Superior Industries (NYSE:SUP) — mrkt cap $97mm; Price $3.38; EV/EBITDA 10
PASS. SUP is one of the world’s largest suppliers of lightweight aluminum wheels, providing products to OEMs like Volvo and Ford. To diversify its customer base, they took on substantial debt to acquire Uniwheels. Recently, a critical refinancing was announced, extending maturity to 2028 but increasing annual interest expenses to ~$84mm. The company is guiding for ~$180mm in adj. EBITDA. Assuming D&A is roughly in line with maintenance capex, SUP will have ~$20-30M left to help pay down its ~$700mm in net debt, leaving little room for growth capex. The equity outlook heavily depends on operational results, and the market is signaling a bleak future. The industry appears to be increasingly competitive, with a challenging macro environment and rising Chinese competition. Given these factors, we find it difficult to be optimistic about future volumes. We have decided to pass.
Oil Dri (NYSE:ODC) — mrkt cap $480mm; Price $65.98; EV/EBITDA 9
PASS. Oil-Dri Corporation (ODC) manufactures and sells a diverse range of sorbent materials, including cat litter, where it stands as one of the largest producers in the U.S. Recently, ODC experienced its most profitable year in its 84-year history, generating nearly $40mm in free cash flow, largely driven by price increases across its litter products. Moving forward, ODC’s strategy is to capitalize on the litter category by expanding both its branded offerings, through acquisitions, and its private label products. Historically, this market has been challenging with low margins due to competition from Asia, and we believe that ODC to be over earnings relative to the underlying business. We have decided to pass.
Upwork (NAS:UPWK) — mrkt cap $1.2B; Price $9.4; EV/EBITDA 18.5
MORE RESEARCH NEEDED. We have been interested in marketplace businesses that appear to be in danger of obsolescence due to AI. Upwork is down ~80% from its highs and is a marketplace that connects ~900k active buyers (small businesses and larger enterprises) to millions of freelancers. Customers post a job and, in minutes, can review dozens of proposals. Upwork is seen as vulnerable to AI, but the majority of Upwork’s jobs have significant complexity and are longer-term in nature. This is why active customers spend on average ~$4,000 annually, compared to Fiverr, which is closer to $200. We think the market may be discounting Upwork’s potential. We will continue to dig more.