caesarstone sdot-yam: growth stock leveraging on emerging housing trends
Make engineering quartz surfaces for kitchen countertops.
As the kitchen becomes the focal point for homeowners to redecorate, quartz arstone has gained market share in materials relative to competitors and should achieve strong growth in the future.
CaesarStone\'s premium brand for its products enables it to charge high prices and enjoy high profits while driving profit growth through operational leverage and economies of scale.
I saw an increase of about 20% from CaesarStone\'s $60 share price.
70 valuation based on my discounted cash flow-
A derivative target price of $77. 27.
Founded in 1987 and listed in 2012, Caesarstone is a manufacturer of high-quality engineered quartz watch surfaces used in residential and commercial buildings as countertops, vanity tables, wall coverings, floors and other interior surfaces.
According to Cleveland
Freedonia, a market research firm at Caesarstone, was published in March 2013 and held a 12% share of the global engineering quartz surface market in 2012.
Its products are indirectly distributed to more than 50 countries around the world through direct sales in certain markets and through independent dealer networks in other markets.
More than half of Caesarstone\'s revenue comes from North America, with direct sales accounting for a large proportion.
According to the online community Houzz\'s annual survey of 200,000 homeowners, trends in interior design and home improvement, 66% of Americans from January to March 2014S.
Homeowners with renovation plans have no intention of selling their homes in the next two years.
This suggests that these homeowners are more likely to set aside a larger budget for renovations to \"improve\" the aesthetics of their living environment and increase the potential resale value of their homes in the future.
The results of the 2014 Houzz survey, which found fewer homeowners (
19% of respondents in 2014 compared with 27% in 2013)
They believe that keeping the budget is a challenge for them to reinvent the project.
Instead, finding the right product was listed as the biggest challenge by homeowners involved in the renovation project in 2014, which was expressed by 39% of respondents.
This is a strong signal that homeowners are becoming less and less sensitive to prices and attach great importance to product quality.
22% of respondents ranked the kitchen as the top priority of the renovation, second only to the bathroom renovation project.
More importantly, the kitchen renovation project received the highest budget allocation from the homeowner, with an average of $26,172.
In the kitchen renovation, 89% of respondents said they would install new countertops.
Similarly, domestic demand is expected to grow at a compound growth rate of 5.
According to the Cleveland study, there were 1% between 2013 and 2017-
Freedonia, a market-based research company, was published in July 2013.
The results of the Houzz survey and the Freedonia report are not surprising, as the kitchen is often the pride of many homeowners inviting guests home and the countertop is the most visible part of all kitchens.
Caesarstone is the main beneficiary of the owner\'s attention to product quality and price, especially the increase in demand for kitchen countertops.
Its high quality engineered quartz surface is increasingly becoming the preferred material for kitchen tables, which I will discuss in more detail in the next section.
In the past decade or so, Quartz has gained market share relative to its competitors, and quartz has become the fastest growing material category in the KKR countertop market.
The annual compound growth rate of global engineering quartz is 15.
The period from 1999 to 8% was 2012 per cent, compared to only four years.
The composite growth rate of the global table market is 4%.
Compared with other materials such as granite and marble, Quartz has gained market share because of its superior strength and durability, becoming a KKR countertop material for more people to choose from.
Quartz is generally resistant to stains, scratches and heat;
While Granite needs to be sealed regularly to prevent stains, marble is easily scratched and cracked.
In fact, the monthly magazine consumer report, published by the Consumer Union, included granite, tile laminate, stainless steel, concrete, in 14 tests, the synthetic quartz countertops made of Caesar stone countertops are limestone, marble, etc.
Although quartz has shown strong growth over the past few years, its story is far from over.
According to Freedonia\'s research, the market value of addressable quartz countertop materials is currently $74 billion, and the penetration rate of quartz is only 8% as of March 2013.
Entering a specific market, Quartz\'s share of the US countertop market is 6%S.
By contrast, Australia and Israel were 35% and 85% respectively.
Therefore, there is still a long room for growth of quartz as a KKR countertop material.
Similar to many material markets, the engineering quartz surface market is highly dispersed, and companies such as Caesarstone face fierce competition, especially from low
Cost makers in Asia benefit from lower labor costs.
