Installed Building Products (IBP) is the second largest new residential insulation installer in the United States based on its internal estimates, with a national platform consisting of over 100 locations serving customers in 44 states.

Seven other companies are scheduled for the week of February 10, 2014.  The full IPO calendar is available at IPOpremium.

The manager and joint managers are Deutsche Bank Securities, UBS Investment Bank.  The co-managers are Zelman Partners, BB&T Capital Markets, KeyBanc Capital Markets, SunTrust Robinson Humphrey
SEC Filings

IBP scheduled a $135 million IPO with a market capitalization of $432 million at a price range midpoint of $15 for Thursday, February 13, 2014, on the NYSE

Overview

Revenue was up 26% for 2012 vs 2011, and was up 49% for the nine months ended September 2013 vs the year earlier period.

IBP depends on residential new constrution for most of its revenue.  But single family homes sales were down in December ’13 relative to the year earlier period.

Gross margin is only 25% and 25% of IPO proceeds are going to shareholders.

IBP does expect growth from increased adoption by states and municipalities of the 2012 IECC (see below).

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

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Price /

Price /

% offered

annualizing Sept 9 mos

Cap (mm)

Sls

Erngs*

BkVlue

TanBV

in IPO

Installed Building Products (IBP)

$434

1.0

351

5.8

5.0

31%

*Earnings, p1 & 49

These companies also install insulation, among other items

Dividend yield

Masco (MAS)

$7,860

1.0

104

16.6

-5.2

1.36%

Owens Corning (OC)

$4,560

0.9

112

1.3

3.2

none

Conclusion

Avoid.  Price-to-book is 1, which is sometimes attractive to institutions and is in the same range as MAS and OC. 

But the P/E ratio annualized for the nine months ended September ’13 is 351, and IBP was unprofitable in 2011 and 2011.  The business is extremely cyclical and IBP expects to pay no dividends.

Even though IBP expects government regulations to drive growth, the annualized P/E for the nine months ended September ’13 is too high, especially compared to MAS and OC.

Business

IBPis the second largest new residential insulation installer in the United States based on its internal estimates, with a national platform consisting of over 100 locations serving customers in 44 states.

Government mandated
The amount of insulation in a new home is regulated by various building and energy codes, which establish minimum thermal and air sealing performance requirements.

These codes are typically updated with more stringent requirements every three years.

The most recent of these code enhancements to be adopted is the 2012 International Energy Conservation Code, or the 2012 IECC.

As of November 2013, six states and an additional 44 local jurisdictions had adopted the 2012 IECC, and the U.S. Department of Energy projects that 18 states will have adopted standards at the 2012 IECC level or higher by 2015.

IBP believes that new residential insulation demand will increase as a result of increased adoption of the 2012 IECC by states and municipalities.

More about IBP’s business
IBP also installs complementary building products, including garage doors, rain gutters, shower doors, closet shelving and mirrors.

Insulation installation comprised approximately 74% of its net revenue for the nine-month period ended September 30, 2013, and IBP expects this category to continue to account for a substantial majority of its business for the foreseeable future.

The new single-family end market comprised approximately 73% of its net revenue for the nine-month period ended September 30, 2013. IBP also participates in the new multi-family, repair and remodel and commercial end markets.

Substantially all of IBP’s net revenue comes from service-based installation of various products in the residential new construction, repair and remodel and commercial construction end markets.

IBPmanages all aspects of the installation process for its customers, from its direct purchase and receipt of materials from national manufacturers, to its timely supply of materials to job sites and quality installation. Installation of insulation, which includes air sealing, is a critical phase in the construction process, as certain interior work cannot begin until the insulation phase passes inspection.

IBP’s branches have expertise in local building codes and energy-efficient building practices, and strong working relationships with homebuilders and on-site construction managers.

At the same time, IBP’s centralized corporate support functions allow it to leverage its longstanding supplier relationships, web-based information system and other dedicated corporate services to benefit its operations as a whole.

Seasonality
IBP tends to have higher sales during the second half of the year as homebuilder customers complete construction of homes placed under contract for sale in the traditionally stronger spring selling season.

In addition, some of the larger branches operate in states more impacted by winter weather and as such experience a slowdown in construction activity during the first quarter of the calendar year. This winter slowdown contributes to traditionally lower sales in the first quarter.

Competition

IBP’s competitors include two other large national contractors, several large regional contractors and numerous local contractors.

Some of IBP’s competitors have greater financial and other resources than it does.

IBPbelieves it will continue to effectively compete in its local markets given its long standing customer relationships, access to capital, tenure and quality of local staff, quality installation reputation and competitive pricing.

5% stockholders

IBPInvestment Holdings, LLC    63.4%

Cetus Capital II, LLC22.7%

TCIHoldings, LLC   12.1%

Jeffrey W. Edwards   63.8%

Use of proceeds

IBPexpects to net $87 million from its IPO. 25% of the IPO proceeds are going to shareholders.

Company proceeds are allocated as follows:

to purchase additional shares of its common stock) to repurchase all of its outstanding preferred stock from Littlejohn for total consideration of $75.7 million, to repay a portion of its outstanding indebtedness and the balance for general corporate purposes.

to repay $11.3 million of its indebtedness outstanding under its revolving facility.

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