Janus International Group (NYSE: JBI) manufactures steel roll-up doors and other building components for self-storage facilities.
The company operates in a mature sector characterized by single-digit organic growth. To achieve double-digit growth, the company has adopted an acquisition-led strategy. This approach has led to improved operating and capital efficiencies, creating significant value.
The market currently prices Janus based on anticipated future acquisitions, but the actual value of these acquisitions can only be assessed once their timing and size are known.
Business Background
Initially founded in 2002, Janus has expanded through a series of strategic acquisitions:
- 2017: Asta Industries, expanding into commercial and industrial doors.
- 2018: Noke, marking entry into the smart security market.
- 2019: Betco, a manufacturer of self-storage buildings and components.
- 2020: PTI Australasia, expanding the global footprint.
- 2021: Access Control Technologies, enhancing tech solutions for the self-storage market.
Two significant corporate activities have shaped Janus’s current structure:
- 2018: Acquisition by Clearlake Capital Group, L.P., providing additional resources for expansion.
- 2021: Merger with Juniper Industrial Holdings, transitioning Janus into a publicly traded company on the NYSE, enhancing access to capital markets.
Despite its global ambitions, approximately 93% of Janus’s revenue in 2023 came from North American operations.
Market Prospects
Janus operates primarily in two markets:
- Self-Storage: About 68% of 2023 revenue.
- Commercial Door: About 32% of 2023 revenue.
These markets exhibit modest growth rates:
- US Self-Storage Market: Estimated at $44.33 billion in 2024, with a CAGR of 2.44% from 2024 to 2029.
- Global Self-Storage Market: Estimated at $58.26 billion, with a CAGR of 4.37% from 2024 to 2029.
- US Commercial Door Market: Valued at $9.73 billion in 2023, projected to grow at a CAGR of 2.86% by 2029.
- Global Commercial Doors Market: Expected to grow at a CAGR of over 3% from 2019 to 2025.
Given these growth rates, Janus must rely on acquisitions to achieve double-digit growth.
Operating Trends
Following the 2018 acquisition by Clearlake Capital, Janus’s revenue grew at a 14.4% CAGR from 2019 to 2024. The growth rate was higher post-public listing but is projected to slow in 2024. The double-digit CAGR in profit after tax (PAT) from 2019 to 2024 is also expected to decelerate in 2024, correlating with the absence of significant acquisitions since 2021.
This pattern indicates that acquisitions from 2018 to 2021 boosted performance, while periods without acquisitions saw only single-digit organic growth.
Financial Position
Janus is financially sound, as evidenced by:
- Cash Reserves: $178 million in cash as of March 2024, about 13% of total assets.
- Debt Capital Ratio: Reduced from 0.81 in 2019 to 0.19 in 2024, compared to a sector average of 0.15.
- Cash Flow: Positive cash flow from operations each year since 2018, with $615 million generated from operations versus $396 million in PAT.
- Reinvestment Rate: An average of 32% from 2019 to 2023, allowing significant returns to shareholders or debt reduction.
Capital Allocation
Janus has effectively allocated capital, using cash flow from operations to fund acquisitions and pay dividends. This strategy has led to an upward trend in return on invested capital (ROIC), averaging 13% from 2019 to 2023, compared to a current weighted average cost of capital (WACC) of 9%, thereby creating shareholder value.
With a market price of $14 per share as of May 20, 2024, Janus’s valuation suggests a margin of safety only if further acquisitions are assumed.
Risks and Limitations
The primary risks include the uncertainty of future acquisitions’ timing and size. The company’s reliance on acquisitions for growth suggests that Scenario 1 is not realistic.
However, predicting the next acquisition’s timing is challenging, and any delay would reduce the intrinsic value due to the time value of money. Additionally, the revenue impact of future acquisitions is uncertain, affecting the resultant intrinsic value.
Future Hinging on Future Acquisitions
Janus International is a fundamentally sound company in a mature sector with a strong operational and financial foundation. However, relying solely on organic growth does not present a compelling investment opportunity.
The company’s value proposition hinges on future acquisitions, the timing and size of which will significantly impact its intrinsic value.
A conservative and prudent investment strategy may involve waiting for acquisition announcements and then reassessing the company’s value based on the specific details of the acquisition.
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