26 May 2014

Summary company financials ($m)

Year end December FY2011 FY2012 FY2013 FY2014E
Price $16.05 Revenue 1,779.1 1,650.5 1,758.5 1,824.1
Market cap ($m) 340.7 7.3% -7.2% 6.5% 3.7%
Enterprise value ($m) 679.3 EBITDA 130.9 115.4 118.0 120.5
7.4% 7.0% 6.7% 6.6%
Free float 100% Net income (excl exc.) 55.1 50.2 48.6 52.2
Net debt (cash) 254.0 375.6 369.7 338.7
Shares outstanding 21.1 21.1 21.2 21.2
Dividends paid 0.0 -160.0 -1.6 -3.2
(pre-IPO)
EV/Sales 0.41 0.37
EV/EBITDA 5.8 5.6
P / E (excluding exceptionals relating to IPO) 7.0 6.5
Price / net cashflow 8.4
Global Brass and Copper
Holdings, Inc.
Revenue growth
EBITDA margin
Global Brass & Copper Holdings Inc "GBC" is the leading value-added converter, fabricator, distributor and processor of specialised copper
products in North America, serving end markets of building and housing (28% of sales), munitions (24% of sales), automotive (17% of sales),
coinage (11% of sales) and electrial components (8% of sales). Products are sold from GBC's three divisional units Olin Brass, Chase Brass and
AJ Oster, each of which has been in operation for more than 50 years. GBC employs 2,037 people and operates 11 manufacturing facilities and
distribution centres (8 owned) across North America. GBC has a market capitalisation of $320m and an enterprise value of 659m.

GBC enjoys North American market shares of between 35-48% across its respective segments and offers more than double the range of
products as its closest competitor, according to the company. GBC achieved a 21% post-tax return on invested capital in FY2013 (note ROIC
drops to 11.1% when we mark up fixed assets to historic cost). GBC's tangible assets were historically held on prior owner Olin Corp's balance
sheet at $739m, relative to GBC's current $527m book value of fixed assets and enterprise value of $659m. GBC's assets were written down as
a result of the accounting treatment of the "bargain purchase event" of the business units by KPS Capital Partners in 2007 for $400m.

The potential exists for GBC's economics to improve from current levels. North American copper market volumes remain down 15% since their
2008 peak, and GBC is currently operating at capacity utilisation rates of 55-65%, according to the company. GBC's more recent volumes, up
3% 2011-2013, may continue to rise due to the company's exposure to the recovery in housing and automotive end markets, as well as more
specific potential revenue catalysts such as potential action by the US government to replace $1 bills with $1 coins. GBC trades at 6.1x PE
2014E, and 7.9x Price / Net cashflow 2014E (earnings exceed cashflow as GBC has an artificially low depreciation charge relating the historic
acquisition of its fixed assets below cost). The valuation represents a 33% Enterprise Value discount, and 72% Equity discount, to its direct
comp set based on EBITDA multiples, according to our analysis. There also exists a potential catalyst to GBC's earnings from refinancing its
senior secured debt, an event likely in 2016, according to management.

Unlike other metals companies, GBC does not attempt to generate profits from fluctuations in metal prices. Instead, the company uses a
balanced book approach to pricing, which matches the timing quantity and price of future metal sales with purchases to maximise the
financial impact of metal price movements on margins. This approach has enabled GBC to achieve more stable margins than the underlying
copper price volatility. Between 2008-2013, GBC's adjusted sales per pound (a proxy for net value added revenues, rather than gross sales)
showed peak-to-trough variation of 18%, relative to GBC's gross sales per pound shipped varying by 35% over the same period.

The acquisition of the GBC assets from Olin Corp in 2007 commenced a period of transformation of the business under KPS Capital Partners. A
new business strategy and cost structure was implemented which increased the profitability of the business, from a 2008 consolidated
adjusted EBITDA of $59.9m to a equivalent figure in 2013 of $118.0m. The improvement occured despite an 18% reduction in copper volume
coincident with the housing and automotive markets downturn over the same period. The profit improvement appears to have been driven by
a reduction in staff numbers from 3,000 to 2,000 employees, rationalisation of product offerings, and the absence of defined benefit pension
or retiree healthcare obligations which remained with Olin Corp. Additionally, GBC has shown success over the period at raising prices, as
evidenced in a 20% increase in GBC's adjusted sales per pound from 2008-2013. KPS Capital Partners, the sole stockholder of the company
prior to the May 2013 IPO, has now sold all of its shares in the company through the IPO and two secondary offerings. The average exit price
of KPS was $14.32 a share, compared to GBC's share price today of $15.09.

