March 08, 2018 - 3:42pm EST by
2018 2019
Price: 2.70 EPS 0 0
Shares Out. (in M): 27 P/E 0 0
Market Cap (in $M): 74 P/FCF 0 0
Net Debt (in $M): 400 EBIT 0 0
TEV ($): 475 TEV/EBIT 0 0

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Who doesn’t love a failed, levered SPAC with declining revenue and a misunderstood balance sheet???

JASN is indeed all that but a closer look reveals it is trading at 4x equity/2018E free cash flow and is a much better story than it might initially appear. A new management team has successfully corrected many of the company’s operational problems, strengthened its balance sheet and is now seeking to increase its investor relations efforts to help educate the street on the stock’s undervaluation.

JASN is a Jeff Quinn sponsored SPAC that went public in 2013 at $10, in 2014 closed its acquisition of JASN, and today the stock trades at $2.70.  The acquisition didn’t go as planned, investors bailed on the name, Stifel (the only sell side firm) stopped covering, you know the rest of the story... 

However, we believe the worst is behind for the stock: 

1)      A new CEO was hired in 2016 and a new CFO was recently internally promoted.  They have done a great job:

a.       increasing ebitda and cash flow by consolidating operations, changing/improving management and walking away from unprofitable business;

b.      deleveraging the balance sheet by generating cash and opportunistically  repurchasing debt;

c.       In 2017, reported revenue was down 8%, but EBITDA was up 6% and net debt/adjusted ebitda declined from 6.2x to 5.5x.

2)      Investor turnover appears to be largely complete as several relatively large holders of this illiquid stock have sold and some more value oriented investors have established positions. 

3)      Investor awareness should increase as the company will be presenting at Roth next week and Sidoti later this month.  Roth recently initiated coverage.  We also expect the company will hire an external IR firm to help get the word out.

4)      Insiders own 20+% of the equity so they are incentivized to create shareholder value.   Holders include  Wynnefield (17%).


JASN is a diversified industrial manufacturing company, producing industrial brushes and buffs, expanded/perforated metal components, motorcycle and turf careseating, and automotive acoustical products. The company operates through four primary business segments: (1) Finishing; (2) Components; (3) Seating; and (4) Acoustics. Finishing primarily operates under the Osborn name, which produces industrial brushes and buffing products for surface preparation, finishing, polishing, and sealing. Components operates as Metalex, which manufactures perforated and expanded metal products used in filters, smart utility meters, and railcars, among others. The Seating segment operates as Milsco, which manufactures seats primarily for motorcycles, turf care vehicles, and powersports. Acoustics operates as Janesville, which produces acoustical fiber insulation products for light vehicle platforms in North America.


The company has an excellent presentation ( http://investors.jasoninc.com/~/media/Files/J/Jason-IR/events-and-presentations/4q17-slides.pdf ) which should be very helpful to anyone interested in the name.


Why Don’t More People Own the Stock?

1)      Doesn’t screen well

a.       Revenue is declining (despite ebitda increasing).  Revenue decline is from divestitures, walking away from unprofitable business and industry headwinds due to its exposure to rail, auto and motorcycle end markets.

b.      Valuation distorted because $50 million liquidation value PIK preferred  (0.8x EBITDA) is likely worth much less than liquidation value.

2)      Poor performance under prior management.

3)      Historically little IR – Hopefully changing as company does conferences and hires IR firm

4)      Little sell side coverage – Sitfel bailed but Roth initiated in January

5)      High leverage – yes but company is deleveraging and has no near term maturities. $300 million First Lien notes are due 2021 and $90 million Second Liens are due 2022.  JASN is in compliance with its debt covenants.

6)      Faces some industry headwinds with exposure to rail, auto and motorcycle markets.

7)      It is an illiquid, sub $100 million market cap stock trading at $2 per share




The below is pro forma for the late January swap of $12 million of liquidation value preferred for 1.4 million common shares. 


                Stock Price                                          $2.70

                Shares Outstanding                        27.3 (includes 1.4 million shares issued for Preferred)

                Equity Cap                                           74


                Cash                                                      (49)

                Short Term debt                               10

                Long Term Debt                                                400

                Conv. PIK Preferred                        38  ( likely worth much less)


                Enterprise value                               $475




We valued the stock based on midpoint of their guidance assuming both the preferred is worth its liquidation value (which is probably far too conservative) and also assuming the preferred is worthless.

                                                                                Pref worth 100%                              Pref worth zero

EV/ 2018E Revenue                         0.8x                                                        0.7x

Ev/ 2018E EBITDA                             7.0x                                                        6.4x


Eq/2018E Adj Free cash flow       nm                                                         4.0x





Guidance ($MM)

On March 1, 2018 the company gave guidance for 2018, (after beating their guidance for 2017) 

                                                                Low        High

Revenue                              600         615

                Adj. EBITDA                        66           70

                Free Cash Flow                 13           17

                Net Debt/ Adj Ebitda      5.3x        4.9x


For 2017 revenue was $650 mm and Adj Ebitda was $68 mm.


However, we believe the Free cash flow guidance is deceiving as it includes $4 million of cash restructuring charges , 


Midpoint of the free cash flow guidance is calculated:

                68           Adjusted EBITDA

                (30)        Cash interest

                (7)          Cash taxes

                (17)        Capex

                6              Working capital improvement

                (4)          Cash Restructuring Charge

                16           Free Cash Flow (after restructuring charge)


                The free cash flow figure we are using is $20 million because we add back the $4 million of restructuring charges.  The figure assumes no preferred dividend (as its PIK and of questionable value) and the working capital improvement.  Some may wish to calculate the free cash flow differently and you have figures necessary to do so.  


PIK Preferred Stock

Pro forma the January exchange, JASN still has $38 million of 8% Convertible Perpetual Preferred stock, although we argue its worth far less than book value.  As discussed below, in this exchange some preferred investors swapped their common for ~25% of liquidation value.  The preferred is convertible (in most cases) at $12 per share (4x the current stock price) and JASN can pay interest in additional shares of preferred (essentially JASN is paying interest by selling stock at $12)

If there is a change of control, the conversion price drops to approximately $7 per share, still a huge premium to the current stock price. 

On Jan 23, 2018 JASN swapped 1.4 million common shares (fair market value of $3.4 million) for $12 million liquidation value of the preferred.  Thus the company bought back the preferred at 28% of liquidation value.  Its unclear if JASN thinks the preferred is really even worth 28c on the dollar, but they think that since many investors value the company on an enterprise value basis it was a good investment to reduce the amount of outstanding preferred.     

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Increased IR (roth and sidoti conferences this month), increased investor awareness of the name.  

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