Silgan Holdings
(NASDAQGS: SLGN)
Victor Murthi
Vignesh Murali
Wei Yan
Date Presented: April 27 2010
Screening Process
Energy Diamond Offshore Drilling Inc. (DO)
Materials Silgan Holdings Inc. (SLGN)
Industrials General Cable Corp. (BGC)
Consumer Discretionary McDonalds (MCD)
Consumer Staples Walgreens (WAG)
Health Care
Financials
Information Technology Jack Henry Associate (JKHY), MEMC Electronic Materials Inc. (WFR)
Telecommunication Services
Utilities
Screening Criteria
1) Industry Classifications: Materials (Primary)
2) Geographic Locations: United States of America (Primary)
3) Market Capitalization [Latest] ($USDmm, Historical rate): is greater than 500
4) TEV/LTM Total Revenues [Latest]: Rank is Less than 26 Relative to Screen Results as of Criterion 3
5) P/LTM Normalized EPS [Latest]: Rank is Less than 26 Relative to Screen Results as of Criterion 4
6) Total Revenues, 5 Yr CAGR % [LTM]: Rank is Less than 26 Relative to Screen Results as of Criterion 5
7) Net Income, 5 Yr CAGR % [LTM]: Rank is Less than 26 Relative to Screen Results as of Criterion 6
8) EBIT Margin % [LTM]: Rank is Less than 6 Relative to Screen Results as of Criterion 7
Presenting – Silgan Holdings Inc.
(NASDAQ: SLGN)
• 23 year old company headquartered in
Stamford, CT. Market Cap $ 2.3 Billion
• One of the top manufacturers and sellers of
metal and plastic consumer goods
packaging products. 2009 revenues :
approx. $ 3 billion
• 3 business segments
Link
▫ Metal and Aluminum Food Containers
(63%) ( largest in US)
▫ Closures ( Lids and Caps ) (20%)
▫ Plastic Containers (17%)
Business OneSource
Industry
• Containers and Packaging Industry
(NAICS: 332431)
• Non-cyclical industry due to
diverse use for products
• Expected to grow 1-2% each year
until 2013 (Datamonitor)
▫ Plastic packaging expected to
grow 3-5%
• Low barriers to entry, buyer is
medium high and yet substitute
products are low
Global Metal, Glass & Plastic Packaging Report. Rep. no. 01992105. Datamonitor, Mar. 2010. Web. 21 Apr. 2010.
Industry Trends
▫ Highly competitive despite slow
growth
▫ Rising costs: High price of raw
materials and production
reducing margins
▫ Niche markets: Customized
packaging for diverse clientele
Medical goods packaging
expected to grow 5% each
year(Datamonitor)
Global Metal, Glass & Plastic Packaging Report. Rep. no. 01992105. Datamonitor, Mar. 2010. Web. 21 Apr. 2010.
SWOT
Strengths Weaknesses
1. Strong market presence 1. High leverage
2. Good established 2. Declining operating
customer base ( Coke, margins
Campbell soup)
3. Declining market share
Opportunities Threats
1. Strategic Acquisitions 1. Slowdown in US
economy
2. Growing opportunities
in the packaging 2. Higher Competition
industry
3. Environmental Costs
3. Niche markets
Macroeconomic Factors
• Prices of raw materials
Increase in demand for biodegradable plastic as well as
aluminum/ copper have driven up prices and pressured
margins
• Derived Demand
Demand depends on demand for other products such as food
and beverages, medical supplies and chemicals. Demand for
these products are projected to increase in the near-term
future
• Emerging Markets
As industrial activity in developing economies picks up, so
does demand for goods to store and transport raw materials
and finished goods.
Competitor Analysis
Company Name Market Total Revenue Total
Capitalization Debt/Capital %
Bemis Co. Inc.
(NYSE:BMS) 3,280.2 3,514.6 40.5
Greif, Inc.
(NYSE:GEF) 2,608.0 2,835.6 47.2
Sonoco Products Co.
(NYSE:SON) 3,185.2 3,597.3 29.6
Temple-Inland Inc.
(NYSE:TIN) 2,328.0 3,577.0 50.3
Silgan Holdings Inc.
