Tecnoglass (NASDAQ:TGLS) is an architectural glass manufacturer based in Baranquilla, Colombia. Last April, the company announced their 2014 earnings. In addition to a strong earnings report, they increased their 2015 guidance, provided even stronger 2016 guidance, and announced a dividend initiation and warrant exchange program. On the news, the stock was up 27% in the next week, and 67% by early December.
Since early December, there have been no negatives for TGLS, and we've seen a couple positive developments with Apogee (NASDAQ:APOG) reporting several industry positives and a better than expected outlook from TGLS's COO.
Despite these positive developments, the stock has lost one-third of its market cap over the past two months. Being a thinly traded stock in a weak market played a role in the price decline. The other reason the stock is down is due to the delay in SEC approval for the warrant exchange. While the amount of time taken to get approval has been frustrating, is has in no way changed the value of the company. The company's growth, margin, and cash flow are as good now, if not better, than they were when the stock was $15.
By any metric, TGLS is extremely undervalued. The mid-point of the company's 2016 guidance is $87.5 million, making their current EV/EBITDA just 4.2x. Another very interesting comparable, is to look at competitor PGT Inc (NASDAQ:PGTI). Not only are TGLS's revenue growth and margins far superior to PGTI, but they have higher EBITDA, with PGTI's consensus expectations of $82.2 million. Despite lower growth, margins, and earnings, PGTI's enterprise value is more than 70% higher than TGLS's. Further, large competitor APOG is trading at 6.5x EBITDA, a significant premium to TGLS.
As I mentioned, last April, TGLS announced a warrant exchange, to be followed by a dividend initiation. The dividend was announced as $0.50 annualized, which would be a 5% yield with the stock at this level. While that is a very nice yield, it will go up after the warrant exchange is complete. On the conference call after the announcement was made, a question was asked as to why the dividend wasn't more, given the company's exceptional free cash flow. The CEO responded by saying that after the warrant exchange is complete, the dividend will be increased. The reason they only did $0.50 is because any dividend over that amount impacts the exercise price of the warrants. Based on the company's EBITDA guidance for 2016, we believe that the dividend could easily be doubled to $1.00, which would make the dividend yield almost 10%.
While the company prefers to wait until the exchange is complete to initiate the dividend, it's possible that they will do it ahead of time. Given the lengthy process for SEC approval, and the current stock price, the company is looking for ways to increase shareholder return. Another potential option they could take is a share buyback. They haven't looked in this direction in the past, but at 4x EBITDA, the shares are very cheap, and with the typically low volume of the stock, even a small buyback would provide immediate support for the share price, and would be highly accretive.
Disclosure: I am/we are long TGLS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.