People like to use the above phrase to describe investment opportunities that offer a solid core business and potential upside options associated with the business.
In this case, I’m thinking about Westinghouse, a portfolio company of Brookfield Business Partners (BBU) that I’ve owned for a while and recently increased to be a full sized core position.
Brookfield’s PE business bought this business out of bankruptcy as a sort of “value” investment – in the sense that it was a low statistical going in multiple. The team was able to execute on their underwritten cost reductions and has been tucking in a number of smaller acquisitions to grow its service and coverage.
The investment has been a smashing success, as the business is throwing off 30% cash on cash at this point. To that end Brookfield bought the steak cheaply.
Westinghouse is a nuclear services business with ~50% market share. Nuclear power has historically been a shrinking market based on the perception of nuclear disasters. What is interesting about the business is in light of a few things, not limited to but including energy crises in the EU due to renewables not successfully filling the gap during cold spells, increasing (and persistently volatile) hydrocarbon prices, and decreasing geopolitical stability, nuclear is having somewhat of revival in perception.
If the turn in perception results in true change in action, specifically in deploying more nuclear vs. shrinking the supply, the single digit organic growth of Westinghouse may change dramatically. Furthermore the multiple of the business would dramatically change. The proverbial sizzle.
Edit: Bloomberg had a timely article on the state of EU nuclear in today’s news.