Chuck Royce's Firm Leans Further Into Limbach Holdings

Small-cap specialist adds to investment in construction engineering company

Author's Avatar
Apr 11, 2022
Summary
  • The firm upped the position by 8.39% to 1.06 million shares.
  • The company posted fourth-quarter financial results in March.
Article's Main Image

Royce Investment Partners revealed last week it boosted its Limbach Holdings Inc. (

LMB, Financial) stake by 8.39%.

The New York-based firm, which was founded in 1972 by

Chuck Royce (Trades, Portfolio), specializes in small-cap companies. The portfolio management team picks stocks based on an active, bottom-up, risk-conscious and fundamental approach. They also search for value opportunities among companies trading at a discount to enterprise value.

According to Real-Time Picks, a Premium GuruFocus feature based on 13D and 13G filings, the firm invested in 82,102 shares of the Pittsburgh-based construction engineering company on March 31. The stock traded for an average price of $6.95 per share on the day of the transaction.

The firm now holds 1.06 million shares total, accounting for 0.06% of the equity portfolio. GuruFocus estimates Royce's firm has lost 28.97% on the investment since establishing it in the first quarter of 2021.

1513539528772624384.png

The integrated building systems solutions company, which designs, installs, manages, services and maintains HVAC, mechanical, electrical, plumbing and control systems, has a $68.06 million market cap and an enterprise value of $117.51 million; its shares were trading around $6.53 on Monday with a price-earnings ratio of 10.7, a price-book ratio of 0.77 and a price-sales ratio of 0.14.

The GF Value Line suggests the stock is modestly overvalued currently based on historical ratios, past financial performance and future earnings projections.

1513541597604683776.png

Limbach reported its fourth-quarter and full-year 2021 financial results on March 16. For the quarter, the company posted net income of $4.3 million, or earnings of 41 cents per share, on $126.8 million in revenue. While net income increased from the prior-year quarter, revenue declined 2.7%.

1513554228730208256.png

For the full year, Limbach reported net income of $6.7 million, or earnings per share of 66 cents, on $490.4 million in revenue. While net income was up from a year ago, revenue fell 13.7% from 2020.

1513555437063053312.png

In a statement, President and CEO Charlie Bacon commented on the “improvement for the year.”

“Entering 2022, proposal activity is above levels at this time a year ago, allowing us to secure a range of project wins in both of our segments while also being selective on pricing,” he said. “Our recent results reinforce the validity of our bottom-line focused approach, with our 2022 sales and project scheduling governed by our risk management methodology.”

GuruFocus rated Limbach’s financial strength 6 out of 10. Despite having sufficient interest coverage, the Altman Z-Score of 2.52 indicates the company is under some pressure since revenue per share has declined in recent years. The return on invested capital is also eclipsed by the weighted average cost of capital, meaning the company struggles to create value as it grows.

The company’s profitability scored a 4 out of 10 rating. While its margins are underperforming versus competitors, the returns on equity, assets and capital top over half of its industry peers. Limbach also has a moderate Piotroski F-Score of 5 out of 9, suggesting operating conditions are typical for a stable company.

Royce Investment Partners remains Limbach’s largest guru shareholder with a 10.18% stake.

Jim Simons (Trades, Portfolio)’ Renaissance Technologies also owns the stock.

Portfolio composition and performance

Over half of Royce Investment Partners’ $13.38 billion equity portfolio, which was composed of 966 stocks according to fourth-quarter 13F filings, was invested in the industrials, technology and consumer cyclical sectors, followed by a slightly smaller exposure to the financial services space.

1513550393638985728.png

Other construction companies the firm was invested in as of Dec. 31 included Arcosa Inc. (

ACA, Financial), KBR Inc. (KBR, Financial), Simpson Manufacturing Co. Inc. (SSD, Financial), IES Holdings Inc. (IESC, Financial), Builders FirstSource Inc. (BLDR, Financial), Louisiana-Pacific Corp. (LPX, Financial) and Primoris Services Corp. (PRIM, Financial).

According to the firm’s website, the Royce Premier Fund posted a return of 16.36% in 2021, underperforming the S&P 500 Index’s 28.7% total return.

Also check out:

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
Rating:
0 / 5 (0 votes)
Author's Avatar
WRITTEN BY

GuruFocus Screeners

Related Articles