Tuesday, September 5, 2017

NACCO Industries: Hamilton Beach Spinoff

For the first time in a while there are a number of interesting spinoff situations on the horizon, one of which is NACCO Industries (NC) separating their small household appliances business, Hamilton Beach Holdings (HBB), from their legacy lignite coal mining business.  This split was announced in August with a quick turnaround for the spin to be done around the end of September.  From the surface this spinoff makes a lot of sense, why is a manufacturer of blenders and toaster ovens paired with a coal miner?  Who knows.  Both businesses should trade for different multiples and its no surprise that paired together they trade at a discount to peers.

NACoal/NACCO Industries (NC)
North American Coal Company (NACoal) is the coal mining operating subsidiary of NACCO Industries, despite being in the coal industry its structured as a fairly decent business.  Much of their operations are conducted in their "unconsolidated mines" segment where NACoal functions more as a service provider earning a small cost-plus margin arrangement and avoiding commodity related pricing risks.  How this works is their customers are large electric utilities that run coal fired power plants, often times these coal plants are located on top of or next to their coal power source.  The utility companies will finance and take on the cleanup cost liabilities for the mine, and will contract out the actual operations to NACoal.  There is no pricing risk as each mine exists to service one customer in perpetuity, their contracts are long dated, often times the length of the expected life of the mine.  For accounting purposes these mines are VIEs and since the customer has most (almost all) of the risk in the venture, NACoal is not considered the primary beneficiary and thus doesn't consolidate the results.

The business spits out a lot of cash, but it is declining albeit in a slow fashion.  What utility would invest significant sums to build a new coal fired power plant today?  Very few, if any.  Power plants last decades and even if the current political administration is coal friendly, I doubt many future ones will be the same.  As a result, NACoal's reinvestment opportunities in the coal business are pretty nil, they do have some small side businesses doing mining related services that operate under similar cost-plus arrangements and that's likely where any future cash will be deployed going forward.  Not great, but NACoal shouldn't be viewed as a royalty trust with a finite life.

In valuing the coal business, I think it should more closely resemble the multiple of an independent power producer versus the recently reorganized coal miners, most of which trade for 4-5x EBITDA.  The power plants NACoal services are primarily base load plants, there's some fluctuation in the results due to power demand/pricing, operational turnarounds, etc., but mostly its a fairly steady predictable business.  They should see some uplift in the coming years due to new contracts coming online (maybe the last of the new coal plants?) and something like fellow blog-name Vistra Energy (VST), which actually does its own coal mining, trades for around 7.5x EBITDA.  I think that's a fair multiple for NACoal given the drivers of the business, they did $35MM in EBITDA in 2016, 2017 will be higher, but we'll just go with $35MM, at a 7.5 multiple that's a $262MM enterprise value.

Hamilton Beach Holdings (HBB)
The spinoff will house a fairly popular small household appliance brand (they outsource all their manufacturing) in Hamilton Beach and then a struggling retailer that has little value in Kitchen Collection.  Hamilton Beach makes blenders, coffee makers, toaster ovens, juicers, indoor grills, etc., it sits mostly in that middle ground between a consumer staple and a durable, these aren't everyday purchases, but aren't large appliances that are big ticket items.  In terms of branding, Hamilton Beach sits in the middle again, they sell through Walmart, Target, Kohls, and Amazon, maybe not the best positioning to take, but they are moving more upscale with their recently launched co-branding efforts with the high end Wolf appliances.  That move upscale has flowed through in their results with widening margins and anticipated revenue growth for 2017 (much of their business is weighted towards the holiday selling season).

Kitchen Collection is a small household appliance retailer (they sell other brands in addition to Hamilton Beach) that operates primarily in outlet malls.  The concept has been hit pretty hard by declining mall traffic, NACCO has been closing stores pretty consistently since 2012 when they had 312 stores to just 209 today.  Kitchen Collection about breaks even and is likely of little value, hopefully they can manage the wind down as to not disrupt the overall HBB results.

