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1/ Help wanted. Looking for unlevered, cap-lite businesses, w blue-chip customers and no secular issues trading at 2x EBITDA. I’ll start with one: meet, Limbach Holdings $LMB, a company that came public via SPAC in 2016 (at a time when SPACs weren’t in vogue like they are now).
2/ $LMB is a specialty contractor providing HVAC, plumbing, electrical and building controls design, engineering, installation and maintenance services to owners of buildings. Good overview of the business can be found here: https://www.sec.gov/Archives/edgar/data/1606163/000114420416095899/v437773_ex99-1.htm">https://www.sec.gov/Archives/...
3/ True to old-school SPAC form, $LMB burned original investors, by missing expectations, suffering from balance sheet issues and having the stock drop 80% from its post deal highs. Now fixed, it is a microcap orphan w no natural investor base. Therein lies the opportunity.
4/ Margin issues stemmed from $LMB bidding aggressively on new projects. Mgmt has since implemented a committee that oversees pricing on new major projects. W/ better pricing comes better margins. In its most recent quarter, $LMB posted 6% EBITDA margins, up 3x from last year.
5/ BS issues stemmed from poor focus on working capital mgmt. which caused a/r to baloon. W higher a/r, liquidity got tight and the company was forced to borrow at 13% interest rate. Mgmt has recently focused on wc and has increased its cash position to >$30m vs the $40m of debt.
6/ By early next year, the company should be in a net cash position. It can then refi/repay its debt. BS problems solved. Comps trade for 8-12x EBITDA (vs $LMB at 2x), which is where this should trade once it’s no longer viewed as a broken SPAC.
7/ Thinking we’ll see this bad boy at $20+ by late next year once the company shows a few more quarters of decent execution. I’m long this name so clearly, I’m biased. Do your own due diligence. Please let me know where I can find more names w similar characteristics.
