Manitex (MNTX): Small industrial company is focusing on niche markets with little competition
EMERGING GROWTH STOCKS | Updated: 13-Feb-13 | Archive
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Manitex (MNTX): Small industrial company is focusing on niche markets with little competition
Manitex is a name you have probably never heard off but it's worth putting on your radar. We originally profiled the stock in December 2010 when it was trading below $4 although it later fell out of our rankings when it pulled back in 2011. However, Manitex re-entered our Emerging Growth rankings last week so we wanted to provide an update on the company as it has several positive characteristics.
Manitex is a supplier of lift equipment. They are quite small and they don't have the size to compete with the Caterpillars of the world. So instead, they wisely made the decision to focus on smaller, niche markets where there is limited competition and somewhat higher margins. Recent results have been quiet strong both because demand for its niche products has remained healthy but also because it has been expanding production capacity to handle increased orders.
We view Manitex as an attractive yet little known play on the improving economy. We caution that the stock looks overextended in the near term but the 2013 rally is significant in that the stock has finally cleared the single digits.
What They Do
Manitex is a provider of lift equipment, including boom trucks, cranes and container handling equipment. They have a number of moving parts and a number of subsidiaries, so let's break it down in more detail:
• Manitex: This is the company's primary segment, representing about half of total revenue. It makes boom trucks and sign cranes which are primarily used in industrial projects, energy exploration and infrastructure development, including roads, bridges, and commercial construction.
• Badger Equipment Co.: Badger is a supplier of rough terrain cranes and material handling products. Badger primarily serves the needs of the construction, municipality, and railroad industries.
• CVS Ferrari: This is MNTX's Italian subsidiary. They make reach stackers and associated lifting equipment for the container handling market.
• Manitex Liftking: This subsidiary is a provider of material handling equipment including the Noble straight-mast rough terrain forklift product line, Lowry high capacity cushion tired forklift and Schaeff electric indoor forklifts as well as specialized carriers, heavy material handling transporters and steel mill equipment. Manitex Liftking's rough terrain forklifts are used in both commercial and military applications.
• Manitex Load King: This segment makes engineered trailers and hauling systems, typically used for transporting heavy equipment.
• Crane and Machinery: This division is a Chicago-based distributor of cranes including Terex truck and rough terrain cranes, and the company's own Manitex product line. Crane and Machinery provides aftermarket service in its local market and it's a distributor of OEM crane parts supplying customers throughout the world.
The table below provides a revenue breakdown by product category, combining all of its subsidiaries. As you can see, the company has been broadening its product offering. For example, a couple of years ago, nearly half of revenue came from boom trucks, but that has been reduced to about a third and some new categories are helping to diversify the revenue stream. Most notably, container handling equipment has become a larger part of the business. This was mostly done through Manitex's acquisition of CVS Ferrari.
While most of Manitex's products are pretty self-explanatory, investors may not be familiar with what a boom truck is and since this is the company's largest product at 35% of total revenue, we wanted to quickly explain. A boom truck is essentially a flat bed trailer with a telescopic boom crane mounted to it. Medium or heavy-lift boom trucks can safely lift loads from 15 to 50 tons.
Relative to other lifting equipment, boom trucks are much more versatile in that they can transport relatively large payloads from site to site at highway speeds. Another advantage of the boom truck is the ability to provide man lift capabilities at a very low cost to height ratio. Also, they have a pretty small replacement cycle at about seven years.
As is clear from the description above, Manitex is heavily tied to the industrial sector. As such, the company took quite a hit during the recession and the financial crisis in late 2008 and most of 2009. In fact, the stock was trading below $1 as recently as July 2009. However, since 2009, sales have grown from $50 million to $100 million in 2010 to $142 million in 2011 and we'll get the 2012 number when they report Q4 results likely in mid-March. But they have said that they expect 2012 revenue to come in slightly above $200 million. And while Manitex has made several acquisitions over the years, the majority of the growth has been organic. Of the $150 million in growth from 2009 to 2012, about $60 million was from acquisitions and $90 million has been from internal organic growth, most of which has come from new product introductions. During the same period, EPS and EBITDA have grown at much faster rates than revenue.
