Saturday, August 20, 2011

American Reprographics: A Compelling Value Story

On May 21, 2007, someone at wrote an article about ARC and provided this “headline” to his/her article about ARC……American Reprographics: A Compelling Value Story”

This article was written when ARC shares were trading at just under $30.00 per share. I think what provoked the author to write the article was that ARC shares had been trading higher (previously traded at close to $38.00 per share) and that down at $30.00 per share, the shares, and ARC, were a “compelling value story.” Here’s how that article begins, then, afterwards, my follow-up comments:

American Reprographics: A Compelling Value Story

American Reprographics (NYSE: ARC) is the undisputed leader in the $5bn reprographics industry. Reprographics services typically encompass the digital management and reproduction of construction documents or other graphics-related material and the corresponding finishing and distribution services. The business-to-business services ARP provides to its customers includes document management, document distribution and logistics, print-on-demand, and a combination of these services in its customers’ offices as on-site services, often referred to as “facilities management.”

The company serves 73,000 active clients through a network of 230 branches and 3,015 facilities management contracts with a total staff of 4,500. ARP generates 65% of its revenue from the non-residential construction sector with the balance coming from residential construction (15%) and general commercial printing (20%). The Company’s flagship PlanWell software that allows for the creation of online planrooms is well positioned to become the industry standard for managing and procuring reprographics services within the AEC industry. American Reprographics, whose headquarters is in Glendale, California, generates just under half of its revenue within its home state.

Key Trading Highlights

--Market Cap as of 5/19/07 stood at 1.3bn; Current stock price is at $29.62

--The stock has traded in a 52 week range between $28.38 - $38.59

--The stock is currently trading at an attractive 10.7x LTM EBITDA multiple. On a 2007 multiple, the stock current trades at 9.0x Consensus EBITDA and 18.4x consensus GAAP Earnings

--The obvious negative to the Company is that it is tied to a cyclical sector – i.e., Commercial Construction. However to the Company’s credit, during the previous 2001-2003 downturn, ARP was able to preserve margins while revenues remained flat. The Company’s overseas expansion strategy should be able to smooth out some of that volatility and add a more secular theme to the story.


--Continued top line growth with organic growth levels returning to 7-8% range

--Ability to continue to target accretive acquisitions

--Significant free cash flow generation raises the possibility of future buybacks

--Attractive take-over target for both strategic (Iron Mountain, Pitney Bowes) investors and financial sponsors

Joel’s comments:

Well, that was then and this is now. It’s now 4+ years later, and, yesterday, ARC’s shares closed at $3.86.

If ARC was a “compelling value story” when its shares were at $30.00, I would imagine that the author of that article would find ARC shares to be an “unbelievable, outrageous bargain” at $3.86 per share!

Perhaps the investment managers at Stadium Capital Management, currently ARC’s largest “institutional” shareholder, read that article from May 21, 2007, before they took a plunge and became ARC’s largest institutional shareholder?

If you are the nostalgic type, you can access the full article at this Internet address:

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