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Paul Mueller Company MUEL
February 10, 2021 - 6:20pm EST by
broncos727
2021 2022
Price: 41.00 EPS 8.50 n/a
Shares Out. (in M): 1 P/E 5 n/a
Market Cap (in $M): 49 P/FCF 3 n/a
Net Debt (in $M): 0 EBIT 16 0
TEV (in $M): 75 TEV/EBIT 5 n/a

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Description

Paul Mueller Company.  Microcap.  Illiquid.
 
Headquartered in Springfield, Missouri, MUEL was incorporated in 1946. The company is a manufacturer of
high-quality stainless-steel tanks and related industrial processing equipment for end markets that include:
dairy farming, beer/alcohol production, pharmaceutical ingredient production, and chemical/energy
production. The Mueller family controls roughly 17% of the share and the CEO is third generation of family
leadership. The shares are thinly traded with total outstanding share count at 1.196 million. 
 
EV including the full pension obligation ($27M) = $75M or 3.3x TTM EBITDA. EV/TTM FCF multiple (ex-
maintenance capex of $4m/yr.) is 4x. Book value was $36 per share at 3Q Sep 2020. This seems pretty
cheap given the long history of profitable operations and a nicely growing (and very profitable)
pharmaceutical equipment segment. A multiple of 7x TTM EBITDA yields a $110 per share stock price.
 
In spite of a relentless five-year downturn in the dairy business (which still generates positive FCF) the
company has managed to keep overall revenues flat – and greatly improve operating and free cash flow
margins – by executing well on the pharmaceutical market opportunity.
 
As can been seen in the summary financial metrics below, the Pharma segment growth is driving an overall
expansion of Gross, EBITDA and FCF margins.
 
 
 
 
The following table shows the segment breakout from 2019 annual report. While pharma is
buried in the Industrial segment numbers, we suspect the pharma segment contribution
continued to grow in 2020 (to an estimated 40% of overall revenues – which would represent
about 70% of Industrial segment revenue estimated for 2020). This assumption is based on the
continued margin expansion shown through the most recent financial report (3Q Sep 2020).
We estimate the pharma sub segment may now represent roughly half of the Sep 2020
reported $75M backlog. 
 
 
 
 
The Pharma segment growth is driving an overall consolidated margin lift, offsetting the negative operating
leverage of the dairy segment.
 
The dairy business has shrunk by $14M in the past six years. The NV/Euro dairy operations represented $54M
of the overall Dairy Equipment segments $78M in 2019 revenues. The domestic dairy business has also
shrunk, as 5 years of low milk prices has killed small US farmers, with the larger farms gaining share and able
to take advantage of imported equipment pricing well below MUEL. Imported equipment has taken 40%
share of this market from near zero five years ago.
 
 
 
 Here is a table of the income statement for the most recent four quarters:
 
 
 
 
 
 
 
The maintenance cap ex of the overall business has been in $3M - $5M annual range for the past 5 years,
depending on small incremental capacity additions. The outlier being the decision in 2016 to build a new
$21M mfg. plant in the Netherlands to consolidate three money losing plants. It became operational mid-
2017.
 
MUEL at 3Q Sep 2020 had $20M in total debt with nearly all of it recourse to the BV subsidiary and the plant.
MUEL US has no debt and consolidated overall cash position (nearly all in the US) was $21.6M. The unfunded
pension obligation (gap between plan assets and plan liabilities) has been slowly shrinking at about $2M per
year and is at $27M currently.
 
In summary, we believe there is a large gap between the intrinsic value of the business and the current share
price. When and how this gap closes is not clear. We do believe this is the type of business that would be
attractive to a number of private equity buyers. Importantly, the founding family no longer owns a
controlling stake (at roughly 17%). The cheap valuation reflected at the current price should not be a function
of a “minority discount.” For example, when looking at the valuation of something like BKUTK it is sensible
and prudent to heavily factor the controlling shareholder. In this situation, our understanding is that this is
not a family controlled business, at least in mathematical terms. But perhaps there is a family control in
effective terms arising from decades of inertia. This is our understanding at least. It seems the largest holder
is the Fuss Family at 20%, and to our understanding is that they are unrelated to the founding family but have no
board representation. We could be incorrect in this assessment.
 
 
 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

There is no known catalyst, it is just a cheap and overlooked security.  Further expansion into the pharmaceutical industry could reduce the cyclicality of earnings, improve margins, and diversify away from the boom bust dairy business.  Continued reduction of the underfunded pension would also be helpful.

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