general cable corp. (bgc)
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General Cable Corp.(BGC)
Presented by:Vignesh Murali, Akrati Johari,
Charlie Gambino and Michelle Oboarekpe
April 6, 2010
Presentation Overview Business Overview Microeconomic Analysis Industry Analysis Competitor Analysis Multiples Valuation Management Assessment Pro-forma and DCF Recommendation
Background Incorporated in New Jersey in
1927 Went public in 1997 (NYSE: BGC)
Headquarters Highland Heights, KY
Operates in 22 countries 44 manufacturing factory locations
Manufactures and distributes copper, aluminum, and fiber optic cable and wire products
3rd largest cable & wire company in the world
Growth primarily through acquisitions
Business OverviewProduct Categories Electric Utility – LV & HV aerial and underground cables
Electrical Infrastructure – Specialty cables – Military, Transit; industrial power and construction cables; mining, oil, gas & petrochemical products; transportation and industrial harness assemblies; portable power cords and electronics
Construction – Residential & Non-residential construction cables; low-smoke , zero-halogen retardant cables
Communication – high bandwidth networking cables , submarine fiber optic communication cables, multi- conductor and coaxial electronic wires
Rod Mill – Copper and aluminum rods for OEM applications
Revenue BreakdownProduct Revenues Segment Revenues
North America - 34%
Europe & North Africa - 35%
ROW - 31%
Industry Highlights Industry growth is influenced by a number of factors
Regulation, construction and industrial activity, government spending on infrastructure
Consolidation – Significant M&A activity
Cost Structure Purchases of raw materials account for 75% of total manufacturing costs for most
manufacturers
Concentration Top 4 companies – 42.7% market share
Competitive High barriers to entry Low switching costs
Strengths (SWOT Analysis) Market leadership
Diversified portfolio Across its target markets Breadth of product offerings
Consistent track record of successful acquisitions
Weaknesses Cost of inputs are rising faster than the
company’s ability to pass these costs through to customers.
Limited sources of inputs
Cash flows are generated primarily from its international segments
Opportunities
Increased demand in emerging markets Exponential population growth in developing
countries and emerging markets Growing middle class
Increased demand for fiber optic products
Threats Weak demand expected for Electrical Utilities Volatile raw material prices Pricing pressure from manufacturers in China
and India Technological shift from copper to fiber optic
communication products Significant exposure to geo-political risks
Macroeconomic Factors Forecasted GDP growth
Government incentives for alternative energy
Global growth in energy infrastructure spending
Ratio Analysis 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E
Profitability Return on Assets % 3.09% 4.46% 7.88% 7.65% 6.93% 4.15% 5.13% 6.26% 5.64% 6.14% 6.39% Return on Equity % 13.85% 13.18% 36.77% 29.30% 21.68% 10.15% 13.82% 15.02% 12.65% 12.46% 12.65% Margin Analysis Gross Margin % 10.89% 11.37% 12.85% 14.36% 12.88% 13.62% 14.00% 14.00% 14.00% 14.00% 14.00% SG&A Margin % 8.03% 7.23% 6.41% 6.43% 6.12% 7.74% 6.00% 5.00% 6.00% 6.00% 6.00% Net Income Margin % 1.92% 1.65% 3.65% 4.15% 3.03% 2.48% 4.51% 5.28% 4.66% 4.74% 4.83% Asset Turnover Total Asset Turnover 1.7x 1.7x 2.0x 1.5x 1.6x 1.1x 1.1x 1.2x 1.2x 1.3x 1.3x Fixed Asset Turnover 5.7x 6.6x 9.4x 8.0x 7.7x 4.6x 4.6x 5.3x 6.2x 7.3x 8.7x Accounts Receivable Turnover 6.2x 5.2x 5.8x 5.0x 5.8x 4.5x 4.9x 5.2x 5.0x 5.0x 5.1x Inventory Turnover 6.1x 6.2x 6.9x 5.3x 5.8x 4.2x 5.3x 5.4x 5.5x 5.6x 6.2x Short Term Liquidity Current Ratio 1.6x 1.5x 1.7x 1.5x 1.8x 2.1x 2.4x 2.5x 2.6x 2.6x 2.5x Quick Ratio 0.8x 0.9x 1.0x 0.8x 0.9x 1.2x 1.6x 1.7x 1.8x 1.8x 1.8x Long Term Solvency Total Debt/Equity 124.39% 153.97% 170.49% 133.96% 143.97% 72.61% 58.60% 45.87% 37.47% 31.01% 25.64% LT Debt/Equity 124.02% 151.79% 157.71% 88.99% 117.51% 68.44% 55.00% 43.87% 36.15% 29.35% 23.47%
Dupont Analysis - Historical
Dupont Analysis – Forward
Industry Competitors Belden, Inc. (NYSE:BDC)
Designs, manufactures and markets signal transmission solutions, including cables, connectors and I/O modules as well as network devices and control, load sensing and load moment limitation systems designed for safety-critical applications ranging from industrial automation to data centers, broadcast studios and the aviation and aerospace industry.
