Summary
- Shyft Group was down 50% in 2022, up 30% in 2023, and down 30% since year-end 2021.
- While disappointing on the stock performance in 2022, is still one of our most impressive fundamental stories that we’ve invested in.
- We continue to look past the short term, especially with SHYF, which has proven to be a consistent grower through short-term economic challenges.
- We do not expect this company to stay public forever.
The following segment was excerpted from this fund letter .
Shyft Group ( SHYF )
Shyft Group was down 50% in 2022, up 30% in 2023, and down 30% since year-end 2021. Our investment in Shyft Group (formerly Spartan Motors) while disappointing on the stock performance in 2022, is still one of our most impressive fundamental stories that we’ve invested in.
Despite the gloom and doom of the never arriving recession, the company grew its revenues by 14% to over $1 billion for the trailing twelve months that ended September 30 th , 2022 as well as its last reported backlog to ~$1.1b, a 23% growth rate. These are impressive numbers for sure, however, for 2022 the company announced a $30mm Research and Development investment into the development of an electric vehicle commercial truck, BlueArc.
This one-time investment brought down reported EBITDA numbers from $95mm in 2021 to a likely $75mm number in 2022 (of course on an apples-to-apples basis it is a $105mm number, if those costs were to be capitalized) and the short term results-oriented market was not a fan.
We are not complaining as the BlueArc truck is incredible. Unlike many of its electrical vehicle start-up competitors that have little to no experience in manufacturing and just have pretty renderings to hype up their stock, Shyft Group has extensive experience in building and scaling prototypes having built dozens of new models over the years and in September 2022 announced a substantial 2,000 truck order which they expect will be close to 3,000 by 2025.
The company’s Fleet Vehicle and Services segment whose average truck body order is around $30,000 to $40,000 per, expects that each Blue Arc truck will bring in over 4x those amounts at over $150,000. In other words, they expect this to be a $500mm revenue contributor at 12% margins within a few years. While most companies with such bluster can and should be taken with a grain of salt, our long experience with Shyft Group and its management team has shown them to be anything but boastful and they tend to err on the conservative side of their estimates.
We continue to look past the short term, especially with this company, which has proven to be a consistent grower through short-term economic challenges. We expect its sales growth, excluding the BlueArc segment, to trend in the 15-20% range on the back of continued demand for last-mile delivery vehicles driven by growth in e-commerce. Including the Blue Arc segment and additional tuck-in acquisitions should lead the Shyft Group to generate over $2 billion in revenues and close to $250mm in EBITDA by 2025-2026.
We do not expect this company to stay public forever and at those levels is where we expect the company’s impressive CEO Daryl Adams to sell the company at its historical trading averages of 10x EBITDA or around $75 per share.
Legal DisclosureThe Partnership’s performance is based on operations during a period of general market growth and extraordinary market volatility during part of the period, and is not necessarily indicative of results the Partnership may achieve in the future. In addition, the results are based on the periods as a whole, but results for individual months or quarters within each period have been more favorable or less favorable than the average, as the case may be. The foregoing data have been prepared by the General Partner and have not been compiled, reviewed or audited by an independent accountant and non-year end results are subject to adjustment. The results portrayed are for an investor since inception in the Partnership and the results reflect the reinvestment of dividends and other earnings and the deduction of costs, the management fees charged to the Partnership and a pro forma reduction of the General Partner’s special profit allocation, if applicable. The General Partner believes that the comparison of Partnership performance to any single market index is inappropriate. The Partnership’s portfolio may contain options and other derivative securities, fixed income investments, may include short sales of securities and margin trading and is not as diversified as the indices, shown. The Standard & Poor's 500 Index contains 500 industrial, transportation, utility and financial companies and is generally representative of the large capitalization US stock market. The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index and is generally representative of the small capitalization U.S. stock market. The Russell Microcap Index is comprised of the smallest 1,000 securities in the Russell 2000 Index plus the next 1,000 securities (traded on national exchanges). The Russell Microcap is generally representative of the microcap segment of the U.S. stock market. All of the indices are unmanaged, market weighted and reflect the reinvestment of dividends. Due to the differences among the Partnership’s portfolio and the performance of the equity market indices shown above, however, the General Partner cautions potential investors that no such index is directly comparable to the investment strategy of the Partnership. While the General Partner believes that to date the Partnership has been managed with an investment philosophy and methodology similar to that described in the Partnership’s Offering Circular and to that which will be used to manage the Partnership in the future, future investments will be made under different economic conditions and in different securities. Further, the performance discussed herein does not reflect the General Partner’s performance in all different economic cycles. It should not be assumed that investors will experience returns in the future, if any, comparable to those discussed above. The information given above is historic and should not be taken as any indication of future performance. It should not be assumed that recommendations made in the future will be profitable, or will equal, the performance of the securities discussed in this material. Upon request, the General Partner will provide to you a list of all the recommendations made by it within the past year. This document is not intended as and does not constitute an offer to sell any securities to any person or a solicitation of any person of any offer to purchase any securities. Such an offer or solicitation can only be made by the confidential Offering Circular of the Partnership. This information omits most of the information material to a decision whether to invest in the Partnership. No person should rely on any information in this document, but should rely exclusively on the Offering Circular in considering whether to invest in the Partnership. |
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Artko Capital - Shyft Group: Disappointing But Still One Of Our Most Impressive Fundamental Stories