Record Date: 11/21; Distribution Date: 12/1
On November 9, 2023, Worthington Industries
WOR
The distribution is expected to be made prior to the market open on 12/1 (distribution date) to the Company’s common stockholders of record as of the close of business on 11/21, the record date for the distribution. The Company expects “when-issued” trading for Worthington Steel ordinary shares on the NYSE to begin on or about 11/28 and continue till the distribution date under the symbol “WS WI.” Also, beginning on or about 11/28 and till the distribution date, it is expected that there will be two ways to trade WOR common shares – either with or without the distribution of Worthington Steel common stock. Worthington Steel will begin regular-way trading on the NYSE under the ticker symbol “WS” on 12/1. Moreover, on 12/1, Worthington Industries will change its name to Worthington Enterprises and will continue to trade under the ticker symbol “WOR.”
Valuation
We value Worthington Industries (WOR) using the 2024e EV/EBITDA methodology by valuing Worthington Enterprises (Stub) and Worthington Steel (Spin-Off) separately. Our intrinsic value of $47.00 for WOR (Stub) is based on a 2024e EV/EBITDA multiple of 9.3x for the Consumer Products segment (~7.7% premium to peer multiple of 8.6x), 8.0x for the Building Products segment (in line with the peer multiple), and 13.1x for the Sustainable Energy Solutions (in line with the peer multiple). Our fair value estimate for Worthington Steel (Spin-Off) stands at $23.00 per share based on the 2024e EV/EBITDA multiple of 6.8x to Steel Processing business (~7.5% discount to median peer multiple of 7.3x). We arrive at a consolidated target price of $70.00 per share for Worthington Industries, which implies a potential upside of 7.0% from the current market price of $65.45 as of 11/15. We thereby retain our ‘Hold’ rating on the stock.
Risks to our valuation include a slowdown in sales growth and market share due to economic recession, rising inflation, higher than expected raw material costs, and lower returns on free cash flow reinvestment.
Regular-way and When-issued trading
The Company expects “when-issued” trading for Worthington Steel ordinary shares on the NYSE to begin on or about 11/28 and continue till the distribution date under the symbol “WS WI.” Beginning on 11/28 till the distribution date, WOR expects that there will be two ways to trade its ordinary shares, either with or without the right to a distribution of Worthington Steel ordinary shares. WOR shareholders who sell their common shares in the “regular-way” market on the NYSE under the current ticker symbol “WOR” after the record date and till the distribution date will retain their right to receive Worthington Steel common stock shares in connection with the spinoff. Alternatively, WOR shareholders who sell their WOR common shares in the “ex-distribution” market during the same period under the symbol “WOR WI” will be selling their right to receive shares of Worthington Steel common stock in connection with the spin-off. The ‘regular-way’ trading of Worthington Steel is expected to begin on the NYSE on 12/1. Moreover, Worthington Industries will change its name to Worthington Enterprises and will continue to trade under the ticker symbol “WOR.”
WOR shareholders will receive one ordinary share of Worthington Steel for every one ordinary share of WOR of the record date. Worthington Industries shareholders who hold WOR common shares on the Record Date will either receive a book-entry account statement reflecting their ownership of Worthington Steel common shares, or their brokerage account will be credited with Worthington Steel shares without further action. The shares are expected to be credited to “street name” shareholders through the Depository Trust Corporation (DTC) on the Distribution Date. The Company will not issue fractional shares of Worthington Steel common stock to WOR stockholders. Instead, a cash payment will be made in lieu of fractional shares.
Valuation
We value Worthington Industries by sum-of-the-parts valuation by assessing Worthington Enterprises (Stub) and Worthington Steel (Spin-Off) separately using the EV/EBITDA valuation methodology.
A] Worthington Industries (Stub):
EV/EBITDA Valuation:
Post-spin-off, WOR (Stub) will include the company’s Consumer Products, Building Products, and Sustainable Energy Solutions segments. Our intrinsic value of $47.00 for WOR (Stub) is based on a 2024e EV/EBITDA multiple of 9.3x for the Consumer Products segment (~7.7% premium to peer multiple of 8.6x), 8.0x for the Building Products segment (in line with the peer multiple), and 13.0x for the Sustainable Energy Solutions (in line with the peer multiple). The premium assigned to the Consumer Products segments factors in the value of the company’s brand offerings and market position. We have assumed a 2024 Net Debt of $84.3 million, factoring in the ~$150 million cash payout by SpinCo to WOR (Stub) at the time of the separation (as provided in Worthington Steel Form 10 filing).
B] Worthington Steel (Spin-Off):
Post-spin-off, Worthington Steel will include the Steel Processing business. Our fair value estimate for Worthington Steel (Spin-Off) stands at $23.00 per share based on the 2024e EV/EBITDA multiple of 6.8x to Steel Processing business (~7.5% discount to median peer multiple of 7.3x) and a 2024e Net Debt of $127.3 million. The discount to median peer multiple reflects the relatively smaller business scale compared to its larger peers.
C] Consolidated Valuation:
We arrive at a consolidated target price of $70.00 per share for Worthington Industries, which implies a potential upside of 7.0% from the current market price of $65.45 as of 11/15. We thereby retain our ‘Hold’ rating on the stock.
Company Description
Worthington Industries, Inc. (Parent)
Headquartered in Columbus, Ohio, Worthington Industries (NYSE: WOR) is an industrial manufacturing company focusing on value-added steel processing, laser welded solutions, electrical steel laminations and manufactured consumer, building and sustainable mobility products in North America and internationally. It operates through Steel Processing, Consumer Products, Building Products, and Sustainable Energy Solutions segments. In FY23, Worthington Industries generated total revenue of $4.9 billion. Post spin-off, Worthington Industries will change its name to Worthington Enterprises and will continue to trade under the ticker symbol “WOR.” Worthington Enterprises will be a market-leading designer and manufacturer of innovative Building Products, Consumer Products and Sustainable Energy Solutions. The Consumer Products segment provides propane-filled cylinders for torches, camping stoves and other applications; and LPG cylinders, handheld torches, helium-filled balloon kits, specialized hand tools and instruments, and drywall tools and accessories under the Coleman, Bernzomatic, Balloon Time, Mag- Torch, General, Garden-Weasel, Pactool International, Hawkeye, Worthington Pro Grade, and Level5 brands. The Building Products segment offers LPG cylinders, well water and expansion tanks, and other specialty products, including fire suppression tanks, chemical tanks, foam, and adhesive tanks for gas producers and distributors. The Sustainable Energy Solutions segment sells onboard fueling systems, related services, gas containment solutions, and services for storing, transporting, and distributing industrial gases. It provides high-pressure and acetylene cylinders for life support systems and alternative fuel cylinders to hold CNG and hydrogen for automobiles, buses, and light-duty trucks.
Worthington Steel (Spin-Off)
Following the separation, Worthington Steel will be a best-in-class, value-added steel processor and producer of electrical steel laminations and automotive lightweight solutions, positioned to capitalize on expanding opportunities in electrification, sustainability, and infrastructure spending. Worthington Steel will have a unique capability set and sophisticated supply chain and pricing solutions to serve its blue-chip customers, grow market share and increase margins. The Company will continue leveraging the Worthington Business System to power a winning culture, higher growth, and profitability through Transformation, Innovation, and Acquisitions. For FY23, Worthington’s Steel Processing business generated sales of ~$3.5 billion.
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