BrightView Holdings: Attractive, But Not As Attractive As It Initially Looks (NYSE:BV)

Every investor has their own area, or areas, of interest. For me though, the most interesting thing is finding a company with a unique business model that you cannot come across by looking at any other or most any other firm. So you can imagine my excitement when I stumbled across BrightView Holdings (NYSE:BV), an enterprise that specializes in providing commercial landscaping services in the US. Some investors may not view this as a particularly appealing space to plan. But the fact of the matter is that management has done well to grow revenue over the past few years. Admittedly, its bottom line results have been less than ideal. But because of how cheap shares are at this moment, I think that it makes for a decent ‘buy’ prospect to consider.

A unique player

When I think about the commercial landscaping space, the first thing that comes to mind is that it must be dominated by small local firms that have established themselves as trustworthy service providers over the years. This assessment is pretty spot on. After all, in this $83 billion market, BrightView Holdings considers itself to be the largest player. But despite this, it boasts a market share of only 2.5%. The firm claims that it is roughly 6 times larger than the next largest commercial landscape competitor in the market. In total, in 2021 at least, it was estimated that there were over 600,000 enterprises providing landscape maintenance services across the nation. Around 75% of these are classified as sole proprietors. Although this is the case, it presents a remarkable opportunity for companies to grow and consolidate operations, creating massive efficiencies as they do so.

Before we get in any further, we should touch on precisely what BrightView Holdings does for its clients and how it operates. In total, the company has a network of over 290 branches that it operates through that are spread across 34 states. Through these branches, the company runs two distinct operating segments. The first of these is the Maintenance Services segment. Based on data from 2022, this unit accounted for 75% of the company’s revenue and it provided its customers with services like landscaping, tree care, irrigation, snow removal, and more. Approximately 40% of the revenue generated by this segment comes from HOAs, while 32% comes from corporate clients and 8% comes from retailers. The other segment is referred to as Development Services. This accounts for the remaining 25% of the company’s revenue and includes landscape creation, landscape architecture, tree moving, and pool and water services.

Over the five years ending in its 2022 fiscal year, the company has done a pretty good job growing its business. Sales increased from $2.35 billion in 2018 to $2.77 billion in 2022. From 2021 to 2022, sales of the company expanded by 8.7%, with the lion’s share of the increase, totaling $123.9 million, coming from its Development Services unit. According to management, the sales increase here of 21.6% was driven by $65.2 million in revenue contributions from acquired businesses and by $58.7 million resulting from additional project volumes. Meanwhile, the 5% increase in sales associated with the Maintenance Services segment stemmed from $74.5 million in additional organic demand, combined with $53.2 million from acquired businesses. Unfortunately, sales were offset some because of a $28.6 million reduction in snow removal services because of less snowfall during the year compared to the year before.

So far, we have already established that the enterprise is growing revenue at a nice clip. As you will see later, shares of the company are also trading at very cheap levels. These two factors combined would normally make me very bullish about the firm in question. But when you look at profitability and cash flow data, the picture looks less than ideal. Between 2018 and 2022, the company generated net losses in two different years. Although the last loss was in 2020, it’s important to note that profit figures have been all over the map, ranging from a low point of negative $41.6 million in 2020 to a high point of $46.3 million in 2021. In 2022, net income totaled only $14 million. Of course, we should also pay attention to other profitability metrics. Unfortunately, these show a similar degree of volatility. Operating cash flow has shown no real trend over the past five years, bouncing around between a low point of $106.9 million and a high point of $245.1 million. In fact, from 2020 through 2022, cash flow actually declined. Even if you adjust for changes in working capital, you would see that there is no obvious trend. At least when it comes to EBITDA, you end up with a scenario where the metric has had a very narrow range between the low point and the high point totaling $33.5 million.

When it comes to 2023 as a whole, management has not provided any guidance. But they have provided guidance for the first quarter of the 2023 fiscal year. At present, sales for the quarter are forecasted to come in at between $610 million and $640 million. That would represent another year-over-year increase compared to the $591.8 million reported the same time one year earlier. This is great to see. But guidance also points to a scenario where profitability is unlikely to improve. For the quarter, EBITDA is expected to come in at between $38 million and $44 million. That compares to the $42.6 million reported in the first quarter of 2022.

Since we don’t have any expectation that 2023 will be any better from a profitability perspective than 2022 ended up being, I decided to value the company based on both 2021 and 2022 data. The results can be seen in the chart above. Using the data from 2022, for instance, the price to adjusted operating cash flow multiple would come in at 3.4. And the EV to EBITDA multiple of the company would be 6.8. As part of my analysis, I also compared the company to five similar firms. On a price to operating cash flow basis, the range for these companies was between 3.2 and 11.6. And when it comes to the EV to EBITDA approach, the range is 6.4 to 13.4. In both cases, only one of the five companies was cheaper than BrightView Holdings.

Company	Price / Operating Cash Flow	EV / EBITDA
BrightView Holdings	3.4	6.8
SP Plus (SP)	7.5	9.5
Harsco (HSC)	3.2	13.4
Heritage-Crystal Clean (HCCI)	9.0	6.4
Aris Water Solutions (ARIS)	4.2	9.8
Clean Harbors (CLH)	11.6	8.6

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Takeaway

Based on all the data provided, I must say that I continue to be impressed by the low price and continued revenue growth of BrightView Holdings. Long term, I expect this trend to continue. Having said that, I am discouraged to some degree by management’s inability to push profits and cash flows higher. This is problematic in and of itself and certainly means that shares should trade at some discount compared to what they otherwise might. Having said that, shares of the company are already very cheap on an absolute basis and are on the cheap end of the spectrum compared to similar enterprises. Because of this, I’ve decided to rate the business a soft ‘buy’ at this time.