IPO Report: Summit Materials (SUM)

Francis Gaskins |

Summit_Materials.jpgSummit Materials (SUM) is one of the fastest growing construction materials companies, by acquisition, in the United States. The company is based in Denver, CO.

One other company is scheduled for the week of March 9, 2015. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Citigroup, Goldman Sachs, BofA Merrill Lynch, Barclays, Deutsche Bank Securities, RBC Capital Markets
Co-managers: Blackstone Capital Markets, BB&T Capital Markets, Stephens, Sterne Agee, Stifel

End of lockup (180 days): Tuesday, September 8, 2015
End of 40-day quiet period: Monday, April 21, 2015

SUM scheduled a $400 million IPO with a market capitalization of $1.66 billion at a price range midpoint of $18 for Thursday, March 12, 2015 on NYSE.

Summit Materials Overview

SUM is one of the fastest growing construction materials companies, by acquisition, in the United States.

SUM’s materials include aggregates, which SUM supplies across the country, with a focus on Texas, Kansas, Kentucky, Utah and Missouri, and cement, which SUM supplies primarily in Missouri, Iowa and Illinois.

Summit Materials Valuation

Glossary

Accumulated deficit (mm)

.

.

-$298

     

Per share dilution

.

.

-$16.25

 

   

------------------------------------

           

 

 

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Based on 2014 proforma results

       

Summit Materials (SUM)

$1,661

1.4

615.3

2.8

10.3

24%

             
           

Institutions own

Vulcan Materials (VMC)

$11,180

3.7

54.5

2.7

40.4

90%

Martin Marietta Materials (MLM)

$9,590

3.2

61.9

2.2

5.6

100%

             
     

Dividend yield

Price increase

   

Summit Materials (SUM)

none

in last month

   

Vulcan Materials (VMC)

 

0.47%

15%

   

Martin Marietta Materials (MLM)

1.12%

20%

   
             

Summit Materials Conclusion

Neutral slightly plus

Institutions own competitors:  VMC, 90%; MLM, 100%
Clearly an institutional stock, but over priced on a P/E basis
Blackstone (BX) is not selling

P/E: SUM, 615, VMC, 55; MLM, 62

Interest about the same as operating earnings, 26% gross margin

Price-to-sales:  SUM, 1.4; VMC, 3.7; MLM, 3.2
Price-to-bk:  SUM, 2.8; VMC, 2.7; MLM, 2.2

Per share dilution of $16.25 vs IPO mid-range of $18
Summit Materials Summary

SUM is one of the fastest growing construction materials companies, by acquisition, in the United States,

SUM’s materials include aggregates, which SUM supplies across the country, with a focus on Texas, Kansas, Kentucky, Utah and Missouri, and cement, which SUM supplies primarily in Missouri, Iowa and Illinois.

Summit Materials Business

SUM is one of the fastest growing construction materials companies, by acquisition, in the United States, with a 197% increase in revenue between the year ended December 31, 2010 and the year ended December 27, 2014, as compared to an average increase of approximately 38% in revenue reported by SUM’s competitors over the same period.

SUM’s materials include aggregates, which SUM supplies across the country, with a focus on Texas, Kansas, Kentucky, Utah and Missouri, and cement, which SUM supplies primarily in Missouri, Iowa and Illinois.

Within its markets, SUM offers customers a single-source provider for construction materials and related downstream products through its vertical integration.

In addition to supplying aggregates to customers, SUM uses its materials internally to produce ready-mixed concrete and asphalt paving mix, which may be sold externally or used in its paving and related services businesses.

SUM’s vertical integration creates opportunities to increase aggregates volumes and optimize margin at each stage of production and enables it to provide customers with efficiency gains, convenience and reliability, which SUM believes gives it a competitive advantage.

Since its first acquisition more than five years ago, SUM has rapidly become a major participant in the U.S. construction materials industry.

SUM believes that, by volume, it is  a top 10 aggregates supplier, a top 25 cement producer and a major producer of ready-mixed concrete and asphalt paving mix.

SUM’s revenue in 2014 was $1.2 billion with a net loss of $6.3 million.

SUM’s proven and probable aggregates reserves were 2.1 billion tons as of December 27, 2014. In 2014, SUM sold 25.4 million tons of aggregates, 1.0 million tons of cement, 2.8 million cubic yards of ready-mixed concrete and 4.3 million tons of asphalt paving mix across its more than 200 sites and plants.

Summit Materials Growth by Acquisition

The rapid growth SUM has achieved over the last five years has been due in large part to its acquisitions, which SUM funded with equity commitments that its Sponsors and certain other investors made to Summit Holdings together with debt financing.

During this period, SUM witnessed a cyclical decline and slow recovery in the private construction market and nominal growth in public infrastructure spending.

However, the private construction market is beginning to rebound, which SUM believes signals the outset of a strong growth period in SUM’s industry and end markets.

SUM believes it is well positioned to capitalize on this anticipated recovery in order to grow its business and reduce its leverage over time.

As of December 27, 2014, SUM’s total indebtedness was approximately $1,064.9 million, or $765.0 million on a pro forma basis after giving effect to this offering and the application of the net proceeds.

Summit Materials Intellectual property

None.

Summit Materials Competition

The primary national competitors are large vertically-integrated companies, including Vulcan Materials Company, Martin Marietta Materials, Inc., CRH plc, Heidelberg, Lafarge North America Inc. and Cemex, S.A.B. de C.V., that have a combined estimated market share of approximately 30%.

Competitors by region include:

 West—CRH plc, Heidelberg Cement plc, Martin Marietta, CEMEX, S.A.B. de C.V., Lafarge and various local suppliers.

 Central—Martin Marietta Materials, Inc., CRH plc, Holcim (US) Inc. and various local suppliers.

East—CRH plc, Heidelberg Cement plc, Vulcan Materials Company and various local suppliers.

Summit Materials 5% shareholders pre-IPO

Blackstone Funds         79.5%

Summit Materials Dividends

No dividends are planned.

Summit Materials Use of proceeds

SUM expects to receive $376 million from its IPO and use it for the following:

to redeem $287.7 million in aggregate principal amount of the senior notes at a redemption price of 100% and an applicable premium thereon; to purchase 71,428,571 Class B Units of Continental Cement; (iii) o pay a one-time termination fee of $13.8 million to an affiliate of Blackstone in connection with the termination of a transaction and management fee agreement; and (iv) for general corporate purposes. As of December 27, 2014, $625.0 million aggregate principal amount of the senior notes was outstanding. The senior notes mature on January 31, 2020 and have an interest rate of 10.5% per annum.


 

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