TRG | The Bottom Line – 3/29

On Monday, TRG published a note highlighting that building product distributors (in particular, TRG’s coverage – BLDR, BECN, GMS) had meaningful upside opportunity, despite the tremendous run they have had in the past few years. While we expect sales and EBITDA growth from these companies for strong end-markets (in particular, we expect robust SF starts activity), we highlighted that the building products group, as a whole, were valued at multiples (average of 10.6x, range from 7.5x to 17.7x) well below the “premium-valued group” (consisting of SITE, POOL, LESL, CNM, FERG, at an average above 20x). We believe that this discount is unwarranted given the margin profiles being to superior for the building products group, alongside the positive demand backdrop for building product companies. To a degree, this logic was verified by Home Depot’s acquisition of SRS (distributor whose primary focus is roofing, along with landscaping and pool supplies) above 16x EV/EBITDA. SRS is primarily a comp to BECN, with a side of flavor of SITE and POOL. Note only would this valuation imply significant upside for BECN, it shows the strategic value of building product distributors. Again, we think there is EBITDA growth ahead and multiple expansion potential, leading to sizable upside for BLDR, BECN, and GMS.

TRG next week will host institutional investor meetings in Boston next week with Core & Main (CNM) and APi Group (APG), both providing a sold read through for distribution and the non-res and infrastructure end markets. See TRG thoughts this week on U.S. infrastructure: https://cnb.cx/3x9wBge