Steel Partners Holdings: Attractive Valuation and Diversified Portfolio

Steel Partners Holdings is a diversified company with steel products, banking, and oil and gas services businesses. It holds significant amounts of its own shares. The company is considered cheap but carry considerations should be taken into account.

Steel Partners Holdings L.P. Common Units (OTC: SPLP) is a diversified company with steel products, banking, and oil and gas services businesses. The company recently delisted from the NYSE to reduce filing costs, which has led to a decrease in disclosure frequency. Despite this, the company's units appear undervalued, with per-unit earnings annualizing at around 3x, compared to multiples in regional banking and other diversified industrial businesses [1].

The company's financial services business, through WebBank, operates as a lending and savings bank with exposure to consumer credit. The economy continues to support loan growth, and rates may fall, potentially lowering funding costs. The diversified industrial business, which includes metal and steel products, roofing elements, and other housing building materials, has seen growth in COGS, with higher metal prices impacting costs. However, the company hedges some of its precious metal and copper purchases, which could mitigate some of the price increases [1].

The energy services segment, which operates at around 10x, also contributes to the company's overall valuation. The company's energy services segment could see growth, but it's important to note the potential risks from tariffs and commodity price fluctuations. The company's significant inventory holdings, which turn over approximately quarterly, could lead to latent COGS growth, especially with hedges renewing after forward contracts mature in July [1].

The company's valuation seems clear, with a blended fair multiple of around 11x PE, compared to its current valuation of under 3x. The enterprise value (EV) to EBITDA ratio is 2.20, indicating a reasonable valuation. The company also has a significant cash position of $341.72 million and a market capitalization of $766.02 million, providing some financial stability [2].

However, there are some considerations. The company has a management fee structure of 1.5% of total partners' capital, which could cap some of the upside for limited partners. Additionally, the company's incentive units, which convert into common units, could lead to dilution for existing limited partners. The company has approved a plan to repurchase units, but this is not expected to significantly impact the share price [1].

The company's recent performance has been strong, with record revenue and earnings growth in Q2 and Q3 of 2024. However, the jobs report and related rate cuts could complicate the outlook for all the businesses. The company's exposure to macro and cycles across its businesses could also pose risks. Despite these considerations, Steel Partners Holdings remains an interesting prospect, but it may not be the best time to pull the trigger on an investment [1].

References:
[1] https://seekingalpha.com/article/4811883-steel-partners-holdings-carry-considerations-but-seems-cheap
[2] https://www.tipranks.com/stocks/splp