General Cable Corporation (BGC)
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Transcript of General Cable Corporation (BGC)
November 9, 2010
Kyle PellumJack Hainline
Dan GlotzbachSeung Jae Oh
OutlinePosition HistoryCompany OverviewIndustry AnalysisSWOTCompetitorsDCFRecommendation
Position History
4/12/2010 – Bought 200 shares at 30.01
Current Stock Price (as of Nov. 8, 2010): $31.14
Unrealized Gain (as of Nov. 8, 2010): $226
Company HistoryIncorporated in New Jersey in 1927Headquartered in Highland Heights, Kentucky11,000 employees on six continentsWorldwide leader in developing, designing,
manufacturing, marketing, distributing and installing copper, aluminum and fiber optic wire and cable products
Raw materials account for 75% of conversion costsBegan public trading on the NYSE on May 16,1997Have grown largely through acquisitions that have
assisted in entry into new markets around the world
General Cable 2009 Annual Report (Page 2)
Sources of Revenue
General Cable 2009 Annual Report (Page 12)
Profitability of General Cable relies heavily on world demand for energy
Growth in wire and cable industry lags behind growth in the economy
General Cable has focused on benefitting from increased emphasis on renewable energy (wind turbines)
Demand for electrical utility cables have declined in the U.S. for the past two years
Percentage of Revenue by Country
21%
11% 52%
10%
10%
General Cable 2009 Annual Report (Page 21)
Percentage of Revenue by Product Family
General Cable 2009 Annual Report (Page 22)
Acquisitions(BICC) June 1999
Significantly increased General Cable’s market share and reduced reliance on relatively undifferentiated products such as building wire
General Cable 2000 Annual Report (Page 3)
AcquisitionsNorddeutsche Seekabelwerke GmbH (NSW) 2007
$28 millionBased in Nordenham, GermanyServes the global submarine power cable and
submarine fiber optic communication system marketsBaltic Sea wind turbines
Phelps Dodge International Corporation (PDIC) 2007PDIC was a global company and the acquisition more
than doubled General Cable’s presence in the Middle East
General Cable 2007 Annual Report (Page 6)
Acquisitions Phoenix Power Cables acquired January 2010
Acquired 90% stake in South Africa company (GCPSA)
Based in Durban, South Africa is now named General Cable Phoenix South Africa
Investments in mining and infrastructure are expected to result in increased demand in electrical power cable
General Cable 2010 1st Quarter 8-K (Page 7)
Acquisitions
General Cable 2010 3rd Quarter 8-K (Page 6)
BICC Egypt acquired September 2010 for $21.7 MHeadquartered in Cairo, EgyptManufactures wires and cable for the
transmission and distribution of energyPakistan Cables Limited acquired October
2010Headquartered in Karachi, PakistanManufactures and sells copper rod wires and
offers general wiring cable as well as low-voltage and medium voltage cables
Recent Financial ResultsThird quarter earnings of $0.54 analyst estimates by
$0.04Demand in ROW was better than expected
particularly in Brazil where ongoing investment in infrastructure boosted sales
Demand for electric utility products in the U.S. were better than expected due to the release of a number of projects for the transmission grid and wind farms
Volume in Europe was better than expected due to a stabilizing Spain, increased demand for medium-voltage submarine products in Germany, and high-voltage products in Spain
General Cable Homepage > Investors > News Releaseshttp://investor.generalcable.com/phoenix.zhtml?c=81254&p=irol-newsArticle&ID=1491422&highlight=
Industry Analysis Competitive, mature and cost driven industry Little product differentiation among industry
participants from a manufacturing or technology standpoint
Increasing demand for submarine cable Underwater oil drilling platforms require integrated
cableOffshore wind farms
Demand for telecommunication remains lowA few companies hold a large portion of market share
and significant growth through acquisitionsPrice of raw materials have been volatile and they
account for large portion of manufacturing costCost to enter industry is high
SWOT-StrengthMarket Leadership
Geographic Diversity
Product Diversity
Successful expansion into emerging market through acquisitions
SWOT-WeaknessProduction of fiber optic cables
Heavily depends on one supplier
Cyclical demand
SWOT-OpportunityIncreasing demand of renewable energy
Increasing demand in emerging market
Increasing demand for fiber optic products
SWOT-ThreatHighly competitive market
Foreign country risk
Volatility in the price of raw materials
Interruptions of supplies from key suppliers
Technological shift from copper to fiber optic communication products
Competitors Belden CDT Inc. (NYSE: BDC)Designs, manufactures, and markets cable,
connectivity, and networking products in various markets.
Their cables products include copper and fiber optic cables.
Belden primarily operates in the United States, Canada, Europe, Latin America, Africa, the Asia Pacific and the Middle East.
Competitors CommScope Inc (NYSE: CTV) Provides infrastructure solutions for communication networks worldwide. The company operates in four segment: 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.
Competitors Nexans SA (Paris Stock Exchange)Manufactures and sells cables and cabling
systems for the energy and telecom infrastructure, industry, building, and local area network markets.
The company also engages in the cable recycle business.
Nexans has operations in Europe, the Middle East, Russia, Africa, North America, South America, and the Asia-Pacific
Competitors Draka Holding N.V.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.
The company’s products are also used in aircraft, trains and cars, ships, offshore rigs, and homes and offices for various applications.
