Builders FirstSource

The company has broad scale and geographic reach in the US with a track record of innovation in its customer offering. Builders FirstSource continues to grow ahead of the market rate, mostly through market share gain with its customers.

When RIT invested, homebuilders had a material backlog of homes that were contracted and needed to be delivered. Looking over the longer term, housing is structurally undersupplied in the company’s core US market.

RIT was able to invest in Builders FirstSource at an attractive price in 2022 due to prevailing negative market sentiment on account of investor concerns around the impact of rising rates on companies exposed to the housing market. This created an opportunity for RIT to form a differentiated view on the company, based on the following:

• At the time of investment, the company was trading at a 20% free cash flow yield (meaning the company would return its entire market value in cash within five years).¹
• Even in a worst-case scenario for the housing industry, our analysis showed the company would still remain significantly free cash flow positive.¹
• On the other hand, the market discounted the possibility that the housing industry would prove to be resilient, which would lead to strong demand for Builders FirstSource’s core products in a way that was not reflected in the stock price.

We first bought shares of Builders FirstSource in the middle of 2022. Following strong performance of the shares in early 2023, we exited our position over the course of 2023, realising a +67% return on our initial investment.

¹Realised return on RIT’s Builder’s FirstSource investment, USD basis
Source: Company information, Builders FirstSource corporate information, Bloomberg