There are a number of consumer brand rollups, Newell Brands (NWL) or Spectrum Brands (SPB) for example, that would be a logical buyer of Hamilton Beach at some point.  Both NWL and SPB trade for 14-15x EBIT, Hamilton Beach (with no contribution from Kitchen Collection) should do at least $45MM in EBIT in 2017, even putting a discounted multiple on the business of 12x would equal ~$565MM for the spinoff.

Add the two pieces up, $262MM for the parent and $565MM for the spinoff, minus $54MM of net debt (which is at the parent) and you get an estimated equity value of ~$775MM versus a current market cap of $475MM.  Another way to put it, the market is likely putting little to no value on the coal business despite its asset light nature and consistent cash flows.

Other/Risks
  • This is a family controlled company, there will be a dual share class at HBB as well, which speaks to some of the discount.  Maybe HBB should be 10-11x then?  Still cheap.
  • NACCO did another spin in 2012, Hyster-Yale Materials (HY), which performed great post-spin but has since normalized.  Different business, different time, but I think it shows the lift in multiple possible at HBB after it gets free of the NACCO conglomerate discount.
  • There are two mines that are consolidated at NACoal, one is shutdown and in runoff which is causing some impairments and messy accounting, the other, Mississippi Lignite Mining Company is run in a similar fashion as the unconsolidated mines, however NACoal is on the hook for the operating costs.  The majority of the capex for the business is related to operating the consolidated mine.
  • Management is pitching the spinoff partially as a talent planning event, current CEO Al Rankin Jr (part of the controlling shareholders) is stepping down as CEO, elevating the two executives who currently run NACoal and Hamilton Beach to CEO of each respective company.  Rankin will then become Executive Chairman of Hamilton Beach and Non-Executive Chairman of NACCO Industries, not quite the same as "going with the spinoff" but noteworthy and sounds like he'll have more of an active role in the spinoff than the parent.
  • HBB certainly has some private label risk, some Amazon risk, etc., but doesn't appear to be immediately in the cross-hairs of either.  On the positive side, its a way to "play" the millennials finally moving out of their parent's basement theme, increased household formations, and other demographic tailwinds.  Additionally, HBB's business is mostly domestic, they're making a push to expand to developing markets where there is growth in the middle class.
Disclosure: I own shares of NC

83 comments:

  1. Great idea. I made good money in the Hyster spin. Is there a management presentation that breaks down the transaction?

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    1. I don't believe so, here's the letter management put out:
      https://s22.q4cdn.com/351071137/files/doc_news/documents/2017/08/Doc-7-FINAL-FINAL-AMR-letter-to-all-constituencies-082117.pdf

      And then HBB did file an S-1:
      https://www.sec.gov/Archives/edgar/data/1709164/000119312517262713/0001193125-17-262713-index.htm

      The more I noodle on HBB, 12x is probably the wrong multiple, maybe more like 9-10x EBIT, but anything above the 7x the combined entity is being valued at today and it should be a net positive.

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  2. Thanks, found those, you have done a lot of work pulling out the key information. Agree with you on being more conservative on HBB. But this has good chance to be a good one, given the complete lack of similarity between the businesses.

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  3. I would add to the risk section the possibility that the spin-off doesn't happen. NC announced a similar spin-off of Hamilton Beach in 2007, re-affirmed a Q3 2007 spin-off date on their Q2 earnings call, and then cancelled the spin later in August.

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    1. What was the reason the previous spin fell through? Do we know the likelihood it closing this time?

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  4. You mention there are a few spinoffs coming up - which are you referring too?

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    1. I haven't done complete work on these but I find CNX, LQ, WYN, and SRC all pretty interesting from a high level.

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  5. Also looking at it. If it could sell KC for zero, it'd be worth even more. This is more likely to go through bc unlike previously Rankin wants to retire.

