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McIntire Investment Institute At the University of Virginia

McIntire Investment Institute At the University of Virginia. Long Pitch: Generac Holdings, Inc. (NYSE: GNRC). Prepared by K evin Wang (Manager)| January 31, 2013. Presentation Outline. Company Overview Financials Thesis Points Misperception VAR Risks Questions. Overview.

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McIntire Investment Institute At the University of Virginia

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  1. McIntire Investment Institute At the University of Virginia Long Pitch:Generac Holdings, Inc. (NYSE: GNRC) Prepared by Kevin Wang (Manager)| January 31, 2013

  2. Presentation Outline • Company Overview • Financials • Thesis Points • Misperception • VAR • Risks • Questions

  3. Overview • Founded in 1959, GNRC is a manufacturer of backup power products • Residential • Light commercial • Industrial • Bought in 2006 by CCMP Capital of NY • Went public in 2010 • 1,500 employees

  4. Overview

  5. Financials Price: $37.18 (14%) Market Cap: 2.503 B P/E (ttm): 7.56 PEG: 0.96 Beta: 0.66 52 Week: $18.18 - $39.18 EPS: 4.82 ROE: 57.06 % ROA: 22.49 % * Data from Yahoo Finance and Ycharts.com

  6. Thesis Points • Strong organic growth and expansion • Seasonal trends • Strong tailwinds: short and long run

  7. Thesis #1: Growth and Expansion • Company has doubled in five years • Net sales from $550 million to $1 billion • Net sales increased by 25.6 %, commercial and industrial sales by 43.8 %, gross profit margin by 4.05 % from Q3 in ’11 • Penetration of 2.5 %, extremely unsaturated • Increase of 1 % translates into $2 billion • Market expected to with a 4.0 % CAGR for next 5 years

  8. Thesis #1

  9. Thesis #1

  10. Thesis #1

  11. Thesis #1

  12. Thesis #1

  13. Thesis #1

  14. Thesis #1 • Acquired Magnum in 2011, #1 provider of light towers • Acquired Ottomotores UK Ltd. in November for $46.5 million in cash • Latin America market, generated $81.6 million in revenues last year • Over 100 dealers were added in 35 countries over the last 2 years • 5 % of revenue is outside the US

  15. Thesis #2: Seasonal Trends

  16. Misperception Due to Sandy, from its low in September to its peak in November, GNRC stock jumped 80%

  17. Misperception • Generac’s rise often outlasts the winter season as the subsequent quarterly earnings reflects good earnings and boosts investor’s confidence • During the Q3 Conference Call, CFO York Ragen said that the “afterglow can last between six and twelve months after this type of event [Sandy].”

  18. Misperception: VAR • Tavia, representative for Home Depot (general) – It was a “first come, first serve” basis in which “some stores didn’t even try to log” in the generators when they arrived since “there was no time.” • Dennis, representative for Home Depot (Milton, NJ) – Has worked there for 13 years and never had this degree of demand. People traveled from around the state for the portable generators and 1000 were sold out as soon as they got in. • Christine, representative for Lowe’s (general) – There is still a demand even after generators were sold out and they are still in the process of restocking

  19. Misperception

  20. Thesis #3: Tailwinds Next Earnings Report: February 14 • Increased sales growth guidance for full year to a low 40 % from a low 30 % • Increased EBITDA for full year to a mid 30 % from a mid 30 %

  21. Thesis #3 Net Sales

  22. Thesis #3 Generac owns 70 % of the home generator market in natural gas

  23. Thesis #3:

  24. Thesis #3 • Currently 30-50 % of the US power grid is 40 to 50 years old • Undergrounding the grid would cost $4 trillion • The number of power outages have increased due to technical power failures

  25. Thesis #3: VAR

  26. Thesis #3 • In New Jersey, which suffered greatly due to Sandy, lawmakers are pushing for four varied proposals that would require all gas stations to be equipped with back-up generators.

  27. Thesis #3: VAR • Mike Harris, IR for GNRC • After Katrina, FCC pushed to have cell towers have back up-generators but lost steam • After Sandy, there was a resurge • Devon Lander, represents NY Assemblyman Steve Englebright • Governor is in favor of a bill that would require all new gas stations to have a back-up generator • Existing ones might need one based on criteria

  28. Conclusion • Strong organic growth and expansion • 15 % CAGR from 2000 to 2011 • Acquired Magnum and Ottomotores • Seasonal trends • Positive correlation with winter • Aftermath of Sandy is still tangible • Strong tailwinds • Expectations to beat earnings • Shift from diesel to natural gas • Increased blackouts due to aging power grid • Potential bills in NY, NJ, and from the FCC

  29. Risks • Bills may take a long time to pass or may not pass at all • Government interference with power grids • Lack of future storms that would drive demand

  30. Questions?

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