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Norcraft Companies (NYSE:NCFT), a manufacturer of high quality kitchen and bathroom cabinetry with principal offices in Eagan, Minnesota, plans to raise $100 million in its upcoming IPO. The firm will offer 5.9 million shares at an expected price range of $16-$18 per share. If the IPO can hit the midpoint of the range at $17 per share, NCFT will command a market value of $311 million. See S-1

NCFT filed on October 7, 2013.

  • Lead Underwriters: Citigroup Global Markets, UBS Investment Bank
  • Underwriters: Deutsche Bank Securities, KeyBanc Capital Markets, RBC Capital Markets LLC, Stephens

Summary

Norcraft is a leading producer of kitchen and bathroom cabinetry for the North American market. The firm markets its products through seven main brands (Mid Continent Cabinetry, Norcraft Cabinetry, Brookwood Cabinetry, Fieldstone Cabinetry, StarMark Cabinetry, UltraCraft, and Urban Effects), mainly via cabinet dealers. The diversity of products offered through the various brands, along with the over 600,000 door and finish combinations the firm offers, grant Norcraft an appeal to an extremely broad cross-section of consumers. The firm estimates that two-thirds of its net sales were generated through the home repair and remodeling market, while the remainder was generated through the new residential construction market.

Valuation

NCFT offers the following figures in its S-1 balance sheet for the nine months ending September 30, 2013:

  • Revenue: $259,202,000
  • Net Income: $223,000
  • Total Assets: $274,729,000
  • Total Liabilities: $280,888,000
  • Stockholders' Equity: ($19,901,000)

Business

Like other industries involved in home construction and improvement, the cabinetry industry suffered tremendous losses in sales in the aftermath of the collapse of the housing market. The industry as a whole has recovered to some degree; Freedonia group projects that cabinet sales will return to their 2006 levels of $15 billion by 2016.

NCFT must compete with other cabinet manufacturers. The cabinetry industry is highly fragmented, with many local firms operating with minimal employees; NCFT estimates that 5000 cabinet manufacturers are currently in operation. Major competitors include American Woodmark Corporation (NASDAQ:AMWD), Fortune Brands Home & Security (NYSE:FBHS), and Masco Corporation (NYSE:MAS).

Management

CEO Mark Buller became the chief executive officer of Norcraft's predecessor, Norcraft Companies, L.P., in 2003, and was appointed CEO and Chairman of the current incarnation of the firm in July 2013. Mr. Buller has over 25 years of experience in the cabinetry industry, including executive positions with Kitchen Craft Cabinets and Omega Cabinets. CFO Leigh Ginter joined the firm's predecessor in 1997, and was appointed CFO in 2003. Mr. Ginter previously served as controller for Beckman Produce and in various accounting positions at Lampert Lumber.

Conclusion

We are not optimistic on the NCFT IPO at the current price range. If the deal prices below $16, we would consider this IPO. This IPO will also be competing with the Twitter IPO on Thursday.

The firm has posted huge losses in recent years. These losses were likely related to the crash of the housing market rather than any inherent weakness of the company itself, which has fought its way back to profitability. So long as the economy continues to improve, more consumers should find the means to undertake home improvement projects put off during the downturn, which NCFT appears ready to take advantage of.

Source: Norcraft IPO Needs Remodeling After It Makes Money