Reposted from Seeking Alpha
By Brian Langis
I recently read author Unconventional Capital Wisdom (UCW)’s articles on Platform Specialty Products (PAH). UCW’s articles on PAH is good writing and provides an interesting story. His article has retained my attention and left me hungry for more. As a professional investor, and as a piece of advice, you can’t just invest on a good story. That’s a recipe for disaster. Any smart buyer knows that you need to dig beyond the surface to fully understand the opportunity. For example, would you ever buy a car without checking what’s under the hood? The car you want to buy might look good, but the real value is under the hood. You need to open the hood, get your hands dirty, make sure there’s no rust haunting you, and certify you have a solid reliable engine that will not blow up on you. In other words, I need to do my own due diligence and valuation. To better understand this research piece, and since I didn’t want to repeat everything that was already said, I highly suggest you read UCW’s highly informative articles on PAH. Links (both Pro):
A quick glance at PAH’s multiples doesn’t look cheap. There’s a reason for that. You are not going to find a company with top quality assets, a growth profile, strong free cash flow generation, and a brilliant experienced management team in the liquidation section. Based on these qualitative factors PAH is undervalued. The most important part of the thesis is Martin Franklin, PAH, as the center piece of why you should invest in PAH. Mr. Franklin sees the similar conditions in the chemical industry today as when he started at Jarden Corp. His plan is to build a chemical empire by acquiring non-core assets in the same approach with the consumer products. Without Mr. Franklin I would not be writing this article.
PAH incorporates many predictive attributes that are suggestive that its free cash flow and earnings will be higher several years from now. PAH will orchestrate its growth through disciplined acquisitions. Martin Franklin has established himself as an astute practitioner of the strategic acquisition, in large part because he refuses to overpay. PAH generates a lot of excess cash that can be used to fund other acquisitions. When you factor in a boost in cash flow that future acquisitions will contribute, the market’s valuation of PAH would appear a bit more reasonable.
A quick valuation calculation suggests that PAH can grow 27%; however, if the strategic acquisition plan is properly executed, the returns will be superior over the long-run.