Nevertheless, I believe that Caesarstone has several competitive advantages that enable it to take the largest share in the growing market for engineered quartz surfaces.
For example, Caesarstone positioned its quartz surface product as a premium branded product and sold at a higher price than the alternative surface and quartz surface offered by other manufacturers.
This will enable Caesarstone to withstand competitive threats from low-cost manufacturers who try to \"commercialize\" the industry through price wars.
Caesarstone\'s track record in new product launches will also ensure that it continues to enjoy strong brand assets.
It launched a number of new product lines in 2009, including Motivo, Supremo and Super Natural, at 2010 and 2012, respectively, to ensure that its brand remains relevant in the minds of fickle people
Another factor is economies of scale.
The operating profit margin of Caesarstone is from 14.
5% 2011 to 21 day.
3% in 2013, management attributed this to the economies of scale of operating expenses that began to be utilized in 2013.
Caesarstone currently benefits from the economies of scale in the major markets it operates in;
It is a leading company in Australia, Canada and the United States, with a share of about 57%, 36% and 16% in the local market, respectively.
This will enable Caesarstone to spread fixed costs such as advertising and distribution to a larger revenue base, thereby gaining a competitive advantage in competition with subsidiaries
Manufacturers of scale.
In addition, Caesarstone\'s strategy of selective acquisitions of manufacturers to scale up will ensure that it continues to defend and consolidate its market leadership.
The growth driver skelstone has multiple levers to drive its growth to take advantage of positive housing trends and the growing popularity of quartz.
First, it can be bigger by acquiring competitors or simply increasing revenue.
With the growth of economies of scale, Caesar will witness the expansion of profits.
Second, its direct and indirect sales accounted for 87% and 13% of its sales, respectively.
Increasing the direct distribution channel of Caesar pass will enable it to drive sales more effectively and build customer loyalty through \"getting closer.
Finally, the world is one person.
Caesarstone\'s products are available in more than 50 markets, but there is definitely a new market that shows the existing demand for stone products, which does not exist.
Potential catalysts in the near future, there is a key potential catalyst that may drive the share price of Caesar pass.
If Caesarstone makes any acquisition of the manufacturer, either driving operational leverage by scaling up, enhancing direct distribution capabilities or accelerating expansion to new markets/countries, the market should look at it positively.
Valuation I have come to the target price of Caesar pass is $77.
27 based on the current 12-month earnings per share assumption of $2, a simplified discounted cash flow valuation is used.
EPS growth of 23 in the whole year.
55%, discount rate 9%.
EPS increased by 23 throughout the year.
Considering the history of Caesar\'s pass, 55% is reasonable.
EPS growth of 35. 88% and the 15.
The compound growth rate of global engineering quartz sales from 1999 to 80% was 2012.
I avoid using a single-
Trading multiple of the year, because this is more than Caesar\'s.
Consistent with the growing penetration of quartz in the countertop material market, the annual growth story.
The balance sheet and cash flow statement have a fixed balance sheet with a net cash position including $77 million in cash and $13 million in debt.
In addition, in the past four years, the company has achieved positive free cash flow every year, and capital expenditure is less than 10% of its income.
The emergence of Caesarstone\'s strong balance sheet and free cash flow should support its plans for future growth to take advantage of positive industry prospects.
There are three key risks to my positive view of Caesar pass.
First of all, if the low-cost manufacturer of the quartz surface product makes unreasonable price competition, this may lead to fasterthan-
The expected merchandising of engineered quartz surface products has seriously affected Caesar\'s ability to charge high prices.
Secondly, in 2013, quartz, polyester and other polymer resin accounted for 30% and 43% of the cost of raw materials for Caesarstone;
Any major fluctuations in the prices of these raw materials will damage its profit margin.
Third, a severe housing market downturn may adversely affect the demand for kitchen countertops and Caesar Stone quartz surface products.
Disclosure: The author does not hold any positions in any of the stocks mentioned, and does not have a plan to start any positions within the next 72 hours.
The author wrote this article himself and expressed his views.
The author was not compensated (
In addition to Seeking Alpha).
The author has no business relationship with any company mentioned in this article.
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