|Shares Out. (in M):||125||P/E||0||0|
|Market Cap (in $M):||4,500||P/FCF||0||0|
|Net Debt (in $M):||5,866||EBIT||0||0|
|Subject||Can't trust this company / management|
|Entry||04/21/2016 10:44 AM|
I have been following BERY since its IPO and have met the management team a couple of dozen times. I am currently not involved in the name so take this as you please:
- The bull thesis around this stock is on what multiple we should apply to the FCF they generate. Recently, it has been about synergies and some potential growth from Avintiv but the bulls always highlight the amount of FCF they generate.
- Previously, the bull thesis was Versalite - if you go back towards the IPO until the beginning of last year - that was the main focus. All of a sudden - no one talks about Versalite. The issue with Versalite is not that it failed. That was pretty obvious going back to 2014. The issue was that management kept on hyping the product even though it wasn't going anywhere and that they flat out lied to people.
- The other issue with the stock is that even though it is a stable business you cannot treat it as an annuity. The company has lost large contracts in recent year (McDonalds come to mind on the plastic rigid side) and the company has missed core EBITDA for 6 quarters straight (until the last quarter).
- My point is that with a very low quality management that has a very poor reputation - especially as they misled investors, with limited growth in the core business, high leverage and no insight on what is under the hood (why have volumes been so low/negative for so many quarters in the core business?). I don't think the multiple is going anywhere.
- What you are left with is a crowded HF hotel and rely on the management team to beat hightened expectations - and they have a poor track record of doing that. Go back and read the transcripts going back to the IPO. These guys are pretty terrible
|Subject||Re: Can't trust this company / management|
|Entry||04/21/2016 11:07 AM|
thanks for the questions. i agree versalite has been a dissapointment and it is true they have lost contracts before though that happens in a business like this. they have and do generate a ton of FCF though and i'm not sure it should trade a heavily discounted multiple because of the considerations you cite.
|Subject||Re: Re: Can't trust this company / management|
|Entry||04/23/2016 07:29 PM|
I have also followed this since the IPO and the explanation on Versalite - that competing styrofoam cups have become much cheaper as polystyrene prices have plummeted along with crude - seems reasonable. I am also not sure that you can criticize management for running a business that has low core growth...that's just what the business is. Finally, they have met or beaten FCF guidance for 2 years...they DO what they say they will do (the very solid Avintiv deal, granted, was a major surprise, but they are committed to deleveraging from here). I am not sure "missing consensus" constitutes a company "being liars".
|Subject||Re: Re: Re: Can't trust this company / management|
|Entry||04/24/2016 07:44 AM|
1. Th FCF beats are a joke. The company guides on FCF but gives you the details to work back to EBITDA. Then they beat FCF by mainly cutting capex.
2. Go back and read the transcript of Q4 2014 - when they basically had the street believe there was a massive resin benefit ahead of them. They talked about massive numbers. Then go to the Q4 2015 or the 2015 10k and see what they actually realized.
2. Go back and read the transcripts about versalite. The recent explanation that Styrofoam is much cheaper - doesn't hold ground. Styrofoam cups were always 2-3c / cup vs. versalite at ~10c (which is the same price as double walled paper). If anything, the decline in resin prices made versalite more competitive vs. double walled paper.
3. I agree that it isn't necessarily management's fault that they run a business with a structural declining core (processed foods declining vs. fresh) but the issue is the manipulation of the story, credibility and communication with the street. For a "stable" business and an "annuity" just like the bulls value it - the company has been extremely volatile. There are plenty of examples on how their communication and manipulation destroyed the stock over the years - the analyst day in 2012 (where they pumped versalite expectation and guided down q4) to the avintiv deal (where they all of a sudden changed strategy - after feeling out investors (including me) the possibility of spinning off engineered materials).
I would be careful from these guys. I spent a lot of 1x1 time with Jon Rich and spoke to him about these issues. The answers and actions I got from him made me stay away. He is too busy promoting himself and the company and really dishonest. The stock is too crowded, with a weak thesis. Taking management's FCF number and arguing what multiple it should trade at without understanding the core with a management that cannot be trusted is not my cup of tea.
|Subject||Re: AEP acquisition|
|Entry||08/26/2016 06:15 PM|
We are still involved and like the deal also. It is in the more commoditized area of their business but the accretion without increasing leverage and gaining additional exposure to increased poly supply seems net overall pretty good. the more of these kinds of deals they can find the better....
|Subject||Re: Re: Re: AEP acquisition|
|Entry||09/02/2016 05:29 PM|
$4.65ish including prospective synergies for '17. agree with your leverage comments. think levered cos in general got spooked by what happened to levered equities and the HY market at the start of the year
|Subject||2 Years Later|
|Entry||10/17/2018 05:08 PM|
I'm trying to revive this thread and try to figure out the risk/reward here today. It seems like the stock is trading at about 7.2x 2019 EV/EBITDA. On a FCF basis, this is trading at 8.3x 2019 FCF. Give or take 0.3x turns on EBITDA or FCF multiples. The market seems to be scared of the structural volume issue with Berry's end market. What's the view on Berry today? 8.3x FCF seems low for a large scale player like this. 7.2x 2019 EV/EBITDA also seems cheap as smaller players are taken out at 9-11x EV/EBITDA multiple at the $1 billion valuation range.
I am really trying to find the bear thesis. Yes, Versalite was a complete dud. But if you watch the Rev/share, EBITDA/Share, and FCF/Share, it all has grow significantly while EV/EBITDA has now dropped to the 3.8x range.
|Subject||Re: 2 Years Later|
|Entry||10/17/2018 06:10 PM|
i've done a little work on this recently. i agree it is not expensive but i'm not jumping up and down yet.
a few reasons why i'm on the sidelines:
- plastic producers are seeing higher costs across the board so the consensus FCF numbers are probably too high.
- organic volume has declined for each of the past 6 years (-1 to -2% CAGR). so it deserves a no growth multiple.
- private multiples in the space are very high right now. therefore, any value-creating M&A upside is off the table for now.
|Subject||Re: Re: 2 Years Later|
|Entry||10/17/2018 07:07 PM|