{"id":55177,"date":"2023-08-31T03:58:56","date_gmt":"2023-08-31T07:58:56","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/ufp-technologies-selloff-presents-asymmetrical-payoff-from-economic-leverage-on-capital\/"},"modified":"2023-08-31T03:59:00","modified_gmt":"2023-08-31T07:59:00","slug":"ufp-technologies-selloff-presents-asymmetrical-payoff-from-economic-leverage-on-capital","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=55177","title":{"rendered":"UFP Technologies: Selloff Presents Asymmetrical Payoff From Economic Leverage On Capital"},"content":{"rendered":"
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Investment briefing<\/h2>\n

UFP Technologies, Inc. (NASDAQ:UFPT<\/span>) continues to present with compelling long-term value in my informed opinion. The company’s rally from 2022 extended to mid-July and the equity line has since rolled over, in line with the sharp selloff in broad healthcare in the same month. Since <\/span>the last publication, there are a number of investment updates in need of discussion.<\/span><\/p>\n

Critically, when squaring off the economic characteristics of UFPT’s business growth the company is creating tremendous value for long-term equity holders. It had deployed $44\/share in business capital last period to produce $6.90\/share in trailing NOPAT, 14.5% return on investment. This percentage has grown every consecutive period from 2022\u20142023. As far as compounders go, the company’s operating assets are pulling their economic weight, and investors now have the opportunity to allocate at a firm producing 2\u20133% in economic profits above the 12% long-term market return on capital. This is the kind of business we relish and look to position outsized weightings against in our equity risk budget.<\/span><\/p>\n

Going forward, my calculus calls for the company to sell at an EV of $2.5Bn over the coming 12\u201324 months, a 72% value gap from the current market price. This supports a buy rating, and here I’ll cover all the investment updates and moving parts investors need to know for the UFPT investment debate. Net-net, reiterate buy.<\/p>\n

Figure 1. <\/strong>UFPT weekly equity line, log scale, with respective highs & lows<\/em><\/p>\n

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Data: Updata<\/span><\/p>\n<\/figcaption><\/figure>\n

Critical facts to reiterated buy thesis<\/h2>\n

Brief overview of operations<\/em><\/h3>\n

UFPT is in the business of custom design and manufacturing. It has a footprint in several markets, but specializes in medical devices\u2014this is why it’s on our radar. The company is positioned uniquely along the medical devices value chain. It provides a manufacturing link to some of the larger medical instruments and supplies players around the globe. It also has a presence in markets for sterile packaging and engineered custom products.<\/p>\n

The company’s extensive portfolio includes single-use and single-patient devices\/components that are used within various medical applications (think minimally invasive surgery, infection prevention, orthopedic implants, and so forth). Still, it also manufactures custom mouldings for industrial applications, ranging from engine\/manifold covers to knee pads and helmets to protective packaging, just to name a few.<\/p>\n

This kind of business attracts me, i.e., the diversified manufacturing business. Given its exposure to several markets, UFPT’s top-line is hedged against large sigma events that could otherwise hurt more concentrated players. Still, its medical devices segment makes up ~85% of revenues, and so this is where I am most aligned with the company for our core holdings.<\/p>\n

1. Q2 earnings insights<\/em><\/h4>\n

UFPT clipped a 6% YoY increase in sales and put up $100mm for the quarter on core EBITDA of ~$20mml, up 27% YoY. For the YTD, sales were up 19.4% on H1 last year, pulling to c.$198mm.<\/p>\n

Positive sales trends were observed across its various markets, with the medical sector driving a 16% growth to $86.15mm. The remainder of the portfolio put up the following numbers:<\/p>\n