metalico inc. (mea)--long · mea engages in lead metal product fabricating (21%) recently combined...
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M c I n t i r e I n v e s t m e n t I n s t i t u t e 1
MCINTIRE INVESTMENT INSTITUTE AT THE UNIVERSITY OF VIRGINIA
Prepared by Abby Huang and Chelsea Ding| 3 October 2013
Metalico Inc. (MEA)--Long
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AGENDA
• Business Overview
• Thesis points
• Risks
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• Recommendation 4
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COMPANY OVERVIEW
• Metalico is a leading full-service, broadly diversified scrap metal recycler.
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MEA engages in ferrous (37.8% Total
revenue) and non-ferrous scrap metal
recycling (30.3%)
MEA also operates in platinum group and
minor metals recycling (10.9%)
MEA engages in lead metal product
fabricating (21%)
Recently Combined
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STOCK CHART OVERVIEW
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Price: $ 1.44 Market Cap: 69.18M 52w Range: 1.15 - 2.66
Avg Vol (3m): 164,914 PEG: -1.30 ROE (ttm): -11.82%
Operating Margin: -1.08% Debt/Equity: 69.08
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INVESTMENT THESIS
Experienced management
team
Cost efficient business structure
Less competitors
due to its strategy in domestic
focus
Significantly undervalued by investors
Slowly industry recovery
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COST EFFICIENT BUSINESS MODEL
Vertical Integration - Geographic closeness between platforms and facilities resulted from continuous acquisitions - Integration between business segments
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ECONOMIC MOAT
Ø Leading company in domestic metal recycling • Major competitor only has 26% revenue in its domestic business • Facilities and feeder yards are scattered in US
Ø Intensive regional focus • VAR: “What sets Metalico apart from its competitors apart is their
focus on the regional market, especially the Northeastern US.” ---Brent Thielman, D.A. Davidson & Co. • Metalico is the largest full-service metal recyclers in Central and
Western New York • Continued expansion of regional market
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GEOGRAPHIC BREAKDOWN
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EXPERIENCED MANAGEMENT TEAM
• Experienced and consistent management team
- Carlos E. Agüero founded the Company in August of 1997 and has served as Chairman of the Board, President and Chief Executive Officer since that time
- The other five SVP/EVP/VP have been with Metalico for 9~16 years
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HIGH LIQUIDITY
• Strong cash flow during econ0mic downturn
- Currently $4.5 million cash on hand - Improved working capital $117.5 million from $115.2
million - Decreased outstanding debt to $ 132 million from $136
million - Neutral cash flow on a year to date basis “Metalico has $49 million of availability under its revolving credit facility as of November 8, more than ample to meet its ongoing liquidity requirements”
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MARKET MISPERCEPTION
• Market overact to net loss in most recent quarterly report
Metalico actually generated $2.4 million income if we don’t count depreciation expense
• Price/Book: 0.4 (Compared to S&P average 2.49)
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MARKET MISPERCEPTION
• Tough time for metal scrap industry - Relative low demand on commodity - Low supply of metal scrap result in higher costs and lower profit margin
• Force sell by companies resulted from removal from Russell 3000 index
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POTENTIAL GROWTH OPPORTUNITY
• Take advantage of Economic downturn through restructuring industry
- New acquisition of Segel & Son Inc. this June. - “There have been a few companies that have re-evaluated their needs and have shut down some yards. In our areas and outside of our areas there have been a few shutters that have been idle. In fact one was recently idled in our Buffalo market. So we should be able to and we’re seeing a significant increase flow of material there.” - Carlos Aguero, CEO of Metalico
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POTENTIAL GROWTH OPPORTUNITY
- (Words from CEO continued.) “In our areas and outside of our areas there have been a few shutters that have been idle. In fact one was recently idled in our Buffalo market. So we should be able to and we’re seeing a significant increase flow of material there.”
- On February 4, 2013, the Company, through its Metalico Pittsburgh subsidiary, acquired certain accounts, equipment and a lease of certain real property from Three Rivers Scrap Metal, Inc. to operate a scrap metal recycling facility in the Greater Pittsburgh area in north suburban Conway, Beaver County, Pennsylvania. The acquisition provides a source of feedstock material for the Company’s shredder facility located nearby on Neville Island in Pittsburgh.
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RISKS AND TRENDS TO MONITOR
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Ø Future Metal Price Ø The Trend of the Industry Steel industry capacity utilization is expected to fluctuate within the 75% to 79% range through year-end, dampened by the competition from imported steel products that we mentioned earlier.
Ø Balance Sheet Consideration
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RECOMMENDATION
• Initiate immediately at a position of 3%
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QUESTIONS
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