Seeking Alpha • Aug 22
Weber: New Management Plan Could Be A Game Changer, But There Are Risks
With more than 70 years of operation, Weber presents itself as the first brand and the global category leader in outdoor cooking.
In my view, if management successfully reshapes the organization, many new investors could become interested in the new company starting in 2023.
The sale of assets and divisions could bring a lot of cash to WEBR. In my view, if management is smart, it may decide to acquire competitors in Europe or Asia.
Weber Inc. (WEBR) owns the most valuable brands in the outdoor cooking industry. Besides, in a recent quarterly report, management announced a plan that would enhance future cash flow generation thanks to sale of assets and reduction in contractual obligations. In my view, if the plan is successful, we would be talking about a valuation of more than $12.3 per share. With that, let's note that the stock is not for everybody. Under my most unlikely and pessimist case scenario, I obtained a valuation that is significantly lower than $12.3 per share. Inflation, debt obligations, covenant agreements, and a decline in online traffic could be a disaster for the stock. In my view, investors need to understand the risks well.
Weber Inc. Reports New Opportunities And A New Comprehensive Cash Flow And Cost Management Plan
With more than 70 years of operation, Weber presents itself as the first brand and the global category leader in outdoor cooking.
The company operates in the USA, Europe, Asia, and the Pacific region. The management has also announced that it has identified a significant number of opportunities in new regions.
We have an immense opportunity to expand our relationship with the more than 50 million dedicated Weber consumers worldwide, as well as grow our reach in the near and long-term. Source: Press Release
In my view, what will most likely interest investors is the new management plan recently announced for the years 2022 and 2023. I believe that management intends to reshape its balance sheet as well as to obtain cash to reduce its debt levels. Market participants will most likely appreciate the initiative, which includes significant cash generation for 2023.
To strengthen our financial position for fiscal year 2023 and beyond, we are introducing a comprehensive cash flow and cost management plan. The core components of this plan include the suspension of its quarterly cash dividend, a focused reduction of COGS and SG&A expenses, a reduction in force that removes management layers in the organization, and the tightening of global inventory levels and working capital positions. Management believes these actions will result in at least $110 million of cash benefit, net of restructuring costs, in fiscal year 2023, with run-rate benefits beyond that. Source: Press Release
WEBR Could Be Worth $9 Per Share Without The New Plan
The Barbeque Grill Market size is expected to grow at close to 5.4% y/y. In this case scenario, I used this conservative figure to assess future sales growth.
The Barbeque Grill Market size was valued at USD 5,608.7 million in 2021 and is forecast to grow by 5.4% over the forecast period. Source: BBQ Grills Market Size, Share, Trends
Under sales growth of 5% y/y and $2.089 billion in sales in 2022, 2032 sales would stand at $3.5 billion. If we also assume growing EBITDA margin thanks to economies of scale and new products and services, I believe that 2032 EBIT could stand at 8.105%. Now, with a conservative effective tax rate of 22.5%, 2032 EBIAT would be $223 million.
Author's Work
Also, with conservative working capital and capex close to $58 million, free cash flow around $58.5 million appears reasonable. My FCF/Sales ratio would stand at about 4%-7%. I also used a discount of 5%. Finally, the NPV of future free cash flows would be close to 1.31 billion.
Author's Work
According to Seeking Alpha, peers trade at close to 13x EBIT. However, the new manufacturing facility in Poland will likely enhance future sales growth in Europe, and may push the multiples up. In this case, I used a valuation of 14.5x EBIT.
SA
With a terminal EV/EBITDA multiple of 14.5x, the net present value of the terminal multiple would stand at almost $2.5 billion. The implied enterprise value would stand at $3.7 billion. If we subtract the long-term debt, and add cash in hand, the equity value stands at $2.5 billion. Finally, the equity per share would be $9 per share.
Author's Work
Successful Resale Of Certain Assets And Divisions As Well As Acquisition Of Other Companies In Europe And Asia Would Imply A Valuation Of $12.3
Recently, traders learned that WEBR commenced to do several changes to the Board of Directors, and decided to run a restructuring program. The election of a new CTO, in July 2022, clearly indicated that something could happen.
According to the most recent quarterly release, the restructuring program would include disposal of certain assets and perhaps the sale of certain non-manufacturing and distribution divisions. In my view, if management successfully reshapes the organization, many new investors could become interested in the new company starting from 2023. In this case, I assume that everything will work as expected.
In addition, on August 12, 2022, the Board approved a restructuring plan, which included the termination of other senior executives, a workforce reduction of our non-manufacturing and distribution headcount by at least 10%, the termination of certain lease and other contractual obligations, and the disposal of certain other assets. We expect to substantially complete the restructuring plan by the first quarter of fiscal year 2023. Source: 10-Q
Sale of assets and divisions could bring a lot of cash to WEBR. In my view, if management is smart, it may decide to acquire competitors in Europe or Asia, which could generate significant sales growth. Assuming sales growth of 7.5% y/y, I believe that 2032 revenue of around 4.33 billion could work. Acquisitions could also increase the number of clients, and may push the EBIT margin up. In the best case scenario, I assumed an EBIT margin of 10%, so that 2032 EBIAT could reach $343 million.
Author's Work
With capital expenditures around $85 million and growing D&A, I obtained FCF/Sales close to 8%. With a discount of 5%, the net present value of future free cash flow would be $1.805 billion.
Author's Work
I assumed that the EV/EBIT will likely increase in the next ten years thanks to acquisitions, like that of RMC or June Life, Inc. In this case, with successful redesign of the business structure, I believe that an EV/EBIT of 15x could work. My results, assuming an increase in shares outstanding to buy other companies, would include an equity per share valuation of $12.3.
Author's Work
If The New Plan Fails, The Implied Fair Price Could Even Reach $3.3 Per Share Or Lower