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Review of National Presto (NPK) 11/20/09 AB Analytical Services.

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Presentation on theme: "Review of National Presto (NPK) 11/20/09 AB Analytical Services."— Presentation transcript:

1 Review of National Presto (NPK) 11/20/09 AB Analytical Services

2 Summary Stock Not Covered by Wall Street Three Divisions, None Too Cyclical CEO owns 30% Annual Dividend in March – High Payout Strong Balance Sheet and FCF Generation Low Valuation


4 Profile

5 Company History Founded in 1905 (Northwestern Steel & Iron Works) HQ: Eau Claire, WI National Pressure Cooker Company (1917) 1953 – National Presto (due to diversification) History of Innovation in Home Appliances Diapers through acquisitions in 2001 and 2003 Defense through acquisition in 2001 then 2006 Litigation Battle with SEC – Victorious 5/15/07

6 3 Divisions Housewares Defense Absorbent Products

7 Housewares Approximately 31% of 2008 Sales Sourced from Asia – sold through Retail and Distributors (35% = Wal-Mart) Q4 is peak of sales (substantially) Two types of products –Cast (53%): Griddles, Wafflemakers, Hamburgers, Deep Fryers –Non-Cast/Thermal (47%): Pizza, Popcorn, Coffee Trend towards in-home food preparation offsetting typical cyclicality

8 Defense 53% of Sales in 2008 2001 acquisition (AMTEC) 2005 – 1 of 2 Prime Contractors 40mm practice and tactical ammo (5yr contract) 2003 – Spectra (Load Assemble and Pack) 2006 – Amron (cartridge cases) Fixed-Price Contracts for Army U.S. Army Contracts were $144 in 2008 (60.6% of segment)

9 Absorbent Products 16% of Sales in 2008 Entered Market in 2001 (RMED Intl) – private label primarily Diapers and adult incontinence products 2003 NCN acquisition was a dog – closed facility and quit making dog pads Segment has lost money until this year

10 Management Maryjo Cohen, 56: Chairman since 2001 and CEO since 1994, daughter of recently deceased former CEO Melvin Cohen (with company since 1976) CFO (Director) returned in late 2008, former CFO 1999- 2007 (with company >30yrs) VP Sales and VP Engineering both joined in 1971 3 Outside Directors ($30k fee earned per yr) Compensation plan consists solely of salary (and not much) – no bonuses, no stock/options CEO Succession Plan exists (no details) Auditor: BDO Seidman

11 Ownership Issues Royce owns 11.7%, Barclays and Renaissance > 5% Member S&P 600, R2000 Moderate Short-interest: 3%, 8 days Average Daily Trading – 31K ($3mm) Insiders own 30% (CEO 30% - mainly as Trustee) No options outstanding

12 Long-Term Revenue Growth

13 Income Statement GM 18% 2006-2008, 20-30% 2000-2005 GM YTD: 22% EBIT: 13-15% 2004-2008 EBIT YTD: 18% YTD sales up 9%, NI up 57% 2009 Sales %2009 Sales Growth2009 YTD OM2008 YTD OMChange Appliances26%17%16.6%9.1%7.5% Defense57%8%21.5%18.4%3.1% Diapers17%6%9.4%-2.4%11.8%

14 Balance Sheet $133mm cash Net PPE: $50mm Inventory a little high at $101mm (Finished Goods up 50% YTD, Raw Materials up 150%) AR low at $68mm LTD $0mm Total Liabilities: $55mm Equity: $314mm Tangible Equity: $302mm

15 Cashflow Statement 2008: 110% FCF conversion (4.4mm Capex and 8.8mm D&A) >100% every year since 2003 2009 YTD: FCF = 108% of NI

16 Technicals 80 was >20yr high first tested 9/08 (not far from breakout) Modest relative performance over past year Seasonal trend favorable in front of big dividend

17 Valuation

18 Forward-Looking Data Housewares (from Q3 Press Release): With an end date of October 4, the 2009 quarter contained one more strong seasonal shipping week than third quarter 2008, which ended on September 28. In addition, the heightened demand for Housewares/Small Appliances reported for both first and second quarters of 2009 continued during the third quarter. Given the high levels of unemployment and overall retail weakness, it is questionable whether the Housewares/Small Appliance sales pace enjoyed during the first three quarters of the year can be sustained during the all important fourth quarter Defense –$52mm add-on award for 2010-11(9/2009) –$67mm add-on award for 2010 (2/2009) –$34mm add-on award for 2010 (1/2009) Absorbent Announcement 9/30/09: The Company also announced that its absorbent product subsidiary, Presto Absorbent Products, Inc. recently entered a two year private label manufacturing agreement with its major customer. The agreement provides a framework for the ongoing relationship between the parties. It is anticipated that shipments to the customer during the two year contractual period will be maintained at levels comparable to current volume. The subsidiary also will continue its program to further diversify its customer base.

19 Q4 EPS??? Q4 Assumptions: –Housewares up 15%, Absorbent up 10%, Defense flat Sales of $158mm (up 10%) –OM: Houseware: 20% (-300bps v 2008), Defense 21.5%, Absorbent 10% 20% growth –EPS estimate 3.18 (full year $9.12) –Note that EPS growth was 64% Q3, 39% Q2, 73% Q1 and just 1% in Q4-08

20 $>7 Dividend in March??? EPSDividend (next year) 20021.270.9272% 20032.271.1752% 20042.261.6774% 20052.42.1288% 20064.093.893% 20075.654.2575% 20086.455.5586% 20099.12e7.30-8.0080-90%

21 2010 Projection 2009 Projected Sales 8% to 485mm 2010 By Segment –Houseware: Slows to 10% –Defense: Stays 8% –Absorbent: Just 5% –Total Sales rise 8% from 485mm to 525mm Margin Assumptions: Houseware falls from 18% to 16%, Defense falls from 21.5% to 21%, Absorbent increases from 9.6% to 11% Operating Profits Grow 4% (EPS of 9.48) Conservative Conclusion: 8% Sales Growth and 4% EPS growth

22 Sum of the Parts Analysis Housewares: 15 PE $267mm Defense: 9 PE $334mm Absorbent: 10 PE (?) $58mm Cash: 132mm $791mm/6.857 $115

23 Risks/Opportunities Risks Defense Cycle Defense Contract Loss Wal-Mart is 11% Customer Medline 12% for Absorbents (2yr contract) Input costs / transportation costs No forward guidance provided, no conference calls either Management Depth??? Opportunities Defense contracts give stability Continued profitability improvement in absorbents Acquisitions

24 Conclusion Limited downside – big dividend ahead (>$7) Stock Trades at 10PE before consideration of cash of $20 per share Seems to compensate for CEO reliance Businesses are not very cyclical

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