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WOR - Worthington Industries


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I might add to a small position I opened yesterday after more research.  The company was one of the first outside investors in Nikola and from what I can gather put in $2M for 19,000,000 shares (of which it recently sold 5,000,000).  Trevor Milton, Nikola's founder, funded the early startup with proceeds from the sale of his company to Worthington; Mark Russel, Nikola's CEO, was Worthington's President & COO until 2018. 


Anyway, Worthington is a diversified metals company with concerns in value-added steel processing and manufactured metal (pressure cylinders, hand torches, engineered cabs, etc.)  It's a cyclical business, and they have lots of auto exposure, but by all counts they appear to be well-run and they've made some excellent investments.  For example one of their joint ventures, WAVE, is a leader in ceiling suspension systems and throws out like $100M in distributions every year.  In fact they have it recognized as a liability per the equity method though it seems like this investment itself should be worth at least $600M and possibly double that. 


I think there's good alignment.  The recently-departed CEO (son of the founder) owns like a third of the company and new management has a quite OOM option struck around $62.5/share (I think); but it was OOM even before COVID so I think it's something they're pretty confident about.  The company has been paying a steadily-growing dividend, and also repurchased over 10 percent of its outstanding shares over the past few years.  All of this, I think, is a pretty good recipe for good capital allocation decisions.  They also highlight some things about employee ownership, but I don't know where or how far this goes. 


I also thought their nexus with Nikola is pretty interesting.  For such an "old economy" company, they've managed to make extremely attractive investments in hot technology, and have the kind of management that's sought after to run a company like Nikola.  So they're trading at about 14x last year's earnings.  The NKLA investment isn't recognized anywhere on the balance sheet.  It is subject to some lockup agreements but they recently sold 5M shares for $238M in proceeds.  Their cash and remaining proceeds from NKLA (which is already down a fair bit) might be $500-750M.  Subtract that from its current EV and the company feels attractive. 


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Before I turn it over to Andy, I'd like to make a few comments related to our investment in Nikola Corporation. As we discussed on our Q3 call, we provided a seed investment to Nikola in 2015. On June 4, Nikola began trading as a public company and we own roughly 19 million shares. Those shares are subject to a lock-up, the terms of which we recently disclosed in an SEC filing. While there were no impact to our Q4 earnings related to our investment in Nikola, accounting rules will require us to mark our shares to market going forward, which at current prices will generate a significant gain in Q1. Since our shares are currently subject to a lock-up, we have not yet made any decisions regarding our holdings but we would like to congratulate Trevor, Mark and the entire Nikola team for what they have accomplished and we wish them continued success.


At this valuation, I think they have to sell all the shares. It also gives management alot of flexibility at a time when competitors are struggling. They could probably make a big acquisition at a good price. Thanks for posting this idea.

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