School Specialty: Education Distributor with High FCF Yield and Catalysts

Patrick Retzer of Retzer Capital Management presented his in-depth investment thesis on School Specialty (OTC: SCOO) at Wide-Moat Investing Summit 2018.

Thesis summary:

School Specialty is a leading distributor of supplies, furniture, technology products, supplemental learning products and curriculum solutions to the education marketplace. The company provides educators with innovative and proprietary products and services, from basic school supplies to 21st-century classroom designs to science, reading, language, and math teaching materials as well as planning and development tools.

Recently, the company has received recognition as a leader in the area of school safety and security, which is likely to favorably impact not only their operating results but their brand. SCOO already serves 95+% of the school districts in the U.S., a remarkable accomplishment considering the size of the company and the complexity of dealing with schools and districts. SCOO carries 100,000+ SKUs, bringing more breadth and depth than any competitor to this $12 billion addressable market. Perhaps most importantly, SCOO has strengths in the two most critical issues facing U.S. public education today – safety and security and the lack of acceptable levels of favorable outcomes.

SCOO trades at a ~17% FCF yield and 5.2x estimated EBITDA to enterprise value. Considering the recent valuation and several catalysts on the near-term horizon, Patrick expects SCOO to trade in the $30-40 range over the next eighteen months.

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About the instructor:

Patrick Retzer spent the first several years of his career in public accounting and then developing tax planning software all while earning a Master’s in Taxation. He moved into investment management in 1987, joining Heartland Advisors, manager of the Heartland family of mutual funds in Milwaukee, Wisconsin. While at Heartland, he was portfolio manager of the Heartland US Government Securities Fund (#1 General US Government Fund for the 5 years ended 12/31/93 according to Lipper), he started and managed the Heartland Wisconsin Tax Free Fund (Wisconsin’s first double tax free fund) was co-manager of the Heartland Value Plus Fund, and managed private accounts. In 2000, Pat left Heartland Advisors to start Retzer Capital Management, LLC and the Retzer Fund I, LP. Pat believes his 30+ years of experience in both fixed income and equity management as well as his background as a CPA and tax specialist give him a unique perspective on the financial markets.