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Summary

  • The leading manufacturer of high performance thermoplastic corrugated pipe.
  • For the March 2014 year WMS's revenues increased to $1.069 billion, up 5% from the year before. Net income declined 57% to $13 million.
  • The P/E based on fiscal 2014 is 73, very high for a mundane business. The price-to-sales ratio is .9.

Based in Hilliard, OH, Advanced Drainage Systems (Pending:WMS) scheduled a $261 million IPO on the NYSE with a market capitalization of $950 million at a price range midpoint of $18 for Friday, July 25, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Co-Managers: Barclays, Deutsche Bank Securities, RBC Capital Markets, Citi

Joint Managers: BofA Merrill Lynch, Fifth Third Securities, PNC Capital Markets

End of lockup (180 days): Wednesday, January 21, 2015

End of 40-day quiet period: Tuesday, September 2, 2014

Summary

WMS is the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management products and superior drainage solutions for use in the construction and infrastructure marketplace.

The fiscal year ends in March. For the March 2014 year WMS's revenues increased to $1.069 billion, up 5% from the year before. Net income declined 57% to $13 million.

The P/E based on fiscal 2014 is 73, very high for a mundane business. The price-to-sales ratio is .9.

WMS is the product of a leveraged buyout.

Valuation

Glossary

Valuation Ratios

Mrkt Cap ($mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Yr ended March

Advanced Drainage Systems

$954

0.9

73.4

2.9

5.6

27%

Conclusion

The rating on WMS is neutral minus. Earnings have declined the last two years and the P/E is 73.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

WMS is the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management products and superior drainage solutions for use in the construction and infrastructure marketplace.

WMS's innovative products are used across a broad range of end markets and applications, including non-residential, residential, agriculture and infrastructure applications.

WMS has established a leading position in many of these end markets by leveraging its national sales and distribution platform, its overall product breadth and scale and its manufacturing excellence.

In North America, WMS's national footprint combined with its strong local presence and broad product offering makes it the leader in an otherwise highly fragmented sector comprised of many smaller competitors.

WMS believes the markets it serves in the United States represent approximately $10.1 billion of annual revenue opportunity.

In addition, WMS believes the increasing acceptance of thermoplastic pipe products in international markets represents an attractive growth opportunity.

WMS's products are generally lighter, more durable, more cost effective and easier to install than comparable alternatives made with traditional materials.

Following WMS's entrance into the non-residential construction market with the introduction of N-12 corrugated polyethylene pipe in the late 1980s, its pipe has been displacing traditional materials, such as reinforced concrete, corrugated steel and polyvinyl chloride, or PVC, across an ever expanding range of end markets.

This has allowed WMS to consistently gain share and achieve above market growth throughout economic cycles.

WMS expects to continue to drive conversion to its products from traditional products as contractors, civil design engineers and municipal agencies increasingly acknowledge the superior physical attributes and compelling value proposition of its thermoplastic products. In addition, WMS believes that overall demand for its products will benefit as the regulatory environment continues to evolve.

WMS's broad product line includes corrugated high density polyethylene (or HDPE) pipe, polypropylene (or PP) pipe and related water management products.

Building on its core drainage businesses, WMS has aggressively pursued attractive ancillary product categories such as storm and septic chambers, PVC drainage structures, fittings and filters, and water quality filters and separators.

WMS refers to these ancillary product categories as Allied Products. Given the scope of its overall sales and distribution platform, WMS has been able to drive growth within its Allied Products and believe there are significant growth opportunities going forward.

Dividend Policy

WMS has a history of paying dividends to its stockholders when sufficient cash is available, and WMS currently intends to pay regular quarterly dividends in the future after this offering.

WMS has not currently set its initial quarterly dividend; however, WMS anticipates that the dividends it pays will be comparable to the dividends paid during fiscal years 2012, 2013 and 2014, excluding the one-time special dividend described below.

During fiscal years 2012, 2013 and 2014, WMS declared dividends on its common stock of approximately $4.3 million, $4.8 million and $80.1 million ($76 million of which related to the one-time special dividend), respectively.

Intellectual Property

WMS uses various trademarks, service marks and brand names that it deems particularly important to the marketing activities and operation of its various lines of business, and some of these marks are registered in the United States and, in some cases, other jurisdictions. This prospectus also refers to the brand names, trademarks or service marks of other companies. All brand names and other trademarks or service marks referenced in this prospectus, including N-12®, SaniTite®, StormTech®, Nyloplast®, Inserta Tee®, BaySeparator™, BayFilter™ and FleXstorm™, are the property of their respective holders.

Competition

In the United States, WMS's primary competitors are concrete pipe producers, including Cemex, Hanson and Oldcastle CRH Precast, as well as smaller, regional competitors.

In the corrugated steel pipe sector, WMS's primary national competitor is Contech Engineered Solutions, and WMS competes with Lane Enterprises, Pacific Corrugated and Southeast Culvert on a regional level, as well as other smaller competitors.

In the PVC pipe sector, WMS competes primarily with JM Eagle, Diamond Plastics and North American Pipe.

WMS is the only corrugated HDPE pipe producer with a national footprint, and its competitors operate primarily on a regional and local level. In the corrugated HDPE pipe sector in the United States, WMS's primary competitors on a regional basis are JM Eagle, Lane Enterprises and Prinsco.

5% stockholders

ASP ADS Investco, LLC 57.42%

ESOP 29.60%

University of Notre Dame du Lac 10.10%

Joseph A. Chlapaty 20.75%

Use of proceeds

WMS intends to use the $83 million in proceeds from its IPO as follows:

to repay at least $82.9 million of outstanding indebtedness under the revolving portion of its credit facility. WMS intends to use the remaining proceeds (if any) for general corporate purposes, including working capital.

Disclaimer: This WMS IPO report is based on a reading and analysis of WMS's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Source: IPO Preview: Advanced Drainage Systems