Mario Gabelli is the founder and CEO of Gabelli Asset Management Company Investors (GAMCO Investors), a $43 billion global investment management firm. Mario Gabelli is a strong adherent to value investing principles and emphasizes fundamental bottom-up research in order to generate superior risk-adjusted returns. His Private Market Value (PMV) with a CatalystTM methodology is defined as the price an informed industrial buyer would be likely to pay to acquire the business. He focuses on valuing companies based on its cash flow instead of a standard focus on earnings. Mario Gabelli is also well-known for identifying companies that might be candidates for a buyout, which possess specific characteristics such as a large amount of cash on balance sheet, for example.
GAMCO disclosed in a recent SEC filing that it owns a 13.22% stake in Superior Industries, which it’s owned for some time already. Superior Industries is the largest manufacturer of aluminum wheels for passenger cars and light-duty vehicles in North America. From its five plants in both the U.S. and Mexico, the company supplies aluminum wheels to the original equipment market. Major customers include Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), Chrysler, Bayerische Motoren Werke AG (FRA:BMW), Mitsubishi Corp (TYO:8058), Nissan Motor Co., Ltd. (OTCMKTS:NSANY), Subaru, Toyota Motor Corporation (NYSE:TM) (TYO:7203) and Volkswagen AG (OTCMKTS:VLKAY) (ETR:VOW) (FRA:VOW).
The company has a market capitalization of $548 million, cash and equivalents of $186 million, has no debt, and is valued at approximately x5 EV/EBITDA multiple. Part of the cash holding is earmarked for the building of a new manufacturing plant in Mexico, which will increase the manufacturing capacity by about 20%. In March 2013, Superior Industries’ board approved a $30 million stock repurchase program, but as of the latest quarter no buybacks were executed so far.
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GAMCO noted that company has approximately $76.5 million cash which is suitable for potential distribution to shareholders, and submitted a shareholder proposal for 2014 annual meeting that Superior Industries board of directors authorize a “Dutch Auction” tender offer to repurchase at least $40 million of the company’s outstanding common stock. An interesting fact is that two other well-known value-oriented investment firms also own shares: Third Avenue Management, founded by veteran value investor Martin J. Whitman, owns a 3.8% stake and Heartland Advisors has a 6.1% stake. The company’s chairman and CEO, Steven J. Borick and his family’s trust and foundation collectively own 19.5% of the company’s shares. Superior Industries recently announced that Steven J. Borick will retire as CEO and president in March 2014.
The company declared a regular quarterly cash dividend of $0.18 per share, which was restored in August 2013 following accelerated dividend payout in December 2012 due to uncertainties at the time regarding possible future dividend tax rate changes. Based on a recent share price of $20.06, the dividend provides a 3.6% annual yield. The proposed Dutch tender offer can have a positive effect on share price, especially in case insiders or three institutions mentioned above do not tender their shares. Using a recent market price, the company would be able to acquire 9% to 12.5% of free float shares or approximately 7% of total shares outstanding.
Conservative valuation, expected increase in manufacturing capacity and involvement of a well-known value investor offer an interesting risk/return profile. At the same time, attractive dividend yield and possible share buybacks can provide a near-term downside support.
By Alex Gavrish, Etalon Investment Research; author of “Wall Street Back To Basics”