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National Presto Industries, Inc. Recommendation: Accumulate PRESENTED BY JOE NIEHAUS
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Company Overview National Presto Industries, Inc. (NPK) and its consolidated subsidiaries consists of three well diversified business segments: Housewares/ Small Appliances Defense Products Absorbent Products Market Cap: $506.6 Million Share Price 5/1/09: $73.98
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Corporate Governance Board of Directors Maryjo Cohen: Chair, President, and CEO Owns 31% of Common Stock 2008 Compensation $414,946.00 Randy Lieble: VP, Secretary, CFO, Treasurer 2008 Compensation $92,956.00 Richard Cardozo: Professor Univ. of Minnesota Patrick Quin: Chair and President Ayres Assoc. Joseph Stiensen: Accounting and Tax Advisor Headquartered and Incorporated in Wisconsin
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Segment Details: Housewares/Small Appliances 30.5% of Total Revenues ($136.8 Million) Main Customers: Wal-Mart (11%), Costco, Target Benefited from Recession Little or No Advertising Necessary Financed Acquisition of Defense and Absorbent Products Segments Risks: Consumer Discretionary, Commodity Prices, Retailer Bankruptcies (Linens & Things, Mervyns, Circuit City)
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Segment Details: Defense Products 53.3% of Total Revenues ($238.8 Million) Source of Revenues: 1 of 2 suppliers of 40mm to DOD for Dept. of Army Currently in 4 th year of 5 year DOD contract, 2009 Backlog of $265 Million, $66.9 Million awarded for 2010, Currently bidding for 2011 5 year contract Continues to streamline production and add production capabilities Risks: Revenues dependent upon the needs of the DOD 40mm Training CartridgeNon-lethal Sponge Grenade
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Segment Details: Absorbent Products 16.2% of Total Revenues ($72.7 Million) 2009 Should be first year of positive operating profit, operating loss decreased 56% for FY 2008 Capital and manufacturing upgrades implemented in 2008 US adult incontinence market to reach $2.2 Billion by 2012 & worldwide market to reach $11.2 Billion by 2015* Risks: Commodity Prices (Petroleum), Market Base Consists of Single Buyer, Competition * Global Industry Analysts
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Financials Balance Sheet (Thousands)20082007 Current Assets$299,516$303,779 Capital$66,367$70,897 Total Assets$365,883$374,676 Current Liabilities$51,889$76,775 Long Term Debt$0 Total Liabilities$55,278$80,065 Shareholders Equity$310,605$294,611 Income Statement (Thousands)2010200920082007 Net Sales$489,000 $448,227$420,716 Revenue Growth 9%7%38% Cost of Sales$399,294$368,013$344,361 Gross Profit$89,706$80,214$76,355 Selling and General Expenses$17,200$16,933$22,395 Operating Profit$72,506$63,281$53,960 Other Income$4,100$4,270$4,247 Provision for Income Taxes$26,812$23,368$19,584 Net Earnings$49,794$44,183$38,623 Earnings Growth13%14%38% Net Earnings Per Share$7.27$6.45$5.65 Dividends Per Share$5.96$5.55$4.24$3.80 Dividend Growth7%31%12%79% Payout Ratio82%86%75%93% Cash Flows (Thousands)20082007 Net Operating Cash Flows$9,026$11,619 Net Investing Cash Flows($2,528)($19,716) Net Financing Cash Flows($28,877)($25,917) Net Cash Decrease($22,379)($34,014) Beginning Cash Position$26,715$46,696 Ending Cash$4,336$12,682
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Management Effectiveness Return on Equity Year20022003200420052006200720082009 ROE3.6%6.3%6.0%7.2%10.0%13.1%14.6%15.8%* Subsidiary Sales (in thousands) Year20022003200420052006200720082009* Sales$17,697$21,498$52,796$72,578$180,226$289,449$311,413$350,000 Growth126.5%21.5%145.6%37.5%148.3%60.6%7.6%12.4% Total Purchase Price of Acquisitions 2001 through 2008: $37 Million Total Revenues of Acquisitions 2001 through 2008: $945,657 Million
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Valuation Competition: NPK operates in niche markets, no major public competition Market Cap: $506.6M / Enterprise Value: $360.7M Current P/E: 11.3, S&P 500 P/E: 14 Price to Sales (ttm): 1.09 Price to Book (mrq): 1.57 1 year discounted cash flow valuation: Anticipated 2010 Dividend: $5.96 Anticipated 2010 Price Estimated Earnings: $7.27 with a P/E of 12 = $87.24 $87.24+$5.96 = $93.20/1.11 = $83.96 $83.96-$73.98 = $9.98 $9.98/$73.98 = 13.5% HPR Future cash flows dependent on contract awards and negotiations
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Recommendation for Investment Accumulate : Start picking up shares Management’s effectiveness is most appealing Impressive growth without debt Income Generating Should benefit from any positive market momentum
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