Schweitzer-Mauduit International, Inc.

SWM Details

Schweitzer-Mauduit International, Inc. (NYSE: SWM) is a diversified manufacturer of high-quality specialty papers and resin-based products. SWM is engaged in two product lines viz. 1) Advanced Materials & Structures (AMS), focused on manufacturing resin-based products such as nets, films, and meltblown materials using extrusion and other non-woven technologies, and serves the transportation, filtration, healthcare, and commercial end-markets. AMS also provides coating services. 2) Engineered Paper (EP), which manufactures various cigarette paper and reconstituted tobacco products (Recon) for the tobacco industry. SWM has 23 manufacturing plants globally and does business in over 90 countries. As of June 25, 2021, the company's market capitalization stood at USD 1.26 billion.

Acquisitions to Bolster the Portfolio (Investor Presentation, May 2021)

Expanding Core Competencies: On April 15, 2021, SWM completed the acquisition of Scapa Group, Plc, a UK-based manufacturing solutions provider for healthcare and industrial space, for a total equity value of ~EUR 412.60 million. SWM settled the offer consideration in cash to each Scapa shareholder under the agreement on April 29, 2021. The acquisition increases the company’s extensive portfolio and significantly expands its design and formulation capabilities.

Robust Q1FY21 Results: The company reported a 10.21% increase in net sales to USD 288.2 million in Q1FY21 (ending March 31, 2021) compared to USD 261.5 million in Q1FY20, driven by an increase in volume and products mixture. Its AMS segment contributed 56.56%, with the EP segment contributing 43.44% to the total revenue generated during the quarter. However, net income declined slightly to USD 21.6 million in Q1FY21 vs USD 22.5 million reported in Q1FY20. As of March 31, 2021, SWM’s cash and cash equivalents stood at USD 63.70 million, with a total debt of 617.90 million.

Key Risks: The company operates in many countries around the world in a decentralized manner.  There are inherent control and fraud risks in such a framework. Hence, any change in the laws and regulations or increase in trade tariffs of any country in which SWM operates could negatively impact its operations and financial condition.

Outlook: SWM expects its adjusted EPS for FY21 to be in the range of USD 3.75 to USD 4.05, including contributions from the Scapa acquisition. The AMS sales growth and acquisition accretion for FY21 are expected to be partially offset by the resumption of normalized order patterns in EP and rising costs across both segments.

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SWM Daily Technical Chart

Stock Recommendation: SWM’s share price has declined by 17.68% in the past 3 months and is currently trading at a mid-band of the 52-week range of USD 26.73 to USD 50.78. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 38.73. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 46.39. On the technical chart, the next support level is USD 35.74. Considering the company's robust track record, strategic acquisitions, strong global operations, current valuation, stable dividend yield, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 40.00, down by 0.12% as of June 25, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level. 

American Public Education, Inc.

APEI Details

American Public Education, Inc. (NASDAQ: APEI) is engaged in providing online and on-campus postsecondary education, both undergraduate and graduate degree programs, to approximately 93,800 adult learners with the help of its two subsidiary institutions, viz. American Public University System, Inc. (APUS) and National Education Seminars, Inc. (also known as Hondros College of Nursing - HCN). The education provider earns its revenues through course registrations and enrollments, instruction services, tuition, and other fees. The company segments are organized in line with these institutions. As of June 25, 2021, the company’s market capitalization stood at USD 549.49 million.

Providing Counselling and Teletherapy Solutions: On June 03, 2021, Uwill, a leading provider of teletherapy courses to students, announced its partnership with APUS to increase awareness on mental health matters for APUS students. This program will provide the students with free access to registered counselors via video, phone, chat facilities.

Q1FY21 Results: The company reported an increase of 18.66% in revenues to USD 88.54 million in Q1FY21 (ending March 31, 2021) compared to USD 74.62 million in Q1FY20, primarily driven by the increase in total students and net course registrations during the quarter. APEI segment contributed 87.44%, while the HCN segment contributed 12.57% to the total revenues in Q1FY21. Total enrollment at HCN in the quarter increased to approximately 2,300 students from approximately 1,600 students in Q1FY20. The company reported a 3.35x YoY surge in net income to USD 8.11 million in Q1FY21 from USD 2.42 million in Q1FY20.

