Description

NOTE: This is an illiquid stock, but the company is starting its first non-deal roadshow since its July IPO and will be in NYC this week.

Unique Fabricating Inc. (“UFAB “or the “Company”) is a small but growing company which engineers and manufactures multi-material foam, rubber, and plastic components used mostly in the automotive market.  The stock trades at 12.9x 2016 EPS (which would imply Reported EPS growth of 28%) and pays a 4.8% dividend yield. UFAB’s components are used in noise, vibration, and harshness management, acoustical management, water and air sealing, decorative and functional applications. Approximately 80% of revenues are derived from the automotive market while the remainder comes from various industrial markets (appliances, water heater, hvac, etc).  Approximately 75% of products are sold to Tier 1 Suppliers while the remaining is sold directly to OEMs.  The Company has done some acquisitions and expects to do more.

Pro forma for the IPO AND the Sept. 1, 2015 Great Lakes acquisition, UFAB has an equity market cap of $118 million (assuming 9.4 million shares) and an Enterprise Value of $148 million (which includes $12 million of debt for Great Lakes acquisition). 

The Company has an extensive list of blue chip customers, none of which represent more than 10% of revenue.  The Company has “very limited” exposure to Volkswagen and management believes Volkswagen’s problems could end up benefiting UFAB as car buyers may switch to different manufacturers (that may be UFAB customers). 

UFAB believes it is one of the largest suppliers in the automotive field (20% market share), while maintaining only a 2 % share in the industrial market (which is larger, more fragmented and expected to grow faster). 

We can all come up with our own estimates for future North American Vehicle Production.  UFAB expects its growth to exceed industry growth because of :

• Increasing industry focus on fuel economy (CAFÉ standards, etc)  will lead to increased use of plastics and foam materials per vehicle, and

• Increasing use of telematics and infotainment requires quieter cabins.

In addition UFAB believes its longstanding customer relationships and proximity to its customers provides it a meaningful competitive advantage.

The Company’s latest PPT can be found at http://uniquefab.investorroom.com/events-and-presentations#past:2015:10 and the IPO documents can be found at http://uniquefab.investorroom.com/sec-filings

The Company went public in July at $9.50 per share.  Use of proceeds from the $25 million offering were to delever (including 16% debt) and provide capital for an acquisition that has subsequently been closed.  Insiders did not sell any shares in the offering.  Roth was the lead underwriter (I guess Goldman and CSFB didn’t want their junior staff to work weekends or stay up all night to win this bakeoff).

The Company recently initiated a 15c quarterly dividend which implies a 4.8% yield.  Management expects to pay a dividend of “at least” 15c going forward. The theory behind paying such a relatively high dividend (given today’s low interest rates) is that it would attract investors to this illiquid stock.  Taglich Brothers, whose private equity branch sponsored the Company’s LBO in 2013, has also employed this technique with BGSF (which was down Friday after crossing large block of secondary shares).       

The Company recently gave CY2015 guidance of revenue ($138-$142 million) and EPS (77c to 81c).  Note: although they didn’t make it clear in the press release, the Company’s official guidance includes a 4c per share of one-time debt refinancing charge which we added backed to get to the estimates we listed above.  Guidance assumes one quarter contribution from the recently completed Great Lakes acquisition.   Roth, the only sell side firm covering the stock has 2016 estimates (assuming no other acquisitions) of: Revenue of $166.5 mm, EBITDA of $18.9mm and EPS of 96c.  The Roth analyst doesn’t highlight the stock’s high dividend yield which we believe is an attractive selling point.

On Sept 1, 2015 UFAB announced the closing of a “strategic, highly synergistic and accretive acquisition” of Great Lakes, a Michigan based manufacturer of molded polyurethane components.  UFAB paid approximately $12 million in cash.  In 2014, Great Lakes generated $10.0 mm of revenue, $2.0 of EBITDA and $1.2 million of fully taxed net income.  UFAB believes it can use its existing salesforce and customer base to expand Great Lakes and projects Great Lakes revenue to be $12.0 million (up 20%) over the next 12 months.  This acquisition should add ~ 11c of EPS over the NTM.

Catalyst

increased investor awareness, additional accretive acquisitions