Ryerson Holding Corp. IPO: Apparently Lackluster

Aug. 4.14 | About: Ryerson Holding (RYI)

Summary

RYI, a processor and distributor of metals in the United States, China, and Brazil, plans to raise $204 million in its upcoming IPO.

Though RYI's net sales have fallen over the past three years, net income has improved over the same period.

Many of RYI's competitors may benefit from the purchase of greater percentages of foreign steel for use in their products, which may lead to lower costs.

We are neutral on this IPO and suggest investors hold off for more promising picks this week, such as ICD.

Ryerson Holding Corp. (Pending:RYI), a processor and distributor of metals in the United States, China, and Brazil, plans to raise $204 million in its upcoming IPO.

The Chicago, Illinois-based firm will offer 11.0 million shares at an expected price range of $17-$20 per share. If the IPO can find the midpoint of that range at $18.50 per share, RYI will command a market value of $593 million.

Filing, Underwriting

RYI filed on January 22, 2010.

Lead Underwriters: BMO Capital Markets Corp; BofA Merrill Lynch; Deutsche Bank Securities Inc

Underwriters: Citigroup Global Markets Inc; Evercore Group L.L.C; J.P. Morgan Securities LLC; Jefferies LLC; KeyBanc Capital Markets Inc; Macquarie Capital (NYSE:USA) Inc; Stephens Inc; Wells Fargo Securities, LLC

Summary of Metals Processing Business

RYI is among the largest metals processors and distributors in North America. The firm processes and distributes over 70,000 products in various forms, including aluminum, carbon steel, stainless steel, alloy steels, nickel, and red metals, including many products produced to the specifications of particular customers. RYI also provides metals processing and fabricating services, which include sawing, slitting, leveling, laser cutting, polishing, stamping, shearing, tube rolling, and many more.

The great majority of RYI's operations are based in North America, where it operates more than 90 facilities. The firm also operates six facilities in China and a single facility in Brazil. The firm places its service centers near to its customers' operations to allow for swift responsiveness to orders; the firm also owns and leases a fleet of tractors and trailers to allow for rapid deliveries.

RYI's products reach a broad variety of end markets, allowing the firm a measure of stability. The firm's products are used in transportation equipment, industrial equipment, industrial fabricators, electrical machinery, fossil fuels, and several other markets.

RYI will continue to be controlled by Platinum Equity Advisors upon completion of this IPO.

Valuation

RYI offers the following figures in its S-1 balance sheet for the three months ended March 31, 2014:

Revenue: $874,400,000.00

Net Income: $1,400,000.00

Total Assets: $1,989,500,000.00

Total Liabilities: $2,104,000,000.00

Stockholders' Equity: ($117,500,000.00)

Fragmented Market, Strong Competitors

RYI must compete with other metal processors, general line service centers, and processing centers on a regional and local basis. The firm operates in what remains a highly fragmented market, and some competitors may have access to greater financial resources as well as superior processing resources in specific geographies.

Management

Michael C. Arnold has served as the president and CEO of Ryerson Inc. since January 2011. He previously served as the president of Bearings and Power Transmission Group, president and executive vice president at Timken Company (NYSE:TKR). He worked at Timken for over 30 years spanning from 1979 to 2010, holding positions including president of Industrial and vice president of Bearing Business Process Advancement. He also serves as a director of Metals Service Center Institute, an independent director of Gardner Denver Inc., a director of Cincinnati Inc., and a director of AGCO Corporation.

Mr. Arnold holds a B.S. degree in Mechanical Engineering and an M.B.A. in Sales and Marketing from The University of Akron.

Conclusion: Consider Holding Off

We are neutral on this IPO.

Though RYI's net sales have fallen over the past three years--$4.7 billion for 2011, $4.0 billion for 2012, and $3.5 billion for 2013, the firm's net income has improved over the same period, from a net loss of ($8.8 million) in 2011 to an income of $45.8 million in 2012 and an income of $126.2 million in 2013.

While the firm should be able to find opportunities for growth, driven by the improvement in the housing and non-residential construction, automotive, and oil and gas end markets in North America-many competitors may benefit from the purchase of greater percentages of foreign steel for use in their products, which may lead to lower costs.

We suggest investors consider holding off on this IPO.

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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 (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.