(NASDAQ: SLGN) 2,421.6 3,066.8 54.3
Competitor Analysis
Greif, Inc:
• A global producer of industrial packaging products.
• The Company operates in three business segment: Industrial
Packaging; Paper Packing: and Land Management.
• In July 2009, the company completed the acquisition of Ennis
Containers, Inc.
Competitor Analysis
Sonoco Products Company, Inc:
Provides industrial and consumer packaging products, and
packaging services in North and South America, Europe,
Australia, and Asia.
The Company operates in four segments: Consumer
Packaging, Tubes and Cores/Paper, Packaging Services
Competitor Analysis
Bemis Company, Inc:
• Manufactures and sells flexible packaging products and
pressure sensitive materials in the United States, Canada,
Mexico, South America, Europe, and Asia.
• The company operates in two segments, Flexible Packaging
and Pressure Sensitive Materials.
Competitor Analysis
Temple-Inland, Inc:
• Manufactures and sells corrugated packaging and building
products primarily in the United States and Mexico.
• The Corrugated Packaging segment serves customers
operating in the food, beverage, paper, glass containers,
chemical, appliance, and plastics industries.
• Temple-Inland’s Building Products segment offers various
products, including lumber, gypsum wallboard, particleboard,
medium density fiberboard, and fiberboard.
Ratio analysis
Profitability Leverage Efficienc
y
Gross Net Total EBIT / Total
Company
Margin Income ROE % ROA % Debt/Capi Interest Asset
Name
% Margin % tal % Exp. Turnover
Bemis Co. Inc.
19.9 4.2 9.3 5.6 40.5 7.3 0.9
Greif, Inc.
20.7 5.6 15.2 6.9 47.2 5.4 1.0
Sonoco
Products Co. 18.5 4.2 12.0 5.7 29.6 6.8 1.3
Temple-
Inland Inc. 13.6 5.8 27.8 4.4 50.3 4.5 0.6
Peer Average
18.2 5.0 16.1 5.7 41.9 6.0 1.0
Silgan
Holdings Inc. 15.0 5.2 26.3 8.6 54.3 6.0 1.3
Ratio analysis
Growth Liquidity
Net Income, Total Avg. Cash
Company Quick Ratio Current
1 Yr Growth Revenues, 1 Conversion
Name FQ Ratio FQ
% Yr Growth % Cycle
Bemis Co.
Inc. (11.4) (7.0) 2.9 3.8 48.8
Greif, Inc.
(6.9) (21.5) 0.9 1.8 39.0
Sonoco
Products Co. (8.0) (12.7) 0.8 1.2 32.3
Temple-
(7.0)
Inland Inc. (7.9) 1.0 2.1 73.7
Peer
(8.32)
Average (12.3) 1.4 2.2 48.5
Silgan
Holdings
27.5 (1.7) 1.2 2.2 68.0
Inc.
Relative Valuation
P/Sales TEV/EBITDA TEV/EBIT Trailing P/E Trailing P/B
Min 52.22 35.34 36.01 47.61 32.42
Mean 63.46 49.30 49.34 63.48 63.23
Max 75.51 72.57 70.51 91.04 52.49
Price Range : $32.42 – $91.04
DuPont Analysis
DuPont ROE Financial leverage Asset turnover
0.4
6 1.8
0.35 1.6
0.3 5
1.4
0.25 4 1.2
0.2 1
3
0.15 0.8
0.1 2 0.6
0.4
0.05 1
0.2
0
0 0
2005 2006 2007 2008 2009
2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009
Operating margin Interest burden Tax burden
0.1 0.86 0.68
0.84
0.095 0.66
0.82
0.8 0.64
0.09
0.78 0.62
0.085 0.76
0.74 0.6
0.08 0.72 0.58
0.075 0.7
0.56
0.68
0.07 0.66 0.54
2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009
DCF Valuation - Revenue
• Metal Food container
▫ “Cash cow”, growing at 5-year CAGR of 3.5%
▫ Count for 66% of revenue, organic growth is mature but it
able to past on raw material cost to customers
▫ Projected to grow at 5-year CAGR of 3.5%
• Closure
▫ Grow through acquisition, with CAGR of 17.18%
▫ Organic grow is around 12%, projected to be decreasing to
8% over 5 years period.
