Tredegar: Normalized Business Stronger Than It May Appear

Jeff Sutton of ValueTree Investments presented his investment thesis on Tredegar Corporation (US: TG) at Best Ideas 2022.

Thesis summary:

Tredegar Corporation is a diversified manufacturer that operates in three segments: aluminum extrusions, PE films, and flexible packaging. The company has over 65 years of consistent results, a history of making successful acquisitions and investments, and has delivered prudent returns to shareholders through a recurring quarterly dividend since 1989 and several outsized special dividends in recent years.

At recent share prices, TG trades at ~9x earnings and ~5.5x EBITDA, and the stock has an FCF yield of nearly 12% while paying a ~4% dividend.

Recent divestitures of several business lines have made the consolidated financial statements somewhat cumbersome to analyze, and the management team’s culture of seemingly near “radio silence” when communicating to investors could be confusing to the market. On the other hand, astute analysts should be able to conclude that Tredegar’s ongoing, normalized business is stronger than it may at first appear.

The company seems to be outperforming its peers from an operational perspective, with notably higher EBITDA and cash flow margins across its segments, as compared to a basket of comparable metal fabricators and plastics manufacturers. Yet, the competitors are valued higher than Tredegar.

If Tredegar were to be priced according to similar valuation metrics to its peers, the stock price could be in a range of $22-27 per share, or approximately 75%-125% above the recent stock price. Similarly, appraising Tredegar’s intrinsic value based solely on the merits of its own cash flow generation, Jeff estimates that the company has a long-term intrinsic value of $20-22 per share, or roughly 60%-80% above the recent stock price.

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About the instructor:

Jeff Sutton has over 20 years of investment experience, and has been a Chartered Financial Analyst (CFA) charterholder since 2003. In addition to his work as the Founder and President of ValueTree, Mr. Sutton is also the Chief Operating Officer of Fundamental Global, a private partnership focused on long-term strategic holdings. Prior to founding ValueTree, he worked as an equity analyst for a long-short hedge fund, as a project manager at a $1 billion family office, and as an associate at a Southeastern private equity firm. Academically, Mr. Sutton graduated summa cum laude and Phi Beta Kappa from Rhodes College with two B.A. degrees, with majors in International Business and French. He has served as a member of the Rhodes College Alumni Executive Board. He has also earned a Master of Business Administration (MBA) degree from the Darden Graduate School of Business Administration at the University of Virginia, where he was the Senior Portfolio Manager of the Darden Fund.

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