USCR, or U.S. Concrete, Inc., is a leading U.S. construction materials company based in Euless, Texas. Its common stock is traded on the NASDAQ under the symbol USCR.
The year was 1996. A seasoned entrepreneur embarked on a national roll-up of ready-mix concrete companies. Fast forward to 2007: Fueled by easy Wall Street financing, USCR was generating over $800M in revenues. But as the tide of economic expansion began to recede, something became painfully clear: the rollup strategy was seriously flawed. There were simply no “cost synergies” to be found. By 2010, the Company’s revenues had shrunk by 43% and it was hemorrhaging cash. Bankruptcy ensued, shareholders were wiped out and the Company was restructured by debt-holders.
In 2011, USCR recruited Bill Sandbrook as the new CEO. His turnaround strategy was sound. He knew that concrete is a local business, and that success would hinge upon:
- Being #1 in each of its markets
- Enabling decentralized decision making
- Cultivating a winning culture
An outstanding CFO (Matt Brown) was recruited. Key operational changes were instituted. The Company shed unprofitable business lines, exited certain markets, and began strengthening its three key geographic markets.
His timing was impeccable. The strategy worked.
By year-end 2013, the Company’s revenues, margins and cash flows had been steadily rising for two years. The Company was growing organically and gaining additional market power by investing free cash flow and a new credit facility into small “tuck-in” and “bolt-on” acquisitions in primary markets. The Company’s share price began to respond positively.
Nonetheless, the equity markets remained unconvinced (or unaware) of the Company’s long-term prospects. It didn’t help that USCR had no sell-side equity coverage.
But when USCR rose to the top of our quantitative screens in January 2014, we took a closer look. We liked what we saw. Financial condition? Solid. Insider ownership? High. Corporate governance? Sound. Attractive markets? Check. Business model? Simple. Intense rivalry? Absolutely. Fundamental value? Rising. Trading at a suppressed multiple? Yes indeed. A mosaic began taking shape.
That’s when our real homework began. Two of our partners had excellent contacts in the concrete industry and one knew the CEO. That quickly led us to on-site meetings with the Company. We completed our initial analysis, met with senior management, shared our findings and formed a solid relationship.
Next step, we toured operations in the Company’s two largest markets – California and Texas. Saw their systems in action. Had lunch with regional managers. Rode around on concrete delivery trucks. Learned more about the competition. And kicked the proverbial tires. What did we learn?
- USCR was firing on all cylinders
- The Company had great regional leadership
- Its bargaining power was increasing
- Demand was rising in its markets
None of these insights could have been gained without investing time on site. What else? Anchor Capital was apparently the only firm in years to conduct that type of “on the ground” due diligence!
After that initial round of meetings and site visits, we revised our analysis to accurately reflect our evolved understanding of the Company’s potential. Our resulting valuations (cash flow and comparables) showed a company worth at least $45/share, at a time when the stock was trading around $22. We tested our thesis with several analysts and institutional investors, and found no concrete reasons to invalidate our views or assumptions.
And so, after 60 days of intensive homework, we invested 15% of our capital into USCR. Then we began actively managing the investment. We kept in close touch with CEO Bill Sandbrook and CFO Matt Brown. Introduced them to regional concrete leaders we knew well in a strategically attractive market (our own back yard). Shouted the USCR story from the rooftops to sell-side analysts and institutional investors. Went back and toured operations again. And followed all the industry data and trends.
In March 2015, Bill Sandbrook addressed our partners at the Anchor Annual General Meeting. By that time, USCR’s stock was trading in the $33 range. Two equity analysts had initiated coverage with 12-month price targets of $42. By the end of the month, the stock crossed $36. The USCR story was just beginning to garner broader interest with institutional investors; meanwhile, our return on investment was already over 50%.
The Company’s stock price only went up from there. In our opinion, USCR has a bright future under Bill Sandbrook’s leadership. And word on the street (which we don’t doubt) is that USCR’s stock has “plenty of room to run.”
We hope you have enjoyed this first in a series of case studies.
Please contact us if you have any questions.