IPO Preview: Ryerson Holding

Aug. 7.14 | About: Ryerson Holding (RYI)

Summary

Believes it is one of the largest processors and distributors of metals in North America measured in terms of sales, with global operations in North America, China and Brazil.

Steady decline in rev & gross profit.

Low gross profit of 17%, very highly leveraged, interest payments are 92% of operating earnings.

Based in Chicago, IL, Ryerson Holding (NYSE:RYI) scheduled a $203 million IPO on the NYSE with a market capitalization of $592 million at a price range midpoint of $18.50 for Thursday, August 7, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Co-Managers: BofA Merrill Lynch, Deutsche Bank Securities, BMO Capital Markets, J.P. Morgan, Jefferies

Joint Managers: Wells Fargo Securities, KeyBanc Capital Markets, Citigroup, Stephens, Macquarie Capital, Evercore Partners

End of lockup (180 days): Tuesday, February 3, 2015

End of 40-day quiet period: Tuesday, September 16, 2014

Summary

RYI believes it is one of the largest processors and distributors of metals in North America measured in terms of sales, with global operations in North America, China and Brazil. RYI's industry is highly fragmented with the largest companies accounting for only a small percentage of total market share.

Valuation

Glossary

Accumulated deficit: -$194 million
Per share dilution: -$21.89

Valuation Ratios

Mrkt Cap ($mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q2 est

Ryerson Holding (RYI)

$592

0.2

74.0

18.9

-5.5

34%

Click to enlarge

Conclusion

Neutral minus

Steady decline in rev & gross profit

Low gross profit, very highly leveraged

The mid-range is $18.50 and the per share dilution is -$21.89

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

Business

RYI believes it is one of the largest processors and distributors of metals in North America measured in terms of sales, with global operations in North America, China and Brazil.

RYI's industry is highly fragmented with the largest companies accounting for only a small percentage of total market share.

RYI's customer base ranges from local, independently-owned fabricators and machine shops to large, international original equipment manufacturers.

RYI processes and distributes a full line of over 70,000 products in stainless steel, aluminum, carbon steel and alloy steels and a limited line of nickel and red metals in various shapes and forms.

More than one-half of the products RYI sells are processed to meet customer requirements. RYI uses various processing and fabricating techniques to process materials to a specified thickness, length, width, shape and surface quality pursuant to customer orders.

For the year ended December 31, 2013, RYI purchased 2.1 million tons of materials from suppliers throughout the world. For the three months ended March 31, 2014, RYI's revenue was $874.4 million, Adjusted EBITDA, excluding last-in, first-out ("LIFO") income was $53.2 million and net income was $1.4 million.

RYI operates over 90 facilities across North America, six facilities in China and one in Brazil. RYI's service centers are strategically located in close proximity to its customers, which allows it to quickly process and deliver its products and services, often within the next day of receiving an order. RYI owns, leases or contracts a fleet of tractors and trailers, allowing it to efficiently meet its customers' delivery demands.

In addition, RYI's scale enables it to maintain low operating costs. RYI's operating expenses as a percentage of sales for the years ended December 31, 2012 and 2013 were 12.6% and 14.2%, respectively.

In addition to providing a wide range of flat and long metals products, RYI offers numerous value-added processing and fabrication services such as sawing, slitting, blanking, cutting to length, leveling, flame cutting, laser cutting, edge trimming, edge rolling, roll forming, tube manufacturing, polishing, shearing, forming, stamping, punching, rolling shell plate to radius and beveling to process materials to a specified thickness, length, width, shape and surface quality pursuant to specific customer orders.

RYI's value proposition also includes providing a superior level of customer service and responsiveness, technical services and inventory management solutions. RYI's breadth of services allows it to create long-term partnerships with its customers and enhances its profitability.

Dividend Policy

No dividends are planned.

Intellectual Property

RYI owns several U.S. and foreign trademarks, service marks and copyrights. Certain of the trademarks are registered with the U.S. Patent and Trademark Office and, in certain circumstances, with the trademark offices of various foreign countries.

5% stockholders

Platinum 100%

Use of proceeds

RYI intends to use the $188 million in proceeds from its IPO as follows:

to (I) redeem $105.0 million in aggregate principal amount of the 11.25% Senior Notes due 2018 issued by Ryerson and its wholly owned subsidiary Joseph T. Ryerson & Son Inc. (the "2018 Notes"), (ii) repay approximately $42.1 million of the borrowings outstanding under its $1.35 billion revolving credit facility agreement that matures on the earlier of (A) April 3, 2018 or (B) August 16, 2017 (60 days prior to the scheduled maturity date of the 9% Senior Secured Notes due 2017 issued by Ryerson and its wholly owned subsidiary Joseph T. Ryerson & Son Inc. (the "2017 Notes" and together with the 2018 Notes, the "2017 and 2018 Notes")), if the 2017 Notes are then outstanding (as amended, the "Ryerson Credit Facility"), (III) pay Platinum Advisors or its affiliates $25.0 million as consideration for terminating the Services Agreement and (iv) pay related transaction fees, expenses and premiums in connection with this offering, which RYI currently expects to equal approximately $16.2 million.

Disclaimer: This RYI IPO report is based on a reading and analysis of RYI'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.