While money can be made sifting through unloved spinoffs, there is usually cause for concern.
However -- and though it is unloved -- MasterBrand is a rare market leader that has spun off from Fortune Brands Home & Security (now $FBIN
Fortune Brands Innovations).
And I think it looks interesting. (?)
But first, what makes MasterBrand unloved, specifically?
Foremost, it is spinning off from Fortune Brands, which was a dividend payer. Since MBC doesn't plan to pay a dividend immediately, holding it is useless for most income-focused investors.
Second, FBIN and MBC were removed from the S&P 500 Index as their market capitalizations were too small post-spinoff. Without the "forced buying" for S&P 500 ETFs and mutual funds, the two stocks (very much so with MBC) are left to go without massive institutional buying like before.
Finally, MBC will carry $950M in debt while only having a market cap of around $1B, which is always a great way to scare away investors. However, with the figures presented below, I am comfortable facing this debt load.
Digging through MasterBrand's prospectus, I was pleasantly surprised to see that its GAAP net income (NI) and operating cash flow (OCF) were the following for the last three years:
- Last 12 months - $175M NI and $180M OCF
- 2021 - $183M NI and $148M OCF
- 2020 - $146M NI and $205M OCF
- 2019 - $101M NI and $149M OCF
Averaging these out a bit, Master Brand trades at about 6-7 times GAAP earnings and OCF.
This valuation is meaningless if MBC's operations are ugly, but it is a steady-Eddie type in a leadership position in the sexy world of cabinet manufacturing.
- $3.2B in sales gives them a 24% share of the market
- Their next-biggest peers are 16% and 15% of the market, with the remaining 45% coming from over 11,000 competitors
- Two-thirds of MBC's sales come from remove and replace remodeling, while the rest comes from new construction, insulating it a bit from the housing market.
- Now separate, MBC will digitize its processes, run leaner operations, boost margins, and eventually focus on M&A activity, accumulating some of its 1,000's of tiny competitors.
- Incremental organic CAGR of 4-5% over the long haul
Ultimately, MasterBrand isn't the wildest spinoff we will ever find, but that is also its appeal.
Do any other spinoff-friendly humans out there find this one interesting?
Or anything you think I missed or need to worry about?