Low Multiple For L.S. Starrett Reflects Family Control And Ignores Improving Fundamentals
- L.S. Starrett trades at a ~5x lower EBITDA multiple than its peer group, as shareholder-unfriendly measures effectively prevent a sale of the company or the non-core saw blades business.
- However, this ignores the high market share and expected ramp-up in growth driven by emerging markets, new products/applications and a greater contribution from a bolt-on acquisition.
- Modest top line growth, increasing sales of higher margin capital equipment, greater operating efficiencies and lower SG&A should drive meaningful EBITDA growth.
- The strong FCF should support continued dividend increases and further deleveraging, while the pension liability should decrease significantly as corporate yields rise.
- The float is reduced by half (and shareholder stability enhanced) by three core value funds that own 32% and insiders who own 18%.