• Plastic container
▫ Organic growth is around 5 – 6%. Projected to be stable in
6% range.
DCF Valuation – Income Statements
• Cost of goods sold
▫ Around 87% in the past but decrease to 85% due to increase in
“manufacturing efficiency”, projected to fluctuate from 85% to 86%
• SG&A
▫ Around 4.5% in the past but increase to 5.25% due to currency
translation impact, projected to be around 5%
• Interest expense
▫ Interest coverage ratio is 4.23 in 2005 but increase to 6 in 2009 due to
higher leverage for acquisition. Projected to increase from 6 due to debt
repayment
• Income tax expense
▫ Income tax is projected around 35%
DCF Valuation – Balance Sheets
• Account receivable
▫ Receivable turnover is around 15 – 16, projected to be
stable
• Inventory
▫ Inventory turnover is around 6 – 7, projected to be 6.7
• Net capital investment
▫ Positive number, meaning they have to spend more for
Capex in the future, projected to be -0.5% of revenue
DCF Valuation - WACC
Cost of Capital
Cost of debt Capital structure
YTM of company debt 8.00%
Risk free + premium rate 7.83% Total Value % Weight
Marginal tax rate 35.00% Net debt 813.31 24.4%
Justified cost of debt 7.92% Equity 2,520.00 75.6%
After tax cost of debt 5.14% Total 3,333.31
Cost of equity WACC 10.33%
Risk-free rate 3.83%
Market risk premium 5.00%
Raw (observed) beta 0.498
Cost of equity using beta 6.32%
Market ROE 16.11%
Justified cost of equity 12.00%
DCF Valuation - FCFF
Enterprise value 3,059.380
Less: debt 813.314
Total equity value 2,246.066
Diluted sharesouts. 38.486
Price per share $ 58.36
Market price as of 04/23/2010 $ 65.79
Margin of safety -11.29%
WACC
$ 58.36 9.5% 10.0% 10.5% 11.0% 11.5%
growth rate
Terminal
2.0% 58.87 53.67 49.08 45.01 41.37
2.5% 63.38 57.54 52.44 47.94 43.94
3.0% 68.58 61.97 56.24 51.24 46.82
3.5% 74.65 67.08 60.59 54.97 50.06
5 Year Stock Price
Management Assessment
• Founded in 1987 by current Co-Chairmen of the
Board: Phil Silver and Greg Horrigan.
• Grow through organic growth and acquisitions,
able to increase overall share of the U.S. metal
food container market from approximately 10%
in 1987 to approximately half of the market in
2009
• Communicative in explaining operating result.
Ownership Composition
Portfolio Correlation
SLGN AEO DO JKHY MCD MOS WAG WFR BGC
SLGN 1.00
AEO 0.18 1.00
DO 0.12 0.20 1.00
JKHY 0.32 0.23 0.13 1.00
MCD 0.41 0.04 0.15 0.42 1.00
MOS 0.19 0.09 0.50 0.14 0.29 1.00
WAG -0.05 0.34 0.18 0.07 0.09 0.04 1.00
WFR 0.29 0.24 0.51 0.23 0.21 0.47 0.15 1.00
BGC 0.17 0.38 0.52 0.30 0.32 0.48 0.36 0.57 1.00
Recommendation
• Stable “value” company with clean balance sheet and strong cash
flow.
• Good management experienced in both improving organic growth
and acquisition growth
• Low correlation with other holdings, stock price has been increasing
six fold in the past 5 years.
• Suggestion: watch list.
SLGN AEO DO JKHY MCD MOS WAG WFR BGC Cash
Dollar holdings value $ - $ 27,045.00 $ 4,250.00 $ 10,132.00 $ 14,206.00 $ 10,588.00 $ 178,855.00 $ 9,492.00 $ 5,804.00 $ 221,450.00
Individual weight 0.00% 5.61% 0.88% 2.10% 2.95% 2.20% 37.12% 1.97% 1.20% 45.96%
Yearly port. standard deviation 11.19% Yearly port. expected return 3.92% Sharpe ratio 0.28