| 2007 | 2008 | ||||||
| Price: | 77.00 | EPS | |||||
| Shares Out. (in M): | 0 | P/E | |||||
| Market Cap (in $M): | 706 | P/FCF | |||||
| Net Debt (in $M): | 0 | EBIT | 0 | 0 | |||
| TEV (in $M): | 0 | TEV/EBIT | |||||
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Ameron International represents an opportunity to buy a portfolio of niche industrial businesses trading for a significant discount to their sum of the parts value with rich underlying net asset value that provides considerable downside protection. The Company’s businesses are diversified across end use markets by product, industry and geography, with each segment providing identifiable long term competitive advantages. In addition, with $56 million of net cash, the Company is considerably underutilizing its asset rich balance sheet, and further financial leverage would provide even greater upside.
Business Overview:
Ameron (ticker: AMN on NYSE) is a multinational manufacturer of highly-engineered products and materials for the chemical, industrial, energy, transportation, water, wind, and infrastructure markets. AMN is a leading producer of fiberglass composite pipe for transporting oil, chemicals, and corrosive fluids; water transmission lines for the conveyance of fresh and wastewater, and aggregates used in infrastructure development projects within
I. Fiberglass-Composite Pipe Segment (~1/3 of Consolidated Revenues):
Ameron manufacturers the world’s most comprehensive line of fiberglass-composite pipes under names such as Bondstrand, Dualoy, PSX, and Centron. These applications are used in chemical processing and transportation, power generation, industrial, oilfield, fuel handling, offshore and marine markets. In essence, the Fiberglass-Composite Pipe segment serves as an alternative to metallic piping systems which ultimately fail under corrosive conditions. The key differentiating characteristics of fiberglass composite pipe vs. steel pipe are its ability to function properly in extreme operating environments, superior strength to weight ratio, nonconductive nature, and infinite lifespan. Given the rising price and short replacement cycle of steel pipe (in some cases less than five years), coupled with higher transportation and installation costs, the economics of the fiberglass market relative to steel are extremely attractive. The segments two biggest end markets, offshore oil drilling (platforms and pipelines, ~50% of segment revenues) and marine tanker shipping, sport sizable, multi-year backlogs and all indications are that robust growth should continue in the future. Within the marine tanker segment, the substantial increase in tanker weight caused from the shift in production from single hull to double hull tankers has driven the demand for fiberglass frame and pipe higher in order to substitute heavy steel for lighter weight fiberglass components.
The Fiberglass segment generated $186MM in LTM revenue, approximately 1/3 of AMN’s consolidated sales. The segment’s compounded annual revenue growth over the past 5 years is 11%, driven by strong demand across the aforementioned end markets. The segment’s EBITDA margins, currently 22%, should continue to increase given AMN’s strong competitive position within the industry (market share estimated to be greater than 80% for certain applications) and significant pricing power. A summary of the segments historical operating performance is as follows:
| Fiberglass-Composite Pipe: | ||||||
| ($, 000's) | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 |
| Sales: | $104,070 | $102,690 | $105,633 | $95,524 | $103,066 | $106,872 |
| YoY Sales Growth %: | -1.3% | 2.9% | -9.6% | 7.9% | 3.7% | |
| EBIT: | $10,052 | $12,293 | $14,211 | $12,055 | $15,963 | $12,125 |
| EBIT Margin %: | 9.7% | 12.0% | 13.5% | 12.6% | 15.5% | 11.3% |
| EBITDA: | $13,856 | $15,999 | $17,833 | $15,656 | $19,499 | $15,899 |
| EBITDA Margin %: | 13.3% | 15.6% | 16.9% | 16.4% | 18.9% | 14.9% |
| % AMN Consolidated Sales: | 29.4% | 30.0% | 31.2% | 27.6% | 28.3% | 29.5% |
