Greif B shares
Not really a Covid beneficiary
Trades at 6x PE
B shares have 150% economic interest of regular shares
Insiders are buying
Spekulatius on Twitter brought my attention to this really boring stock (which is actually a good thing!). It won’t be a 10 bagger, but I think it can generate a reliable above average return in this uncertain economic environment.
They make steel/plastic/fibre/paper based industrial packaging. 10-15% ROIC including intangibles, and nearly 20% ROIC on tangible assets. And don’t seem to have an issue passing on input cost increases to customers. Earnings this year will only be a tad bit higher than in 2019 (before synergies of their early 2019 Caraustar acquisition were realized), so it is not a Covid winner. Yet it trades at a historically low PE multiple:
The B shares get a 50% higher dividend and economic interest than the regular Greif shares (which are also cheap as well). And are closely held by insiders, which is why they are a lot less liquid and have rarely traded at a 50% premium. Currently they trade at a slightly discount even.
Company has about $2bn in net debt on expected $600 million adjusted EBIT. Russia exposure is <3% of EBIT. B shares pay almost a 5% dividend this year and rest is spent on debt reduction. As of YE 2021 net debt/EBITDA was at 2.75x, and targeted range is 2-2.5x. So I think we can expect a significant dividend increase somewhere in late 2022, early 2023.
There have been some recent modest purchases by the CFO and Chief HR officer. And management has remarked on how cheaply the shares are trading as well:
Please turn to Slide 13. Despite sustained outperformance, we continue to trade at a substantial discount relative to other packaging firms, which mystifies us. We invite your thoughts and welcome your feedback about why we are situated this way given we delivered on our financial commitments made in 2015, '17 and '19 and our record of exceeding consensus estimates is clear. Clearly, I understand that it is investors who determine our value. However, our opinion is that our equity deserves a much closer look given the substantial discount present in our stock today.
So in conclusion, I think Greif B shares are a good bet in this market. I think stocks that generate consistent earnings throughout a turbulent 2022 will be rewarded by the market. Given that B shares have traded in a range of between 6-13x earnings, and a mean of about 10.5x earnings in the past decade, upside is about 70-90% with limited downside.
So long Greif B shares at average price of $59.85 per share. As usual, DYOW and I may sell at any time.