USG – Discount to Intrinsic Value ?

USG is a manufacture and distributor of building materials. I came across the company when reading about how Berkshire Hathaway owns almost 20%. 

USG entered bankruptcy in June 2001 due in part to Asbestos claims. The company emerged from Chapter 11 in June 2006 and by December 2006 had settled all Asbestos claims by paying US$3bn into a separate fund. 

One way to look at USG is using the framework from Equity Private regarding how to frame a problem. 

1.         Present the current state of affairs. 

USG is currently undervalued (based on some high level analysis) by the market as it has recently emerged from bankruptcy and the current concern about a weak US housing market impacting earnings.

2.         Present the inefficiency embedded in the state. 

All asbestos claims have been settled. The company has spent it’s time in bankruptcy building new more efficient manufacturing operations.

3.         Explain the problem that has thus far prevented a correction of the inefficiency. 

Other investors may not be willing to look at a company with a history of bankruptcy. Perhaps lack of analyst coverage.

4.         Present the new development that now permits the correction.

The company is currently under appreciated. And over time the market will begin to look more favourably on USG.

There are a number of blog posts talking about what a good investment USG is, here are some of the better posts I have come across.

Burger’s Business, Investing and Politics

The Texas Hedge Report

Blogging Stocks

Guru focus

  • Visitors poll thinks the intrinsic value of USG is US$82 a share vs the current (9 Jul 07) share price of US$50.

I plan to post some more material about USG in the future.


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