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General Cable Corp. (BGC). Presented by: Vignesh Murali, Akrati Johari, Charlie Gambino and Michelle Oboarekpe April 6, 2010. Presentation Overview. Business Overview Microeconomic Analysis Industry Analysis Competitor Analysis Multiples Valuation Management Assessment Pro-forma and DCF
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General Cable Corp.(BGC) Presented by: Vignesh Murali, Akrati Johari, Charlie Gambino and Michelle Oboarekpe April 6, 2010
Presentation Overview • Business Overview • Microeconomic Analysis • Industry Analysis • Competitor Analysis • Multiples Valuation • Management Assessment • Pro-forma and DCF • Recommendation
Background • Incorporated in New Jersey in 1927 • Went public in 1997 (NYSE: BGC) • Headquarters • Highland Heights, KY • Operates in 22 countries • 44 manufacturing factory locations • Manufactures and distributes copper, aluminum, and fiber optic cable and wire products • 3rd largest cable & wire company in the world • Growth primarily through acquisitions
Business Overview Product Categories • Electric Utility – LV & HV aerial and underground cables • Electrical Infrastructure – Specialty cables – Military, Transit; industrial power and construction cables; mining, oil, gas & petrochemical products; transportation and industrial harness assemblies; portable power cords and electronics • Construction – Residential & Non-residential construction cables; low-smoke , zero-halogen retardant cables • Communication – high bandwidth networking cables , submarine fiber optic communication cables, multi- conductor and coaxial electronic wires • Rod Mill – Copper and aluminum rods for OEM applications
Revenue Breakdown Product Revenues Segment Revenues North America - 34% Europe & North Africa - 35% ROW - 31%
Industry Highlights • Industry growth is influenced by a number of factors • Regulation, construction and industrial activity, government spending on infrastructure • Consolidation – Significant M&A activity • Cost Structure • Purchases of raw materials account for 75% of total manufacturing costs for most manufacturers • Concentration • Top 4 companies – 42.7% market share • Competitive • High barriers to entry • Low switching costs
Strengths (SWOT Analysis) • Market leadership • Diversified portfolio • Across its target markets • Breadth of product offerings • Consistent track record of successful acquisitions
Weaknesses Cost of inputs are rising faster than the company’s ability to pass these costs through to customers. Limited sources of inputs Cash flows are generated primarily from its international segments
Opportunities • Increased demand in emerging markets • Exponential population growth in developing countries and emerging markets • Growing middle class • Increased demand for fiber optic products
Threats Weak demand expected for Electrical Utilities Volatile raw material prices Pricing pressure from manufacturers in China and India Technological shift from copper to fiber optic communication products Significant exposure to geo-political risks
Macroeconomic Factors • Forecasted GDP growth • Government incentives for alternative energy • Global growth in energy infrastructure spending
Industry Competitors • Belden, Inc. (NYSE:BDC) • Designs, manufactures and markets signal transmission solutions, including cables, connectors and I/O modules as well as network devices and control, load sensing and load moment limitation systems designed for safety-critical applications ranging from industrial automation to data centers, broadcast studios and the aviation and aerospace industry. • The company focuses on segments of the worldwide cable and automation markets that require both highly specialized and readily available products. • It primarily operates in the United States, Canada, Europe, Latin America, Africa, the Asia Pacific, and the Middle East.
Industry Competitors CommScope, Inc. (NYSE:CTV) Provides infrastructure solutions for communication networks worldwide. The company operates in four segments: 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. It markets its products directly to telecommunication service providers or to OEMs that sell equipment to the providers, as well as through a global network of distributors, system integrators, and value-added resellers. CommScope was founded in 1997 and is headquartered in Hickory, North Carolina.
Competitor Analysis Nexans SA Global leader in cables and cabling solutions Designs, manufactures, and markets cables, connection accessories, cabling systems, and network supervision and control software worldwide. Serves infrastructure, industry, building, and local area network markets.
Industry Competitors Draka Holding NV 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.
Financial Comparison Financial data provided by
Multiples Valuation Range = $37 ~ $58
Management Assessment Management has set out to diversify the business through an aggressive growth strategy Today 70% of its business is done outside the U.S vs. 3% 10 years ago. 3rd Largest cable maker in the world. Despite volatile revenues, margins have remained consistent. They have been active in controlling costs Shift to average costs to add shareholder value High acquisition activity until this year to establish dominant market share in a variety of markets. High capex to set up factories to meet future demand in emerging markets. Management had done an excellent job maintaining a lean business and anticipating future market cycles. One thing they haven’t been consistent is in their earnings estimates. However this is due to active efforts to reduce immediate debts
Financial Statements Projections Though BGC has seen explosive growth in the last 5 years, we predict it will see steadier and slower increases in the immediate future. Revenues reflect growing significance of markets in Asia and North Africa. Industrial activity has picked up in these area Capital Expenditure: Using management guidance as well as looking at present capacities , we predicted Capex to be minimal (compared to previous years) in the coming years Inventory turnover reflects growing efficiency in selling goods as well as average costs method. Long term growth rate of 3%.
Recommendation • DCF Intrinsic Value = $38.13 • Multiples Value = $37 ~ $58 • Triangulated Value = $ 44.32 • Current Stock Price @ 4/5 = $ 28.32 • Thus, we recommend a BUY of 200 shares BGC @ market price.
