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Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
Tms presentation final 2013 version
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Tms presentation final 2013 version

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  • 1. TMS International(TMS)Seamus Sullivan
  • 2. The CompanyRecommendation: Buy Price Target - $17.31Current Price 13.5052-week range $14.58 – 8.76Market Cap 546.3MP/E (2013) 16.7EV/EBITDA (2013) 5.3X
  • 3. TMS is the largest provider of outsourced industrial services to steel mills in North America as measured by revenue.They offer the most comprehensive suite of outsourced industrial services to the steel industry and over the past 80years TMS has established long-standing customer relationships with an average length of service over 35 years.TMS’s business model is characterized by long-term contracts and a highly variable cost structure, which enable themto generate strong Discretionary Cash Flow.TMS provides a broad range of services through two reporting segmentsMill Services GroupThe services provided to our customers under this segment include:• Scrap management and preparation• Semi-finished and finished material handling• Metal recovery and slag handling, processing and sales; and• Surface conditioningRaw Material and Optimization GroupThe services provided under this segment include:• Raw materials procurement and logistics• Proprietary software-based raw materials cost optimization• Formed by Onex in 2006• IPO 2011• Headquarters: Glassport, PA• Raymond Kalouche, CEO• locations in North America, Europe, Middle East/Africa,Latin America, and Asia• ~4,400 employees, ~3,700 are hourly employees.• Sector: Industrial Service, steel sectorThe Company
  • 4. TMS allows customers (steel mills) to focus on their core business of steel makingThe Company
  • 5. The Company
  • 6. The Company
  • 7. • Unique business model reduces cyclicalityThe Company
  • 8. ValuationTMS InternationalDiscounted Cash Flow Analysis($ in millions, fiscal year ending December 31) Operating Scenario BaseOperating Scenario 1Mid-Year Convention N Historical Period CAGR CAGR2009 2010 2011 (09 - 011) 2012 2013 2014 2015 2016 2017 (12 - 17)SalesRaw Materials $989.3 $1,632.8 $2,192.2 48.9% $1,995.0 $2,054.8 $2,137.0 $2,233.2 $2,333.7 $2,380.3 3.6%Mills Services Revenue $309.1 $397.8 $469.3 23.2% 531.2 $547.2 $569.0 $594.7 $624.4 $636.9Total Sales 1,298.3 2,030.6 2,661.5 2,526.2 2,602.0 2,706.1 2,827.8 2,958.1 3,017.2% Growth 56.4% 31.1% (5.1%) 3.0% 4.0% 4.5% 4.6% 2.0%Site Operatig Costs $233.1 $293.0 $356.2 396.4 404.9 421.1 440.0 462.0 471.3Cost of Scrap Shipments 940.0 1,564.5 2,112.0 1,919.5 1,972.6 2,051.5 2,143.8 2,240.3 2,285.1Total COGS 1,173.1 1,857.5 2,468.2 2,315.9 2,377.5 2,472.6 2,583.9 2,702.4 2,756.4Gross profit $125.2 $173.1 $193.3 24.2% $210.3 $224.5 $233.4 $243.9 $255.7 $260.8 4.4%Gross Profit Rev. After Raw Materials Costs $358.3 $466.1 $549.5 $606.7 $629.4 $654.5 $684.0 $717.7 $732.1SG&A 44.6 53.1 58.6 64.1 78.1 81.2 84.8 88.7 90.5EBITDA $80.6 $120.0 $134.6 29.3% $146.2 $146.4 $152.3 $159.1 $166.9 $170.3 3.1%EBITDA Rev. After Raw Materials Costs $313.7 $413.0 $490.8 $542.6 $551.3 $573.3 $599.1 $629.0 $641.6% margin 6.2% 5.9% 5.1% 5.8% 5.6% 5.6% 5.6% 5.6% 5.6%EBITDA Rev. After Raw Materials Costs% margin 24.2% 20.3% 18.4% 21.5% 21.2% 21.2% 21.2% 21.3% 21.3%Depreciation & Amortization 57.6 49.3 47.5 56.5 52.0 54.1 56.6 59.2 60.3EBIT $23.0 $70.7 $87.1 94.6% $89.7 $94.4 $98.1 $102.5 $107.8 $109.9 4.2%% margin 1.8% 3.5% 3.3% 3.5% 3.6% 3.6% 3.6% 3.6% 3.6%Taxes 6.9 21.2 26.1 28.7 33.0 34.3 35.9 37.7 38.5EBIAT $16.1 $49.5 $61.0 94.6% $61.0 $61.3 $63.8 $66.7 $70.1 $71.5 3.2%Plus: