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School Specialty Inc. Message Board

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  • topline1 Oct 29, 2012 12:36 PM Flag

    SCHS is an EBITDA and FCF story

    What do you think the valuation of SCHS should be right now? And what do you base your valuation on?

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    • SCHS is a two year option on it not going chapter 11 or significantly diluting equity. If you use the company's guidance of around $48 of EBITDA and use a 7x multiple and about 300m of debt, you get about where it is trading or $2 or so per share. However, they should be able to generate close to $10mm in free cash flow per share or just north of $0.5 per share. 10 x is $5 per share. The upside comes from the company generating more like $70-80mm in EBITDA in a year or two and trading at 8x that number that would yield a mid teens share price. If the company doesnt make it and needs to restructure all bets are off - that is why it trades like a $2 call option now.

      Sentiment: Strong Buy

      • 3 Replies to garbageinandgarbageout
      • I would try to short against the box or do a ladder straddle with an offsetting T-Bill option warrant. Strike price around 1.15 in 90 days could get you a 6:1

      • topline1 Oct 31, 2012 9:46 PM Flag

        garbageingarbageout Your assessment seem reasonable. Where can you get a company with about $700 MM in sales for a market cap of less than $35 MM ? But don't you think some restructuring will have to be done? One of the reasons they are where they are is that they never assimilated the acquisitions that they did to properly take advantage of potential synergies. This might turn out to be benefit to them in some respects if divisions / business units can be sold off piecemeal to generate funding to reduce debt & pay off bills until schools start getting funding for deferred purchases. - any one else have thoughts on this?

        Sentiment: Buy

      • topline1 Nov 6, 2012 1:08 AM Flag

        Now less than a $30 MM market cap as it reaches a new low. The market doesn't seem to have as much faith in the company as you do. Certainly a much less expensive option now. I started picking up some shares as it went below $1.90 -- May have started too soon. Don't want to play the catch a falling knife game...but really less than $30 MM for a company that does about $700 MM in sales and has the capacity to do much more???? If they survive there could be some pretty good returns here. If not exposure at this point is limited to about a buck and half per share.

    • My analysis says $1.85 so the efficient market theory is prescient.

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