Yesterday, I wrote a piece about investing in down cycles and the benefits of potentially finding an investment in a cyclical downturn on its way up. Over the weekend, I noticed that ValueAct Capital, a management-friendly activist firm with a tremendous record of success, had taken a new position in Trinity Industries (TRN) .
Trinity Industries' operations include several segments -- railcar leasing, an inland barge group, energy equipment and a steel products manufacturing business. These industries have been in cyclical slumps lately and ValueAct has a history of investing at the right time of a down cycle.
According to a recent 13D filing, ValueAct owns nearly 7% of Trinity. With Trinity's market cap of $3.5 billion, this not a huge investment for ValueAct but, in my view, that doesn't mean the firm will be any less dedicated to stock.
Patient investors should take a closer look at Trinity.
The Dallas-based company is a leader in almost all its segments. It is the leading manufacturer of railcars and rail parts as well as the leader in leasing rail cars. Trinity is also the leading manufacturer of inland barges, structural wind towers, and steel structures for electricity transmission.
The company has an enterprise value of $5.9 billion and generates over $1 billion in EBITDA annually. And Trinity has been profitable for 12 consecutive years.
Speaking of cycles, Trinity's management stated in an investor presentation: "We strive to outperform prior cyclical peaks with higher EPS and better returns, and raise the earnings floor and improve balance sheet strength during cyclical downturns." And Trinity is experiencing a downturn as revenues and operating profit are down 16% and 12%, year over year, respectively for the 12-month period ending June 30, 2016.
At the current share price of $23, Trinity shares trade at 94% of book value. What is perhaps most intriguing, however, is that the current book value of the company's rail car business is equal to the value of the entire company. The other businesses are being added in for free.
Trinity is a high-quality business for the patient investor who appreciates boredom. In addition, you have a quality investment firm with a history of working with managements to deliver lasting change.