| ($, 000's) | 2002 | 2003 | 2004 | 2005 | 2006 | LTM |
| Sales: | $88,393 | $114,613 | $116,289 | $134,071 | $176,721 | $186,638 |
| YoY Sales Growth %: | -17.3% | 29.7% | 1.5% | 15.3% | 31.8% | 29.4% |
| EBIT: | $10,862 | $21,881 | $21,429 | $24,482 | $37,804 | $41,004 |
| EBIT Margin %: | 12.3% | 19.1% | 18.4% | 18.3% | 21.4% | 22.0% |
| EBITDA: | $14,864 | $25,821 | $25,544 | $28,552 | $42,489 | $40,677 |
| EBITDA Margin %: | 16.8% | 22.5% | 22.0% | 21.3% | 24.0% | 21.8% |
| % AMN Consolidated Sales: | 24.8% | 27.9% | 28.6% | 27.1% | 32.2% | 34.3% |
| *Consolidated sales excludes revenue generated from AMN's formerly owned Coatings Business. | ||||||
Ameron
| Fiberglass-Composite Pipe ($, 000's): | |
| 5 Year Sales CAGR: | 10.6% |
| 10 Year Sales CAGR: | 5.4% |
| LTM EBITDA: | $40,677 |
| 5 Year Average EBITDA: | $27,454 |
| 10 Year Average EBITDA: | $22,216 |
| 5 Year Average EBITDA Margin %: | 21.3% |
| 10 Year Average EBITDA Margin %: | 18.9% |
| Year End '06 Backlog: | $51,310 |
| Backlog YoY% Change: | 18.7% |
Ameron is an industry leader in the manufacture and supply of large-diameter (>12 ft.) concrete and steel pipe products for high-pressure water and wastewater conveyance primarily within the
Ameron’s water-infrastructure and transmission business is characterized by pronounced cyclical swings and lumpy cash flow generation driven by the timing of large-scale water related infrastructure project activity. As evidenced by the segments recent operating performance, Ameron’s water transmission business has been trending downward since late 2005 when it generated $29.8MM in EBITDA to the current trough and LTM EBITDA generation of $1.3MM. Management has indicated that it sees an inflection point in bidding activity occurring during mid-07’, driven by several large-scale projects planned in Southern California and
| Water Transmission: | ||||||
| ($, 000's) | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 |
| Sales: | $148,952 | $146,069 | $131,633 | $142,468 | $149,384 | $143,226 |
| YoY Sales Growth %: | -1.9% | -9.9% | 8.2% | 4.9% | -4.1% | |
| EBIT: | $17,936 | $15,172 | $19,475 | $23,022 | $23,083 | $29,011 |
| EBIT Margin %: | 12.0% | 10.4% | 14.8% | 16.2% | 15.5% | 20.3% |
| EBITDA: | $22,008 | $19,107 | $23,559 | $27,022 | $27,733 | $33,221 |
| EBITDA Margin %: | 14.8% | 13.1% | 17.9% | 19.0% | 18.6% | 23.2% |
| % AMN Consolidated Sales: | 42.1% | 42.6% | 38.9% | 41.2% | 41.1% | 39.5% |
| ($, 000's) | 2002 | 2003 | 2004 | 2005 | 2006 | LTM |
| Sales: | $145,024 | $165,497 | $154,231 | $192,731 | $174,986 | $161,398 |
| YoY Sales Growth %: | 1.3% | 14.1% | -6.8% | 25.0% | -9.2% | -19.7% |
| EBIT: | $27,347 | $26,634 | $13,458 | $25,845 | $7,577 | $1,548 |
| EBIT Margin %: | 18.9% | 16.1% | 8.7% | 13.4% | 4.3% | 1.0% |
| EBITDA: | $31,507 | $30,758 | $17,435 | $29,755 | $11,577 | $1,265 |
| EBITDA Margin %: | 21.7% | 18.6% | 11.3% | 15.4% | 6.6% | 0.8% |
| % AMN Consolidated Sales: | 40.7% | 40.3% | 38.0% | 39.0% | 31.9% | 29.7% |
| *Consolidated sales excludes revenue generated from AMN's formerly owned Coatings Business. | ||||||
| Water Transmission ($, 000's): | ||
| 5 Year Sales CAGR: | 4.1% | |
| 10 Year Sales CAGR: | 1.6% | |
| LTM EBITDA: | $1,265 | |
| 5 Year Average EBITDA: | $24,206 | |
| 10 Year Average EBITDA: | $25,167 | |
| 5 Year Average EBITDA Margin %: | 14.7% | |
| 10 Year Average EBITDA Margin %: | 16.5% | |
| Year End '06 Backlog1: | $183,802 | |
| Backlog YoY% Change: | 42.1% | |
| 1. Includes $97.1MM of orders for wind towers | ||
III. Infrastructure Products Segment (~1/3 of Consolidated Revenues):
Ameron’s Infrastructure Products Group consists of two divisions: (1) construction aggregates and (2) concrete/steel poles used in a wide array of lighting applications. The Company does not break out revenues or operating income attributable to each unit within the segment, but management indicated to us that segment revenues consist of approximately 50% construction aggregates and 50% poles products. Operating and EBITDA margins are similar across each unit.
