Shaw To Acquire Bagwell Brothers, Inc.
We maintain our Buy rating on The Shaw Group, Inc. (SGR) with a twelve-month price target of $36 per
share based on 14x fiscal 1999 (August) EPS. We believe Shaw remains undervalued trading at 9.2x 1999E
EPS based on expected earnings growth of 53% in fiscal 1998 and 38% in fiscal 1999. Shaw will continue to
benefit from strong demand in both domestic and international process and power markets, and the pending
expansion into the offshore energy market.
" We are maintaining our 1998 and 1999 EPS estimates of $1.85 and $2.55 pending completion of the announced
acquisition of Bagwell Brothers. Based on a preliminary analysis, the acquisition is expected to be accretive
to earnings adding approximately $0.10-$0.15 per share on an annualized basis.
" SGR signed a letter of intent to acquire Bagwell Brothers, Inc., a Louisiana-based fabrication and construction
company which has served the offshore energy industry for over 15 years. Shaw will finance the acquisition
through a combination of 675,000 shares of SGR common stock and $1.6 million in cash, representing a total
purchase price of $17.4 million. The transaction is expected to close by the end of June 1998, subject to
completion of due diligence and approval by Shaw's board of directors and other regulatory approvals. Shaw
plans to account for the transaction on a pooling-of-interest basis.
" Bagwell's services consist of design and fabrication of offshore production modules for oil and gas platforms, as
well as management of offshore construction and maintenance work. Bagwell's customers include majors and
large independent oil companies. Bagwell's primary competitors include Unifab International (UFAB - $20
15/16,NR) and Gulf Island Fabrication, Inc. (GIFI - $23 5/16,NR).
" " Bagwell has annual revenues of approximately $35 million. Although the Company has not disclosed
profitability information, an analysis of recent results for Unifab and Gulf Island reveals EBITDA margins of
14%-16% and net income margin of approximately 9%-10%. Based on the above, our very preliminary
estimates of potential profitability for Bagwell are EBITDA of approximately $5.0-$5.5 million and net income
of $3.0-$3.5 million.
" We view the acquisition as attractive for Shaw based on the following:
- Expands Shaw's customer base to the offshore oil and gas industry
- Potential growth through international expansion of Bagwell's services
- Potential growth through additional acquisitions in the offshore fabrication sector
- Attractive estimated acquisition multiple of less than 4x EBITDA
- Accretive to earnings adding an estimated $0.10-$0.15 per share on an annualized basis |
