1 / 37

Investment Research Challenge

Investment Research Challenge. Presented by: Matthew Henderson Ethan Hendrickson Chaz Johnson Shawn McFarland. Boise Inc. Products. Corrugated Containers. Label & Release. Imaging Papers. Containerboard. Overview. Company and industry profile Investment highlights Valuation

doria
Download Presentation

Investment Research Challenge

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Investment Research Challenge Presented by: Matthew Henderson Ethan Hendrickson Chaz Johnson Shawn McFarland

  2. Boise Inc. Products Corrugated Containers Label & Release Imaging Papers Containerboard

  3. Overview • Company and industry profile • Investment highlights • Valuation • Financial analysis • Investment risks • Recommendation and conclusion

  4. Paper Industry Overview • Highly cyclical • Consolidation & decline • Top 5 producers have 80% share UFS Market Balance

  5. Packaging Industry Overview • Cyclical with the macro economy • Growth opportunities • High vertical integration via industry consolidation • Boise Inc. acquired Tharco and Hexacomb in 2011 • Increased packaging vertical integration to 92% from 69%

  6. Company Profile • Went public in February 2008 • 3rd largest UFS manufacturer in North America • 11% share • 8th largest containerboard manufacturer in North America • 2 % share

  7. Company Profile • Strategic shift to packaging

  8. Investment Highlights • Boise Inc. is fully valued • DCF value $8.29 vs. stock price $8.11 • EV/EBITDA12 5.4x vs. Industry 5.3x • Returning capital to investors • Share repurchase program/special dividends • Debt reductions • Packaging growth: Tharco and Hexacomb acquisitions • Exposure to macroeconomic conditions

  9. DCF Valuation Return Assumptions

  10. DCF Valuation WACC Assumptions • We employed the FCF to the firm DCF method • Cost of equity: 10.9% • Risk-free rate 2.1% (10-year T-bond) • Market risk premium 5.5% (survey data) • Beta 1.6 (Bloomberg 2 year estimate) • Cost of debt: 8.3% • After-tax WACC: 8.2%

  11. DCF Results

  12. Sensitivity of Share Price

  13. Relative Valuation

  14. Recent Performance Has Diminished Discount to the Industry

  15. Returns and Cash Flow • Lower ROIC due to elevated relative SG&A costs • Lower economies of scale • ROIC 6.6% vs. 13.7% for peers in 2010 • Surplus free cash flow • CFFO $290M • CAPEX $112M • Debt reductions • Stock repurchase program • Special dividends

  16. Liquidity and Leverage • Liquidity is average • Current & quick ratios are roughly industry average • $600M in senior note maturities extended to 2017 and 2020 • Low usage of $250M revolving line of credit • Decreasing leverage • Recently reduced debt to capital ratio • Cash flow flexibility sufficient to continue debt reduction • BB credit rating by S&P

  17. Investment Risks • Increasing shift to paper alternatives • Dependent upon OfficeMax for 25% of sales • Contract renewed through 2017 • Volatile input costs (fiber, chemicals, & energy) • Cyclical exposure to macroeconomic conditions

  18. Recommendation • $8.29 price target • February 17, 2012 closing price: $8.11 • Hold Recommendation

  19. Thank you for your attention!Q&A

  20. Appendix Acquisitions Beta Calculations Cost of Equity Calculation Discounted Cash Flow Assumptions EBITDA Sensitivity Analysis Executive Compensation Historical Stock Prices Operating Leases Packaging Shift Pension Obligations Price/Book Details Relative Valuation Assumptions

  21. Back to Appendix Tharco and Hexacomb Acquisitions • Tharco: $201M (March 2011) • $261M sales; $27M EBITDA (adjusted) • Value-added products • $8M estimated annual synergies (within 18 months) • Hexacomb: $125M (December 2011) • $110M sales; $15M EBITDA (adjusted) • >10% compound annual growth rate • Diversification into protective packaging • $5M estimated annual synergies (within 24 months) • Risk: High purchase price, increase in 2011 SG&A due to integration

  22. Back to Appendix Beta Calculations

  23. Back to Appendix Cost of Equity Calculation • 2.1% Risk free rate • Using the 10 year T-bond yield • 5.5% Market risk premium • Historical average • Recent survey data (May 2010) • 1.6 Beta • Bloomberg adjusted 2 year estimate • Calculation • 2.1 + 5.5(1.6) = 10.90%

  24. Back to Appendix EBITDA Sensitivity Analysis From Boise Inc. Investor Presentation, December 2011, page 19

  25. Back to Appendix Discounted Cash Flow Assumptions • Sales Growth • 3% terminal year growth • ROIC • Growing from 7.8% to 9.0% in the terminal year • Will eventually exceed WACC. • Cost of Equity – 10.90% • Cost of Debt – 8.3% • Includes yield on long-term debt and revolving bank credit

  26. Back to Appendix Executive Compensation

  27. Back to Appendix Historical Stock Prices 3 Months 1 Year 2 Year 5 Year

  28. Back to Appendix 5 Year Historical Prices

  29. Back to Appendix 2 Year Historical Prices

  30. Back to Appendix 1 Year Historical Prices

  31. Back to Appendix Recent Performance Has Diminished Discount to the Industry

  32. Back to Appendix Long Term Operating Leases Source: 2011 10K, page 44

  33. Back to Appendix Packaging Shift Details From Boise Inc. Investor Presentation, December 2011, page 3

  34. Back to Appendix Pension Obligations • Estimated minimum contributions are at least $20M in 2012 and $24M in 2013.

  35. Back to Appendix Price/Book • FASB 805-20-30-1 • “The acquirer shall measure the identifiable assets acquired, the liabilities assumed, and any non-controlling interests in the acquiree at their acquisition-date fair value” (Italics added)

  36. Back to Appendix Relative Valuation Assumptions • Weighted each of the industry peer segments by Boise Inc.’s operating income share • 53% paper and 47% packaging • 5.1x paper and 5.5x packaging EV/EBITDA • .53*(5.1x) + .47*(5.5x) = 5.3x industry average • Boise Inc.’s EV/EBITDA • Enterprise Value/EBITDA • 1,640,980 / 304,519 = 5.4x Boise Inc.

More Related