The company focuses on segments of the worldwide cable and automation markets that require both highly specialized and readily available products.
It primarily operates in the United States, Canada, Europe, Latin America, Africa, the Asia Pacific, and the Middle East.
Industry Competitors CommScope, Inc. (NYSE:CTV)
Provides infrastructure solutions for communication networks worldwide. The company operates in four segments: Antenna, Cable and Cabinet
Group (ACCG); Enterprise; Broadband; and Wireless Network Solutions (WNS). The ACCG segment includes product offerings of primarily passive transmission devices
for the wireless infrastructure market. The Enterprise segment provides structured cabling systems for business enterprise
applications and connectivity solutions for wired and wireless networks. The Broadband segment consists of coaxial cable, fiber optic cable, and conduit for cable
television system operators. The WNS segment include base station subsystems and core network products, such as
power amplifiers, filters, location-based systems, network optimization systems, and products and solutions that extend and enhance the coverage of wireless networks, such as RF repeaters and distributed antenna systems.
It markets its products directly to telecommunication service providers or to OEMs that sell equipment to the providers, as well as through a global network of distributors, system integrators, and value-added resellers.
CommScope was founded in 1997 and is headquartered in Hickory, North Carolina.
Competitor Analysis Nexans SA
Global leader in cables and cabling solutions Designs, manufactures, and markets cables,
connection accessories, cabling systems, and network supervision and control software worldwide.
Serves infrastructure, industry, building, and local area network markets.
Industry Competitors Draka Holding NV
Engages in the development, production, and sale of cable and cable systems worldwide.
The company operates in three groups: Energy and Infrastructure, Industry and Specialty, and Communications.
The Energy and Infrastructure group offers low-voltage and instrumentation cables. It offers cables for construction, industrial, and infrastructure markets in Europe and the Asia-Pacific areas.
The Industry and Specialty group engages in the specialty cable operations. It offers automotive cables, and cables for wind turbines, aviation, defense, and offshore oil and gas industries in North America and the Far East.
The Communications group offers optical fiber cable products. It also offers cable solutions for telecommunications, data communications, and broadband access networks markets.
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^SPX - Share Pricing NYSE:BGC - Share Pricing NYSE:BDC - Share Pricing
NYSE:CTV - Share Pricing ENXTAM:DRAK - Share Pricing ENXTPA:NEX - Share Pricing
Financial Comparison
Financial data provided by
Company Name Gross Margin % LTM
EBITDA Margin % LTM
EBIT Margin % LTM
Net Income Margin % LTM
Total Revenues, 1 Yr Growth % LTM
Net Income, 1 Yr Growth % LTM
Total Debt/EquityLTM
General Cable Corp. (NYSE:BGC)
13.6
8.2
5.9
2.5
(29.6)
(42.5)
72.61
Belden, Inc. (NYSE:BDC)
33.2
12.0
8.0
(1.8)
(29.4)
NM
107.11
CommScope, Inc. (NYSE:CTV)
29.3
16.3
9.6
2.6
(24.7)
NM
102.48
Draka Holding NV (ENXTPA:DRAK) 9.43 3.50 0.4 (0.9) (24.3) NM 67.04
Nexans SA (ENXTPA:NEX)
14.91 7.51 5.1 0.2 (25.8) (90.2) 51.07
Multiples Valuation
Multiples Valuation
Stock Price Calculation
Trailing P/E
P/B Forward P/E
P/S TEV/EBITDA LTM
High $65.53 $56.18 $61.06 $75.90 $23.05 Low $49.71 $22.18 $45.29 $35.31 ($1.99)Mean $57.62 $37.14 $53.42 $56.75 $9.80 Median $57.62 $35.11 $53.68 $57.89 $9.07
Range = $37 ~ $58
Management AssessmentManagement has set out to diversify the business through an aggressive growth strategy
Today 70% of its business is done outside the U.S vs. 3% 10 years ago. 3rd Largest cable maker in the world.