Ameron’s Construction Aggregates unit operates exclusively in
The most significant risk faced by Ameron’s aggregate division is its raw exposure to the Hawaiian economy, in particular that of the commercial and industrial construction market.
Ameron’s Pole Products Division produces and supplies concrete street-lighting poles and bollards along with steel traffic and lighting poles to customers throughout the
| Infrastructure Products: | ||||||
| ($, 000's) | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 |
| Sales: | $101,794 | $94,858 | $102,066 | $105,559 | $112,105 | $113,824 |
| YoY Sales Growth %: | 7.6% | 3.4% | 6.2% | 1.5% | ||
| EBIT: | $10,680 | $9,919 | $10,721 | $17,155 | $17,666 | $13,089 |
| EBIT Margin %: | 10.5% | 10.5% | 10.5% | 16.3% | 15.8% | 11.5% |
| EBITDA: | $15,167 | $14,119 | $14,897 | $21,155 | $22,316 | $17,387 |
| EBITDA Margin %: | 14.9% | 14.9% | 14.6% | 20.0% | 19.9% | 15.3% |
| % AMN Consolidated Sales: | 28.8% | 27.7% | 30.2% | 30.5% | 30.8% | 31.4% |
| ($, 000's) | 2002 | 2003 | 2004 | 2005 | 2006 | LTM |
| Sales: | $123,610 | $130,493 | $136,312 | $168,990 | $198,177 | $197,074 |
| YoY Sales Growth %: | 8.6% | 5.6% | 4.5% | 24.0% | 17.3% | 9.6% |
| EBIT: | $17,019 | $15,509 | $14,519 | $22,127 | $30,607 | $30,471 |
| EBIT Margin %: | 13.8% | 11.9% | 10.7% | 13.1% | 15.4% | 15.5% |
| EBITDA: | $21,386 | $19,891 | $19,026 | $26,571 | $35,116 | $30,126 |
| EBITDA Margin %: | 17.3% | 15.2% | 14.0% | 15.7% | 17.7% | 15.3% |
| % AMN Consolidated Sales: | 34.7% | 31.8% | 33.6% | 34.2% | 36.1% | 36.3% |
| *Consolidated sales excludes revenue generated from AMN's formerly owned Coatings Business. | ||||||
| Infrastructure Products ($, 000's): | ||
| 5 Year Sales CAGR: | 11.7% | |
| 10 Year Sales CAGR: | 6.9% | |
| LTM EBITDA: | $30,126 | |
| 5 Year Average EBITDA: | $24,398 | |
| 10 Year Average EBITDA: | $21,186 | |
| 5 Year Average EBITDA Margin %: | 16.0% | |
| 10 Year Average EBITDA Margin %: | 16.5% | |
| Year End '06 Backlog: | $34,866 | |
| Backlog YoY% Change: | 15.4% | |
Ameron has investments in three separate Joint Ventures: (1) TAMCO—50%, (2) Ameron Saudi Arabia—30%, and Bondstrand, LTD—40%. We will focus mainly on TAMCO, its equity and income contribution to Ameron, and its valuation in this section. We value Ameron’s other two joint venture investments at cost, collectively carried at $3.8MM on their balance sheet.