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    1. They're technically already doing that (paying someone -- closing costs -- to take KC off their hands). But it doesn't always work where you can just do an immediate gin-and-rummy style capitalist excision of a part. Since the two brands are somewhat associated, closures have to handled with care

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    2. Don't get confused. You got one A share AND one B share in the spinoff. I bought multiple trades from 75 to 80. Now worth ~98 pre-spin basis

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  6. Did you sell off or reduce some positions to add these new positions?

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    1. I participated in the TPCA tender offer, so I no longer own that, and then the MRLB and SNBN deals closed, otherwise I haven't sold anything.

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  7. One risk mitigated, looks like it's actually happening: https://www.streetinsider.com/Press+Releases/NACCO+Industries+Declares+Hamilton+Beach+Brands+Holding+Stock+Dividend/13304881.html

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    1. Yep, this idea is working quicker than expected.

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  8. I attended management luncheon today for the coal business. I think that it will be interesting see how market values HBB and coal post spin.

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  9. Did you get a sense of how much of SG&A at NACoal was due to management of the unconsolidated mines vs. managing just the MLMC operation? I struggle to figure out how NACoal unconsolidated mine profit (55m in 2016) gets eaten up to bridge to segment EBIT at NACoal (5.6m in 2016). Any thoughts? Seems like such a huge drag..

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    1. There was a $17.4MM impairment charge which is a big part of that bridge, but its a good question, I don't know how much of the SG&A is for the unconsolidated versus MLMC. Others know?

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  10. How do you get to $45mm in EBIT in 2017 for HBB?

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    1. Just a back of envelope estimate, they did $41-42MM last year, their expectations are for an increase this year. Didn't mean for it to be precise.

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  11. This has been a great pick in a category I love. Have you taken any off the table? In view of the big move I sold 1/2 position and will wait for opportunities post split

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    1. Its certainly been a great one month winner, wish I bought more initially, but for now I'm holding and haven't sold any. Leaning towards unloading the HBB side and possibly adding to NC, but we'll see how it trades post split.

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  12. HBB Questions:
    1 - Am I correct - 6.8 million shares (A) plus another 6.8 million shares (B) that can be converted to A for a total of 13.6 million to use in calculations?
    2 - Are you still thinking 9-10x EBIT or have you reconsidered at all? How do you estimate/what do you compare with to come up with your EBIT multiple?

    Thank You! - I really appreciate your time - Mike

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    1. Yes, I think that's right on the share count, I don't have my shares yet although some brokers might have distributed them already.

      On the valuation -- looks to be trading when issued up near there, I was comparing against the larger diversified peers in the post, but here might be the best comparable:
      http://www.yetanothervalueblog.com/2017/04/cutting-into-lifetimes-value-lcut.html

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  13. Hi There,
    New to this industry...
    Dont you see a problem that inventories are at such a high amount (128M) on the balance sheet?
    once subtracted from current assets, the working capital will be negative 65 Million.

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    1. I tend to stay away from retail, so not an expert in the industry, but I think that's the wrong way to look at it, why would you exclude their future sales? You'd then have to make some kind of contra adjustment to the accounts payable/revolving credit agreement as they wouldn't simply buy worthless inventory right? HBB is a capital light business, they outsource all their manufacturing to third parties, I would expect their inventory to be a significant portion of their assets as a result since PP&E is relatively low.

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  14. I bought more NC today shortly after the open at $24.85, seems very cheap at that price, I peg it at about 4x EBITDA. HBB seems about fairly valued right now around $33, I haven't made up my mind on that side of the business, but it could very well trade higher as its the more popular business.

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  15. MDC --what is the post spin share count for NC. Thanks Mike.

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  16. 80% jump @ NC?
    I really thought of buying HBB and didn't pay attention to NC...where did I go wrong? Will appricate If someone can share some inputs

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  17. Thanks MDC that is what i had. What about net debt after the dividend.

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    1. I think it's -$20MM if you don't include the non-recourse debt at the unconsolidated mines (up for debate)? Cash should be about $90MM and other debt of $70MM.

