Standex International (NYSE:SXI) is a name which I covered quite a while ago, in fact nearly two years ago when the company divested its underperforming Cooking Solutions business at a relatively compelling price of $105 million.
Despite the reasonable price being fetched and the fact that shares sold off to their mid-seventies at the time, I thought valuations were fair despite improved growth profile of the business and solid financial stance.
2019 Thesis
With the divestment of the Cooking Solutions segment, Standex divested nearly $100 million in sales, or close to 10% of its revenue base at the time. While a 1.1 times sales multiple seems and probably is low, the unit was an underperforming business, with sales down nearly 10% in the year ahead of the divestment, so hopes should not have been too high.
With 12.7 million shares outstanding, I pegged earnings power of the remaining business at around $4 per share as net debt should essentially be cut in half to roughly $100 million following the deal with Middleby (MIDD), the buyer of the divested activities. With EBITDA trending at $115-$120 million, leverage ratios were a bit below 1 times, although the definition of net debt rose a bit if pension liabilities were included.
As shares were trading at $75, earnings power trended around $4 and leverage was very reasonable, I thought the overall valuation was fair at best as I failed to see the immediate appeal or triggers at that point in time.
While the growth profile of the remaining engraving, engineering & technologies, electronics and hydraulics businesses was generally better, it was not enough for me to initiate a position. Cooking Solutions was not necessarily a bad business to be in, yet Standex seemed a bit too small to run such diversified operations, thereby lacking real scale and expertise.
If you like to see more ideas, please subscribe to the premium service "Value in Corporate Events" here and try the free trial. In this service we cover major earnings events, M&A, IPOs and other significant corporate events with actionable ideas. Furthermore, we provide coverage of situations and names on request!