TAMCO is Ameron’s principal joint-venture. The Company recycles and processes ferrous scrap metal into reinforcement bar (rebar). They own 50% of the entity, accounted for under the equity method, with the remaining ownership being held by Tokyo Steel (25%) and Mitsui & Co. (25%). TAMCO operates the only steel rebar mini-mill in California, serving the infrastructure markets in Arizona, California, and Nevada for projects like bridges, roads, freeways, buildings, parking garages, and other concrete structures. For example, TAMCO has been the largest supplier of rebar to
TAMCO was valued on Ameron’s balance sheet at $20.7MM as of the Company’s most recent 10Q (2/25/07). Given the fact that TAMCO has historically generated annual net income of nearly as much as the JV’s carrying value, the entity’s fair market value is clearly understated on Ameron’s balance sheet. It’s also worth noting that the partnership has historically paid out at least 90% of its earnings in dividends. We value AMN’s ownership in TAMCO using a blended average of two methodologies: a multiple of EBITDA based approach and an EV/Ton approach. Our multiples are derived from the North American Mini-Mill peer group. The seven constituents of our peer group trade at an average EV/EBITDA of 6.8X and an EV/ton of capacity of $1,083. Our Peer Group is comprised of the following tickers: CHAP, PLTE, CMC, GNA, IPS, NUE, and STLD. The table below summarizes our estimates of TAMCO’s fair market value net to Ameron:
| ($, 000's) | Operating Performance | |||
| TAMCO | ||||
| LTM ending 2/25/07 | LTM | FY2006 | FY2005 | FY2004 |
| Net Sales: | $298,389 | $273,036 | $252,435 | $215,849 |
| Gross Profit: | $78,024 | $61,336 | $42,188 | $45,885 |
| EBITDA (Est.): | $59,976 | $47,781 | $29,535 | $35,183 |
| Net Income: | $40,154 | $30,559 | $20,391 | $23,427 |
| Shareholders Equity | $54,336 | $44,741 | $43,295 | |
| Gross Profit Margin | 26.1% | 22.5% | 16.7% | 21.3% |
| EBITDA Margin (Est): | 20.1% | 17.5% | 11.7% | 16.3% |
| Profit Margin | 13.5% | 11.2% | 8.1% | 10.9% |
| Net to AMN (50% Ownership) | Multiple Derived Valuation | |||
| TAMCO | ||||
| AMN EBITDA (Est.) | $29,988 | $23,891 | $14,767 | $17,592 |
| AMN Earnings | $20,077 | $15,280 | $10,196 | $11,714 |
| Multiple of EBITDA: | 6.8X | |||
| FMV of TAMCO to AMN (50% owned): | $203,919 | |||
| Capacity Derived Valuation | ||||
| Annual Production Capacity: | 500,000 | |||
| N.A. Mini-Mill EV/Ton Peer Group Avg: | $1,000 | |||
| FMV of TAMCO to AMN (50% owned): | $250,000 | |||
| Blended Average FMV to AMN: | $226,960 | |||
V. Wind Energy Segment: (Component of Water Transmission Group)
During late 2005, Ameron made the strategic decision to retrofit an existing steel pipe manufacturing facility located in
Wind Power currently supplies less than 1% of the nation’s electricity. However, President Bush has recently called for the Nation to increase its total dependency on wind energy to 20% by 2020. While I won’t speculate on whether we achieve the President’s slated target, significant sums of capital are currently being deployed to develop wind farms in the
To date, Ameron has spent ~$26MM to retrofit their wind tower fabrication facility. After minor production delays in 1Q 07, production has now commenced, and management expects to achieve full-scale commercial production later this fiscal year. The company is expecting gross margins to be north of 20%, and EBIT margins >15% at full utilization. Backlog for wind towers grew exponentially year-over-year, from $1.5MM in 2005 to $97.1MM in 2006. Management expects to turn at least 80% of their backlog over the next twelve months, driven primarily by orders from GE, Mitsubishi and Siemens. We think this segment should conservatively generate at least $8MM in EBITDA over the next year, and management believes that current order flow is sustainable going forward based on conversations with existing customers (GE, Mitsubishi, Siemens). The market seems to be unfairly penalizing AMN’s water segment while the wind tower division’s expense ramp-up is artificially depressing water segment margins (where this segment is currently consolidated), while at the same time giving the Company no credit for any potential incremental earnings power generated from the wind business. The lack of identifiable pure-play comps engaged in wind tower fabrication makes relative valuation challenging for this segment. Ameron’s closest competitor in this segment is a division of Trinity Industries, Inc. (Ticker: TRN), a company better known for railcar manufacturing and leasing. Trinity entered the wind tower fabrication market during late 03’, and revenues within this segment grew from $11MM in 2004 to $130MM in 2006 (07’ consensus estimates are for >$220MM in revenues during 07’). While Trinity does not disclose specific wind tower fabrication margins in their financial statements, we believe our margin assumptions for AMN are well below Trinity’s implied margins.