There may be further opportunity to reduce cost, according to our analysis. GBC still operates from 3 leased head offices, and combining the
offices would not only save on rent expense but also lead to a closer collaboration between the divisional management teams - it's 1,236 miles
between the three offices. GBC management have also disclosed that they are in the second full year of a 4-5 year comprehensive total
preventative maintennance program, which has and will continue to improve equipment reliability and therefore operational KPIs.

There additionally exists potential for revenue growth at GBC primarily because its sales mix offers exposure to recovering volumes in the
building and automotive markets, which combined represent 45% of GBC's revenue. Also, within the higher growth automotive sub-sector of
electric vehicles, a key supply component for companies such as Tesla is the copper rotor induction motor ("CRIM"). A further 20% of GBC's
revenue comes from the munitions market, which whilst exposes the company to regulatory uncertainty and government budgetary
constraints, offers contractual stability as GBC has in 2013 signed a new 10 year contract with government munitions supplier ATK, revenues
from which will represent just over half GBC's total munitions revenue.

An additional revenue growth opportunity comes from GBC's coinage division, from which the company derives c. 11% of group revenue, and
which has a longstanding relationship with the US Mint, with a new 5 year contract signed 2013. An opportunity to increase volumes in GBC's
coinage business exists if the COINS Act is implemented to modernise the US currency system by transitioning fully from a $1 note to a $1
coin. Although it is uncertain when or if a transition to the $1 coin will be implemented by the government, such a transition will result in the
need for around 9 billion dollar coins to be produced, a quantity which would result in an uplift of up to 20% in GBC's total volumes, assuming
GBC was mandated to provide half of the coins, according to our analysis.

GBC was mandated to provide half of the coins, according to our analysis.

Further specific revenue growth opportunities exist in two areas: Firstly, the Reduction of Lead in Drinking Water Act requires the reduction of
lead content in all drinking water plumbing devices beginning in January 2014. This is likely to result in increased demand for copper products
in plumbing devices. Secondly, The EPA recently recognised that copper is inherently capable of neutralising potentially harmful viruses and
bacteria and began accepting registrations of copper alloys with anti-microbial properties. GBC is positioned to become a leader in
commercialising anti-microbial copper products through its CuVerro anti-microbial product line.

GBC has the opportunity to refinance its $375m 9.5% coupon senior debt in 2016 when the non-call period expires. The debt currently trades
at c. $115, or a 6% yield-to-maturity. Assuming GBC can refinance its debt in 2016 from current 9.5% coupon to a 6.5% coupon, this would
offer a $16m per annum interest saving, an equivalent 30% uplift to GBC's estimated 2014 net income.

In addition to the debt refinancing, GBC management has also stated a secondary priority to pursue accretive acquisitions, given the North
American copper and brass distribution industry includes numerous small, regional players.

In summary, GBC is North America's dominant producer, distributor and processor of specialised copper products with market shares between
35-48%. GBC is achieving 21% post-tax ROIC and its equity trades at a single digit earnings multiple and at an enterprise value almost $100m
less than the $739m historical book cost of GBC's assets. Whilst no company is currently constructing a new competitor to GBC, the cost to do
so may be upwards of $1bn, given the new equipment that would need to be purchased compared to GBC's $739m historical book value that
represents a depreciated figure. We would see it unlikely that an investor would back such a new build project - as assuming the newco
equalled GBC's c. FY2014E $50m net income, the 20 year payback on the investment would not appear attractive relative to the risk involved.

GBC's revenues may see increased growth from both continuing recovery in the housing and automotive markets, but also from catalyst
driven events such as if the COINS Act is implemented to modernise the US currency system by transitioning fully from a $1 note to a $1 coin.
Revenue growth is likely to be acheiveable at low additional capex given GBC currently operates at 55-65% capacity utilisation. Additionally,
GBC has the opportunity to refinance its senior debt in 2016, offering 30% earnings uplift potential should the company achieve the same
pricing on new debt securities as its current debt trades at on a yield-to-maturity basis.