IPO Report: Norcraft Companies (NCFT)

Francis Gaskins |

Norcraft Companies (NCFT) is a leading manufacturer of kitchen and bathroom cabinetry in the U.S. and Canada, producing a broad range of high-quality cabinetry across most price points.

12 other IPOs scheduled for this week. The full IPO calendar can be found at IPOpremium.

NCFTscheduled a $100 million IPO on the NYSE with a market capitalization of $311 million at a price range midpoint of $17 for Thursday, November 7, 2013.

The S-1 was with price ranges was filed Oct. 28, 2013.  The Manager, Joint managers are Citi, UBS Investment Bank, Deutsche Bank RBC Capital Markets.  The Co-Managers are KeyBanc Capital Markets, Stephens.

Overview

NCFT believes that 2/3 of sales are to the home repair & remodeling markets, and 1/3 of sales are to the new construction market.  Both markets are projected to get bigger, see below.

Valuation

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing Sept 9 mos

Cap (mm)

Sls

Erngs

BkVlue

TanBV

in IPO

Norcraft Companies (NCFT)

$311

0.9

179.5

6.5

-2.6

32%

Glossary

Conclusion

The rating on NCFT is neutral.  While there are positives such as

  • both its market segments (remodeling & new home starts) are projected to increase,
  • NCFT moved to profitability for the nine months ended September ’13,
  • the price-to-sales ratio is .9, which always gets the interest of institutional buyers if a company is profitable in growing market segments.

The P/E is too high at the price range mid-point.

Business

NCFT is a leading manufacturer of kitchen and bathroom cabinetry in the U.S. and Canada, producing a broad range of high-quality cabinetry across most price points.

NCFT believes that 2/3 of sales are to the home repair & remodeling markets, and 1/3 of sales are to the new construction market.

NCFT was formed on July 23, 2013

Recent developments

During the three and nine months ended September 30, 2013, NCFT experienced significant sales growth.

This sales growth varied significantly from division to division within the Company, depending on exposure to certain customers, channels and geographies, but was generally consistent with the growth in the industry as a whole.

But, with the competitiveness of the industry, NCFT continued much of its ongoing discounting and sales promotions. NCFT is currently adjusting pricing and promotional activities, in part to offset price increases in raw materials.

Market growth:chart

Repair & remodeling market

Repair and remodeling spending has historically been more stable than new home construction.

According to Global Insight, total annual expenditures for residential improvements peaked at $146 billion. Expenditures decreased 23% to $112 billion from 2006 to 2010 but have increased 10% since then to reach $123 billion in 2012.

Global Insight projects that annual expenditures will increase to $181 billion in 2015, an increase of 46% from 2012.

New home market
Total new home starts have averaged 1.5 million per year from 1968 to 2012 and declined to reach historic lows for starts in 2009 at 554,000. Since then, starts recovered to reach 783,000 in 2012, and a seasonally adjusted rate of 836,000 in June 2013.

According to S&P, housing starts will grow by 24% in 2013 to reach 970,000, by 29% in 2014 to reach 1.25 million and by 25% in 2015 to reach 1.56 million.

Dealers

NCFT sells its products primarily to kitchen and bathroom cabinet dealers.

For the year ended December 31, 2012, kitchen and bathroom cabinet dealers accounted for 87% of net sales, home builders accounted for 8% and wholesale retailers accounted for 5% of net sales.

NCFT has a network of nearly 2,000 active customers, 118 internal and independent sales representatives (of which 104 are dedicated exclusively to one of Norcraft’s divisions) and has  have six manufacturing facilities with significant excess capacity,

4 divisions, 7 brands

NCFT’s business is conducted through four business divisions (each with its own president or general manager) and NCFT markets its products through seven main brands, primarily through cabinet dealers.

The seven grands are:  Mid Continent Cabinetry, Norcraft Cabinetry, Brookwood Cabinetry, Fieldstone Cabinetry, StarMark Cabinetry, UltraCraft, and Urban Effects.

Single source supplier
NCFT’s product offering includes stock and semi-custom cabinets manufactured in both framed and full access styles, and more than 600,000 door and finish combinations. NCFT focuses on product innovation and design, seeking to continuously enhance existing products and develop new products to support NCFT’s brands and meet the changing demands of its customers.

Seasonality

NCFT’s sales have historically been moderately seasonal and have been strongest in April through October which coincides with the construction season.

Competition

NCFT’s competitors include American Woodmark (AMWD), Fortune Brands Home & Security (FBHS). and Masco (MAS) as well as a large number of smaller manufacturers.

5% stockholders:  organization chart

Pre-IPO      Post-IPO

Use of proceeds

NCFT expects to net $90 million from its IPO.  Proceeds are allocated repay 10.5% debt,

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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