Dump Trucks as a Service
Wall Street loves anything “as a service” these days.
Apple’s selling fewer phones, no problem, have you seen their service business. The app store is the future.
Need a ride service…as of today, we now love Uber.
Why? Because the CEO said today, “You know, we’ve been running this business for a while and trying all kinds of experiments, e.g. food delivery. We looked at the numbers and if we just provide rides, focus on cutting costs, and investing in that business, we think we can actually make a profit.” Or, something like that.
Ding. We love Uber.
Netflix. Amazon. Microsoft. Service, service, service.
The service is a great business model because it has recurring revenue, which means predictability.
And businesses (and stocks) with predictable revenue streams are easier to value, more stable, etc. etc. etc. And, that equals Wall Street analyst love.
On Tuesday, February 11, shareholders of B Riley Principal Merger (BRPM) will vote to acquire Alta Equipment Holdings. (Yes, they’ll vote to acquire, just under 11% of the shares were redeemed.)
Alta rents equipment to industrial and construction clients. Think forklifts to bulldozers, to dump trucks, to lifts.
It’s a pretty good story. The industrial and construction equipment rental market is fragmented.
And, Alta is rolling up companies in an old school nuts and bolts business, run by some old school nuts and bolts managers.
But, you’ll never guess what Alta has…a service business.
“We can rent you the equipment, and also service it. And, while we’re here, why don’t we sign a service agreement for the equipment you already have. We service and maintain the stuff we rent out, so why not let us do it for you?” Sign me up.
When it faux IPOs next week, Alta will be the only publicly traded industrial and construction equipment rental company. Oh, and don’t forget, Wall Street analyst…the service business.
With everyone pushing Tesla and Apple and Microsoft to new highs, why buy an equipment rental company?
Let’s look at 3 reasons.
Management is Top Notch
Since 2008, Ryan Greenawalt, the Alta CEO has done 16 acquisitions, expanded the business from one state to seven, expanded branches from 9 to 31, and increased the revenue base ~10X.
He’s putting 85% of the funds from the acquisition of his company into the new company stock. Man’s gotta pay himself a little, right.
Greenawalt bought the company out in 2017 and has grown EBITDA 73% since then. Dude’s a rock star.
Geography, Geography, Location
The company has expanded its footprint in the midwest and some of New England, but still has room to grow there, AND everywhere else.
With 31 locations in 7 states, it looks like Alta is just at the starting line.
The cash infusion from the acquisition will allow the company to complete 2 acquisitions already in its crosshairs. The company has letters of intent to acquire $21 million more in EBITDA at the close of the Alta acquisition.
And, a fragmented rental market leaves the field wide open for further expansion.
Greenawalt has shown both aggressiveness and intelligence in guiding the companies growth, and I would expect nothing less moving forward.
Plus, another positive for the stock at least short term, ALL of their business is in the U.S. No China exposure. No knock to earnings due to coronavirus.
Did I Mention a Service Business?
One of the striking things about Alta’s business model is 20% of the revenue is from services, but that services business makes up 48% of their gross profit.
Can you say, room to expand the service business??
Currently services makes up only 14% of their end market business. If it’s obvious to me, I’m sure Mr. Greenawalt has it in his crosshairs as a business to be expanded.
The other end markets are pretty evenly distributed, with no market making up more than 25% of the company’s $579 million in revenue in 2018.
These three things alone should make the company a darling of Wall Street analysts when they start coverage after the faux IPO.
Warrants, of Course
I’m long this one ahead of next week’s vote via the warrants. No options trading on the stock yet, so the warrants are the only way to get leverage at this point.
I like the possible faux IPO play (may flip a few into any run jump higher), but also like this one as a hold given the seeming turn in the U.S. manufacturing data recently, and continued low interest rates even with good unemployment numbers.
For more trade ideas…