Despite volatile revenues, margins have remained consistent. They have been active in controlling costs• Shift to average costs to add shareholder value
• High acquisition activity until this year to establish dominant market share in a variety of markets. High capex to set up factories to meet future demand in emerging markets.
• Management had done an excellent job maintaining a lean business and anticipating future market cycles.
• One thing they haven’t been consistent is in their earnings estimates. However this is due to active efforts to reduce immediate debts
Financial Statements Projections
Though BGC has seen explosive growth in the last 5 years, we predict it will see steadier and slower increases in the immediate future.
Revenues reflect growing significance of markets in Asia and North Africa.
Industrial activity has picked up in these area Capital Expenditure: Using management guidance as well as
looking at present capacities , we predicted Capex to be minimal (compared to previous years) in the coming years
Inventory turnover reflects growing efficiency in selling goods as well as average costs method.
Long term growth rate of 3%.
WACC Calculation
Cost of Debt 7.125%
CAPM
Beta 1.81
Risk-free Rate 3.86%
Equity Premium 6%
Cost of Equity 14.74%
Return on Equity - Past 4 Years
BGC ROE 21.54%
S&P ROE 0.95%
WACC CalculationWeights
Weight of Equity 59.35%
Weight of Debt 40.65%
Tax Rate 33.76%
Goal Post WACC = 60% CAPM 40%ROE
CAPM WACC 10.66%
ROE WACC 14.70%
Goal Post WACC 12.28%
DCF ValuationDCF Valuation
Total PV of FCF 2987.39
Less: Debt 922.08
Equity Value 2065.31
# of Shares 52.00
Intrinsic Value $38.13
Value -10% +10%
$34.32 $41.94
Sensitivity Analysis
WACC
$0.89 8.00% 9.00% 10.00% 11.00% 12.00% 12.28% 13.00% 14.00%
Growth Rate
2.50% $78.79 $62.16 $50.06 $40.87 $33.67 $31.93 $27.90 $23.17
3.00% $87.74 $68.24 $54.41 $44.10 $36.15 $34.24 $29.85 $24.73
3.50% $98.69 $75.43 $59.43 $47.77 $38.93 $36.82 $32.00 $26.43
4.00% $112.38 $84.06 $65.29 $51.97 $42.05 $38.13 $34.39 $28.31
4.50% $129.99 $94.61 $72.22 $56.81 $45.59 $42.97 $37.07 $30.39
5.00% $153.47 $107.81 $80.54 $62.46 $49.63 $46.69 $40.08 $32.70
5.50% $186.36 $124.78 $90.71 $69.15 $54.31 $50.95 $43.49 $35.28
TriangulationPrice Weights
Forward P/E $53.42 10%
Price/Sales $56.75 10%
Price/Book $37.14 10%
Trailing P/E $57.62 10%
TEV/EBITDA $9.80 0%
DCF $39.72 60%
Triangulated Value $ 43.37
Portfolio Correlation
BGC
MOS 0.5831935
MCD 0.3260399
WFR 0.9031524
AEO 0.4961705
JKHY 0.785174
DO 0.7171007
WAG 0.1285925
Recommendation DCF Intrinsic Value = $38.13 Multiples Value = $37 ~ $58 Triangulated Value = $ 44.32 Current Stock Price @ 4/5 = $ 28.32
Thus, we recommend a BUY of 200 shares BGC @ market price.
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