Spectrum Brands (NYSE: SPB $83.12) MV = $3.4bln; PF EV = $3.2bln; 3mo ADV = 0.29mm shares Trades @ 6.7x 2023E EBITDA; 15x 2023E FCF; Net Leverage Ratio (2021 EBITDA) = Net CashThanks for reading PJ's SMID Cap Investment Ideas! Subscribe for free to receive new posts and support my work.
As a brief update, Assa Abloy (ASSAB) issued a press release early this morning (7/15) indicating that US regulators continue to review the transaction and that HHI/ASSAB are 'working to resolve its potential concerns.' As such, SPB and ASSAB mutually agreed to extend the termination date from 12/8/22 to 6/30/23. The language in SPB's 8-K indicates that the extension is intend to provide additional time 'to the extent needed' to satisfy the regulators -- this indicating that it still isn't clear if remedies would be necessary or what the scope of the remedies would be. The 8-K also highlights that nothing has changed vis-a-vis the termination fee.
Like the market, we see this data point as incrementally negative as it pushes out the story, creates uncertainty and delays the shift in capital allocation and reduction in float. That said, it does iterate ASSAB's strong strategic interest in the HHI and dispels the notion that they'd be looking for an 'out' which some investors have speculated.
Thinking about SPB today, we see the stock as trading at 7.5x 2022 EBITDA (bear case) (ex. HHI) and thus very cheap. We also see a solid catalyst (which SPB has more control over) in the sale/spin of its HPC business. We might get some minor incremental info RE: HHI over the coming days with ASSAB's quarterly call on 7/19.
Bottom line, we think the risk/reward remains very compelling -- there is just more uncertainty from a timing/proceeds perspective. Critically, nothing has changed with regards to the quality/LT outlook of the two remaining core businesses in GPC and H&G.
Great write up, thank you. One question, do you have a source for you comments about SPB dog chew range being #1? Having a look on sites such as Chewy, Walmart & PetCo would say other wiese. Thanks
As a brief update, Assa Abloy (ASSAB) issued a press release early this morning (7/15) indicating that US regulators continue to review the transaction and that HHI/ASSAB are 'working to resolve its potential concerns.' As such, SPB and ASSAB mutually agreed to extend the termination date from 12/8/22 to 6/30/23. The language in SPB's 8-K indicates that the extension is intend to provide additional time 'to the extent needed' to satisfy the regulators -- this indicating that it still isn't clear if remedies would be necessary or what the scope of the remedies would be. The 8-K also highlights that nothing has changed vis-a-vis the termination fee.
Like the market, we see this data point as incrementally negative as it pushes out the story, creates uncertainty and delays the shift in capital allocation and reduction in float. That said, it does iterate ASSAB's strong strategic interest in the HHI and dispels the notion that they'd be looking for an 'out' which some investors have speculated.
Thinking about SPB today, we see the stock as trading at 7.5x 2022 EBITDA (bear case) (ex. HHI) and thus very cheap. We also see a solid catalyst (which SPB has more control over) in the sale/spin of its HPC business. We might get some minor incremental info RE: HHI over the coming days with ASSAB's quarterly call on 7/19.
Bottom line, we think the risk/reward remains very compelling -- there is just more uncertainty from a timing/proceeds perspective. Critically, nothing has changed with regards to the quality/LT outlook of the two remaining core businesses in GPC and H&G.
Great write up, thank you. One question, do you have a source for you comments about SPB dog chew range being #1? Having a look on sites such as Chewy, Walmart & PetCo would say other wiese. Thanks