2023-12-17 04:43:24 ET
Summary
- John Bean Technologies has become a pure FoodTech play following the sale of its AeroTech business.
- The company's core business is trading at demanding valuations after dilution from the AeroTech sale.
- John Bean is involved in a potential large deal to acquire Icelandic-based Marel, raising concerns about leverage and earnings accretion.
Early this summer, I believed that John Bean Technologies ( JBT ) had become a pure FoodTech play. The company has proven to be a solid value creator over time, and following the sale of the AeroTech business, it became an under leveraged and pure play on FoodTech.
The company traded at a more than full valuation, but now appears to double down on its focus area in a potential large deal, creating quite a lot of uncertainty and debt overhang. I feel no need to get involved here, with the core business trading at demanding valuations following more dilution incurred (than anticipated) following the AeroTech sale.
About John Bean
About 15 years ago, John Bean was spun off from FMC ( FMC ) as a $10 stock post the spin-off rallied to the $100 mark in 2017, creating massive shareholder value in the process.
Pre-pandemic, this was a $1.95 billion business, which was comprised out of the FoodTech and AeroTech business. Overall, the company reported operating margins around 10% of sales, with GAAP earnings reported at $4 per share, and adjusted earnings coming in a dollar higher.
Revenues fell to $1.7 billion in 2020, notably the result of the (logical) weakness in AeroTech, as revenues rose 8% to $1.9 billion in 2021, coming in just shy of the 2019 performance. Revenues rose by another 16% to $2.17 billion in 2022 on the back of a further recovery coming out of the crisis and contribution from M&A actions, with operating margins reported just shy of 8% of sales.
FoodTech was the most dominant segment at this point in time, responsible for about $1.6 billion in sales, complemented by $575 million AeroTech business, which posted a lower margin profile.
Despite a stronger revenue number, it were adjusted earnings of $4.77 per share for 2022, which came in below the 2019 profit numbers. 2023 revenues were seen up another 6-10%, with adjusted earnings seen up to $5.00-$5.50 per share.
2023 So Far
After a solid 13% increase in first quarter sales to $529 million, the company reiterated the full year guidance. Based on anticipated EBITDA of $330-$360 million, leverage ratios were seen at 2.5-2.7 times.
The company announced a big deal with Oshkosh ( OSK ) to sell its AeroTech business in an $800 million deal, essentially wiping out its net debt load, although the company will incur a $120 million tax cash bill in the transaction as well. The deal would result in about $0.40 earnings per share dilution, as the company will of course give up relative low earnings power, while avoiding substantial interest expenses as well.
With pro forma earnings seen around $5 per share, while leverage ratios would fall dramatically, I believed that a $108 stock in June looked more than fairly valued. While I still liked the long term potential and track record of the now focused business, I saw no need to get involved at a 22 times earnings multiple in June.
Trading Stagnant
The deal with Oshkosh closed on the first day of August, alongside the release of the second quarter results . Following the divestment, the company updated the guidance for the standalone FoodTech business, seeing full year sales around $1.7 billion, with adjusted earnings seen between $3.80 and $4.05 per share.
Third quarter results were released in October, with net debt reported at $107 million, largely in line with the anticipated balance sheet structure at the time of the deal announcement. Following a more resilient quarter performance, earnings were now seen between $3.95 and $4.10 per share.
With 32 million shares trading around the $100 mark, the company is awarded a $3.2 billion equity valuation, and a $3.3 billion enterprise valuation. This values the business at around 2 times sales and just over 12 times EBITDA at $260 million. With earnings power seen close to $4 per share, valuations have become more demanding, as dilution following the AeroTech business has been larger than anticipated.
A Big Deal
Relatively soon after the divestment of the AeroTech business, John Bean has announced that it is involved with a big deal. Late in November, John Bean confirmed that it has been looking to acquire Icelandic-based Marel. The initial offer of EUR 3.15 per share was rejected by the board of Marel, despite the fact that John Bean secured support from the largest shareholder, which holds nearly a quarter of its shares.
By Mid-December, the company announced that it has made an enhanced offer for Marel, offering EUR 3.40 per share, a massive 46% premium compared to the unaffected share price.
Quite honestly, I am quite nervous about this deal. On top of the massive premium being offered, I note that the EUR 3.4 billion enterprise valuation actually exceeds the enterprise valuation of John Bean here. This likely creates a leveraged situation, as the question can be asked if earnings accretion is seen, given the premium offered and interest rates which would have to be paid.
Given all this, I have some real concerns on John Bean here, seeing no reason to get involved, as I am patiently awaiting the outcome of the bidding race. Instead, I favor a more organic and bolt-on based growth strategy here, instead of a rushed, large and expensive deal which (likely) includes a lot of leverage.
For further details see:
John Bean Technologies: Uncertain Following Potential Marel Deal Overhang