Q1FY21 highlights (Source: Company Presentation, Q1FY21)

Key Risks: Service members of the US Armed Forces are eligible to receive tuition assistance (TA). Students participating in TA comprised approximately 43% of APUS’s adjusted net course registration for FY20. Hence, the company’s revenue and the number of students will be significantly affected if APUS does not receive funds under the Department of Defense (DoD) tuition assistance program.

Outlook: For Q2FY21, the company expects its new student enrollments in the HCN segment to increase by approximately 37% compared to the same quarter of the prior year. Its EPS for Q2FY21 is expected to be in the range of USD (0.04) to USD 0.03, with adjusted EBITDA ranging between USD 7.3 million and USD 9.2 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

APEI Daily Technical Chart

Stock Recommendation: APEI’s share price has declined by 24.07% in the past three months and is currently leaning towards the lower band of the 52-week range of USD 24.97 to USD 41.09. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 44.64. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 33.61. On the technical chart, the next support level is USD 24.15. Considering the significant decline in the stock price in the past three months, strategic partnerships, debt-free company, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 28.26, down by 3.98% as of June 25, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level. 

LSI Industries, Inc.

LYTS Details

LSI Industries, Inc. (NASDAQ: LYTS) is a leading producer of American-made lighting and graphics solutions to numerous outlets such as petroleum, grocery, quick service restaurant (QSR), and convenience stores. The company generates its revenues from 2 segments, viz. 1) Lighting, which fabricates and assembles both conventional and LED light sources for outdoor and indoor lighting solutions. It also designs and manufactures electronic circuit boards under this segment, and 2) Graphics, under which LYTS manufactures and designs digital visual image elements like interior branding, architectural and digital signage, and other electrical board systems for various retail stores. As of June 25, 2021, the company's market capitalization stood at USD 211.20 million.

Acquisition of JSI Store Fixtures (JSI): On May 24, 2021, LYTS announced the acquisition of privately-owned JSI from RFE Investment Partners, for an all-cash purchase price of USD 90 million. JSI is a Maine-based provider of retail merchandising solutions to its North American customers. This acquisition is expected to significantly increase LYTS' footprint within the grocery and convenience store space while driving its revenue synergies across the shared product portfolio. The company funded the transaction from its existing cash and USD 100 million credit facility.

Combined US Footprint (Source: LSI Acquisition of JSI Presentation, May 25, 2021)

9MFY21 Results: The company reported a 9.70% decline in net sales to USD 218.60 million during 9MFY21 (ending March 31, 2021) compared to USD 242.09 million during 9MFY20, primarily due to a decrease in sales from the Lighting segment during the period. The Lighting segment contributed 62.33%, while the Graphics segment contributed 37.67% to the total revenue during the first nine months of FY21. The company witnessed a 29.82% decline in net income to USD 5.67 million in 9MFY21 from USD 8.08 million throughout 9MFY20. LYTS recorded a decrease in free cash flow to USD 23.12 million all through 9MFY21 vs USD 35.59 million during 9MFY20.

Key Risks: The company generated approximately 36% of its net sales during FY20 from the petroleum/convenience store market. The petroleum market is highly volatile and is susceptible to negative reactions to major political events in the Middle East, and to the supply and demand economics of oil. Any major disruption in the petroleum industry may result in a reduction in sales from retail stores. Any such effects could impact the company’s financial standing.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LYTS Daily Technical Chart

Stock Recommendation: LYTS share price has declined by 13.63% in the past one month and is currently at the mid-band of the 52-week range of USD 5.33 to USD 11.22. The stock is currently trading close to its 50 and 200 DMA levels, and its RSI Index is 50.39. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 9.69. On the technical chart, the next support level is USD 7.10. Considering the company's market dominance in the US, strategic acquisition, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 8.24, up by 3.39% as of June 25, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.