Forced Sell-Off / Spin-Off
Alex from the Investment Memo blog and Andrew from Yet Another Value Blog (see part 1 and part 2) have recently covered SharkNinja (SN). It is an interesting but quirky spin-off that appears to be under the radar for most investors. SN makes small houselhold appliances for the US market and was spun off by a Chinese parent JS Global Lifestyle. It seems that the spinco has experienced a fair bit of forced selling as JS Global Lifestyle’s shareholder base was largely comprised of Chinese institutional investors who cannot own assets in the US due to various capital controls and mandates. SN is currently down nearly 20% since the first trading day on July 31.
SN is now valued at a 14.3x TTM P/E – an undemanding multiple for a business with revenue CAGR of 20% in the last 15 years, which also has high ROE (24% in 2022), and leading market shares in many US household appliance segments. The company is also spending quite a lot of growth capex (much more than peers) and adjusted for these growth expenses, the company would look even cheaper. Meanwhile, SN’s peers including SEB SA, De’Longhi, Helen of Troy, Breville, and Zojirushi are valued at 20-30x P/E. Other reasons for SN’s discount include limited sell-side coverage and the fact that the parent and spin-co are controlled by a Chinese businessman with a 57% stake.
The valuation discount due to Chinese ownership seems excessive as the majority shareholder has had a good track record of capital allocation at JS Global Lifestyle (SN’s previous parent), including materially increased dividend payout ratio since 2017 and share buybacks. SN’s spin-off, initially expected at the end of 2023, was also completed slightly ahead of schedule. Management has received a large amount of share grants concurrent with the spin and is highly incentivized to drive the share price upwards. Subsiding pressure from the forced sell-off and increasing sell-side coverage should act as catalysts for the stock price re-rating.
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