      LTM EBITDA was $37MM (they've got some built in growth as some of their unconsolidated mines ramp up production). EV = $238MM market cap (at $34.80 now) - $20MM of net cash = $218.4MM, or a 5.9x multiple? Seems about right for this business, maybe a little upside if valued more like a independent power provider than a coal miner?

      I'm surprised by the jump too, got lucky getting some shares this morning. I don't think the 80% jump is correct, by my math they finished trading at an implied price of $25 on Friday when you backed out where HBB-WI finished up. But still a 40% jump, whoa.

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    2. Thanks MDC,
      the big Q now is: Are you going to sell?

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    3. I need to think about it more, I will update the comment section if I do end up selling either (my broker is slow, don't have the HBB pieces yet).

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    4. Great stuff, I went in pre spin off. Now thinking of what to do. One question, MDC: How did you arrive at 238 MM market cap? On the NC website it says 5,27m shares outstanding, which would lead to a market cap of 183 MM.

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    5. There are two share classes, the super voting Class B has another 1,570,448 shares outstanding.

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  18. NC is halted. What's going on? Bought a big position this morning.

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    1. Said news was pending. Was actually the HBB roadshow. Go to sec.gov to view the slides.

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  19. I bought NC in multiple trades @ $75-80. Post-spin is now trading at $100. As the price for NC post-spin was fair, I just sold my NC and am holding on to HBB. I will convert the B into A.
    Was a great idea. I saw it upon issue of the S-1. Two unrelated businesses, with a stodgy CEO retiring. Classic. GLTA.

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    1. Yep, thanks for the comments.

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    2. Hi Jim,
      What are your prospects for HBB?
      Thanks.

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    3. HBB $37-40. NC $33-35. I sold at $33.80.
      If HBB can get rid of KC for something above zero, the value would be higher.
      Calculated value is, at best, an educated estimate and doesn't mean the market will agree, especially in the short-term.

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  20. HBB is trading at more than 10x EV/EBITDA. While NC is up substantially since this morning, I think it's still undervalued. My fair value estimate for NC is $41 and for HBB $34.

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  21. MDC great work as usual. by the way, i hear you on ebitda for NC but have you looked at GAAP FCF? just subtract HBB from consolidated results and look at it if you havent already... WTF! lets have a convo about it.

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    1. Help me out, you're smarter than me and have looked at more carve out financials. So HBB's GAAP net income is almost all of the combined company for 2016, you see that in NC's standalone investor deck too, they show $0 net income for 2016, but $10MM in pre-tax income for the LTM, and $32.7MM pre-tax if you exclude Centennial. They also quote a $50.2MM LTM "cash flow before financing" which loosely lines up with FCF.

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    2. very nice of you but I am not smarter than you. i have a call into the co and will likely speak this week. let me send you an email so we can do this "offline" after i have had my chat. but just fyi, what i was saying was quite literally, parse out the cash flow stmt... one minus the other. the numbs for NC are eye popping. but i need to understand the story behind the numbs.

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    3. The more I look at HBB, especially today’s presentation, the more convinced I am that, especially in getting rid of the stodgy mgt if NC, that the new mgt has enormous opportunities to add value. They are very small internationally, are just getting started online and can get rid or close KC. The spinoffs I’ve made the most in were ones where mgt made big changes after the spinoff, not from the spinoff event itself. See ASIX, SPXC and GPC for recent examples.

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  22. To value NC i pretty much did a dividend discount of the cash that the unconsolidated mines provide to the parent add that to my estimate of the enterprise value of the consolidated entities — which i estimate to be around (-$115Mn) 5*-23MN (Est CFO - CapEX). I also adjust for net debt, operating lease etc. I got a valuation of 30.77 to 53.2. Not sure if i am on to something here. Don't think the consolidated mines are profitable. Thoughts ?

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    1. The consolidated mines shouldn't be that terrible, MLMC functions pretty closely to the unconsolidated mines, its a cost plus like arrangement but everything flows through the financial statements. Centennial write-downs are obscuring the picture there, and hopefully those will abate soon, but the overall results of your DCF seems reasonable. Maybe you were more optimistic elsewhere in your discount rates, etc.

