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I’m fond of the old Japanese proverb that says, “A vision without action is a daydream,” and there are many companies that try to impress gullible investors with visions of transformation and self-improvement only to offer delays, disappointments, and excuses.
This is not so The issue here.
Manitex international (Nasdaq: MNTX) Its self-improvement plans have been implemented since my last update, and although it’s difficult to know how much improvement is ‘like for like’ (since adding a rental business will typically have a positive marginal impact on its own), I’m pleased to see what management has done In terms of rebranding and rebuilding the core of the business.
I believe Manitex is on track to reach at least the minimum of the company’s long-term performance goals for 2025, and if the company doesn’t quite get there (or “only” reaches the minimum), I think A lot of that will have to do with overall developments. To that end, while some markets like utilities are healthy right now, general construction equipment has shown some weakness, and more caution on fleet capex in 2024 could create some headwinds for Manitex through 2025.
This may all seem like an indirect compliment, but I think Manitex is in a better place since my last update. Unfortunately, the market has not agreed here lately. The shares have been outperforming other companies that cannot be loosely compared e.g Manitou, Oshkosh (OSC), and Terex (TEX) since late 2023, but has slid off the highs in late 2023. I’m not completely comfortable with the overall situation now, but I think you can claim a fair value of $7 for Manitex shares and more aggressive investors might want that. Take a closer look.
Encouraging progress
While there was some quarter-to-quarter volatility in Manitex’s results, some of that can be attributed to the difficult and volatile comps created while the company was trying to fulfill its pandemic backlog. The reason for the uproar was what I considered credible progress.
Revenue rose 8% in the first quarter of this year, with balanced growth in its lifting business (the company’s truck-mounted cranes, including articulated cranes, aerial work platforms, and other specialty lifting equipment) and leasing operations. It’s not a “like-for-like” comparison, but Oshkosh and Terex’s aerial work platform businesses posted growth of 4% and 13%, respectively, last quarter.
Improving margin has been a major focus of management since the company changed CEOs in April 2022. Since my last update on the company, 2022 gross margin has been essentially in line with my expectations, while 2023 gross margin has been more than a point better And the first quarter of the year. 24 results saw an improvement of approximately 2 points from 23.0% to 21.2%. Although the rental business provides a boost to profit margins, Manitex is also improving manufacturing, go-to-market and branding, and it shows in the results.
Benchmarking Manitex with other companies is particularly challenging, given the differences in mix and reporting structures. However, with Oshkosh and Terex’s aerial work platform businesses posting segment-wide margins of 17% and 13%, respectively, there is still work to do for Manitex (operating margin of 6.7% and adjusted EBITDA margin of 11.4% last quarter), but there was nonetheless progress from low to mid-single-digit margins that preceded these self-improvement efforts.
In the past, Manitex has felt like a company whose management was trying to get investors excited about the potential of separate engines — whether that was an aggressive M&A program, or partnering with… TadanoOr the growth potential of articulated cranes in North America. The focus now appears to be on a more holistic approach, including a rebrand that better unifies the company’s business and should help build some brand value over time. Along the way, management also discovered some operational inefficiencies and made progress in deleveraging the company.
Healthy demand, but the macro environment looks shakier
Whether Manitex can maintain this momentum is an important question looking ahead to the second half of 2024. While reported sales growth has been mostly healthy, orders have not been keeping pace; The company’s backlog fell 35% year-over-year and about 10% q-o-q in the first quarter.
Regular readers of my articles will likely remember that I have not been very optimistic about 2024 construction markets, with higher rates and increased economic uncertainty being important factors. To that end, building permits and housing starts haven’t been very strong lately, and the NAHB/Wells Fargo Housing Market Index has been subdued, with a May reading of 45 after 51 in April and March of 2024. It’s also been weaker, and construction has historically been close to half Manitex revenues by end market.
I think residential construction activity improves is a “when, not if” situation, and I’m not worried about this market. Non-residential sectors could be more challenging, especially with continued pain in sectors like office, but other categories like data centers and industrial have been healthier. Either way, I expect 2025 to be a better year.
I am bullish on infrastructure activity until at least 2026 and this has historically contributed about 10% to 20% of Manitex’s revenue. Energy sector (oil/gas) activity also remains good (about 10%-15% of revenue), and I am very optimistic about utility demand as utilities continue to modernize/modernize their networks and install new generation.
Linking a health benefit or weaker non-renewable demand directly to Manitex is not easy, as they are often sold to rental/leasing operators. To that end, I see more caution when it comes to capital spending on new construction equipment and the combination of interest rates that remain high (by the standards of the past decade, at least) and significant nervousness about the health of the economy. It won’t help convince more spending.
Expectations
For 2024 and 2025, I am following the administration’s advance guidance. I’m at the lower end of the ranges for both years, but this has less to do with Manitex execution and more to do with my concerns about the macro environment. To this point, adjusted EBITDA margin estimates of 11% for both ’24 and ’25 put me within the range of management’s guidance.
Longer term, I believe Manitex can achieve 4% to 5% annual revenue growth, albeit with significant year-to-year fluctuations (construction equipment remains a volatile, cyclical industry), and there is room to outperform if the company can To regain market share. straight mast cranes (which saw their share fall from around 40% to 35%) and take advantage of opportunities such as expanded distribution of articulated cranes and specialized lifting businesses.
On margins, I’m interested to see how far the company can go in improving its gross margin and operating margin/EBITDA margin. I think getting beyond the 12% to 13% range will be a challenge, but that’s enough to support single-digit free cash flows that are within the benchmarks of similar equipment companies. However, the nature of the rental business makes estimating D&A and capital expenditures more difficult, so there may be more fluctuations from year to year in addition to the cyclicality of the underlying business.
Between long-term discounted free cash flow and margin-driven EV/EBITDA, I think there’s a case for Manitex shares trading at around $7. Looking specifically at EBITDA, the near-term operating margins I expect support a 7.5x multiple, and further progress on margin improvement would support a positive, win-win re-rating of that multiple.
Bottom line
Manitex is a small and poorly followed company, competing against some large, well-established competitors. It’s also possible that the self-improvement narrative fades and/or that overall pressures could offset anything internal progress management can achieve from here. All that said, I think the stock price does reflect a lot of those concerns, and this is a name that deserves more due diligence for investors wanting to consider smaller players operating in cyclical end markets.
