Steel Partner Holdings LP (SPLP)

(20 January 2017)

SPLP Business Summary

Steel Partner Holdings, LP is a diversified holding company. It is engaged in businesses, including diversified industrial products, energy, defense, supply chain management & logistics, banking, sports, education and entertainment & lifestyle industries.

SPLP Fundamentals

• Price to Earnings: 5.33
• Earnings Per Share: $4.67
• Market Cap: 413.2M
• Current Ratio: 3.24
• Return on Equity: 14.13%
• Return on Assets: 4.49%
• Dividend Yield: 0.00%
• Price to Sales: 0.39
• Price to Book: 0.70
• Price to Free Cash Flow: 7.00

Balance Sheet ($ in Thousands)

• Total Assets increased $248,840.
• Total Current Liabilities decreased $59,570.
• Total Stockholder Equity increased $27,536.

Income Statement ($ in Thousands)

• Total Revenues increased $103,210.
• Income from Operations decreased $303.
• Net Income increased $12,103.
• Net Income attributed to common unitholders decreased $54,864.

Cash Flow Statement ($ in Thousands)

• Net Cash provided by operating activities increased $121,509.
• Net Cash used in investing activities increased $245,226.
• Net Cash provided by financing activities increased $204,018.
• Cash and Cash Equivalents at end of period increased $76,844.

Highlights from 10-Q

• They increased their investment in Aerospace and Defense from $65,474 in 2015 to $73,502 in 2016.
• They’ve increased the amount of investment derivatives from 480 in ’15, to 2,271 in ’16.
  • These are designated as both Fair Value, Cash flow, and economic hedges on the balance sheets.
• Revenue for the three months ended September 30, 2016 increased $40,623, or 14.7%, as compared to the same period last year. Excluding growth from the acquisitions of SL Industries, Inc. (“SLI”) (June 2016) and JPS Industries, Inc. (“JPS”) (July 2015) of 17.5% and other growth due to higher average silver prices in HNH of 1.8%, revenue decreased by 4.6% across the Diversified Industrial, Energy and Financial Services segments.

Entry Level: $15 and below. Ideal price would be closer to $11 – $12.

Exit Level: $40+

Reasoning

• I am bullish on SPLP for several reasons, first of which is their balance sheet. SPLP has increased assets at a remarkable clip, while at the same time reducing their total current liabilities. Secondly, they have increased their equity within the company. Thirdly, their income statement is very solid. With increases in revenues and net income, the business is proving it is bringing in cash. This brings us to the cash flow statement, also a winner. Net cash from operating activities increased more than $100,000, they increased their spending on investing activities by nearly $250,000, and they ended the period with more cash than when they started.
• Because of this increase in cash, SPLP was able to pay a special, non recurring dividend for the past quarter, a sign that management is genuinely interested in the shareholder value. Interested enough to give a dividend when the company doesn’t normally do one.
  • This brings me to the one red flag that I saw on their balance sheet, which was net income attributed to common shareholders. This decreased by $50,000+, which on paper doesn’t seem good. However, this is due to cash flow from discontinued operations from 2015.
  • The fact that management decided to pay a dividend makes me more comfortable with the underlying security of their free cash flows.
• SPLP has increased their investment in the Aerospace / Defense industry over the last year, a move which I believe will only increase in value under a Trump presidency.
• Finally, I like the management’s philosophy on their holdings and their investments. They quoted the likes of Graham and Buffett in their philosophy statement on their website, and they stressed intrinsic and shareholder value throughout their mission statement.

Owners % in Company

• 47% Institutional Ownership.
• 04% Insider Ownership.

Major Institutions Holding SPLP

• TETON Westwood Mighty Mites AAA
  • Own 2.29% of total shares, up 1.27% from last quarter.
  • Trend has been increasing the last 8 quarters.
• Gabelli Small Cap Growth AAA
  • Owns 1.01% of total shares, up 1.69% from last quarter.
  • Trend has been increasing for previous 8 quarters.
• Permal Asset Management, LLC
  • Owns 9.31% of total shares, making it 20.13% of it’s total assets.
• SPLP owns 3.58% of total shares.
• Raging Capital Management, LLC
  • Owns 3.27% of shares.
• AIG Asset Management, LLC
  • Owns 2.67% of shares, 7.15% of its total assets.

Operating Companies

1. WFH LLC: 90.7% owned.
2. DGT Holdings Corp: 100% owned
   1. DGT Holdings Corp. is a shell company with cash and marketable securities and tax loss carryforwards, and is seeking to acquire one or more business operations.
3. Aerojet Rocketdyne Holdings, Inc.: 6.5% owned
   1. Aerojet Rocketdyne Holdings, Inc. is a manufacturer of aerospace and defense systems, and also has a real estate business, the activities of which include the entitlement, sale, and leasing of its real estate assets.
4. Handy & Harman Ltd.: 70.1% owned
   1. Handy & Harman (HNH) is a diversified industrial company delivering value through innovation, operating excellence and superior customer service. Its strategic business units encompass joining materials, tubing, building materials, electronic materials, and replacement products and services. HNH companies include Micro-Tube Fabricators, Handy Tube Corporation, Indiana Tube Corporation, Kasco Corporation, Lucas-Milhaupt, Inc., OMG, Inc. and Protechno S.A.
5. Moduslink Global Solutions, Inc.: 31.5% owned
   1. ModusLink Global Solutions Inc., through its wholly owned subsidiary, ModusLink Corporation, is a supplier of supply chain and logistics services aimed at improving clients’ revenue, cost, sustainability and customer experience objectives.
6. SL Industries, Inc.: 100% owned by Handy & Harman Ltd.
   1. SL Industries, Inc., through its subsidiaries, designs, manufactures and markets power electronics, motion control, power protection, power quality electromagnetic and specialized communication equipment that is used in a variety of medical, commercial and military aerospace, computer, datacom, industrial, telecom, transportation, utility, rail and highway equipment applications.
7. Steel Excel, Inc.: 58.3% owned
   1. Steel Excel, through its two business segments, Steel Sports Inc. and Steel Energy Ltd., is committed to acquiring, strengthening and growing profitable businesses. Steel Energy provides well servicing, workover and other services to the oil and gas industry. Steel Sports is a network of branded participatory and experience-based businesses engaged in sports, training, entertainment and consumer lifestyle.
8. WebBank: 90.7% owned
   1. WebBank is a Utah Industrial Bank which operates in niche banking markets. The bank is engaged in a full range of banking activities that include making loans, issuing credit cards and taking federally insured deposits. The bank is also a leading provider of national origination platforms for consumer and commercial private — label and bank card programs.

Acquisition Interests

1. New Platforms
   1. We are interested in new industrial or aerospace/defense businesses with $25-75MM of EBITDA. We prefer companies with gross margins above 20%, high return on invested capital, sustainable competitive advantages and strong brands. We like businesses participating in structural changes where the business is positioned to gain market share. We will consider a transaction or series of transactions for up to $1B in enterprise value.
2. Alternatives
   1. We are interested in purchasing all or a significant portion of a private equity fund that is beyond its investment period, and we believe that our approach could yield significant advantages to the limited partners and general partner. We are willing to work with the general partner and share fees and upside based on attaining mutuallyagreed performance goals. We would be willing to look at portfolios of up to $1B in enterprise value.
3. Special Situations
   1. We have significant experience in working through pre-bankruptcy and bankruptcy issues. We prefer situations where the business has the characteristics stated above, but where the balance sheet is challenged and where our balance sheet can provide a meaningful improvement to the company’s outlook.