Buhler Industries Inc. (TSX: BUI) is headquartered in Winnipeg, Manitoba, Canada. The company was established in 1932 as an agricultural equipment manufacturer. It was purchased by John Buhler in 1969 and in 2007, Combine Factory Rostselmash Ltd. acquired 80% of the company's stock. Through steady expansion, new products and distribution channels, and acquisitions, Buhler has experienced impressive growth. With seven manufacturing plants across Canada and the United States as well as a great collection of brands like Farm King, Allied, Inland, and Versatile, this vertically-integrated manufacturer is an excellent way to invest in the global agricultural boom.
As of Wednesday, September 4th, Buhler's share price was $6.10 or 5.1x EV/EBITDA and 0.85x Price/Book. I believe the company is worth at least $11.25 per share or 9x EV/EBITDA and 1.57x Price/Book (over an 80% premium). Most of Buhler's competitors are trading at significantly higher valuations. For example, Deere & Company (NYSE: DE) is valued at 9.4x EV/EBITDA and 3.8x Price/Book. Caterpillar (NYSE: CAT) is trading at 9.4x EV/EBITDA and 3.1x Price/Book, and CNH Global (NYSE: CNH) is currently valued at 8.0x EV/EBITDA and 1.2x Price/Book. Kubota (OTC: KUBTY) is trading at 10.2x EV/EBITDA and 1.7x Price/Book. Even smaller competitor, Art's Way Manufacturing (NASDAQ: ARTW) is valued higher at 7.2x EV/EBITDA and 1.54x Price/Book.
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The beauty of Buhler is that it is compounding its book value at roughly 13% per year with an EBITDA CAGR of 23% (run-rate over the past 5-6 years). Going forward, there should be significant opportunity for margin expansion and working capital reductions. Over the past several years, the company has invested heavily in new product development (an additional $5-6 million per year in R&D spending) and inventory. Buhler is currently sitting on $152 million of invento! ry, meaning that it's turning inventory only 2x per year or approximately every 185 days. Improving its inventory turns to 3x per year (which is a very reasonable expectation) would generate an additional $52 million of cash. On a "last twelve months" basis, the company generated $32.3 million of EBITDA. Therefore, a $52 million reduction of inventory could contribute 1.6 turns to Buhler's EV/EBITDA valuation.
Currently the company has 25 million shares outstanding. Twenty million shares (80%) are held by the company's largest shareholder, Combine Factory Rostselmash Ltd., 3.8 million shares (15%) are held by John Buhler, and 1.2 million shares (5%) are publicly traded. Therefore, it's only a matter of time before the public float gets acquired by long-term shareholders, and the stock trades significantly higher.
Buhler is a well-managed company (with very minimal capital expenditures) poised to benefit from a farming industry flush with cash. I think it has the potential to be a multi-bagger over the next several years.
Disclosure: I am long BIIAF.PK. 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. (More...)
Additional disclosure: I am long shares of Buhler Industries (TSX: BUI) as are the accounts that I manage.
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