Cullen/Frost Bankers (NYSE:CFR) — mrkt cap $6.7B; Price $105.7; P/TBV 2.4
PASS. Cullen/Frost is a regional bank HQ’d in San Antonio, TX. We maintain a strong bias against traditional banking exposure for the foreseeable future. The bond market, both public and private, has been a formidable competitor in taking loan-share and since the GFC, increased bank regulation has been onerous. Regionals aren’t any better – what they gain in reduced regulatory burden they lose in perception. The Fed has unofficially created a two-tier banking system: large banks being TBTF and smaller banks that can fail but with uninsured deposits ‘most likely’ safe. Then there are shorter-term issues such as office exposure and duration losses on HTM assets. Our current hurdle for gaining interest in a bank is when it is trading close to its book value and has an ROE set to improve (unlike the vast majority of sectors, these metrics are relevant for banks because most assets and liabilities are MTM). Although CFR has a history of conservative underwriting and solid management a P/TBV of 2.4 doesn’t meet our very high hurdle.
Miller Industries (NAS:MLR) — mrkt cap $450mm; Price $39.47; EV/EBITDA 7
MORE RESEARCH NEEDED. MRL is one of the largest manufacturers of tow trucks in the world. Over the last 23 years, it has grown revenues from $20mm to over $1B. MRL benefits from the average automobile age being significantly older and more prone to breaking down, construction (IIJA and IRA) causing more accidents, and construction equipment that needs towing. Due to this change in demand, MLR has seen gross margin expansion and looks cheap on a TTM basis. However, we believe that supply will inevitably catch up and margins will return to a normal baseline level. We will revisit the name in more depth if the share price comes down.
Planet Labs (NYSE:PL) — mrkt cap $647mm; Price $2.25; EV/EBITDA NA
PASS. The ‘Bloomberg Terminal’ for earth data. PL has one of the more diverse revenue streams both geographically and by customer type (commercial, government etc). It also boasts high revenue retention rates in excess of 100%. PL has no debt and 300mm in cash and short-term investments, giving it a 4-year runway at its current burn rate. PL has gross margins of about 50% however does not have the revenues needed to be profitable due to about $250mm in fixed costs. Without massive cost cutting, profitability won’t be reached until PL at least doubles its revenues. PL grew topline 20% yoy and is modifying its go to market strategy to go after both low-touch customers and high touch customers such as government agencies.