:CTV)
Draka Holding
NV
(ENXTPA:DRAK)
Nexans SA
(ENXTPA:NEX)
Gross
Margin %
LTM
EBITDA
Margin %
LTM
EBIT
Margin
% LTM
Net
Income
Margin
% LTM
Total
Revenues,
1 Yr
Growth %
LTM
Net
Income,
1 Yr
Growth
% LTM
Total
Debt/
Equity
LTM
13.6
8.2
5.9
2.5
(29.6)
(42.5)
72.61
33.2
12.0
8.0
(1.8)
(29.4)
NM
107.11
29.3
16.3
9.6
2.6
(24.7)
NM
102.48
9.43
3.50
0.4
(0.9)
(24.3)
NM
67.04
14.91
7.51
5.1
0.2
(25.8)
(90.2)
51.07
Financial data provided by
Multiples Valuation
Multiples Valuation
Stock Price
Calculation
High
Low
Mean
Median
Trailing
P/E
P/B
Forward
P/E
P/S
TEV/
EBITDA
LTM
$65.53
$56.18
$61.06
$75.90
$23.05
$49.71
$22.18
$45.29
$35.31
($1.99)
$57.62
$37.14
$53.42
$56.75
$9.80
$57.62
$35.11
$53.68
$57.89
$9.07
Range = $37 ~ $58
Management Assessment
Management has set out to diversify the business through an
aggressive growth strategy
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•
•
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Today 70% of its business is done outside the U.S vs. 3% 10
years ago. 3rd Largest cable maker in the world.
Despite volatile revenues, margins have remained consistent.
They have been active in controlling costs
•
Shift to average costs to add shareholder value
High acquisition activity until this year to establish dominant
market share in a variety of markets. High capex to set up
factories to meet future demand in emerging markets.
Management had done an excellent job maintaining a lean
business and anticipating future market cycles.
One thing they haven’t been consistent is in their earnings
estimates. However this is due to active efforts to reduce
immediate debts
Financial Statements
Projections
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Though BGC has seen explosive growth in the last 5 years, we
predict it will see steadier and slower increases in the immediate
future.
Revenues reflect growing significance of markets in Asia and
North Africa.
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Industrial activity has picked up in these area
Capital Expenditure: Using management guidance as well as
looking at present capacities , we predicted Capex to be minimal
(compared to previous years) in the coming years
Inventory turnover reflects growing efficiency in selling goods as
well as average costs method.
Long term growth rate of 3%.
WACC Calculation
CAPM
Beta
Risk-free Rate
Return on Equity - Past 4 Years
1.81
3.86%
Equity Premium
6%
Cost of Equity
14.74%
Cost of Debt
7.125%
BGC ROE
21.54%
S&P ROE
0.95%
WACC Calculation
Weights
Weight of Equity
59.35%
Weight of Debt
40.65%
Tax Rate
33.76%
Goal Post WACC = 60% CAPM 40%ROE
CAPM WACC
10.66%
ROE WACC
14.70%
Goal Post WACC
12.28%
DCF Valuation
DCF Valuation
Total PV of FCF
2987.39
Less: Debt
922.08
Equity Value
2065.31
# of Shares
52.00
Intrinsic Value
$38.13
Value
-10%
+10%
$34.32
$41.94
Sensitivity Analysis
WACC
8.00%
9.00%
10.00%
11.00%
12.00%
12.28%
13.00%
14.00%
$0.89
Growth
Rate
2.50%
$78.79
$62.16
$50.06
$40.87
$33.67
$31.93
$27.90
$23.17
3.00%
$87.74
$68.24
$54.41
$44.10
$36.15
$34.24
$29.85
$24.73
3.50%
$98.69
$75.43
$59.43
$47.77
$38.93
$36.82
$32.00
$26.43
4.00% $112.38
$84.06
$65.29
$51.97
$42.05
$38.13
$34.39
$28.31
4.50% $129.99
$94.61
$72.22
$56.81
$45.59
$42.97
$37.07
$30.39
5.00% $153.47
$107.81
$80.54
$62.46
$49.63
$46.69
$40.08
$32.70
5.50% $186.36
$124.78
$90.71
$69.15
$54.31
$50.95
$43.49
$35.28
Triangulation
Price
Weights
Forward P/E
$53.42
10%
Price/Sales
$56.75
10%
Price/Book
$37.14
10%
Trailing P/E
$57.62
10%
TEV/EBITDA
$9.80
0%
DCF
$39.72
60%
Triangulated Value
$ 43.37
Portfolio Correlation
BGC
MOS
MCD
WFR
AEO
JKHY
DO
WAG
0.5831935
0.3260399
0.9031524
0.4961705
0.785174
0.7171007
0.1285925
Recommendation
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DCF Intrinsic Value = $38.13
Multiples Value = $37 ~ $58
Triangulated Value = $ 44.32
Current Stock Price @ 4/5 = $ 28.32
Thus, we recommend a BUY of 200 shares
BGC @ market price.