|Shares Out. (in M):||24||P/E||0||0|
|Market Cap (in $M):||248||P/FCF||0||0|
|Net Debt (in $M):||85||EBIT||0||0|
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Tecnoglass Inc. (“Tecnoglass” or the “Company”) is leading manufacturer of architectural glass and windows for residential and commercial construction industries.
Key items of note:
#1 architectural glass company in Latin America
800+ customers – low customer concentration
Large manufacturing footprint in low cost Colombia
Colombian base is very close to key end markets – fast time to market
High barriers to entry
$500 million of bonding capacity
Tecnoglass’ specialty products include tempered safety, double thermo-acoustic and laminated glass. Tecnoglass is headquartered along with its manufacturing campus in Barranquilla, Colombia, and operates out of a 1.2 million square foot vertically-integrated state-of-the-art facility which is strategically located near three major ports in Barranquilla, Cartagena and Santa Marta offering shipping access to the Americas, the Caribbean, and the Pacific. These ports, which are only two hours’ drive from each other, provide the Company with sea access to all major markets globally. From the Port of Barranquilla, products can be transported to Panama within two days by sea and within four days by sea to Houston and Miami. As of December 31, 2013, Tecnoglass had over 3,000 employees.
Tecnoglass became a public company through a merger with a SPAC that was focused on finding an investment in high growth South America. After looking a variety of potential transactions, the SPAC settled on Tecnoglass. The SPAC closing process occurred about a year ago and there are substantial incentives for management to achieve growth goals. The IPO was a transformational event for Tecnoglass as it dramatically increased its bonding capacity taking the total to $500 million on combined projects and $50 million on a single project. The increase in bonding capacity tied together with increases in the Company’s manufacturing facilities have dramatically expanded the earnings power of the business. Lorne Weil who led the SPAC transaction was the CEO of Scientific Games (SGMS) a company that he grew from $50 million in revenue to $2 billion. Lorne was fired by Ron Perelman from Scientific Games about one year ago and we think he is highly motivated to make Tecnoglass a huge success.
Tecnoglass has more than 800 customers in North, Central and South America. Columbia was 56% of 2013 revenues, the United States was 36% of 2013 revenues and Panama was 6% of 2013 revenues. No customer accounts for greater than 10% of sales. Glass Magazine ranked TG as the second largest glass fabricator serving the U.S. market in 2013. Tecnoglass states that it is the leading glass transformation company in Colombia, with 40%+ of the market share in the country. Tecnoglass products are installed in hotels, residential buildings, commercial and corporate centers, universities, airports and hospitals in a variety of applications such as floating facades, curtain walls, windows, doors, handrails, interior and bathroom spatial dividers. Tecnoglass has supplied tailored, high-end products on some high-end properties, including the 50 United Nations Plaza (NYC), Fordham University (NYC), El Dorado Airport (Bogota), Imbanaco Medical Center (Cali), Trump Plaza (Panama), Trump Tower (Miami), Marriott Hotel (Aruba) and The Woodlands (Houston). Tecnoglass had a backlog of outstanding orders of $120 million as of December 31, 2013.
Tecnoglass also produces aluminum products such as profiles, rods, bars, plates and other hardware used in the manufacture of windows. Tecnoglass believes that it participated in 80% of the high rise building projects in South Florida in recent years. The Company possesses the requisite permits to commercialize hurricane windows in Miami-Dade County, Florida, one of the most demanding certifications in the world for manufacturers of windows and window frames. The Company has expanded its U.S. sales outside of the Florida market for windows, into the high-tech market for curtain walls, a product that is in high demand and represents a new trend in architecture, and floating facades. Due to the sophistication of these new products, it is estimated that sales of curtain walls will generate higher margins as compared to traditional window frames from walls or floor to ceiling windows.
In Panama, the Company sells products primarily to companies participating in large construction projects in the most exclusive areas of Panama City. For example, Tecnoglass products were supplied in the construction of the tallest building in Central and South America, The Point, as well as in the construction of other modern hotels in the region such as Megapolis and The Trump.
