Skyline Champion Corporation

SKY Details

Skyline Champion Corporation (NYSE: SKY) is the largest individual publicly traded factory-built housing company in North America with 70 years of home-building experience. The housing company offers manufactured and modular homes, park model RVs, accessory dwelling units (ADUs), and modular buildings for multi-family, hospitality, senior, and workforce housing sectors. As of April 03, 2021, SKY has 40 manufacturing facilities located in 19 states across the U.S. and western Canada. The company operates in three segments viz. 1) U.S. Factory-built Housing (USFBH), which includes manufacturing and retail housing operations in the U.S. 2) Canadian Factory-built Housing (CFBH), operating in western Canada, and 3) Corporate/Other, which includes transportation operations. The company generated the majority of its revenues from the U.S. Factory-built Housing segment. As of June 18, 2021, its market capitalization stood at USD 2.81 billion.

SKY Brands and Price Points (Source: Investor Presentation, May 2021)

Acquisition and Expansion activities: On February 28, 2021, Champion Home Builders, a subsidiary of SKY, acquired ScotBilt Homes, LLC, provider of manufactured homes. ScotBilt’s strong presence in the mid-south region will enhance SKY’s market presence and complements its existing manufacturing footprints. In addition, SKY acquired two idled facilities in Pembroke, North Carolina, which will allow them to expand its manufacturing presence in the Southeast markets.

Robust FY21 Results: The company reported a slight increase of 3.73% in net sales to USD 1,420.88 million in FY21 (ending April 03, 2021) compared to USD 1,369.73 million in FY20 (ending March 28, 2020). The company’s USFBH segment contributed 89.12%, CFBH contributed 7.13% to the net sales generated during the year, while the rest contributed by corporate/others. In addition, the company reported a net income of USD 84.89 million in FY21 compared to USD 58.16 million in FY20. As of April 03, 2021, the company stood at the cash and cash equivalents of USD 262.58 million and total debt of USD 65 million.

Key Risks: The company is dependent on certain key raw materials used in the construction of homes, such as lumber, insulation, steel, drywall, and other oil-based products. These materials can become scarce during periods of high demand for manufactured homes. Shortage of raw material and increase in its prices could increase construction costs and ultimately affect the company’s operational affairs.

Valuation Methodology: EV/EBITDA per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY22E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SKY Daily Technical Chart

Stock Recommendation: SKY’s share price has surged 115.96% in the past twelve months and is currently trading in the higher band of the 52-week range of USD 22.10 to USD 53.90. The stock is currently trading far above its 200 DMA levels. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 41.87. Considering the significant increase, we believe the current share price sufficiently reflects the strong business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 51.14, up by 2.96% as of June 18, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV. 

Cavco Industries, Inc.

CVCO Details

Cavco Industries, Inc. (NASDAQ: CVCO) is focused on designing and producing factory-built housing products that are distributed through a network of independent and company-owned retailers. The company also produces park model RVs, vacation cabins, systems-built commercial structures, and modular homes, and markets its products under various brand names including Cavco, Fleetwood, Palm Harbor, Fairmont, etc. CVCO also offers financial services through its finance and insurance subsidiaries, which offer mortgages and home-only loans to purchasers of factory-built homes and property and casualty insurance to manufactured homeowners, respectively. As of June 18, 2021, the company’s market capitalization stood at USD 2.01 billion.

New Park Model Facility Acquisition: On March 02, 2021, the company purchased a newly constructed building, to be developed into a production facility in Glendale, Arizona. The 118,000 sq. ft facility will be used for the production of park models, cabins, and cottages, all of which will be seasonal dwellings, resort developments, and within the outdoor hospitality industry.

FY21 Results: The company reported a slight increase of 4.36% in total revenue to USD 1.11 billion in FY21 (ending April 03, 2021) compared to USD 1.06 billion in FY20 (ending March 28, 2020), primarily due to a 3.86% increase in revenues from the factory-built housing segment to USD 1.04 billion. Net income for FY21 was USD 76.65 million vs USD 75.07 million reported in FY20.