Depreciation & Amortization 57.6 49.3 47.5 56.5 52.0 54.1 56.6 59.2 60.3Less: Capital Expenditures (37.6) (39.8) (80.8) (110.5) (104.1) (108.2) (113.1) (118.3) (114.7)Less: Increase in Net Working Capital 3.2 (2.9) (2.3) (2.5) (1.1)Unlevered Free Cash Flow $12.4 $6.8 $7.8 $8.4 $16.0WACC 17.4%Discount Period 1.0 2.0 3.0 4.0 5.0Discount Factor 0.85 0.73 0.62 0.53 0.45Present Value of Free Cash Flow $10.6 $4.9 $4.8 $4.4 $7.2Projection PeriodAssumptionsRaw Materials Sales (% growth) NA 65.1% 34.3% (9.0%) 3.0% 4.0% 4.5% 4.5% 2.0%Site Revenue (% growth) 28.7% 18.0% 13.2% 3.0% 4.0% 4.5% 5.0% 2.0%Raw Materials Expences (% of Raw Material sales) 95.0% 95.8% 96.3% 96.2% 96.0% 96.0% 96.0% 96.0% 96.0%Site Operating Cost (% of Site Revenue) 75.4% 73.7% 75.9% 74.6% 74.0% 74.0% 74.0% 74.0% 74.0%COGS (% sales) 90.4% 91.5% 92.7% 91.7% 91.0% 91.0% 91.0% 91.0% 91.0%SG&A (% sales) 3.4% 2.6% 2.2% 2.5% 3.0% 3.0% 3.0% 3.0% 3.0%Depreciation & Amortization (% Sales) 4.4% 2.4% 1.8% 2.2% 2.0% 2.0% 2.0% 2.0% 2.0%Capital Expenditures (% Sales) 2.9% 2.0% 3.0% 4.4% 4.0% 4.0% 4.0% 4.0% 3.8%Tax Rate 30.0% 30.0% 30.0% 32.0% 35.0% 35.0% 35.0% 35.0% 35.0%Working Capital (% Sales) 1.8% 1.9% 1.9% 1.9% 1.9%Enterprise Value Implied Perpetuity Growth RateCumulative Present Value of FCF $31.9 Enterprise Value $337.0 Terminal Year Free Cash Flow (2017E) $16.0Less: Total Debt 316.4 WACC 17.4%Less: Preferred Securities - Terminal Value $681.1Terminal Year EBITDA (2017E) $170.3 Less: Noncontrolling Interest -Exit Multiple 4.0x Plus: Cash and Cash Equivalents 26.9 Implied Perpetuity Growth Rate 14.7%Terminal Value $681.1Discount Factor 0.45 Implied Equity Value $680.3 Implied EV/EBITDAPresent Value of Terminal Value $305.0 Enterprise Value $337.0% of Enterprise Value 90.5% Implied Share Price 39.3 LTM 9/30/2012 EBITDA 147.0Enterprise Value $337.0 Implied Share Price $17.31 Implied EV/EBITDA 2.3xImplied Equity Value and Share PriceTerminal Value
  • 9. ValuationRaw Material and Optimization Group generates Service Revenue by providing their proprietarysoftware-based raw materials cost optimization service• Revenues are primarily generated from the sale of materials through raw materials procurementactivities using two alternative transaction models1. In the first type TMS takes no title of the materials being procured and they record only their commissionas revenue• During the year ended December 31, 2012, approximately 9% of the Company’s raw material procurement activityby volume was transacted under this model2. In the second type, TMS takes title to the material and sells it to a buyer, typically in a transaction where abuyer and seller are matched, and TMS records Revenue from Sale of Materials for the full value of thematerial based on the amount they invoice to their customer• During the year ended December 31, 2012, approximately 91% of the Company’s raw material procurement activityby volume was made under this transaction model• “For the year ended December 31, 2012, approximately 8% of our Revenue from Sale of Materials wasgenerated by our Mill Services Group, and approximately 92% of our Revenue from Sale of Materials wasgenerated by the raw materials procurement activities of our Raw Material and Optimization Group.”1– Because TMS does temporarily take tile of the scrap for their clients, GAAP accounting forces TMS torecognize this on a gross rather than net basis1: 10-K filed on Feb-19-2013