In terms of strategy, Manitex realizes it's a pretty small player in the lift market. It can't compete with giants like Caterpillar (CAT) which offer pretty much everything. Rather, Manitex has smartly focused on niche markets where there is little competition but good growth prospects. Specifically, Manitex has been focusing its efforts on higher capacity boom trucks which tend to be somewhat higher margin and less exposed to boom-bust cycles. Also, higher capacity boom trucks tend to be popular with customers in the energy production and power distribution industries, both of which are lucrative end markets right now.
Another growth driver has been an increase in production capacity over the past year to respond to the strong demand the company is seeing for its products. Manitex also now has a much broader mix of products than it did just several years ago. This allows the company to compete in more industries which also helps to lessen its exposure to any single area of the economy. This product expansion is the result of management investing more in R&D over the past few years. For example, management seems pretty excited about the introduction of a new 15 ton crane in Q3 which is targeted for the refining, steel and certain industrial niches.
The goal is to add significant new features to its best-selling products, as well as to introduce new equipment. Looking ahead, Manitex is planning to launch several more new products in the next few quarters -- again with a focus on high-growth niches where there is limited competition.
Taking a quick look at the recent financials, Q3 revenue rose 44% YoY to $53.4 million while EPS jumped 145% to $0.21. Much of this came was a result of production capacity increases at several facilities implemented in response to higher demand levels. Consistent with the mix seen in 1H12, Manitex boom trucks were responsible for approximately 80% of the revenue increase in Q3, where the higher tonnage and higher reach boom trucks continue to see good demand. In fact, shipments of its larger tonnage Manitex boom trucks were up by over 120% YoY.
This is not a super high margin business as Manitex is more of an assembler than a manufacturer. In particular, they generally buy chasses from other suppliers which account the bulk of the end cost paid by their customers. Gross margin came in at 20.3%, down a bit from 21.2% last year and 20.5% in Q2. The downtick was expected as they mentioned in Q2 it would decline somewhat in Q3 as Manitex used more company purchased chasses. There is only a nominal margin on these purchases. While gross margin declined a bit, operating margin jumped to 8.4% from 6.0% in the year ago period. Management talked little about operating margin on the Q3 call but it appears the much higher production levels allowed them to spread costs over a wider base.
On the Q3 call in November, management said demand for its products remained solid in the quarter with no cancellations in the backlog. Also, the backlog at its flagship Manitex subsidiary was stretching well into 2Q13. Overall, management is pleased with its results in light of the significant uncertainly in the world economy. Its niche products and particularly some of its newly re-introduced cranes continue to see a healthy level of demand especially in the North American energy sector.
Overall, management says its products remain in high demand in its niche markets. However they did caution that European markets remain pretty shaky, marked by very tight credit markets and slow-to-zero economic growth. Also, they said that the North American construction environment remains in a sluggish state. But once economic conditions improve throughout the world, that should act as an additional tailwind.
With so many large capital equipment companies out there, Manitex has made the wise decision to focus on smaller, niche markets where there is limited competition and somewhat higher margins. They have been expanding production capacity and seem to have the demand to support it. While they do not provide guidance, it sounds like they feel pretty comfortable through 1H13. Also, management seemed to hint on their Q3 call that they should see some benefit from the Hurricane Sandy cleanup. We also would not be surprised to see this little company acquired at some point by a large capital equipment company as their end markets are pretty attractive.
Overall, we think Manitex is an interesting play on the improving economy that is not on many radar screens. What's interesting is that the EPS ramp is expected to continue in 2013 as analysts expect EPS to grow 37% from $0.67 in 2012 to $0.92 in 2013. As such, the stock is trading at a current (FY13) P/E of just 12.3x, which computes to a PEG of just 0.3x.