Ameron Is An Infrastructure Gem

By Sham Gad | June 15, 2009 AAA

Ameron International (NYSE: AMN) is a wonderful little business that offers investors an opportunity to make a long-term bet on the growing infrastructure needs of the United States. AMN has a growing presence in the international markets as well, making it a company that certainly warrants a closer look.

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Diversity in One Company
Ameron offers a well-diversified business portfolio that operates throughout the world. The company is a leading producer of water transmission lines, fabricated steel products, wind towers, and pipelines that transport chemicals and oil. Plus, the company's infrastructure division is a leading supplier of cement and concrete pipes in Hawaii, as well being the largest manufacturer of streetlight poles in the U.S. The company has operations in North America, South America, Europe and Asia, as well joint ventures in the Middle East.

Opportunity for Value
Over the past five years, Ameron's earnings have increased at a compounded annual rate of over 42%, a figure which includes the 5% profit decline in 2008. Shares currently trade at around $60, giving the company a market value of $555 million. With a net cash position of about $95 million, Ameron's enterprise value is $463 million.

The business trades for a P/E of 10.5, a very attractive multiple for a company that has no net debt and has a wonderful window of growth ahead of it. Since 2004, EPS has grown from $1.32 to $6.39 a share, which is over 40% a year, an impressive number by any metric.

If over the next five years, Ameron can "only" grow its earnings by 15% a year, EPS will approximate $12.80. In a normal environment, such a performance would command a P/E of 15 to 18 times, suggesting a stock price in the neighborhood of $192 to $230. Even at today's 10 P/E multiple the stock trades for $128, more than twice today's price.

As well, Ameron could be a wonderful tuck-in acquisition for its bigger competitors like Fluor (NYSE: FLR), Foster Wheeler (Nasdaq: FWLT) or even Swiss based ABB (NYSE: ABB). All three heavy construction companies have multi-billion dollar market caps and would benefit from the businesses in which Ameron operates. The easy rationalization is that Ameron's businesses - boring but profitable - could not be recreated for $550 million. There are a lot of streetlights in the U.S., and nimble Ameron is the market leader.

Bottom Line
With a pristine balance sheet, a global reach and a dominant business pipeline, Ameron is a wonderful small cap with wonderful growth catalysts. As the economy slowly becomes unglued, Ameron's businesses should perform exceptionally well. Its overseas exposure also provides the company with additional growth options should the U.S. scenario remain bleak for the foreseeable future. (Read Buy When There's Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)

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