  • 10. TMS InternationalDiscounted Cash Flow Analysis($ in millions, fiscal year ending December 31)Operating Scenario 1Mid-Year Convention N Historical Period CAGR2009 2010 2011 (09 - 011) 2012x SalesRaw Materials $989.3 $1,632.8 $2,192.2 48.9% $1,995.0Mills Services Revenue $309.1 $397.8 $469.3 23.2% 531.2Total Sales 1,298.3 2,030.6 2,661.5 2,526.2% Growth 56.4% 31.1% (5.1%)Site Operatig Costs $233.1 $293.0 $356.2 396.4Cost of Scrap Shipments 940.0 1,564.5 2,112.0 1,919.5Total COGS 1,173.1 1,857.5 2,468.2 2,315.9Gross profit $125.2 $173.1 $193.3 24.2% $210.3Gross Profit Rev. After Raw Materials Costs $358.3 $466.1 $549.5 $606.7SG&A 44.6 53.1 58.6 64.1EBITDA $80.6 $120.0 $134.6 29.3% $146.2EBITDA Rev. After Raw Materials Costs $313.7 $413.0 $490.8 $542.6% margin 6.2% 5.9% 5.1% 5.8%EBITDA Rev. After Raw Materials Costs% margin 24.2% 20.3% 18.4% 21.5%Depreciation & Amortization 57.6 49.3 47.5 56.5EBIT $23.0 $70.7 $87.1 94.6% $89.7% margin 1.8% 3.5% 3.3% 3.5%Taxes 6.9 21.2 26.1 28.7EBIAT $16.1 $49.5 $61.0 94.6% $61.0Plus: Depreciation & Amortization 57.6 49.3 47.5 56.5Less: Capital Expenditures (37.6) (39.8) (80.8) (110.5)Less: Increase in Net Working CapitalValuation
  • 11. Mill Service Revenue is generated from a combination of:1. Contractually committed base monthly fees2. Fees for services based on customer production volumes; and3. Revenue from the sale of steel manufacturing co-products sold forTMS’s own account, less a royalty fee paid to the host millThe vast majority of TMS’s Revenue After Raw Materials Costs and profitability istied to our customers’ production volumesValuation31%69%EBITDA by Operating SegmentRMOG EBITDAMills Services EBITDA88%12%Revenue By SegmentMills ServicesRMOG
  • 12. TMS vs. Comp’s:• Trades at 5.7x TEV/EBITDA vs. Comps mean of 7.5x• Trades at 10.6x TEV/EBIT vs. Comps mean of 13.9xValuationP/EBITDA vs. Comps
  • 13. Management AlignmentLatest HoldersHolder Common Stock Equivalent Held % Of CSO Market Value (USD in mm) Change in SharesOnex Corporation (TSX:OCX) 19,558,324 49.795 274.8 -Tube City EI II Ltd. 3,345,575 8.518 47.0 -Duncanson, Timothy A. R. (Director, Chairman of CompensationCommittee and Chairman of Nominating & Governance Committee)562,492 1.432 7.9 -Curtin, Joseph (Executive Chairman) 354,228 0.902 5.0 42,143Aronson, J. David (President of The Raw Material and OptimizationGroup and Chief Operating Officer of The Raw Materials andOptimization Group)320,712 0.817 4.5 (1,750)Kalouche, Raymond S. (Chief Executive Officer and President) 220,158 0.561 3.1 -Coslov, I. Michael (Former Chairman and Chairman of Tube City IMSCorporation)145,836 0.371 2.0 96,368Lippard, Thomas E. (General Counsel Emeritus) 134,055 0.341 1.9 (14,872)Rosati, Daniel E. (Chief Financial Officer, Executive Vice President andTreasurer)95,651 0.244 1.3 10,000Osborne P.Eng, Colin (Director, Chairman of Audit Committee, Member ofCompensation Committee and Member of Nominating & GovernanceCommittee)11,747 0.03 0.2 -Tolbert, Patrick W. (Director) 5,367 0.014 0.1 -Parker, Herbert K. (Director and Member of Audit Committee) 5,367 0.014 0.1 -Connelly, John J. (Director, Member of Audit Committee, Member ofCompensation Committee and Member of Nominating & GovernanceCommittee)5,367 0.014 0.1 -Srivastava, Manish Kumar (Director, Member of Compensation Committeeand Member of Nominating & Governance Committee)1,993 0.005 0 -IMC Tube City Holdings, Inc 0 0 0 (701)CSO denotes Common Shares Outstanding.Reported Currency is the local currency of the equity listing.Derivatives Ex. 60 Days data is only available fromannual reports.Market Value is calculated on Common Shares Held using the closing price 14.05 USD as of May-01-2013.Ow nership data provided by
