Is Steel Partners Holdings (SPLP) a Deep-Value Buy with Attractive Carry Potential?

Steel Partners Holdings L.P. (SPLP) has long been a fixture in the deep-value investing landscape, but its current valuation metrics, operational diversification, and historical activist-driven strategies make it a compelling case for 2025. This article examines whether SPLP balances low valuation metrics with robust operational diversification and whether its legacy of activist-driven buyouts still holds carry potential for today's investors.

Valuation Metrics: A Deep-Value Profile

SPLP's financials in Q2 2025 paint a picture of a company trading at a significant discount to its intrinsic value. With a price-to-book (P/B) ratio of 0.64, price-to-earnings (P/E) of 4.05, and EV/EBITDA of 2.16, the stock appears undervalued relative to its peers in the industrial and energy sectors. These metrics are further bolstered by a net cash position of $71.24 million and a book value per share of $65.73, suggesting the market is pricing in pessimism despite the company's strong cash flow generation and profitability.

The company's return on equity (ROE) of 18.39% and EBITDA margin of 15.33% highlight its operational efficiency, while a debt-to-equity ratio of 26.90% and interest coverage ratio of 23.41 underscore its conservative leverage profile. For value investors, these metrics suggest a margin of safety, as SPLP's balance sheet remains resilient even in a downturn.

Operational Diversification: A Hedge Against Sector Volatility

SPLP's business model is structured around three core segments: Diversified Industrial, Energy, and Financial Services. This diversification is a critical strength. The industrial segment includes brazing alloys, aerospace components, and youth sports ventures, while the energy division focuses on oil and gas services. The financial services arm, led by WebBank, has delivered a 32.1% pre-tax ROE in 2024, contributing meaningfully to overall profitability.

The company's Steel Business System (SBS)—a lean manufacturing framework—has driven cost reductions and margin expansion. For example, JPS Composite Materials reduced employee turnover by 40% in 2024 through SBS-driven reforms. This operational discipline, combined with recent acquisitions like Steel Connect (fully acquired in 2025), enhances SPLP's ability to weather macroeconomic headwinds.

Historical Activist Catalysts: A Legacy of Value Creation

SPLP's history is intertwined with activist investing. Founded by Warren Lichtenstein, the firm has a track record of acquiring undervalued assets and restructuring them for long-term gains. Notable successes include its investment in SL Industries, where it gradually acquired shares at $3.50 and exited at $42, and its control of Adaptec (renamed Steel Excel). These campaigns reflect a strategy of operational improvement and strategic divestitures to unlock value.

While no current activist campaigns directly target SPLP in 2025, the company's own activist heritage remains a catalyst. For instance, its 2009 restructuring during the financial crisis—transitioning from a private partnership to a publicly traded entity—demonstrated its adaptability. Management's recent share repurchases (e.g., $14.4 million spent on preferred units in 2024–2025) and pension contributions (reducing net pension liability by 77%) signal a continued focus on capital allocation and shareholder returns.

Carry Potential: Dividends, Buybacks, and Preferred Units

SPLP's 6% Series A Preferred Units (SPLP.PRA) offer a yield of 6.05%, making them attractive in a low-interest-rate environment. The company's payout ratio of 4.23% ensures the distribution is well-supported by earnings, and the buyback yield of 7.19% further enhances shareholder value. However, the preferred units are callable in 2026, introducing reinvestment risk for investors.

For common shareholders, the lack of a direct dividend is offset by share repurchases and the company's focus on operational cash flow. With $346.45 million in cash and equivalents, SPLP has flexibility to increase distributions or fund growth initiatives.

Risks and Considerations

While SPLP's valuation and diversification are strengths, investors must weigh several risks:
1. Sector Sensitivity: A downturn in industrial or energy markets could pressure earnings.
2. Preferred Unit Call Risk: The 2026 redemption date may force investors to seek alternative yields.
3. Limited Growth Catalysts: Unlike its activist-driven past, SPLP lacks immediate buyout or restructuring catalysts in 2025.

Investment Thesis

SPLP is a deep-value opportunity for long-term investors seeking a diversified holding company with a history of capital discipline. Its low valuation metrics, conservative leverage, and operational efficiency provide a margin of safety, while its activist heritage and active buyback program offer carry potential. However, the absence of current activist catalysts and the preferred unit call risk mean this is best suited for a 3–5 year time horizon.

Recommendation: For value-oriented portfolios, SPLP's preferred units (SPLP.PRA) offer an attractive yield, while common shares provide upside if management continues to unlock value through operational improvements. Investors should monitor the 2026 call date and sector trends in industrial and energy markets.

In conclusion, Steel Partners Holdings remains a compelling case for those who can balance its historical strengths with its current valuation and operational realities. While not a high-growth play, its deep-value profile and carry potential make it a worthy addition to a diversified, income-focused portfolio.