Charles Hoeveler presented his in-depth investment thesis on Lawson Products (LAWS) at Wide-Moat Investing Summit 2015.
Lawson Products is a North American distributor of consumable products to the maintenance, repair and operations (MRO) market for industrial, commercial and government customers. The overall MRO market is ~$200 billion, but LAWS participates in a $20-$25 billion “vendor managed inventory” niche. LAWS serves over 70,000 customers and distributes ~300,000 products including fasteners, tools, aftermarket auto supplies, etc. The approach is high-touch and service-oriented where LAWS sales people monitor, order, unpack and refill products for their customers, resulting in 60%+ gross margins. LAWS management is outstanding. CEO Mike DeCata took the helm in 2012 after turning around Chefs Warehouse, another distribution business. He and CFO Ron Knutson routinely make sales calls and meet daily with senior management to review key performance indicators at a branch and SKU level. As new salespeople become more productive and incremental sales leverage the fixed cost base, Charles thinks LAWS can double EBITDA margins over the next few years. Additionally, LAWS benefits from a low cash-tax rate and is capital light, so cash flow per share can compound at over 30% over the next few years. Valuation is an undemanding 9.5x 2016E FCF.
About the instructor:
Norwood Capital Partners, LP is a concentrated, fundamental value-based long/short investment fund. Norwood relies on primary research to build a portfolio of dominant businesses trading at a discount to intrinsic value. Norwood is managed by Charles Hoeveler, with 15 years of experience in institutional asset management.
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