  • 14. CatalystsIncreased Outsourcing, Especially in Developing Markets• The provision of critical industrial services is generally not a core competency of steel producers, yet it is essential to theefficient operation of their complex facilities• TMS believes that steel producers will increasingly utilize outsourced service providers in order to reduce costs andimprove operational efficiency, enabling them to focus their human and capital resources on their core business of steelmaking• TMS believes that as the steel industries in developing markets mature, competition among steel producers will increaseand cost and operational efficiencies will become more importantConsolidation of Steel Producers Driving Outsourcing• TMS sees many of their customers increasingly transferring best-practices, including the outsourcing of industrial services,across their locations worldwideContinued Growth in International Markets• TMS believes they have substantial international growth opportunities which will be driven by expansion of existingmarket share in Latin America and Europe• In 2012, TMS won 17 new mill services contracts, seven of which were international contractsEnd-Market sales drivers• Non- Residential construction• Autos• Appliances – Consumer Appliances
  • 15. Gaining Market Share
  • 16. RMOG Expansion
  • 17. Catalysts1.15t1.20t1.25t1.30t1.35t1.40t1.45t1.50t1.55t1.60t1.65tUnited States - Non Residential (Quarterly)United States - Non Residential (Quarterly)
  • 18. http://info.aia.org/aiarchitect/2013/0322/newsletter/ABI-feb13.htmlCatalystsSlow but modestimprovement in non-residential construction
  • 19. Catalysts
  • 20. Catalysts
  • 21. fCatalystsUtilization to revert back tomeanWorld Steel Associationprojects 3% growth in 2013
  • 22. Proof of expansion gaining tractionGrowth Capital Exenditures 26.9 23.2 9.5 41.4 68.0% of Total CAPEX 42.9% 59.5% 23.3% 51.1% 61.4%Growth Maintenance Capital Expenditures 35.8 15.8 31.2 39.6 42.7% of Total CAPEX 57.1% 40.5% 76.7% 48.9% 38.6%Total CAPEX 62.7 39.0 40.7 81.0 110.7Capital Expenditure (54.6) (62.9) (37.6) (39.8) (80.8) (110.5)Catalysts
  • 23. Risks to my call• Onex controls the company• Concentration of customers:− Top 10 customers are 79% of revenues *(limited by site specific decision-making)• Steel is a highly cyclical and unloved sector− Competition from inexpensive foreign steel producers i.e. China• Success in penetrating international markets• Cross-selling may be more difficult in international markets due to competitors and in someareas of the business, low barrier to entry• Competition: Steel Mill Services market is a competitive, prices sensitive space, and many ofthe larger competitors have been in existence for decades. Larger companies may haveadvantage when bidding for contracts• General Economic Conditions: North American and global steel production volumes anddemand follow regional and global economic conditions and demand in key markets. A largeportion of TMS revenue after raw materials costs is driven by the volume of steel production inNA steel mills.• Thinly traded stock: Average daily volume is 300k
  • 24. • TMS has an attractive contracting structure, as pricing is tiered based on volume, providing acushion in the event that steel makers cut back on production. In other words, unit pricesincrease as volumes decline, and/or minimum monthly fees kick in, stabilizing revenues• Because TMS doesn’t take on pricing risk, it should theoretically be less risky than producers• Misunderstood “Real” revenues and EBITDA• TMS Trading at a discount to comparisons– TEV/EBITDA 5.7x vs. average comp’s 7.5x– TEV/EBIT 10.6x vs. average comp’s 13.9x• Strong Cash Flow Yield– PV of FCF out to 2017 ≈ 7%• Management alignment• Margin squeeze will push steel producers to reduce non-core business operations• International expansion• Recently announced quarterly dividend of $0.10 per share• Yields 2.7% per yearSummary

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