Tecnoglass is quite unique in vertically integrating the purchase of raw materials, the manufacture of glass and aluminum products and the subsequent production of customized glass and windows for architectural and industrial settings. By vertically integrating these functions, the Company is able to price products competitively while maintaining strict quality control measures to guarantee the high quality of its products. Additionally, the Company benefits from significant advantages in efficiency and time-to-market for new or customized products. This vertically integrated model provides attractive margins with significant operating leverage. Additionally, the Company has made significant investments in machinery and equipment in order to utilize the latest technology on its production lines, including a recently completed approximately $29 million capital investment in land, warehouses and state-of-the-art glass making equipment thereby expanding its manufacturing capacity. Tecnoglass has a large laminator and jumbo tempering oven capable of producing extra-large slabs of laminated glass which are highly sought after in the high-end window market. Tecnoglass’ investments in machinery and equipment, together with its trained labor force, allow the Company to offer state-of-the-art custom designed products quickly modified to meet customer demands.
Tecnoglass’ primary manufacturing materials include glass, ionoplast, polyvinyl butyral, aluminum and vinyl extrusions. Typically, all of these materials are readily available from a number of sources, and no supplier delays or shortages are anticipated. The main supplier of glass for Tecnoglass is PPG Industries, one of the world’s leading producers of glass products and Tecnoglass is PPG’s only certified glass fabricator in South America.
Tecnoglass has amazingly high barriers to entry as many of the markets it serves are limited to new entrants due to the technical certifications required on high specification building projects. Further, Tecnoglass has a large breadth products and solid reputation for delivering high quality, made-to-order architectural glass on time. These factors have allowed Tecnoglass to compete and win multimillion dollar projects. In addition, the equipment needed to operate in the glass and window industry is highly capital intensive - during 2013 alone Tecnoglass made approximately $10 million in capital investments in warehouses and construction and $19 million investment in state-of-the-art glass making equipment, including jumbo tempering machines capable of producing extra-large glass dimensions, thereby expanding its manufacturing capacity by over 150,000 square feet in order to double its combined capacity for the next three years.
We suspect that Tecnoglass will be able to leverage its strong base in Colombia, to successfully expand into nearby geographies. Its glass products are already featured in major construction projects in Argentina, Aruba, Costa Rica, Panama and Puerto Rico. Further, Tecnoglass’ established and leading presence in the Florida construction market as a provider of high quality impact-resistant glass product should bode well for future sales of hurricane-proof products. In addition, the Company has the opportunity to grow geographically in the U.S., particularly into other coastal markets on the East Coast which are affected by hurricanes, significant temperature fluctuations and other extreme weather.
Tecnoglass has local competitors in Colombia as well as competitors in the markets internationally, in each of the glass, aluminum and finished products sectors. Glass Technologia en Vidrios y Ventanas S.A., Arquicentro S.A., Industrias Lehner and Aluminum Estructural S.A. compete with us in Colombia in the finished products market. Apogee Enterprises, Inc., PGT, Inc. and WinDoor Inc. compete with us in the U.S. in the finished products market. Golden Glass Security, Vid-plex Universal S.A., Aluace Ltda and Laminados y Blindados compete with us locally in the glass and aluminum markets. Oldcastle, Inc., Trulite Inc., and PRL Glass Systems among others compete with us in the U.S. in the glass and aluminum products markets.
We believe shares of TGLS are highly undervalued at current levels. The closest comps are APOG and PGTI. The comparable multiples are noted below in the table. The reported share count for TGLS is understated due to both some warrants and contingent performance shares – we adjust the valuation of TGLW for these items in the table below (both at a current $10.05 share price and at $20.00 share price). The $20.00 share price represents our conservative estimate of the current fair value of TGLS.
It is notable that the warrants for TGLS are traded under the ticker symbol TGLSW. These represent a very low cost way to invest in TGLS. The TGLW warrants have an exercise price of $8.00 per warrant and have two years remaining. At current the current share price for TGLS, the warrants have a $2.05 intrinsic value and current trade for $2.80 per warrant.
Trading volumes in TGLS are very low. As volumes rise and more people become familiar with the story, we think the share price at Tecnoglass will rise rather quickly. The Company has exposure to some fast growing markets and has a sustainable manufacturing cost advantage over producers elsewhere. There is only one analyst covering TGLS currently and no real institutional ownership.
Organic growth, share liquidity improves, analyst coverage added
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