Actuant Corp.'s Sale Of Assets Is Not Enough

About: Actuant Corporation (ATU)
by: Mark Hake

Actuant Corp. announced a $214.5 million sale of its Engineered Components and Systems division today to a private equity firm.

Although it will allow the company to reduce its debt significantly and essentially be debt-free, it is not clear how the company will fare with its remaining divisions.

The company claims it will use the proceeds to invest in its remaining machine tool company divisions and possibly reduce debt and/or return cash to shareholders.

Based on the company's guidance, it appears the stock is still overvalued and investors might want to wait to until the stock is cheaper.

Actuant Corporation Sale Of A Major Division Provides Cash But Not Much Else

Actuant Corp. (ATU) decided to sell its Engineered Components and Systems division for $214.5 million to One Rock Capital Partners today. The sale will close sometime in Q3 2019. ATU wants to use the proceeds to focus on its Enerpac Industrial Tools and Services business, pursue acquisitions of other machine tool companies and return capital to shareholders through share repurchases. Based on a pro-forma analysis, the company will be close to debt-free:

Source: Hake estimates

The company has given guidance that it expects its fourth quarter sales ending August 31, 2019 to result in EPS of $0.16 to $0.30 per share and full year sales of $664 to $669 million. The midpoint of this range is $0.23 per share. Here are the resulting estimates of its valuation based on these pro-forma estimates:

Source: Hake estimates

Comp Valuation

Based on a comparison with its peers in the industrial tool sector, it appears that ATU is not particularly cheap:

Source: Hake estimates based on Yahoo! Finance statistical data

This table shows that ATU is more expensive in all categories of valuation than its major peers. This is especially true when one looks at the relative levels of margins. The table below shows that ATU has lower margins than its peers:

Source: Hake estimate, using Yahoo! Finance statistical data

Summary And Conclusion

It appears that although ATU is on a good path of reallocating its capital, it still needs to increase its remaining divisions' margins. It is probably worthwhile for investors to decide to wait a while to see (1) how ATU will deploy the capital it gains from the sale of the division, and (2) allow the market to reprice the stock to a level where buying the stock has a bargain element.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.