Glatfelter Corporation: Carlson Capital Holding and The Expired Story

April 28, 2022

Last week I went to an excellent exhibition of Georgia O’Keeffe paintings at Beyeler Foundation Museum in Basel. In addition to great art show (some pictures below), I believe there is an important lesson investors can learn from her.

Georgia O’Keeffe once said:

“Nothing is less real than realism. Details are confusing. It is only by selection, by elimination, by emphasis, that we get at the real meaning of things.”

Speaking of the emphasis, I looked at portfolio of a hedge fund called Carlson Capital. Based on a latest quarterly holdings disclosure with the SEC, the largest 20 positions by market value represented 61% of total portfolio value.

What is more interesting, is that the average market capitalization of these 20 largest positions was approximately 43 billion.

Among these 20 positions one notable “outlier” is Glatfelter Corporation with current market capitalization of $502 million. For some reason, they decided to “emphasize” it. Shares declined 37% since the beginning of 2022.

We think that investors can identify required elements of a story structure in company and its shares.

Glatfelter made two large (relative to its size) acquisitions in 2021: Mount Holly (Georgia-Pacific’s US nonwovens business) for $175 mil and Jacob Holm (manufacturer of premium quality nonwowen fabrics) for $308 mil.

These two acquisitions altered Glatfelter’s capital structure. To put things in perspective, they represent 96% percent of Glatfelter’s current market capitalization of $502 mil.

Glatfelter is currently valued at an EV/EBITDA multiple of x8.2 (based on FY 2021 Pro-Forma Adjusted EBITDA of $140 mil).

As it looks so far, it seems that one of the reasons the hedge fund made an investment in the first place were these acquisitions but judging by recent share price performance the market obviously does not perceive this as an attractive story anymore. And it is possible that they already sold this holding (latest SEC disclosure was on Feb 25, 2022).

The valuation is attractive but not extremely attractive compared to valuation multiples of other mid and large cap companies in the packaging sector.

So again, it looks like the last year story had “expired”

We recommend monitoring the shares of Glatfelter for further developments.