At the time of this writing, AMN trades for approximately $77.00/share, has 9.17MM shares outstanding and a fully diluted market cap of $706MM, $56.4MM in net cash on the balance sheet and an enterprise value of $650MM. The Company’s LTM EBITDA from continuing operations was $64.8MM, and inclusive of TAMCO’s estimated $30MM in EBITDA, the consolidated enterprise generated $94.8MM in EBITDA over the last twelve months, despite a sub-par year for the water business. At its current EV/EBITDA multiple of 6.8X, 1% dividend yield, LTM P/E of 12X and ~9.0% FCFE yield, AMN appears cheap on a trailing basis. Additionally, if we factor in the substantial forward earnings power potential of the wind and water businesses, we believe Ameron’s valuation becomes even more compelling. If we make the realistic assumption that AMN’s water business emerges from its current cyclical trough and generates a normalized $24MM of EBITDA, and include the incremental $8MM of EBITDA from the newly created wind tower business, AMN’s consolidated EBITDA increases $32MM to ~$127MM (EV/EBITDA of 5X) and FCFE increases from $61MM to $84MM (12.0% FCFE Yield). We believe both of our assumptions are easily attainable and should be achieved over the next two fiscal years. Keep in mind that we are not factoring in any incremental growth in our forward estimate of EBITDA from any of AMN’s other underlying operating segments, despite their commendable historical growth rates and favorable market conditions today. If we include conservative growth rates for Ameron’s remaining operating segments, we believe the Company could generate north of $160MM in EBITDA going forward (EV/EBITDA of 4X).
As an alternative valuation methodology, we like to evaluate AMN’s business within a sum-of-the parts framework, giving some consideration to an inevitable upturn in the Water Transmission Group’s operations and the emergence of the Wind Tower Fabrication Segment. Below is a summary of our analysis:
| ($, 000's) | ||
| Sum of Parts Analysis: | ||
| Fiberglass Composite Pipe Segment: | ||
| LTM EBITDA: | Multiple | FMV ($, 000's) |
| $40,677 | 9.0x | $366,091 |
| Water Trasmission Group: | ||
| 5 Yr Avg. EBITDA: | Multiple | FMV ($, 000's) |
| $24,206 | 9.0x | $217,858 |
| Infrastructure Products Group: | ||
| LTM EBITDA: | Multiple | FMV ($, 000's) |
| $30,126 | 10.0x | $301,258 |
| Wind Pole Group: | ||
| Forward EBITDA: | Multiple | FMV ($, 000's) |
| $8,000 | 9.0x | $72,000 |
| TAMCO: | $226,960 | |
| Sum of Parts: | $1,184,167 | |
| Less 8x Corp. Overhead: | ($216,000) | |
| Enterprise Value: | $968,167 | |
| Less Net Debt (+Net Cash): | ($56,457) | |
| Market Value of Equity: | $1,024,624 | |
| Shares Outstanding: | 9,173 | |
| Equity Value/Share: | $111.70 | |
We view our sum-of-the parts analysis as conservative. An analysis of various pure play comps or businesses focused within the same industries as AMN provides some validation. For example, Northwest Pipe Co (Ticker: NWPX), a close competitor to AMN’s water transmission segment, is geographically positioned in less favorable markets yet trades at ~10X LTM EBITDA. Hanson Plc (Ticker: HNS LN on Bloomberg), a major provider of large-diameter water transmission products in the U.S. (along with aggregate production in Europe) and a close competitor of AMN was recently acquired for 12.5X TTM EBITDA by German industrial conglomerate HeidelbergCement. The rich trading/take-out multiples evident in today’s market for industrial conglomerates similar in profile to AMN underscores our view that the Company trades well below intrinsic value. Another point worth mentioning is Ameron’s excessive corporate overhead expenditures. Our analysis of
With $56MM in net cash currently in the bank, AMN’s balance sheet is substantially overcapitalized when taking into consideration their ROIC, current and potential borrowing rates, and free cash flow generation. By adding incremental leverage through new debt issuance (shown as a multiple of Debt/EBITDA), AMN has the potential to significantly increase their free cash flow to equity yield by using the proceeds to repurchase stock. In the analysis below, we assume Ameron uses their current net cash balance and the incremental debt proceeds to repurchase stock at $77.00/share, the stock price at the time of this writing. As shown in the table below, if AMN were to solely use their current net cash balance to repurchase shares, and not add any incremental debt, their LTM free cash flow to equity yield would be 9.3%. If we assume that the water and wind businesses generate our estimate of forward FCFE, this yield would increase to 12.5%. Adding incremental leverage to repurchase additional shares would result in a dramatic increase to AMN’s free cash flow yield to equity (i.e. ROIC > Incremental Cost of Debt):
