Miller Industries is starting to pay attention to investors (NYSE:MLR)

Miller Industries (New York Stock Exchange:MLR) is perhaps the easiest company in the world to understand. The company buys truck chassis made by other companies and fits its own crane bodies onto them.

The company does it It does not have a monopoly on the industry, but it is widely accepted that it is the most important player. The company says in its annual report which is “the world’s largest manufacturer of towing and recovery equipment,” and that’s probably an accurate statement. The company’s brands include: Century, Vulcan, Chevron, Holmes, Challenger, Champion, Jige, Boniface, Titan, and Eagle.

Demand for cranes is partly determined by the number of kilometers driven. As expected, the number of kilometers driven decreased significantly during the pandemic, and probably due to the work-from-home culture that emerged from it. However, the number of kilometers driven has almost completely decreased. matched the high figure from February 2020.

The average age of vehicles on the road also affects demand for tow trucks. The older a car is, the more likely it is to break down and require towing.

S&P Global Mobility recently reported “The average age of cars and light trucks in the United States has risen again to a new record of 12.6 years in 2024, two months longer than in 2023.”

Miller is well positioned to grow with these trends.

A new approach to rewarding investors

Advisory Research invested in Miller in August 2022. Since then, they visited Miller’s facilities and spoke to distributors, customers, and employees. They also spoke to management. Then, they published a public letter in March, basically saying that the stock price was too low and that the board of directors should sell the company:

We are asking the Board to form an independent committee to conduct a strategic review to develop a credible long-term plan that can be compared to alternative strategies, including a sale of the Company at a significant premium to current value. We believe the Company is an attractive target for strategic buyers in the sector and could achieve a premium of more than 30% relative to its current valuation in a transaction.

Miller made a public response the same day flatly rejecting Advisory Research's letter:

We are disappointed, but perhaps not surprised, that after months of serious engagement, Advisory Research has concluded that it is unwilling to put its thesis to a shareholder vote, but has instead decided to file a self-serving and short-sighted public complaint, with false accusations and no credible path to long-term value creation.

Although Advisory Research was shown the door, its efforts appear to have had some impact on Miller's board.

Weeks before the Advisory Research letter was made public, Miller announced it would raise its dividend to $0.19 per share, a 5.6% increase. To be fair, Miller has paid dividends for 53 consecutive quarters, including during the pandemic. That was no small feat. Still, the dividend increase was the first since March 2017.

Less than two weeks after the Advisory Researcher letter was made public, Miller announced a $25 million share repurchase program.

Will Miller mentioned these efforts on the latest earnings call. He said, “We work diligently to invest our capital and maximize returns for shareholders through continued investment in the business, quarterly dividends and our share repurchase program.”

The numbers are good

Miller can afford to raise the dividend. Revenue and profits have recovered since the pandemic and have been breaking records:

The company has always maintained an impeccable balance sheet. As CFO Debbie Whitmire said on the same earnings call, the company is “debt averse.” The company typically stays debt-free, and when it does take out loans, it typically pays them off within a couple of years.

Whitmire said during the call that the company borrowed $15 million to “fund our growth.” CEO Will Miller also mentioned “plans to expand production capacity,” but as usual, details are scant.

The company has a quick ratio of 1.4, a current ratio of 2.1, and its current assets are significantly larger than its total liabilities. Few companies in the automotive industry have such financial discipline. The only other one I know of is Gentex (GNTX).

But is it fairly valued?

At 9.0, the price-to-earnings ratio is almost at its lowest level in ten years, and this is only the fourth time in twenty years that the ratio has been this low.

The PEG ratio soared during the pandemic but now stands at a very attractive level of 0.107.

As nice as that number is, the PEG ratio can be somewhat erratic, as you can see above. I personally prefer an old tool from the stock hunters' toolbox called Net Present Value of Assets Per Share (NPV).Virginia National Police College). The formula I use is:

• Price / (Current Assets – (Total Liabilities + Preferred Stock) / Shares Outstanding)

Warren Buffett used this method for what is known as “cigarette butt” investing. Years ago I decided to use this ratio not for cigarette butts, but for growing companies that pay dividends. It was and still is a unique way to approach the problem. Investment in GARP That has proven its effectiveness.

In 2016, I published my initial article using this approach. I applied it to twelve dividend payers and Miller was the one that stood out from the crowd. It had a current P/E of 1.97 at the time. Since then, I have very rarely seen a quality dividend payer fall below 2.0. Any quality dividend payer with a current P/E in the single digits catches my eye.

I wrote my first article on Miller in 2017. Since then, the company has had a total return of 164%.

At the time of writing, Miller has an average P/B ratio of 3.6. It may change a bit before publication, but single digits is a good ratio for a growing dividend payer.

What could go wrong?

The company relies on other companies for components, particularly from other manufacturers for the chassis, which has been problematic during the pandemic.

The stock price has almost tripled in the past two years. There is a chance that investors will take profits, especially if rates are not cut as quickly as currently anticipated.

Advisory Research aside, management may not have much motivation to grow much further. They faced antitrust threats from the government years ago, and as long as the Miller family controls the company, they may not want to face that again. There is potential for growth overseas, but that business has not grown very quickly in the past. If Advisory Research is sold, the company could return to the status quo.

Conclusion

That said, Miller is growing today. The company has a solid balance sheet and has started to look more investor-friendly. The valuation looks good across three different metrics. I rate the stock a buy.