Bel Fuse Update and Intrinsic Value Estimate
A Post Q4 Earnings Update
Bel Fuse (BELFB) reported Q4 and FY 2024 results on the 19th, and there was a lot to like. I’m providing some thoughts below and how I’m thinking about valuation and future upside.
To start, Q4 and FY 2024 results were very good, following a strong year with slight contribution from a transformative acquisition made in September of 2024.
Net sales for the year were $534mm, down from $639mm in 2023, due to a 19.7% organic decline, offset by a few months of Enercon contribution. This was to be expected as industry headwinds from distributor end customer de-stocking along with China customer issues continuing to plague Bel’s Magnetics segment haven’t yet dissipated.
Gross margins were up 400bps to 37.8% from 33.7% in 2023. This improvement in profitability is the results of momentum building in the business, cost improvements and the improved pricing measures implemented from 2021 to today.
Adjusted EBITDA of $101.9mm was down from $116.8mm during 2023, with margins for 2024 at 19.0% versus 18.3% for 2023. From here, Adjusted EBITDA should grow nicely from these levels.
These results were generated on the back of a still-less-than 100% Bel Fuse, with both Magnetics sales declines continuing (-6% YoY) and Power Solutions -17% YoY due to restrictions surrounding a Chinese supplier among other things. The important thing to note is that both segment declines have moderated, and I expect to see YoY growth for all three segments in 2025. My own estimates include revenue growing between 18-20% for the full year, including Enercon growth, putting Bel firmly back on a top line growth trajectory.
Additional Highlights
As mentioned, Bel acquired Enercon Technologies in September, which I talked about in Greystone Capital’s Q4 letter to clients, bolstering Bel’s presence in aerospace and defense, while providing growth and margin accretion.
It was announced that in May of 2025, CFO Farouq Tuweiq will transition to the President and CEO roles, replacing Daniel Bernstein who for the first time in Bel’s history, will relinquish control of the business to a non-family member.
Uma Pingali joined Bel as their first Global Head of Sales, charged with revamping the salesforce and commission structure to drive further top line growth.
Anubhav Gothi was hired as Head of Global Procurement, which is an area of focus that will help drive cost efficiencies and margin improvements
Continued factory consolidation will provide additional cost savings, on top of the already $11mm in labor / overhead savings procured by Farouq since he joined the company.
The focus now will be on integrating Enercon, growing the sales function and paying down debt. To that end, there are a number of favorable trends working in Bel’s favor.
Growth will be aided by selling into the end markets of AI, defense and aerospace, which will be the largest areas of growth for Bel in 2025.
Bel’s networking and industrial customers, faced with inventory de-stocking issues during the past two years are starting to show signs of improvement as compared to 2024. This destocking cycle of 24 months has lasted longer than previous cycles of 6-9 months, and Bel is confident that H1 2025 will show some recovery in distribution.
Magnetics is showing strong signs of recovery, with improved profitability compared to 2023, and a factory consolidation allowing for elimination of a dual cost structure means these improvements will be sticky.
SG&A was up slightly for the year on the back of the Enercon deal, but legacy Bel SG&A will remain flat, potentially providing some leverage on top line growth
Bel’s business is highly cash generative, and their balance sheet remains strong, with leverage at 2.3x post-Enercon. Debt paydown and a return to share repurchases will drive further value.
Weighing against the positives include a difficult consumer electronics end market which continues to struggle. Comps for this segment will remain weak as the US government placed trading restrictions on one of Bel’s suppliers in China, resulting in a $6mm sales headwind, impacting Power Solutions as described above. This weakness is expected to persist into Q1.
The tariff impact is unquantifiable at this stage, but still a risk. Earlier this month, a 10% tariff was placed in Chinese imports, on top of the 25% tariffs Bel was operating under previously. Today, 12-13% of Bel’s revenues ($66mm) are subject to tariffs. Mitigating this risk is Bel’s ability to pass these costs through to customers, which they don’t anticipate changing. Mexico is the same story.
Valuation
With a market cap of $1.06B and an enterprise value of $1.2B, Bel currently trades at 11.8x 2024 EV/EBITDA. While this valuation is more appropriate than the low-mid single digit multiple of the past few years, it’s hardly demanding. From a relative valuation perspective, Bel still trades at a discount to peers TE Connectivity, Littelfuse and CTS Corporation, by a few turns of EBITDA, despite higher projected revenue and EBITDA growth than each of them during the next two years. There’s also still opportunities for margin expansion, and a return to top line growth will likely bring decent incremental margins.
On pro forma numbers for full Enercon contribution, I have Bel generating over $140mm in EBITDA by 2026, lowering the valuation to 8.5x EBITDA. At 12.5x 2026E EBITDA, still below peers, Bel would be worth $125/share, 50% higher than today’s price, providing a 21% two-year IRR.
Importantly, this excludes the optionality of debt reduction, continued share buybacks, further M&A or a strong recovery in Power and Magnetics. With exception of a recovery in Power and Magnetics, everything else is in Bel’s control. Farouq has shown very strong capital allocation skills up to this point including a willingness to repurchase stock below intrinsic value.
In a blue-sky scenario, orders from distribution customers have bottomed, Magnetics and Power recover fully from China issues, aerospace, defense and AI provide solid top line growth, and efforts surrounding sales, factory consolidation, and procurement provide some margin benefits, continuing to drive EBITDA margins toward 20%. Bel then uses excess cash to de-lever and start repurchasing stock. A small $25mm repurchase could retire 2.5% of the business. Should this materialize, revenues and EBITDA could come in higher than my estimates and so could the multiple.
The good news is that Bel Fuse is not priced for growth, and any positive surprises to expectations means upside could increase further.
Adam Wilk is the Founder and Portfolio Manager of Greystone Capital Management LLC, a small cap focused investment firm.
Adam can be reached at adam@greystonevalue.com
Disclaimer: Adam Wilk and clients of Greystone Capital Management own shares of BELFB. The purpose of this post is for informational and educational purposes only and should not be construed as a recommendation to purchase or sell any security. Do your own due diligence and seek counsel from a registered investment advisor before trading in any security mentioned.