Despite its more than five and a half decades at the forefront of the domestic precast concrete market, Smith-Midland’s (OTCQX: SMID) recent coverage gives the impression that the company has only recently sprung into existence, fully armored, like Athena being born from the forehead of Zeus. Currently enjoying a nice pop following the release of its Q2 financials on August 11, shares of this ceaselessly innovative precast concrete manufacturer are now trading around pre-2008 highs, with considerable tailwind in the form of numerous recent project successes.
Globally speaking, the precast concrete industry itself is seeing something of a rebound, after a tough recession period and ongoing adjustment to China’s growth slowing down. A recent study by DecisionDatabases (http://nnw.fm/0Uqia) even projects a CAGR of 3.2 percent moving forward through 2022, when the global precast concrete market is expected to reach upwards of $58.7 billion.
Subsequent to the post-2008 dip (http://nnw.fm/nKW0s) that was experienced by just about everyone, SMID has been a portrait of the old adage that, “slow and steady wins the race.” The company has quietly been advancing the state-of-the-art in precast concrete design, manufacturing, and delivery systems, while landing contract after contract. This constant innovation is readily exemplified by the company’s high-performance SlenderWall™ system, a lightweight (66 percent lighter than traditional precast) architectural cladding system, which is as robust as it is easy to install. Recently described by Rodney Smith, chairman and CEO of Smith-Midland, as the company’s most profitable product, the SlenderWall is a feature-rich and proven system that not only addresses the typical cost and logistical metrics of competing solutions beautifully, it actually offers superior structural advantages as well. This exterior cladding system is effectively isolated from wind loading, seismic shock, expansion/contraction, movement of the underlying steel frame, and other structural forces experienced by the primary structure.
Fully code compliant and available with a proprietary (optional) Lift-and-Release™ panel-landing system, which allows an already simplified installation to be done even faster, SlenderWall is also the only wall system in the industry today to fuse together the four key technologies required for an efficient solution that can easily be applied to either new construction, or renovations. By skillfully leveraging its architectural precast concrete manufacturing expertise, Smith-Midland has found a way to embed high-tech PVA fibers into its products, making the SlenderWall cheap to install, yet able to provide a long lifespan of maintenance-free use. And these beauties are secured with a combination of thermal coated anchors and heavy gauge galvanized steel (or stainless steel studs), making this lightweight solution far more sturdy and long-lasting than one might ever expect.
SlenderWall is the perfect economical and efficient choice for a variety of 20,000 square foot plus jobs, whether it is a renovation like the 2013 Johns Hopkins Medicine (Baltimore Campus nine-story Nelson Harvey inpatient facility) job (http://nnw.fm/7NmdW), or a massive new undertaking like the recently announced 2-mile-long Port Imperial redevelopment project in West New York, New Jersey. This sizable (42,000 square feet of SlenderWall) undertaking with New Jersey’s largest homebuilder, K. Hovnanian (NASDAQ: HOVNP), is a striking example of how prominent SMID has become as an east coast precast concrete manufacturer.
Smith-Midland primarily serves the construction, transportation and utilities markets, as well as the agricultural, beach restoration (via Beach Prisms, a shoreline erosion control barrier system) and small precast building markets (via wholly-owned subsidiary Easi-Set Industries), with a wide variety of brilliantly designed solutions that it sells, licenses, and/or rents to various customers. The company actually cut its teeth back in the 1960s as Smith-Cattleguard Company, which was founded by Rodney Smith and his father when the business was just about precast concrete farm products. This rich tradition is still carried on today in the form of an array of highly durable cattle guards and feed bunks, as well as waste storage and watering systems.
The market’s warm reception to SMID’s Q2 financials is not surprising given that the company’s long-term growth story (slightly hampered by an admittedly sluggish Q1) has been supercharged of late by increased opportunities in several of its primary end markets, due in large part to generally improving underlying economic conditions as well as the company’s own continually growing brand presence. Perhaps the most notable market here for the company is transportation, where SMID operates via its Concrete Safety Systems (CSS) subsidiary. CSS was founded in 1977 as the then nascent industry’s first and only entity focused specifically on leasing highway safety barriers to contractors and state highway departments. CSS is a full-service barrier rental company that delivers, installs and then carts away the company’s J-J Hooks positive connection barrier system, which is ideal for roadwork (freestanding, bolted or pinned), and also security functions (especially when configured with an optional fence top).
CSS is housed at the company’s primary 44,000 square foot facility in Virginia. Between this primary facility, the company’s Smith-Carolina 8,000 square foot facility and the soon to be 40,000 square foot Smith-Columbia facility, SMID will have an enviable 300 mile-wide striking distance up and down 800 miles of the East Coast. This is a considerable territory, stretching all the way from New York City, to the southern Georgia border. The new Columbia location shores up coverage of the Atlanta metropolitan area nicely for SMID, as well as nearly a dozen military bases throughout South Carolina and Georgia, putting Smith-Midland’s legendary ability to innovate front and center when it comes to aggressing a whole host of projects in the region.
In many ways, the precast industry is overshadowed by the looming predominance of government initiated infrastructure projects, but SMID has done a marvelous job diversifying into the rapidly growing residential and commercial construction arenas. At the same time, SMID has positioned itself perfectly to benefit from the $305 billion, five-year highway infrastructure bill passed late last year in December (http://nnw.fm/T70sk), and the company is likely already experiencing a boost because of the bill’s passing. With presidential candidate Trump talking about building a wall on the border between the U.S. and Mexico (a project that would require setting up localized construction facilities for regional manufacturing the way SMID has done for the East Coast), it is not unthinkable that a company such as Smith-Midland could experience considerable upside on sector momentum alone, even without landing any contracts.
But it’s not like the company even needs such a huge project, as even a cursory glance at this year’s news reveals a spate of sizable contracts. Contracts range from an Easi-Span Building used in Illinois as a township’s water supply aerator, to a set of two massive Virginia DOT road projects, which will utilize a whopping 300,000 square feet of the company’s proprietary SoftSound™ sound absorptive composite panels. In the last decade of official data alone, we have added some 6.5 percent more paved roadway to the U.S. nationwide, bringing the total number of miles of paved roads up to well over 2.744 million. Demand for outdoor noise barriers, primarily associated with stopping traffic noise from reaching residential communities, is slated to rise 3.7 percent per year through 2019 in the U.S. alone, according to a recent study by Freedonia (http://nnw.fm/N9mfF). That same study sees the overall U.S. market as growing to $191 million over the same interval, as a good chunk of that $305 billion highway infrastructure package looks like it could go directly toward state DOTs putting up more noise barriers alongside highways.
Smith-Midland is the portrait of an under bought niche leader and remains quite accessible to the average retail investor at around three bucks a share, especially when compared to other sector players such as CRH plc (NYSE: CRH), and that is despite SMID trading very near to its 52-week high. With many, many takers for its cutting-edge precast solutions, a perfect storm of potentials exists for the company. Smith-Midland also just so happens to have the unquestionable experience and leadership needed to truly capitalize on this storm of potentials for its shareholders.
For more information, visit www.SmithMidland.com