Performance Trend (Source: Investor Presentation, June 2021)

Key Risks: The company’s operations are primarily concentrated in Texas, California, Florida, Arizona, and Oregon. Due to this concentration, any negative impact on these regions as a result of economic, natural, or population changes could, in turn, negatively impact CVCO’s results of operations. In addition, the manufactured housing industry that the company operates in is highly cyclical and seasonal and is influenced by various economic and demographic factors, such as availability of financing for home buyers, distributors, seasonality of demand, interest rates, employment trends, inflation, and recessions.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY22E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CVCO Daily Technical Chart

Stock Recommendation: CVCO stock increased 15.62% and 27.64% in the past 6 and 9 months, respectively, and is currently leaning towards the higher end of the 52-week range of USD 162.88 to USD 242.06. The stock is currently trading slightly above its 200 DMA level. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 185.62. Considering the consistent uptick in the stock price in the past 6 and 9 months, upcoming projects, and current valuation, we recommend an “Expensive” rating on the stock at the closing price of USD 217.37, down 0.73% as of June 18, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

Tecnoglass Inc.

TGLS Details

Tecnoglass Inc. (NASDAQ: TGLS) is a vertically integrated manufacturer and supplier of architectural glass, windows, and related aluminum products for commercial and residential buildings. TGLS’ product offering includes tempered, laminated, insulated, and solar control glass to be used in various applications such as floating facades, curtain walls, interior dividers, and decorations. It derives the majority of its revenue from the United States.  As of June 18, 2021, the company’s market capitalization stood at USD 909.63 million.

Robust Q1FY21 Results: TGLS reported total revenue of USD 110.88 million for Q1FY21 (ending March 31, 2021) as compared to USD 87.29 million in Q1FY20, thus realizing a double-digit growth of 27% YoY. The improvement in topline was driven by solid demand in the US markets which recorded an uptick of 27.93%. In the U.S., the residential market that accounts for 21% of the revenue, reported an upsurge of 71% YoY whereas the commercial market climbed by 19% YoY for Q1FY21. TGLS reported a gross profit of USD 45.14 million in Q1FY21 which was up by 48.36% YoY. Aided by operational efficiency derived from automation initiatives, shorter lead time for materials, control over the price of inputs, TGLS was able to improve its gross margin by 590 bps to 40.7% in Q1FY21. The advancement in the topline along with improved margins percolated down to bottomline wherein the company reported a net income of USD 8.17 million with a net margin of 7.37% in Q1FY21 as compared to a net loss of USD 18.77 million in Q1FY20. 

Key Risks: In FY20, the top ten customers accounted for 36% of TGLS’s sales. The loss of any of these key customers could hurt the company’s financials. In addition, TGLS carries its production from a single facility in Barranquilla, Colombia. Any interruption in the supply of key inputs, equipment failure, extended repair, and maintenance at the site can impact the operational and financial performance of the company. Further, around 6.4% of the company’s revenues and 40% of its expenses were in Colombian pesos in FY20, exposing the company to currency fluctuations.

Outlook: In its Q1FY21 press release, the company outlined that for FY21, it expects to clock revenue in the range of USD 420 – 435 million with YoY growth of 12% - 16% along with an EBITDA to the tune of USD 115 - 125 million with YoY growth of 18%- 28%. The revenue guidance provided by TGLS banks on rising activity in the U.S. market and its increasing market share in the single-family residential segment. TGLS also anticipates that a high gross margin will pull the EBITDA to its expected levels.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

TGLS Daily Technical Chart

Stock Recommendation: TGLS has increased by 73.58% and 175.40% in the past 3 months and 6 months, respectively, and is currently leaning towards the higher end of the 52-week range of USD 4.21 to USD 24.01. The stock is currently trading much above its 200 DMA level. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 16.30. Considering the significant increase, we believe the current share price sufficiently reflects the strong business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 18.97, down by 1.36% as of June 18, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.