Smith & Wesson (NAS:SWBI) — mrkt cap $630mm; Price $13.85; EV/EBITDA 8
EXIT. We disclosed our starter position initiation on 9/13 and the stock is up slightly over 20% since. We continue to believe SWBI is a strong company operating within the best type of oligopoly – a friendly one. NICS figures (indication of demand) are still high, and since our initiation channel inventory has come down considerably. In addition, their large relocation from Massachusetts to Tennessee is complete with unexpected expenses that will most likely continue to pop-up putting pressure on near-term margins. A 20% re-rating is usually not enough for us to sell a starter position but it is trading closer to fair value (on a normalized FCF basis) and given the environment we want to maintain ample liquidity for other opportunities. If we had to guess, SWBI is a company that we will revisit many times in our careers.
DO & CO (ATX:DOC) — mrkt cap €1.4B; Price €130.00; EV/EBITDA 8.9
MORE RESEARCH NEEDED. DO & CO is an Austrian gourmet catering firm that specializes in airlines and international events such as FIFA and Formula one venues. It boasts 33 gourmet kitchens worldwide and has more than 60 airline customers. DO & CO’s strategy is to focus on large airport hubs and then expand their gourmet offerings to restaurants, hotels, etc. Airline catering makes up the lion share of revenue at about 75% of revenue and has seen more than 30% growth yoy due to strong load factors. Fixed costs make up about half of the expense structure and given additional scale, DOC could see significant operating leverage. Although the company is well run, more work needs to be done to assess DOC’s ability to expand into adjacent gourmet markets.
Mesabi Trust (NYSE:MSB) — mrkt cap $271mm; Price $20.69; EV/EBITDA 33
PASS. Mesabi is one of the more interesting royalty trusts we have run into. It was created in 1961 and dissolves 21 years after the last death of twenty five named individuals in the Trust agreement (based on their birth dates this likely means by 2050 or so). Mesabi has a lean operating structure and owns the mineral rights to an iron ore mine. The driver of demand for that mine is a Cleveland Cliffs hot briquette iron plant in Ohio. However, given recent acquisitions by Cleveland Cliff along with the increased penetration of Electric Arc Furnaces which use scrap steel instead of iron, the reliance on Mesabi’s mine has lessened considerably. These headwinds will likely persist, impairing MSB.