Competitor’s PerformanceCompany Comp SetCompany Name LTM Gross
Margin %
LTM EBITDA
Margin %
LTM EBIT
Margin %
LTM Net
Income
Margin %
LTM Total
Revenues, 1
Yr Growth %
CommScope, Inc. (NYSE:CTV)
29.7 15.6 9.5 3.5 (0.3)
Belden, Inc. (NYSE:BDC)
33.1 14.5 11.0 4.4 12.5
Draka Holding NV (ENXTAM:DRAK)
8.9 5.9 3.0 (1.0) (9.1)
Nexans SA (ENXTPA:NEX)
13.4 8.5 6.0 0.9 (4.7)
General Cable Corp. (NYSE:BGC)
13.4 8.4 6.3 2.1 1.9
Financial data provided by
Multiple AnalysisCompany Name TEV/Total
Revenues
LTM - Latest
TEV/EBITDA
LTM - Latest
TEV/EBIT
LTM - Latest
P/Diluted EPS
Before Extra
LTM - Latest
P/TangBV
LTM - Latest
CommScope, Inc. (NYSE:CTV)
1.20x 7.38x 11.84x 29.79x 107.23x
Belden, Inc. (NYSE:BDC)
1.03x 6.96x 9.10x 19.48x 9.69x
Draka Holding NV (ENXTAM:DRAK)
0.52x 8.25x 15.36x NM 1.59x
Nexans SA (ENXTPA:NEX)
0.32x 3.72x 5.28x 30.86x 1.05x
General Cable Corp. (NYSE:BGC)
0.51x 6.05x 8.02x 17.36x 1.49x
Stock Performance
Discount RateWACC (ROE) WACC (ROE)
ROE (2001-2004) 31.70%
Cost of Equity (ROE) 20.79% ROE (2004-2007) 94%
Cost of Debt 7.13% ROE (2007-2010) 3.17%
Weighted Average Cost of Capital (ROE) 14.26% ROE (average) 20.79%
Discount Rate (Goal-Post Theory)
Cost of Equity 17.63%
Cost of Debt 7.13%
Weighted Average Cost of Capital 12.39%
CAPM
Market Return 9%
Risk-Free Rate 3%
Market Premium 6%
Beta Average 1.91
Cost of Equity (CAPM) 14.48%
Growth Rate AssumptionGrowth Rate Assumptions
2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E
North America 8.99% -2.90% -31.86% 22.64% 10.0% 13.0% -15.0% 11.0%
Europe and North Africa 34.07% 12.15% -28.16% -9.89% -5.0% 3.0% -10.0% 6.0%
ROW 170.13% 334.96% -28.70% 17.97% 30.0% 30.0% 14.0% 44.0%
Growth Rate 25.91% 35.01% -29.62% 9.62% 12.2% 17.0% -1.6% 26.2%
DCF Valuation 2010 2011 2012 2013 2014 Terminal Value
Net Income $ 107.83 $ 128.44 $ 160.69 $ 133.59 $ 209.29 $ 2,418.50
+ Depreciation & Amortization $ 113.77 $ 131.14 $ 152.50 $ 174.21 $ 196.37
+Interest Expense $ (69.81) $ (83.71) $ (100.39) $ (104.19) $ (108.13)
- Changes in NWC $ 192.88 $ (312.92) $ 107.90 $ 225.67 $ (212.14)
- CapEx $ (125.74) $ (128.25) $ (130.82) $ (133.44) $ (136.11)
FCF $ (166.82) $ 360.54 $ (25.92) $ (155.49) $ 373.57
Terminal Value $ 2,418.50
FCF $ (166.82) $ 360.54 $ (25.92) $ (155.49) $ 2,792.07
DCF $ (162.02) $ 311.58 $ (19.93) $ (106.39) $ 2,363.39
Growth Rate 4%
5 Year Discount Rate 12.39%
Terminal Discount Rate 13.00%
DCF ValuationTotal PV of FCF $ 2,386.62
Less: Debt $ 1,000.70
Equity Value $ 1,385.92
# of Shares (in millions) 52.11
Intrinsic Value $ 26.60
+10% $ 29.26
-10% $ 23.94
Sensitivity AnalysisDiscount Rate
$ 26.60
10% 11% 12% 13% 14% 15% 16%
Growth Rate
2.50% $
37.12 $
31.30 $
26.71 $
23.00 $
19.93 $
17.35 $
15.15
3.00% $
39.69 $
33.17 $
28.10 $
24.05 $
20.73 $
17.97 $
15.63
3.50% $
42.69 $
35.32 $
29.69 $
25.24 $
21.64 $
18.67 $
16.17
4.00% $
46.24 $
37.82 $
31.51 $
26.60 $
22.67 $
19.45 $
16.77
4.50% $
50.48 $
40.74 $
33.60 $
28.14 $
23.83 $
20.34 $
17.46
5.00% $
55.62 $
44.19 $
36.03 $
29.91 $
25.15 $
21.34 $
18.23
5.50% $
61.95 $
48.31 $
38.87 $
31.95 $
26.66 $
22.48 $
19.09
RecommendationDCF Value= $26.60
+/- 10%: $23.94 - $29.26
Share Price as of 11/8/10: $31.14
HOLD 200 Shares
Sell 2 January 2011 Call OptionsStrike: $33 Limit Order: $1.00
RecommendationRates of Return from option scenarios
Option is exercised 33-30 = 3 , (3+1)/30 = 13.33%
Option is never exercised. Able to sell options 3 times a year. 1 * 3 = 3, 3/30 = 10%
Based on our estimations selling the options will either give us 13.33% for one time or allow us to get a steady cash stream of 10% per year.