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  23. I have NC @ 19x EV/NOPAT, which doesn't seem cheap.. I see net cash after the 35m dividend, but also ~9m in net pension obligations, ~40m in capitalized leases plus asset retirement obligation of 43m. That all should be added to EV right? So EV is close to 300m. EBIT is reduced by HBB EBIT, plus add'l corp expenses that were assigned to HBB/KC. I get ~20m in EBIT or 16m after-tax on TTM. That isn't far off from GAAP FCF (just NC - HBB) in 2016 of 21m. I wanted to like this, what am I missing here?

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    1. I haven't been consistent on this, chasing my own tail here, but yes, what's the right number for net debt and other, are you including the non-recourse debt at the unconsolidated mines? I could go either way on it, they're not a direct claim on NC but they're also directly tied to the revenue stream. Also -- is the capitalized lease number just NACoal, seems high and I can't recon on it, KC would have a lot of operating leases that should be capitalize, but that's going over to HBB. It's also hard to pin down a number for EBITDA/NOPAT, whatever you choose to use, the business should see some tailwinds with the Bisti Fuel contract starting earlier this year plus other mines ramping production. Long imprecise way of saying, you're probably right, I think it's about fairly valued here in the low-mid $30s, was cheap as of Friday and yesterday morning around $25.

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    2. Agree. Sold my NC yesterday at $33.80 as it was a fair price.
      HBB, on the other hand, has significant growth and ROIC opportunities if the new mgt is ready for them. I will be monitoring their option packages closely.

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  24. MDC---how many shares of HBB are we suppose to receive from our pre spin position. I thought it was 2 shares--1 A and 1 B share. Have you received all you shares.

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    1. That's correct, I've only received my A shares. I called my broker, they told me the B shares are not DTC eligible, will be in physical certificate form in the street name, so they're waiting to receive the physicals before posting the position to my account. My guess is it takes a couple weeks for the physicals to get to my broker, post the shares to my account, and then go through the exercise of converting the B to A. All so the insiders can increase their voting stake, it's a pain.

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    2. Not sure about you guys. I bought pre-spin in 2 of my accounts. IRA and regular investment accounts. In IRA account, the B shares already showed up with some serial number (kind of like CRP type entry). In regular account, only A shares showed up, still waiting for the B shares.

      From HBB Prospectus that was published in late Sep (pages 4/5):

      What do I need to do to receive my shares of Hamilton Beach Holding common stock?
      You do not need to take any action to receive your shares of our common stock. The shares of our common stock will be
      distributed on the date of the spin-off to holders of NACCO common stock as of the record date for the spin-off in book-entry form for
      our Class A Common and in certificated form for our Class B Common in accordance with Section 170 of the General Corporation Law
      of the State of Delaware (the “DGCL”).


      What if I want to convert or sell the shares of Hamilton Beach Holding Class B Common I receive in the spin-off?
      Like the NACCO Class B Common, our Class B Common will not be listed on the NYSE or any other stock exchange, and we do
      not expect any trading market for our Class B Common to exist. In addition, our Class B Common generally will not be transferable
      except to or among a limited number of permitted transferees pursuant to our amended and restated certificate of incorporation.
      However, our Class B Common will be convertible at any time, without cost to you, into our Class A Common on a share-for-share
      basis. If you want to sell the equity interest represented by your shares of our Class B Common, you may convert those shares into an
      equal number of shares of our Class A Common at any time, without cost, and then sell your shares of our Class A Common.
      You will receive a conversion form when you receive the shares of our Class B Common that you are entitled to receive in the
      spin-off. The conversion form will include instructions for converting shares of our Class B Common into an equal number of shares of our Class A Common. If you elect to convert your shares of our Class B Common
      into shares of our Class A Common, you should follow the instructions included with the form, complete, sign and date the form, and
      return the form, along with your certificate, if any, representing shares of our Class B Common, to our transfer agent. If you deliver a
      certificate, our transfer agent, as promptly as practicable after receipt of your completed, signed and dated form and certificate, will
      issue to you a certificate representing shares of our Class A Common equal to the number of shares of our Class B Common that you
      elected to convert. Any Class A Common issued upon conversion of Class B Common will be issued in the name or names you
      specified in the form. The conversion will be deemed to have been made immediately prior to the close of business on the date you
      surrendered your completed, signed and dated form and certificate, if any. After you receive shares of our Class A Common you may
      sell those shares. After you convert our Class B Common into our Class A Common, such shares may not be converted back into shares
      of our Class B Common.