Additional Debt Capacity/Share Repurchase Analysis:
Leverage Factor
Current Net
LT Debt
Est. Interest
Interest
Proceeds Available
Current Shares
Shares Repurchased
Debt/EBITDA Multiple:
Debt (Cash)
Out ($MM)
Rate (%)1:
Expense ($MM):
to Repo Stock
Out (MM)
@ $77/share(MM)
0X
($56.4)
$0.0
NM
$0.4
$56.4
$9.2
$0.7
2X
($56.4)
$129.6
7.0%
$9.1
$186.0
$9.2
$2.4
4X
($56.4)
$259.2
8.0%
$20.7
$315.6
$9.2
$4.1
6X
($56.4)
$388.7
9.0%
$35.0
$445.2
$9.2
$5.8
Leverage Factor
Shares Out
Market Value
LTM
LTM EBDA less
Maintenance
LTM
LTM FCFE
Debt/EBITDA Multiple:
Post Repo
of Equity ($MM):
EBDA ($MM):
Incremental Int. Exp
Cap Ex ($MM):
FCFE ($MM):
Yield (%)
0X
8.4
649.7
71.1
70.7
10.0
60.7
9.3%
2X
6.8
520.3
71.1
62.0
10.0
52.0
10.0%
4X
5.1
390.7
71.1
50.4
10.0
40.4
10.3%
6X
3.4
261.1
71.1
36.1
10.0
26.1
10.0%
Incremental Water & Wind FCFE Analysis
Leverage Factor
LTM
+ Water Forward
+ Wind Forward
Incremental
Forward FCFE
FCFE
ROIC%4
Debt/EBITDA Multiple:
FCFE ($MM):
FCF Estimate2
FCF Estimate3
Maintenance CapEx
Estimate:
Yield (%)
(Blue Book)
0X
$60.7
$17.0
$5.6
$2.0
$81.3
12.5%
16.7%
2X
$52.0
$17.0
$5.6
$2.0
$72.6
14.0%
16.7%
4X
$40.4
$17.0
$5.6
$2.0
$61.0
15.6%
16.7%
6X
$26.1
$17.0
$5.6
$2.0
$46.7
17.9%
16.7%
1. Borrowing costs are based on prevailing market lending rates
2. Assumes Water business earns 5Yr Average EBITDA
3. Assumes Wind business turns $80MM of $100MM backlog during FY08' at 10% EBITDA margin.
4. Only includes EBIT from trailing twelve months continuing operations.
Finally, Ameron has considerable downside protection in the form of hidden asset value, real estate, and replacement value. After adjusting for under-reflected pension liabilities, AMN currently trades at 2.2X tangible book value/share. However, in replacing TAMCO’s (AMN’s 50% joint venture) current carrying value on the balance sheet of $20.2MM with a more realistic fair market value of $230MM (derived in detail above), AMN’s adjusted book value per share increases to $53.00 (P/Adj.book of 1.4X). Additionally, the Company owns several parcels of extremely valuable, under-utilized real estate in Southern California and
· The Company does not host earnings conference calls or participate in investor conferences
· AMN does not have a dedicated or centralized Investor Relations Department, and management is notorious for being impossible to get a hold of
· There is limited sell side coverage (one boutique sell-side firm currently covers the stock)
· The Company is being unfairly penalized by the market for its perceived exposure to the residential real estate market.
· Wind Tower division’s production delays and expense ramp-up ahead of commercial production is artificially depressing true water segment margins (wind tower business is lumped within water transmission segment)
Some may view AMN’s poor shareholder communication as a negative, but we tend to view it as an opportunity for the Company to broaden their market recognition and exposure in the institutional marketplace. While we are accustomed to poor shareholder communication in heavily insider controlled public companies, we were surprised to discover that Senior Officers and Directors (collectively “insiders”) currently own only 1.5% of the outstanding stock.
VIII. Conclusion:
Ameron International is a significantly under-followed, mis-priced security trading at a steep discount to its fair market value. While the majority of the Company’s core operating segments are growing at attractive double-digit rates of revenue with stable and/or increasing margins, a meaningful component of our thesis relates to the segments that are either at a cyclical trough (Water Transmission Group) or just commencing production (Wind Pole Fabrication Segment). Inclusive of the Company’s consolidated future earnings power, AMN trades at less than 5X forward EBITDA (>12% FCFE Yield) while also hosting considerable downside protection based on our appraisal of tangible net asset value. Finally, if the Company appropriately utilizes its highly leveragable assets and funds a significant share repurchase program, this would provide even greater upside.
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