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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (25311)	11/20/2006 10:49:45 PM
From: gcrispin	Read Replies (1) \| Respond to of 78688

I passed on MWA after listening to their last CC. Fifty percent of their revenues come from new housing. They expect a decline on that side of their business and pitched that the infrastructure side would make next year a bit plus or essentially flat. At least that was my take on their forward guidance, which was vague until the Q&A. I still see analysts predicting an increase in earnings for next year. So I don't see how that computes. There has been some cost savings from consolidations within their company, so that could explain some of the higher earnings projections.

To: Paul Senior who wrote (25311)	11/20/2006 11:07:07 PM
From: Spekulatius	Respond to of 78688

re WLT, MWA. I basically regard WLT as a cheaper way to get into MWA. I like MWA's prospects and plan on holding my spinoff shares. MWA looks expensive based on current PE but a closer look reveals that it's cheaper than it looks. MWA current earnings are depressed by a high tax rate (66%) and some extraordinary expenses as well as amortization expense (28M$ annually). the amortization expense is not transient but i tend to add those back into earnings anyways since they are non-cash. The EV/EBITDA is around 8 which is a moderate valuation. Merger synergies and lower raw material prices (copper!) may help improve earnings going forward. We should receive MWB shares with more votes which should trade at small premium to MWA shares. I think the stub may get under pressure after the spinoff more so than the MWA shares.

To: Paul Senior who wrote (25311)	6/20/2007 12:07:29 PM
From: E_K_S	Respond to of 78688

Hi Paul - The premium spread for MWA Class 'A' shares vs the MWA Class 'B' shares is almost 13% now. finance.yahoo.com According to a recent management presentation, Class 'B' shares will eventually be consolidated into 'A' shares. I have been buying the MWA Class A shares and today sold some November $17.5 covered calls that locks in a 24% gain if my shares are called away. To further enhance the return by another 10% is to buy an equivalent number of Class 'B' shares with the expectation that when the shares are consolidated into one class, the premium will disappear. Therefore, you can structure a covered call position (buy/write) using the Class 'B' shares for the covered call stock. I plan to take a slightly less hedged approach and on any check back, I will just buy Class 'B' shares to add to my Class 'A' share position. I am neutral on the company in general after listening to their conference call (JP Morgan 6/12/2007). The positives include: (1) They have restructured their large debt so that they lowered their effective long term rate. It's still quite large and the one time (and reoccurring savings) they gain from their merger will be used to pay down this debt and (2) According to management, their are huge barriers to entry into their business as many of their products require "special certification" that in some cases take years to receive. This provides a good "moat" that secures their market share. The main thing that caught my attention is that the company is subject to huge raw material commodity (eg brass & copper) price swings that are difficult to pass on to their customer because of the lag time from order to delivery. This includes the time to manufacture, distribute and deliver the product after the original customer contract is taken. Their customers (typically municipalities) do not like to keep much inventory on site. Some quarters (like this quarter) they have to eat the raw material price increase (which is huge for brass and copper) since it currently takes them up to two quarters to build their finished goods, have them delivered to their distributors and eventually to the customer. I expect this lag time will shrink substantially in the future as they get their JIT manufacturing systems in place and better utilize their new consolidated factory and shipping centers. Finally, 30% of their business is to Home Depot and with the pending sale of HD's supply business, their was some concern it may impact future orders. Management was not too concerned but I suspect that the new owners of the HD's supply business may want to revisit their purchase contracts with Mueller which may impact their product margins from this line of business looking forward. EKS