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  25. Thanks. That is what i thought. so shares that trade are the A shares.

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  26. MDC and all, help me out here...wasn't HBB stock supposed to be depressed on the first days trading due to the spinoff nature? How come it went up 12% yesterday?
    My only guess is that this spinoff structure is uniqe (span off is bigger than the parent in terms of value )..but I'm not sure of that....any inputs?.

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    1. I don't think the typical spinoff dynamics wherever in play here, maybe on NC, but not HBB. The market believes HBB is the better business of the two and deserves a higher multiple, it's also bigger than the parent. Plus as discussed a few comments above, HBB has limited float right now due to the Class B shares being non-traded. If shareholders want to sell, they have to convert first and that might take a few days to a few weeks to do. Limited float plus the better of the two businesses might be creating some of this buying pressure on the spinoff.

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    2. That's what I thought but wasn't so sure...
      Thanks MDC, really appreciated.

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    3. Not all spinoffs dip upon the event. Where there is a perceived break from a parent that was holding down an excellent business the price goes up on the spin like vista outdoor was a few years back. You can't play the spinoff game by following mindless formulas.

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  27. This was a highly profitable trade. I saw the S-1 and thought about it and nibbled a bit. I bought the bulk of my shares below $75. I sold the bulk of my NC at $33.80. If HBB has a tax basis of $33 (per 9/29 pricing) then my basis in NC was 75-33-33 or 9. Selling at $33.80 then was a 275% return in just 15 calendar days. Plus HBB is up 10% from the $33 price. A 36% gain on the whole package. Won't even say what that is annualized. Great idea!!!!

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    1. Thanks Jim, happy this one worked out. I do think it helps that both business have some tailwinds and that they operate as separate businesses today, not carving out a couple bad business lines to create a garbage barge situation here. Should also mean steadier business performance post spin.

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    2. Jim,
      Can you help to explain what exactly does the 'tax basis of 33' means?

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    3. Since I already owned NC, the tax basis for calculating gains and taxes would be the assigned per share value of HBB as it was spun off.

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  28. I had a small position on this and it worked out faster (I think) than anyone would've expected. Thank you for posting the idea. I went back to analyze a sell decision and some of the questions I had I think are still relevant in the sell decision:

    1. On NC, "they did $35MM in EBITDA in 2016". I'm not sure I can see that from the filings for 2016. Annual report has consolidated EBITDA of $76,685 (see annual report page 3) and the Prospectus for HBB has $48,763 for that portion of the business (including KC). So the difference would be more like $27,922 for 2016. What am I missing?

    2a. As to the parent level debt of $35 million, I'm not sure where this figure came from. I don't see it on the parent-level financials (pg F-45 of the 10-K and it's not filed quarterly afaik). The total net debt (combined company) at the latest 10-Q seemed to be over $100 mm, if you include the AROs, etc. What am I missing here? This will be important in thinking about what pro forma NC looks like.

    2b. In the final step, why only deduct the parent level net debt of $54mm. What about the look through debt of the unconsolidated mines? Their EBITDA is presumably in the $35mm EBITDA, so why not their debt? I.e, if they actually sold these mines (only a thought experiment), they'd get cash for them NET of that sub level debt. Hence the question of how to think about that when valuing the NC portion, when the time comes to sell NC.

