Eric DeLamarter of Half Moon Capital presented his investment thesis on Enerpac Tool Group (US: EPAC) at Wide-Moat Investing Summit 2024.

Thesis summary:

Enerpac is a market leader with demonstrated pricing power across its core industrial pumps and lifts products. The company has undergone a series of transformations that have significantly improved the business profile.

In 2021, a new CEO (formerly at JBT, ITW, DHR) took over and initiated a self-help 80/20 plan which has expanded Enerpac’s margins and earnings. Starting later this year, the 80/20 plan will translate to a material uplift in FCF as program implementation costs cycle-off and the related benefits continue to accrue. Investors are not giving EPAC sufficient credit for the margin improvement and/ or not believing it to be sustainable.

Meanwhile, a favorable shift in end-markets has occurred. Enerpac previously had a high level of exposure to downstream E&P (cyclical, shorter-term projects tied to oil prices), but E&P has become a small percentage of the customer base. This is another dynamic that seems to be underappreciated.

EPAC lost all sell-side coverage following the divestiture of a segment, and the equity has fallen off the radar. Enerpac generates attractive ROIC, has an excellent brand reputation, and possesses pricing power.

The stock recently traded at 18x forward EPS vs peers at 24-28x. According to Eric, several catalysts could lead to 30+% upside over the coming quarters.

Watch this session:

slide presentation audio recording

This session is also available as an episode of Discover Great Ideas, a member podcast of MOI Global. (Learn how to access member podcasts.)

About the instructor:

Eric DeLamarter is the PM of Half Moon Capital— a research intensive, deep value-oriented, long/ short partnership which invests across various sectors and markets with a focus on small-mid cap companies and special situations. Prior to founding Half Moon, Eric was at Stelliam Investment Management, a value-oriented hedge fund in New York, an associate at Lineage Capital, LLC, a middle-market private equity fund and an investment banking analyst at RBC Capital Markets. Eric holds an MBA from The Heilbrunn Center for Graham & Dodd Investing at Columbia Business School, with a concentration in applied value investing and a BA from the University of Michigan.

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