|Shares Out. (in M):||49||P/E||0.0x||0.0x|
|Market Cap (in $M):||427||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||55||EBIT||0||0|
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PGT, Inc. is a leading manufacturer and supplier of residential hurricane impact-resistant windows and doors in Florida. PGT was founded in 1980, and essentially pioneered the impact-resistant window in Florida after Hurricane Andrew devastated Dade-county in 1992. Its impact-resistant products are marketed under the WinGuard, PremierVue and PGT Architectural Systems brand. PGT offers the broadest line of impact-resistant windows/doors in the market, is a leader in the impact-resistant market (~60% share), and is over 5x the size of the next largest regional competitor. In Florida, the WinGuard brand is to impact-resistant windows as Kleenex is to tissue. Impact-resistant windows and doors (“passive” form) satisfy stringent building codes in hurricane-prone coastal states and provide an attractive alternative to shutters and other "active" forms of hurricane protection. We estimate over 60% of Florida households live in “code-mandated” areas in Florida. PGTI participates in both repair-and-remodel (70% of revenues) and new construction market (30% of revenues) in FL
Code Legislation Background
Since Hurricane Andrew devastated Miami in the early 90s, FL began to implement building codes which require window/door protection along hurricane-prone zones. . Residential homeowners are required by law to have protection, albeit “protection” can vary from “passive” impact resistant windows (i.e., WinGuard) to “active” protection (shutters / plywood boards which are installed/removed before/after a storm). While theoretically 100% of building code areas should have “protection”, it is estimated that passive windows (i.e., WinGuard) have a 27% penetration of the coded addressable market (estimate over $1bn – and growing). While building codes have existed since the late 90s, enforcement had been limited; conversations with local industry experts suggest enforcement became meaningfully more rigorous post significant hurricane activity in the Gulf during 2005 (Katrina, etc). The latest code “2010 Florida Building Code” was implemented in 2012 (i.e., this is a really nascent industry)
ii. We expect new construction revenues to grow ~40% for the next 3 years and eventually surpass prior peaks by 2017
ii. In 2015 new set of codes are expected to further increase energy efficiency requirements and further narrow the economic trade-off (U-value from 0.60 to 0.40-0.45)
iv. Our due-diligence with local distributors highlight industry participants now understand this value proposition and economic trade-off, and is now a regular part of distributors sales pitch today (but not 5-yrs ago)
i. Conversation with local distributors suggest impact resistant windows is one of the most highly sought after “investments” given significant paybacks with insurance discounts and energy efficient codes
e. Financial profile above yields mid-20s tangible ROIC and high incremental margins – nearly unheard of in building products sector
Valuation / Price Target
a. Given best-in-class growth, margin, ROIC profile AND potential takeout candidate – believe PGTI should trade at high-end of peer group valuation
Risks / Concerns
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