    3. As to HBB, are you concerned about sales being down in the latest full year? Income was up due to mix but that's not a continuing trend at all. SPB comp that you referred to had one bad sales quarter and the stock took a big hit. Could this happen to HBB?

    4. I listened to SPB's call and they will not buy HBB (imo) because they aren't looking to expand that part of their business.

    Sorry it's a long question. Appreciate any response you are able to provide. Thanks again for the idea!

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    Replies
    1. 1. I pulled the $35MM from their investor decks, there was one prior to the spinoff that had $35MM and it appears again in the NC standalone investor presentation for September 2017. I believe the difference is pulling out the Centennial write-offs.

      2. Yes, my analysis was inconsistent, stated that to an earlier question. The company put their net cash including the unconsolidated mines but excluding the ARO/pension/other at ~$20MM. It's probably correct to include all that other non-debt liabilities.

      3/4 It could certainly happen, I was simply going off of management's stated outlook for 2017. I haven't had a chance to review HBB's investor day presentation but it must have been pretty positive based on the stock's reaction? They do appear to have an opportunity for growth outside the US, growing middle class play on emerging markets. I'm still undecided on holding it or not, but in the meantime still going through the process of converting my Class B to Class A.

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    2. Anyone else having trouble converting the B's to A's? My broker, Merrill Lynch (bc I have $0 commissions) say they have not been given instructions from HBB yet. I contacted HBB and they are using ComputerShare. Slow.

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    3. I initiated the process a week ago with my broker, I imagine its a 2-3 week process having worked in the asset custody world. Going from a non-DTC eligible physical certificate to a book entry position involves a lot more steps then one would think on the surface.

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  29. Merrill finally got Got instructions yesterday.

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  30. Hi MDC, do you have any thoughts about current valuations of HBB and Nacco?

    Probably both hold candidates now, given the typical spin off performance and momentum in play on one hand and the fact that both are not cheap anymore on the other, or what do you think?

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    1. I took a look last night before today's drop in both companies, NC was trading at about 6x EBITDA and HBB at 13.5x EBITDA, so that seems pretty fair-to-fully valued for each? HBB's outlook appears rosier maybe justifying some of the premium to their smaller household peers. I'm always a bit slow to sell, I still own full positions in both, but I no longer view either as being particularly cheap and might sell (but hate short term capital gains!) if I need cash for better opportunities. Hope that helps.

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    2. Thanks! So I take it you looked before Nacco's Q3? Going to have a look at them this weekend.

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    3. I looked at the press release Wednesday evening before the conference call and drop in price yesterday. With the ~10% drop, trading for about 5.4x LTM EBITDA of $39.5MM with net cash of $35.2MM. Seems within the range of reasonableness for a business like this one.

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  31. Thanks for the info! I think I am going to keep it for now, hoping for a recovery and some spin off dynamics to come into play.

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  32. I exited all positions today. ~35% profit in a little over 7 weeks time.

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  33. Now the typical spin off dynamic seems to have started with HBB. I assume it is because the B shares are exchangeable in the US now? I still can't change them into A shares, as I am in Europe. Will be interesting to see if the stock will go up after the selloff. Anybody has a guess on that?

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    1. I still haven't received my A shares from the B exchange.

      But I assume you're right, could see some added selling pressure as people receive their A shares and take profits.

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  34. Does anybody have an educated guess on why Nacco keeps going up and HBB is tanking?

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    1. No great guesses other than we might be seeing some selling pressure based on HBB class B to Class A conversions taking place now. As an update, I've sold my NC shares at a little under $47 and holding HBB for now, although its a low conviction position now and might go. I've got NC at 7.2x EBITDA (so being valued like an IPP versus a coal miner) and HBB at 11x EBITDA, not super cheap either.

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    2. Good call about Nacco! I must say, I have not seen this surge coming, sold them at about 36. Have to hold on to my HBB class B for now, I guess I will wait a few months, hoping for the typical dynamics to come into place.

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