Hello, Ultimate Value readers!
I just took a position in a stock that received interest from multiple buyout parties last week. Despite the stock trading up ~20% since the news story broke, I believe the stock is still too cheap.
For an acquirer to get over the hump, I think they will have to make a bid much higher than where the stock is currently trading.
Importantly, the stock is a decent size and pretty liquid, too.
Let’s take a look.
Company: Samsonite
Ticker: HK 1910
Shs O/S: 1,450m
Price: HKD 28 (USD: $3.67)
Mcap: $5.3B USD
EV: $6.5B USD
ADTV: >$20m USD
The idea is to buy Samsonite (HK: 1910) and wait for a takeout bid or a potential auction process.
Last week, a news story on Bloomberg suggested that Samsonite is looking at strategic options after receiving takeover interest from suitors, including buyout firms. The options also include management taking the company private.
So far, there has been no formal bid from any party yet. The stock was trading at HKD 23 per share just before the news hit the wire. The stock closed at HKD 28.20 on Friday, up ~20%.
Despite being a Western firm, Samsonite is listed in Hong Kong, which means the company trades at a steep discount (similar to L’Occitane). It would make sense for a PE fund or Samsonite management to take the company private and re-list it in the US or Europe.
Now, at the current price of HKD 28, I have the company trading at ~9x 2023 EBITDA, which I believe is still too cheap. I expect Samsonite to generate ~$730m USD in EBITDA for 2023. If you can pencil in some organic growth in 2024 (+7% in top-line), Samsonite will be closer to $800m for FY24 (~8x EBITDA). This is on a current enterprise value of $6.5B.
While there are no good public comps, there are a few notable historical transactions.
Samsonite acquired Tumi in 2016 for approximately 14x LTM EBITDA.
Samsonite acquired Gregory Mountain Products in 2014 for ~2.4x LTM sales
LVMH acquired Rimowa in 2016 for ~2x sales.
Assuming a mid-teens EBITDA margin for the latter two (higher than Samsonite in the equivalent period), the implied valuation would be a mid-teens EBITDA multiple.
Given the above, I think for an acquirer to be able to take the company out, we should likely see a higher multiple than 9.0x EBITDA on ‘23 and 8.0x EBITDA on ‘24.
On 2023/2024 numbers, if we can get 11x EBITDA, we could see at least HKD 35-40, or upside of 25-40% vs. the current price.
The key risk here is a no-deal scenario, which could send the shares down closer to the unaffected price of ~HKD 23. But given the very low starting valuation, we are decently protected. LONG shares of Samsonite.
P.S. This is a VERY quick pitch in the interest of timeliness since the market just opened.
Leave your questions/comments below! Thanks for reading.